Corporate Economic Crime

Dominic Raab Excerpts

Tuesday 3rd November 2015 Westminster Hall

[The Parliamentary Under-Secretary of State for Justice (Mr Dominic Raab)]

I am grateful for your advice, Mr Stringer, and it is a great pleasure to serve under your chairmanship. At the outset, I should say on behalf of the Solicitor General that he is caught up in the Immigration Bill Committee, and although I understand the chagrin about that of the shadow Justice Minister, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), my hon. and learned Friend is attending to important business there.

I pay tribute to the hon. Member for Ealing North (Stephen Pound) for securing the debate and for delivering a tenacious, eloquent speech in his usual fashion. He made some excellent points. I fear that he may have rather lost me at Arthur Scargill, even if other Opposition Members were rather more enthused, but none the less, he made some very important points. I also formally recognise the important contributions from the hon. Members for Neath (Christina Rees), for Aberavon (Stephen Kinnock), for Dumfries and Galloway (Richard Arkless), for Edmonton (Kate Osamor) and from the shadow Justice Minister.

I think that we all agree that the prosecution of corporate economic crime is vital and can be complex. We have heard about some of the challenges this morning and there are others, but there are opportunities, too, and we should be mindful of seizing them as best we can. One issue has been the identification principle, which applies in many instances of economic crime and sets a clear bar that must be met before a corporate can be found criminally liable. Technical challenges around the disclosure of material, for example, can also be very significant, not least given the huge volumes of material that need to be sifted and potentially disclosed in many of these cases.

Much has been made of section 7 of the Bribery Act, which makes it an offence for corporates to fail to prevent bribery in certain circumstances. As important as that provision and model is, I did rather feel that hon. Members have pinned a huge amount of confidence—I would not say blind faith—in a model and provision which has not yet secured any convictions, although I appreciate that it was authored under a previous Government. To be clear—I am not saying that the hon. Member for Neath was suggesting this—I do not think that anyone seriously blames the Government for failing to enforce that. Prosecutions in this country are rightly independent from Government interference and we want to see full use made of the measure. I just say—the hon. Member for Ealing North will perhaps want to address this point—that Opposition Members have pinned rather a lot on a measure that has not yet delivered a prosecution, much as we wish it will in the near future.

[Stephen Pound]

I entirely agree with the Minister’s point, but there has, in fact, been one self-referred case under section 7 of the Bribery Act. It took place in Scotland and I am not entirely sure how the jurisdiction applies, but it was a self-referred case using precisely that template.

[Mr Raab]

I am grateful for that intervention. I stand better informed than I was before, but obviously I cannot comment on individual prosecutions or cases until they are in a position to conclude.

Much has been made of the Conservative manifesto commitment, rather caricaturing the nature of what was very clearly stated and ignoring the fact that we are specifically further considering legislation relating to tax evasion. As hon. Members will know, but this is an opportunity to remind them, the consultation on that closed on 8 October. I am sure that further announcements will be made in due course.

The shadow Justice Minister made some of her most powerful points on deferred prosecution agreements, which were introduced in the last Parliament and represent a significant opportunity for prosecutors to take action. I think that they rather refute the suggestion that this Government have been either lax or demonstrating inertia in trying to develop the tools we need to deliver convictions and accountability in this area.

It is also worth saying that, as a basic principle, we should try to exercise existing law enforcement powers to the full before we go back to Parliament and ask for more. I fear that it was rather the epitaph of the previous Labour Government to legislate hyperactively and leave the statute book littered with offences that were not really ever used in practice, so I make no apology for saying that we really ought to be crafting criminal legislation on the statute book that will deliver convictions in practice.

The hon. Member for Aberavon, who unfortunately is no longer in his place, made an interesting speech. He widened the debate to talk about systemic risk, which is an important point, and expressed some of the concerns about the 2007-08 financial crisis that are understandably still feeding calls for further action to be taken now. In that context, I highlight the action that has been taken on the banks by the coalition Government and this Conservative Government in relation to capital ratios, the bank levy and regulating to ensure proper separation between the investment and retail arms of banks. He was absolutely right to make that point, but the whole system of regulation on systemic risk looks fundamentally different today from when the Labour Government left office in 2010.

