Recent media reports have revealed that Entain, the UK corporate which owns well-known betting chains Ladbrokes and Corals, will pay £585 million as part of an agreement with HM Revenue & Customs to settle criminal allegations of bribery in relation to a Turkish betting subsidiary. The penalty comes as part of a Deferred Prosecution Agreement (DPA) and amounts to a formal acknowledgement by Entain that they failed to maintain adequate processes to prevent the payment of bribes by employees, contractors and third parties working on their behalf, thus leaving the gambling company liable to criminal sanctions and unlimited fines.
The Bribery Act was introduced in 2010 and was designed to modernise prior bribery and corruption legislation, introducing offences of receiving or soliciting a bribe, paying or offering a bribe and bribing a foreign public official. Whilst these were not new concepts, the most significant element of the Act was the introduction of the principle of “Failure To Prevent”. Section 7 states that a “relevant commercial organisation” is guilty of a criminal offence if a person “associated” with that organisation bribes another person intending to obtain or retain a commercial advantage. Criminal culpability is not dependent on the organisation having encouraged the bribe, or even on them having had knowledge of it; the only defence is for the organisation to have in place “adequate procedures” to prevent the payment of bribes.
The concept of “Failure To Prevent” is important because it erodes the arguably cynical position of “plausible deniability” relied on by some companies who benefit from unlawful behaviour by those working on their behalf, but profess ignorance of that behaviour when it comes to the attention of law enforcement agencies. The concept gained further traction following the Panama Papers tax scandal of 2015, in which offshore law firm and trust and company service provider Mossack Fonseca was shown to have facilitated large-scale tax evasion and money laundering by wealthy individuals and international companies, leading to the introduction of the Criminal Finances Act 2017 section 45 and 46 provisions, which hold relevant companies responsible for failure to prevent the facilitation of tax fraud by associated persons. The legislation is transparently based on the original Bribery Act s7 FTP offence, with almost indistinguishable regulatory guidance on the measures necessary to comply with the legislation.
Some of the criticism aimed at the FTP offences has been that in reality it has been seldom used and tends to have a disproportionate impact on small- and medium-sized firms, without the staff and resources to manage compliance effectively. However, in recent years these criticisms have to some extent been challenged by high-profile cases. In January 2017, Rolls Royce were forced to reach a Deferred Prosecution Agreement and pay a penalty of nearly £500 million following a Serious Fraud Office investigation into bribery and corruption; and in November 2022 energy conglomerate Glencore were ordered to pay £280 million in fines and compensation following criminal conviction for “sophisticated offending that was sustained over prolonged periods of time” relating to bribes paid for access to energy resources in Africa. The more recent Entain DPA was itself reached by HMRC, rather than the SFO, demonstrating perhaps an increased focus on failure to prevent economic crime across multiple law enforcement agencies.
Legislation on its own does not reduce crime. In order to drive compliance, you need well-drafted laws, clear stated commitment from government and sufficient resources in enforcement agencies. The recent spate of enforcement activity appears to be part of a broader government focus on economic crime, driven in part by the exponential growth of online fraud and the widespread abuse of UK company structures. The recently introduced Economic Crime and Corporate Transparency Act seems to signal an ongoing commitment from government to crack down on corporate fraud. In particular, the new Act introduces the third FTP offence – failure to prevent fraud, once again mirroring the Bribery Act section 7 offence and holding companies responsible for any economic crime offence committed by associated persons and benefiting the company itself. In deference to parliamentary concerns about the impact on SMEs, the offence only applies to large companies (meeting two out of three criteria, namely 250 employees, £36 million turnover and £18 million in assets), but perhaps more importantly the new FTP offence continues a clear strategy on the part of the UK government to place the responsibility for managing the risk of economic crime squarely on the shoulders of business.
Growing regulation of money laundering and terrorist financing, the imposition of financial sanctions on Russian interests, the expansion of economic crime legislation and increased prosecution of FTP offences all highlight a clear intention on the part of government, law enforcement and regulators to increasingly target financial crime offences. As Entain have just discovered, with unlimited fines and damaging publicity awaiting firms found to be non-compliant, the cost of failing to prevent may well be substantially higher than the cost of early investment in effective compliance.