Corporate Economic Crime

Debate between Catherine McKinnell and Stephen Kinnock

Tuesday 3rd November 2015 Westminster Hall

[Catherine McKinnell]

My hon. Friend makes an important point that goes to the heart of the argument. My hon. Friend the Member for Aberavon argued cogently that, ultimately, we need a better way of establishing responsibility for the actions of a company and those who serve within it. It is not enough for those at the top to wash their hands of responsibility for the actions of the officers and employees who operate, act and work under the company’s name.

There needs to be much greater clarity about the legal framework. Many bodies, including the Law Commission, have called for that. What is even more key is that the Government seem to share that view. In a consultation undertaken in July 2015 on the introduction of a new corporate offence of failure to prevent tax evasion, the Government concluded:

“Under the existing law it can be extremely difficult to hold the corporations to account for the criminal actions of their agents”.

That observation has been made by the Government and Ministers on several occasions, as well as by my hon. Friends in their contributions today.

The Law Commission, the OECD working group and the director of the Serious Fraud Office point to section 7 of Labour’s Bribery Act as a potential solution. As my hon. Friend the Member for Ealing North set out in his speech, section 7 of the Bribery Act makes it an offence to fail to prevent bribery. It places the onus on companies to prove that they have put in place adequate procedures to prevent bribery and is widely seen as a far more effective way of holding companies and the individuals within them to account, which is why many want to see that model extended to other types of economic crime.

[Stephen Kinnock]

We have talked a lot about accountability and trust today, but another important word here is “risk”. We saw in the events leading up to 2008 and the collapse of Lehman Brothers a systemic failure to manage risk. It is in the interests of both Government and the private sector more broadly—the real economy and the financial services sector—to put systemic measures in place to manage risk in a way that ensures the appalling events in and following 2008 never happen again. Some regulation of the market is therefore, by definition, required as a risk management tool. Does my hon. Friend agree?

[Catherine McKinnell]

My hon. Friend makes an important point and anticipates my next point. First, I want to clarify exactly where the Government seem to be on this issue.

The Government’s recent announcement has caused much confusion among those who care about this issue, because it seems to be very much at odds with what they have been saying and the messages and signals they have been sending out. In his first speech as Attorney General over a year ago, the right hon. and learned Member for Kenilworth and Southam (Jeremy Wright) suggested that he was considering the section 7 proposal. We then discovered, in an answer to a written parliamentary question, that it had been dropped. We need clarity from the Minister today about exactly why that decision was made and what the Government will do to ensure that our concerns are addressed if they are not proceeding with that proposal.

The director of the Serious Fraud Office, David Green, has made clear his support for the expansion of section 7 of the Bribery Act. He has described how useful it would be to better facilitate the use of deferred prosecution agreements. My hon. Friend the Member for Neath (Christina Rees) set out eloquently how deferred prosecution agreements work and their potential importance in dealing with some of the issues that have been highlighted. It is no secret that the Serious Fraud Office director favours the use of DPAs, which are currently more widely used in the United States. To clarify, they provide for a corporation to avoid prosecution by entering into an agreement with a number of conditions attached, which may include paying a financial penalty, paying compensation or co-operating with future prosecutions of individuals. In doing so, they avoid prosecution. The aim is to hold key individuals to account, to secure significant financial penalties from companies that have committed wrongdoing and, ultimately, to prevent future wrongdoing by encouraging or mandating reforms within those companies.

Deferred prosecution agreements are not without their critics, but they have been widely used in the US for the past 20 years or so and brought in some $4.2 billion to the Department of Justice in 2014 alone. One key problem with importing the use of DPAs to the UK is that they are intended to be a carrot, while the stick is the prospect of prosecution for corporate economic offences.