Going back to the identification principle, we have heard that the law on corporate and criminal liability has that very much at its heart. The identification principle means that a corporate is criminally liable only if a person who is its controlling mind and will is criminally liable. In most cases, there will be liability only if a director is criminally liable. Hon. Members made perfectly reasonable points about that and about the related difficulties and challenges. Many other assertions were made about the state of the current law, such as that the evidential threshold is too high and that it makes it easier to prosecute smaller businesses than larger corporates and particularly difficult to prosecute large and complex multinational corporations. Those are all valid points, rather inherent, though, in trying to regulate and enforce offences in this sector. We certainly do not want small businesses to be hammered while the big ones get off scot-free. That is absolutely the wrong approach and one that we are mindful of the need to avoid.

Other points made about the current state of the law are that it can result in corporates escaping prosecution where there is criminal wrongdoing on behalf of a corporate and the corporate benefits; it does not do enough to deter economic crime in the UK or to promote good corporate governance; and it puts UK prosecutors at a disadvantage compared with some law enforcement agencies overseas where the attribution of corporate criminal liability does not have such a high threshold. The hon. Member for Ealing North made the point about the United States very well. Some have called for a much broader vicarious liability for companies, closer to the US model.

I recognise the point that a different approach, combined with the DPAs introduced in 2013, could have a powerful impact. We need to consider the criminal legal basis along with the prosecutorial tools. That combination is the key to getting more convictions and plea bargains under the DPA arrangements. Notwithstanding the common desire for accountability and convictions, we need to take half a step back and acknowledge the need to be careful to guard the basic principles of justice that we all, at least notionally and rhetorically, hold dear—the presumption of innocence and the burden of proof—and ensure that we have a focused, targeted law enforcement system.

The Bribery Act 2010 contains the much-discussed new offence of failure to prevent bribery by a person associated with the company, which allows prosecutions of corporates for failure to prevent bribery in cases in which the identification principle threshold could not be reached. There have been suggestions for further change by extending the Bribery Act model to other areas. Under that legislation, a commercial organisation is guilty of an offence if a person associated with it bribes another person while intending either to obtain or retain business for the organisation, or to obtain or retain an advantage in the conduct of its business. The legislation sets out that it is a defence for the organisation to prove that it had in place adequate procedures designed to prevent people from undertaking such conduct. That is the balance struck.

The legislation relates specifically to bribery—a very serious economic crime—and is designed to encourage more responsible corporate behaviour. Extending section 7 as some have suggested could criminalise commercial organisations that fail to prevent other types of economic crime, including fraud and tax evasion; I am sure that hon. Members can think of other examples. Some people have urged the Government to go even further and advocated a more dramatic change, calling for legislation to create an offence of vicarious liability. That would be far more like the US model.

As I think was mentioned, the Government published last December the “UK Anti-Corruption Plan”, which included the commitment to consider the case for a new offence of a corporate failing to prevent economic crime. Much has been made of the statement made on 28 September by the Under-Secretary of State for Justice, my hon. Friend the Member for South West Bedfordshire (Andrew Selous), that we will not be carrying out further work on this specific point at least at this time. It is important to understand the reasons for that. Again, they have been rather caricatured, although not intentionally; I would not say that.

The reasons for not taking the work forward at this stage are as follows. First, the UK has corporate criminal liability and commercial organisations can be and are being prosecuted for wrongdoing. Secondly, as I have mentioned, there have been no prosecutions under the Bribery Act offence, so it is not as though we have a huge amount of concrete practice to learn from—in fairness, that point was also made by the hon. Member for Neath. Thirdly, as a result of that and the information and evidence that we get as we look at whether the case is made for new offences, there is little concrete and specific evidence of the wider corporate economic wrongdoing that we should now target that is currently not unlawful and could reasonably be caught by a proposed new offence. If hon. Members want to tell me about a specific area and tailored offence, I will be all ears.

[Catherine McKinnell]

It does not sound as though the Minister will go on to explain how he intends the Government to live up to their manifesto pledge. He indicated earlier that it was in relation to tax evasion only, but the Government did in their manifesto state:

“We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to…deter.”

