Anti-money laundering

What have we got here then? Companies must police themselves

Today, company directors need to understand that the law requires them to ensure that their company is required to police itself for good corporate governance. The days have long gone when directors could say that their singular role in life was to maximise company profits, without considering the wider implications of its actions.

Empty board room

Section 172 of the Companies Act 2006 applies to all company directors

The civil law requires a director to:

  • have regard to the likely consequences of any decision in the long term and the interests of the company's employees
  • the impact of the company's operations on the community and the environment
  • the desirability of the company maintaining a reputation for high standards of business conduct

These obligations are set out in section 172 of the Companies Act 2006 and apply to all company directors, irrespective of whether the company is a private or public limited company.

New criminal law obligations

The criminal law obligations have increased dramatically in recent years and they are likely to increase further.  Principally, the new obligations arise in three areas.

The “self-report”

If a company has received any benefit from conduct which breaks the criminal law, the company is unable to use the money lawfully without disclosing the fact to the National Crime Agency. The disclosure, often referred to as a “self-report”, is required under sections 327 to 329 of the Proceeds of Crime Act 2002, and unless the company received actual or deemed consent to proceed, it will be committing a serious money laundering offence.

For example, if a company has sold goods or made financial transfers in breach of economic sanctions, the breach will constitute criminal conduct from which the company has derived a financial gain.


Section 7 of the Bribery Act 2010 imposes criminal liability on a company where a person associated with it, such as an employee or a joint venture partner, paid or received a bribe for improper performance of their function, resulting in benefit being received by the company. Typically, this liability will arise where a salesperson pays a bribe to a customer to obtain a contract for the company’s benefit.

Tax evasion by employees, suppliers and joint venture partners

As heavily reported in the national and legal media, since 30 September 2017 a company commits a criminal offence contrary to sections 45 and 46 of the Criminal Finances Act 2017 if a person associated with the company facilitates another person in the commission of tax evasion. The person associated with the company may be an employee, a joint venture partner, or even a supplier.

Consultation on companies’ criminal liabilities

Is it to be suggested that a retail company should be liable in criminal law where an employee steals some items from the company stock room? Surely not.

The government is examining the case for reform of the law on corporate liability for economic crime and held an open call for evidence. It is currently analysing the consultation evidence looking at whether to extend these provisions to make a company criminally liable when an employee commits any form of economic crime, not necessarily confined to acts of bribery or facilitation of tax evasion. The scope of this potential liability is significant if the offence is not drafted narrowly.

Unlimited fine for failure to institute adequate procedures for preventing economic crime

 Companies and their directors need to be concerned about these developments. The key point for companies and directors to understand is that the criminal law is not holding companies liable applying principles of vicarious liability. Under vicarious liability rules, a company is held directly liability for the actions of its employees, or servants and agents, irrespective of whether the directors knew about the conduct in question.

But rather, under section 7 of the Bribery Act 2010 and sections 45 and 46 of the Criminal Finances Act 2017, a company is being held for the commission of its own offence, which is defined as a failure to institute adequate procedures to prevent the occurrence of an act of bribery or facilitation of tax evasion.

It is the company’s failure which is being punished, and not the company’s responsibility for the actions of the person paying a bribe or facilitating tax evasion. It is in this sense that a company is being required to police itself. Failure to do so runs the risk of criminal conviction and the imposition of an unlimited fine, as well as loss of public procurement contracts and increased borrowing costs.

Leading the way: the letter as well as the spirit of your compliance obligations

It is vital that companies devote sufficient resources to developing, implementing, maintaining, and monitoring policies and procedures to ensure that nobody associated with the company or partnership becomes involved in bribery or the facilitation of tax evasion.

The law expects companies and partnerships to take measures which are reasonable in all the circumstances. Whilst the adequacy of the policies and procedures is not prescriptive and the measures can be proportionate to the nature and scale of the business, the enforcement authorities will act against a company if it ignores its obligations.

Companies and their directors must make genuine efforts to implement the letter as well as the spirit of the compliance obligations. Far from being exempt from this requirement, law firms must lead the way by example. The consequences of a law firm becoming involved with an associated person who commits bribery or facilitates tax evasion could be professionally fatal to the firm as well as the partners who allowed it to happen.

Good governance is essential

Whilst directors may protest that these new measures are too invasive and prescriptive, the way in which the criminal law is now holding companies criminally liable is completely aligned with the wider obligations of a director in civil law under section 172 of the Companies Act 2006. It also goes to the heart of the way in which all companies must now undertake their business. High standards of good corporate governance are required.

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