Ministers are planning to exclude small UK businesses from anti-fraud legislation by narrowing the scope of a criminal offence targeting companies who fail to prevent economic crimes.
MPs and anti-corruption campaigners had hoped the government would seek to amend the economic crime and corporate transparency bill to ensure all companies were covered by the new offence.
But one Home Office official said the proposed change would only apply to larger companies “to avoid burdening smaller businesses”. Another person familiar with the discussions confirmed the amendment to the bill, which is going through parliament, was expected to include the exemption.
The department is also discussing restricting the new “failure to prevent” offence to fraud, while excluding money laundering and false accounting, according to two people close to the discussions. Security minister Tom Tugendhat had earlier this year left campaigners hopeful of broader changes to the bill.
Supporters of tougher measures expressed dismay at the limit of the new provisions. Sir Robert Buckland, a Conservative MP and former Lord Chancellor, said the exemption for small businesses sounded “fraught with definitional difficulties”.
Scottish National party MP Alison Thewliss said there had been cases where people wanting to circumvent the law had used smaller businesses and accountancy firms in preference to larger, better-regulated ones. “Any exemptions or carve-outs to this important legislation will simply allow criminals to continue their lucrative trade.”
The plans to limit the scope of the amendments will also disappoint those who had hoped the legislation would remove key hurdles to the prosecution of white collar crime. A new “failure to prevent” offence for fraud would bring it in line with existing similar corporate offences for bribery and tax evasion.
At present, prosecutors only need to prove that organisations lacked “reasonable” or “adequate” controls to pursue the offence in bribery and tax evasion cases. But for other white collar crimes, including corporate fraud and money laundering, they need to prove that a “directing mind” at the organisation intended to commit the crime.
Buckland called on the government to be “more ambitious with regard to the reach” of the failure to prevent offence and include money laundering and false accounting.
Susan Hawley, executive director at campaign group Spotlight on Corruption, said any such exemption would send “entirely the wrong message” that fraud was not a problem for small and medium enterprises.
“It would be much more sensible for the government to provide strong guidance for SMEs on what these procedures should be than exempting them from the legislation,” she said.
No exemption for small business exists in the rules governing the “failure to prevent” bribery and tax evasion offences.
The government was also expected to resist calls from MPs to broaden the so-called “doctrine of identification,” a key requirement in the process of establishing liability in corporate prosecutions, according to Dame Margaret Hodge, the Labour MP and chair of the all-party parliamentary group on anti-corruption and responsible tax. Such a reform would have made it easier to pinpoint individuals who control a company in order to prosecute the organisation.
Buckland, who is also a member of the group, said failing to update the law on identification would be “missing an opportunity”.
The Home Office declined to comment on the specifics of the bill but said it was committed to introducing a failure to prevent amendment to strengthen the UK’s already “robust” economic crime legislation.
“We are continuing to engage with numerous stakeholders to prepare these measures and will set out further details in parliament,” it added.