If the Minister explains how the Government will fulfil that manifesto pledge, that will give hon. Members reassurance today.

[Mr Raab]

I thank the shadow Minister for her intervention. She has not come up with a specific offence beyond tax evasion.

[Catherine McKinnell]

rose—

[Mr Raab]

I will not give way again at this point, but perhaps I will shortly.

The hon. Lady referred to the manifesto commitment, which specifically cites tax evasion. I will go on to say a little about that. I thought that one of the best points in her original speech was about the intelligence gap. That feeds the point that I have been making that we should not confuse the difficulties or challenges that we have in enforcing, which is what the intelligence gap is all about, with the breadth of the criminal base that we have on the statute books. That is a very important distinction, which she made rather well.

The bottom line is that there is no point in legislating for the sake of it. The hit and hope approach does not do any good; in fact, it feeds public mistrust. Frankly, we saw far too much of that under the Labour Government. I want to know that when we legislate we are putting in place a model, a criminal offence on the statute book, that will deliver prosecutions, convictions and the wider deterrent effect that we all want.

[Richard Arkless]

The Minister uses the vivid phrase “hit and hope” and has given three reasons why the Government will not pursue the position in their manifesto. I ask this very simple question: were those three reasons not prevalent before the manifesto was written?

[Mr Raab]

We are taking forward the manifesto commitment. We have an ongoing consultation on tax evasion and, if the hon. Gentleman bears with me, I will come on to it. The other point made in the manifesto commitment is about the need to punish and deter. That is not just about legislation; it is about the enforcement regime. Over the years, hon. Members have been far too willing just to nod legislation through without thinking properly about how it will be enforced in a targeted and effective way.

Having said all that, I can give examples of very good outcomes, including in the high-end serious and complex cases dealt with by the Serious Fraud Office, which emerge from within the existing legislation and even pre-Bribery Act in some instances. There are other outcomes aside from criminal prosecutions. Deferred prosecution agreements are a further and significant tool. Civil recovery orders are an option.

The SFO cases involving prosecution or substantial civil recovery orders for a corporate have included the cases of AMEC, BAE, Innospec and Macmillan. Fines and civil recovery orders for more than £40 million were issued in SFO cases between 2008 and 2012. Nearly £30 million was paid by BAE to the people of Tanzania, following a settlement with the SFO and the US Department of Justice. More recently, last year, the SFO completed the Innospec and Smith & Ouzman prosecutions, both of which resulted in the conviction of the corporate as well as senior officials in relation to foreign bribery. And the SFO had its first prosecutions under the Bribery Act—they were associated with a biofuel fraud—albeit not under section 7.

The director of the SFO has said that there are current cases that may prove suitable for prosecutions under section 7 of the Bribery Act. Hon. Members will appreciate that I cannot go into too much detail on things that are subject to either a pending prosecutorial decision or investigation. The Crown Prosecution Service and Her Majesty’s Revenue and Customs have had important successes, too, and some have also been very high-profile.

On tax avoidance, HMRC is responsible for policing the tax and excise laws. It has a range of tools and powers to secure compliance, including the power to conduct criminal investigations in appropriate cases in line with HMRC’s criminal investigation policy. Since 2010, HMRC has increased the number of criminal investigations leading to prosecution by 500%. That is a very clear example of where we have managed not only to have the legislation in place but to deliver a quantum leap in successful law enforcement. I am sure hon. Members from all parts of the House agree that that is what we should be aiming for.

Marketed tax evasion schemes have been one strand of priority work for HMRC during this period, and the CPS has brought a number of complex prosecutions against individuals. There are a number of high-profile examples, including Vantis and cases relating to the film industry. I have acknowledged the suggestions that have been made about extending the remit of section 7. Although Ministers have decided to halt that work for the time being, the criminal law is always monitored and if any clear and well evidenced difficulties come to light on which we can take targeted action, we will, of course, do so.

