Jail time for directors of companies failing to prevent fraud?


It is reported that MPs intend to table an amendment to the Economic Crime and Corporate Transparency Bill ("the Bill") to include criminal liability for directors in circumstances where there have been failures in fraud prevention. 

The Bill, introduced to parliament in late September, contains proposed reforms aimed at tackling economic crime and increasing corporate transparency. Amongst the provisions is the requirement for identity verification by Companies House for directors and beneficial owners as well as additional powers for the registrar to share information on suspected money laundering and reject filed document with inaccuracies. 

The Bill has, however, been criticised by MPs and campaigners for failing to go far enough. By way of example, in our recent article we considered proposals contained in the R3 Association's report 'Insolvency and the fight against fraud' which described the Government's proposed reforms as merely a "partial solution" and made numerous recommendations for tackling fraudulent activity.

At the Bill's second reading in the House of Commons last week, MPs critical of the Bill voiced their concerns. This included the perceived need to provide for additional offences to hold corporate executives to account. It is feared that fines issued to companies would simply be treated as a cost of doing business and that meaningful change would require individuals to be held accountable. Proposed amendments to the Bill are likely to include senior executives and directors facing personal liability for corporate failures to prevent fraud through appropriate due diligence processes. Indeed, some have called for the Bill to allow for the criminal prosecution of directors.

Next for the Bill is the committee stage, at which it will be subject to more detailed scrutiny and proposed amendments can be considered. The first sitting of the Public Bill Committee is expected to be on Tuesday 25 October and the Committee has called for written evidence from those with relevant experience and expertise.

featured image