Financial Services Bill (Third sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[The Chair]

It might be helpful for colleagues and our witness to say that we have 18 minutes left and three people who want to ask questions, so people might want to be mindful of that.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

Q I want to go back to what Mr McFadden and Mr Flynn talked about, particularly regarding this Bill, so that I have a better understanding. One of the things I am concerned about is that there seems to be more of an onus on punishing the individuals, in comparison to the companies. Earlier in your comments, when questioned about creating corporate and not individual offence, you mentioned holding a company to account, and that, to an extent, that can be done by holding the individuals to account. However, there have been concerns about holding senior executives to account, particularly with Barclays and Tesco. Do you have any direct recommendations that can strengthen the Bill so that it can hold companies to greater account so that we do not have that loophole where individuals are held responsible for this?

Dr Hawley: We actually have two suggestions. One is to introduce a “failure to prevent” offence for individuals, where, effectively, you are in a senior position and this happens on your watch. That is one way of doing it. The other way is to do what happens with the Competition and Markets Authority, where the court has the power to disqualify a director where there is a corporate offence. That is something that was put down in an amendment to the sanctions and money laundering regulations. Those are two legislative options—one of them a bit more radical than the other. The Competition and Markets Authority one is already there in law; it is just a matter of making it effective for these particular economic crimes.

We also think that there needs to be some more blue-skies thinking about whether, when there is a deferred prosecution agreement, companies should be required to claw back some of the money from the senior executives who were running the company when the wrongdoing occurred, because it is unfair that they get to move on, often with huge financial benefits. We saw that with the recent Airbus case—the director left with a massive golden handshake, and then the company and shareholders were left to pick up the fine. I think there is a way to make how the corporate fine is shared fairer. There are quite a lot of potential ways to do it, and we would be happy to provide a paper on that before 3 December, if it would be useful to the Committee.

[Abena Oppong-Asare]

Q That would be helpful. The Bill also increases the maximum sentence for criminal market abuse from seven to 10 years, in line with comparable economic crimes. Do you think that is a strong enough incentive to prevent offences? Is that something you have come across, with crimes going on for some period of time? Do you feel that the maximum sentence will deter that?

Dr Hawley: It is welcome that it has increased. Higher sentences are important, as we see in the US—there are higher sentences for white-collar crime, and people actually go down. To be honest, it is also about enforcement. Actually, quite a few prosecutions for a certain level are better than very few for a high level. It all comes down to regular enforcement, which is something that we very much hope there will be greater thinking about—enforcement resourcing for any of the laws that will be put in place.

[Abena Oppong-Asare]

Q Thank you. I have a final question, which is about your report. I know that my right hon. Friend the Member for Wolverhampton South East asked you a question about the prospect of smaller companies being at a higher risk of fines, which you said you were concerned about. Is there anything specific that could be put into the Bill to help ensure that does not happen? You mentioned earlier that it is easier for smaller companies to be prosecuted, because it is easier to identify the people involved. That seems like a massive and unfair disadvantage for smaller businesses. I am worried that if we do not address this issue, smaller businesses will be prosecuted whereas, effectively, larger companies will not. Do you have specific recommendations that could be looked into?

Dr Hawley: The basic and essential one is that if you introduce a “failure to prevent” economic crime, it immediately covers that gap; it immediately brings larger companies into the reach of prosecutors for economic crimes. We still think the Law Commission will need to look at how the identification doctrine still applies and carries on creating unfairness, even after you have introduced a “failure to prevent” offence, but it would be an immediate stopgap that would stop that happening. I cannot think of any other way of doing that.

[Abena Oppong-Asare]

Thank you.

[Julie Marson (Hertford and Stortford) (Con)]

Q Thank you for your evidence, Susan. I think we all agree that it is such an important area, and your evidence is really interesting.

I was looking at some of the specialist fraud and financial crime law firms’ response to the Law Commission’s review, particularly how it relates to the “failure to prevent” suggestion. They have called the Government’s desire to look at that in the round a very measured approach, and they have pointed to the fact that there have been lots of developments in regulatory and legal environments since the call for evidence. They have said that, actually, the best approach is probably to wait and see—to review, and to look at the entire issue in the round. Given the complexity and the cost to business, what is your response to that?

Dr Hawley: What has happened since the call for evidence closed is the Barclays judgment. We have also had a judgment in the Serco case, in which Serco was involved in procurement fraud against the MOJ, and it could not be the party to a deferred prosecution agreement—only its subsidiary could—because of these corporate liability rules. How it fits with the regulatory system is a really important question. As you will have seen from our evidence, we think that can be really properly thought through and hammered out at the guidance stage to the “failure to prevent” offence. That is where you would have a really good discussion with the private sector, bringing them in to show how you make those parts fit together.

I would like to add that on the regulatory side, as I mentioned earlier, we are seeing a worrying decline in the number of fines imposed by some of the regulatory bodies, for instance in the money laundering space. Creating a criminal offence—it is important to note that it is not a new criminal offence, but a different way of holding people to account for the same criminal offence—would open up a broader range of people who might bring action against a company. We have seen criticism in the paper, including from some of the law firms, about a lack of action by the Financial Conduct Authority on money laundering regulations, very few investigations and no prosecutions of corporates. If it were a criminal offence, companies might be looking at investigations by the SFO, which would really make them sit up.

I think it is about deterrence and how you ensure that compliance with the regulations is not just a box-ticking exercise, which is the risk if you take only a regulatory approach. What is really interesting about the responses to the Government’s call for evidence is that the vast majority of respondents do not think that where a serious crime occurs, a regulatory approach is appropriate; there need to be criminal approaches. I was really struck by how common that was. I think there is some urgency, if I am honest, particularly in relation to the UK falling behind emerging standards elsewhere, but also with the problem of inequality before the law, which I think could become really heightened when the response to the covid crisis plays out. You might get quite a lot of resentment when large actors are seen as getting away with it.