A proposed new offence of failing to prevent the facilitation of tax evasion, whether onshore or offshore, was the subject of public consultation by HMRC between July and October this year. The consultation closed on 8 October, and the Government are considering the responses. That clearly falls within the area of the manifesto commitment that Opposition Members have enjoyed citing. That work is ongoing.

Deferred prosecution agreements, which became available on 24 February 2014, are one of the critical law enforcement tools that the Government have brought into being. To date, no DPAs have been concluded, but I am aware that a number of cases in the pipeline may yield DPAs. Under a DPA, a prosecutor charges a company with a criminal offence, but proceedings are automatically suspended. The regime has been designed carefully and we consulted on all its aspects. There are important safeguards in place, which is why we need to be a bit careful about the rather gung-ho suggestion that we should follow the American approach lock, stock and barrel. If we did so, concerns would be raised by Members on both sides of the House about the lack of safeguards in place.

[Catherine McKinnell]

I agree with the Minister that a gung-ho approach should never be taken to any of those matters, but does he acknowledge that significant concerns have been raised about the DPA tool not being as effective as it could be, while it remains so difficult to bring prosecutions against corporations, because the identification principle has set the bar for prosecution so high?

[Mr Raab]

The hon. Lady is absolutely right to say that the combination of the law enforcement tool—in this case, the DPA—and the criminal base will be the key to securing convictions. We will constantly look to fine tune and sharpen up that double act of legislation and law enforcement. If she has any suggestions about how that can be done in a sensible way, I will consider them. I am not sure that the extension of section 7 more broadly and exponentially will be the panacea that she is looking for, but if she can come up with specific, tailored and targeted areas in which that might be the case, I will consider them.

[Catherine McKinnell]

Will the Minister give way?

[Mr Raab]

I will give way shortly, but I want to make a little bit of progress, because I am mindful of your advice about timing, Mr Stringer. I want to talk briefly about the code of practice for DPAs that the director of the SFO and the DPP issued on 14 February 2014. That followed the consultation, and I am sure that the hon. Lady made her views known at the time. Prosecutors should have regard to the DPA code when they negotiate a DPA, when they apply to the court for approval of a DPA and when they oversee a DPA after it has been approved by the court. A DPA can be appropriate where the public interest would not be best served by entering into a prosecution. Entering into a DPA will be a transparent event, and the process will be supervised by a judge. That is important, because even if a DPA is in place, we want justice to be seen to be done as well as to be done.

I recognise that some organisations and others have raised concerns about the amount of information that will be available about DPAs as they are being negotiated. Letters of invitation to a company to enter into a DPA negotiation are confidential, for understandable reasons. The code of practice for prosecutors explicitly states that the letter of invitation to a company to enter into negotiations should make an undertaking in respect of confidentiality about the fact that DPA negotiations are taking place. Negotiations are, and need to be, confidential in the early stages to encourage co-operation on the part of the corporate. Any DPA that is agreed will be publicly announced, and that will provide transparency and accountability. As soon as a DPA is approved, the court must make a declaration to that effect, along with reasons, in open hearing. Unless it is prevented from doing so by an enactment or order of the court, the prosecutor will be expected to publish the DPA on its website.

I hope that hon. Members will agree that there is much to be positive about. Good results are being achieved in cases across the prosecuting authorities. We are giving active consideration to further changes where there is evidence that they are warranted, particularly in relation to tax evasion, but we remain open-minded if a case can be made broadly from a specific evidence base.

Outcomes other than prosecution should be acknowledged and welcomed. It may not always be in the public interest for a company to be prosecuted, and that is one of the considerations that led to the DPA regime. The director of the SFO, David Green CB QC, has said that he expects the first DPAs to conclude this year. I know that hon. Members will join me in looking forward to seeing the first successful outcomes. We are seeing a step change in the law enforcement model and the vigour with which it has been applied since 2010. The tax gap was reduced to record levels in 2014. The SFO’s asset recovery against serious criminals has been expanded; in 2014-15, 26.5 million financial orders were made. Since 2010, HMRC has increased the number of tax evasion criminal investigations leading to prosecution by 500%, as I have said, and we also have the DPAs. A huge amount of action is being taken. I am grateful for the contributions of hon. Members from across the House today.