Glossary term
Failure to Prevent Offence
Subject: Financial Crime, Bribery and Corruption
Also known as: Corporate failure to prevent bribery, Failure to prevent fraud, Failure to prevent tax evasion
A failure to prevent offence makes a company criminally liable when someone connected to it commits bribery, fraud or tax evasion for its benefit, unless it can show it had reasonable procedures in place.
Explanation
Traditional corporate liability required prosecutors to show that the company's senior decision-makers were themselves at fault, which is hard in large groups. Failure to prevent offences change the question. If an employee, agent or other associated person commits the underlying crime to benefit the company, the company is guilty of the separate offence of not preventing it. The usual defence is that it had adequate or reasonable procedures. The UK created the model for bribery in 2010, then for facilitating tax evasion in 2017, and for fraud in a later statute. Other countries have taken the idea up in their own forms. The offence turns compliance programmes into legal protection: risk assessment, policies, training, due diligence and monitoring become the evidence a firm uses in its own defence. A firm with no record of its risk assessment, training or agent checks has little to put in front of the court.
Example
A sales agent working for a logistics company pays a local official to win a port contract. Nobody in the company's management knew. Prosecutors charge the company with failing to prevent bribery. It defends itself by showing a documented risk assessment, a third-party onboarding process, training for agents and a hotline. The court looks at whether those steps were proportionate to the risk, not whether the bribe happened.
Not to be confused with
- Vicarious liability
- Vicarious liability makes a company answerable for staff conduct generally. A failure to prevent offence is a separate crime with its own defence.