The role of legal professionals as gatekeepers in the prevention of fraud, corruption, and tax evasion

In this article for LIDW, Marcus Staff explores the impact of the UK Government’s Economic Crime and Corporate Transparency Bill on the legal profession and discusses how this bill shifts the importance of lawyers as key players in promoting the prevention and detection of economic crime.

This article was originally published via LIDW.com on 13th April 2023

Author: Marcus Staff

There are ten Core Duties required of a barrister in England & Wales, notably included are the duty to keep the affairs of each client confidential (CD6, Bar Standards Board) and to take reasonable steps to manage your practice… in such a way as to achieve compliance with your legal and regulatory obligations (CD10, Bar Standards Board). These have long been reasonable expectations of lawyers general the world over, but which do present an increasingly difficult contrariety alongside the expanding scope of expectations of lawyers to police their clients.

In January 2023, the UK government confirmed that its Economic Crime and Corporate Transparency Bill (‘ECCT’, published September 2022) will seek to criminalise lawyers, accountants and even casinos who ‘fail to prevent’ crimes such as fraud, false accounting and money laundering. Such ‘failure to prevent’ crimes already exist for bribery (introduced in 2010) and tax evasion (introduced in 2017). This type of offence is easier to prosecute because prosecutors need only prove that an organisation lacked ‘reasonable’ or ‘adequate’ controls to prevent wrongdoing.

Indeed, there has been a general consensus for some time that current legislation is lacking. For white-collar crimes such as fraud by companies, prosecutors currently need to prove that a ‘directing mind’ at the organisation intended to commit the offence. In 2020, this high bar for corporate liability meant that the CEO, CFO and another senior banker were not considered to be the ‘directing mind and will’ of Barclays (Serious Fraud Office v Barclays plc and Barclays Bank plc EWHC [2018], together ‘Barclays’). All three defendants were acquitted after a five-month jury trial and the SFO faced steep criticism in what many had hoped would be a landmark UK prosecution of white-collar crime.

However, the recent move towards a much broader application of ‘failure to prevent’ offences raises concerns over how lawyers are expected to reconcile their duties to their clients with their compliance with laws and regulations. Indeed, Baroness Drake, Chair of the Constitution Committee, has raised concerns that the new regulatory objective of “promoting the prevention and detection of economic crime” (clause 183, inserted into the Legal Services Act 2007)… imposes an uncertain additional duty on all lawyers’. She adds that ‘it is not clear what this duty would entail in practice… and could be read to involve assisting or participating in the prevention and detection of economic crime’. Moreover, if this is the case this would ‘clearly risk upsetting the balance between [the duty to act with independence and integrity, to keep clients’ affairs confidential, and to act in the best interests of the client]. She concludes that ‘if this impinges on legal professional privilege or the duty to act in the best interests of the client there is a risk to access to justice and therefore, potentially, to the rule of law’ (Letter to Lord Johnson of Lainston, 28 February 2023, here). 

Looking more closely at the details of the ECCT, the Solicitors Regulation Authority (SRA) will have unlimited fining powers over its members (despite those powers having only recently been increased from £2000 to £25 000 in relation to traditional firms and individuals). The SRA itself has urged the government to ‘carefully consider the proportionality of any further increases… given that there has been little evidence of the effectiveness or otherwise of the most recent changes’. The SRA also suggested that the objective should have a much ‘narrower focus to target the areas of economic crime that pose most risk for the legal sector’ (SRA press release, 9 February 2023, here). The Bar Council has also pointed out that the ECCT ‘would add a regulatory objective in relation to promoting the prevention and detection of economic crimes to the LSA meaning the BSB and LSB would have to create a new workstream to their regulatory duties, at additional cost which may have to be passed onto clients’. Mark Fenhalls KC, Chair of the Bar Council said ‘The legal professions are already subject to targeted anti-money laundering legislation and a new regulatory objective may not be compatible with our role in representing clients. At worst it sends the wrong message to the general public about the role of lawyers’. He added that Government should ‘focus on the real problem – fix the issues with Action Fraud and properly fund the investigation and prosecution of economic crime’ (Bar Council press release, 22 September 2022, here).

So, it seems that the ECCT is likely to make the scope and purpose of legal practice more confused, access to legal services more expensive, all the while making the tackling of economic crime less effective. Indeed, looking at the already enacted ‘failure to prevent’ offence concerning tax evasion, prosecutions have plummeted in recent years with HMRC prosecuting only eight cases in the past two years for the enabling of tax evasion (Financial Times, 6 March 2023, here). It begs the question, then, whether the government has simply gone a little BONGO? 

See: https://lidw.co.uk/the-role-of-legal-professionals-as-gatekeepers-in-the-prevention-of-fraud-corruption-and-tax-evasion/