New organised crime rules could have serious impact on UK business

Friday 26th January 2007

Katherine Southby, regulatory solicitor

When the much vaunted Serious Organised Crime Agency (SOCA) came into existence almost a year ago most business leaders could be forgiven for thinking that the agency – and the Act which brought it into force – only have relevance to the criminal underworld.

Indeed, the then Home Secretary, David Blunkett, said: “Organised crime affects each and every one of us. It reaches down through every community, destroying lives through drugs, people smuggling and prostitution.

“The burglar who steals to feed his drug habit, the billions lost to the country through tax fraud and the terrorist gangs financing their operations through credit card fraud – organised crime gangs are costing this country at least £20 billion a year and must be stopped.

“This bill represents the fulfillment of a lot of hard work. The new agency will add value to the work of the existing agencies and link intelligence, investigation and intervention in new ways.”

Seriously far-reaching

However, in amongst the measures to tackle organised crime there were changes to the law which impact upon every director or company representative who could be on the receiving end of a regulatory investigation or prosecution. This includes extending the Serious Fraud Office-style powers that enable individuals to be compelled to answer questions in interviews and produce documents on demand.

Most significant of all, it also includes tough new police powers including providing the police with the power of arrest for all offences. Previously the position was that only more serious offences which were punishable by extended periods of imprisonment were deemed to be ‘arrestable’.

The change to the law now means that a regulatory investigation into something such as a health and safety or environmental pollution incident now carries with it the potential for individuals to be arrested if they are suspected of having committed any criminal offence.

Whilst the police are only likely to be on site in fairly limited circumstances – such as following a workplace fatality – there are also strictly defined situations in which an arrest can be effected by the Health and Safety Inspectors themselves.

Seriously worrying?

Place this almost surreptitious shift in powers in the context of a non-legislative shift in sentencing, with penalties for all regulatory matters moving inexorably upwards. Add to that the reverberations of the Hampton review and Macrory Review of Regulatory Penalties published in its final form at the end of last year, and you have a regulatory environment which is looking decidedly uninviting. This is especially the case for the unwary organisation or the ostrich-like director who chooses to turn a blind eye because of the cost of pre-emptive action.

Much of the Macrory report is clearly good sense. For example, it suggests formal sentencing guidelines be prepared to remove the current lottery which exists for regulatory fines when Magistrates find themselves in a vacuum of sentencing precedent.

In addition, it states that prosecutors should always make clear to the court any financial benefits resulting from non-compliance as well as the policy significance of the relevant regulatory requirement – something which is good prosecuting practice already.

The new Macrory Report sets out six penalties principles which it says each regulatory sanction should fulfil.

A sanction should:

  1. Aim to change the behaviour of the offender
  2. Aim to eliminate any financial gain or benefit from a non-compliance
  3. Be responsive and consider what is appropriate for the particular offender and regulatory issue, which can include punishment and the public stigma that should be associated with a criminal conviction
  4. Be proportionate to the nature of the offence and the harm caused
  5. Aim to restore the harm caused by regulatory non-compliance, where appropriate
  6. Aim to deter future non-compliance

Seriously costly

However, more radically it promotes the introduction of fixed penalties to be applied by the enforcement agencies for a wider variety of offences including health and safety, food safety and trading standards. These already exist for example under age sales of alcohol or the late filing of documents at Companies House.

In addition there are to be variable penalties which are to be on a ‘means tested’ or other form of sliding scale to hit the larger organisation in proportion to its ability to pay or in response to the seriousness of the offence.

Of course, the value of these penalties is to be determined by the enforcement agency rather than the court. Alarmingly these variable administrative penalties are not recommended to have an upper limit – the theory being that a fixed penalty system can simply mean that businesses write those potential costs into the business model. A sliding scale system is instead proposed with talk of 10% of turnover as one possible benchmark.

So, does that mean UK businesses will face means tested penalties set by an enforcement authority with the power of arrest? It is something you need to seriously consider.

Gordons regularly advises on risk & compliance issues. If you require any further information or advice please contact Katherine Southby on 0113 227 0100 or email