The proposal outlines 10 possible ways to bolster UK corporate criminal liability.
The UK Law Commission, has published their proposals (the Options Paper) to overhaul criminal law as it applies to companies in the UK. The Law Commission is an independent commission created by Parliament to keep UK law under review and to recommend reforms. The Options Paper outlines 10 possible ways to strengthen corporate liability by both criminal and civil law reforms.
To establish corporate criminal liability, long-standing English law requires that prosecutors prove that a “directing mind or will” (i.e., directors or other senior management) was culpable (the Identification Doctrine). This requirement has made the prosecution of large organisations very challenging for law enforcement agencies, with the Serious Fraud Office (SFO) being the most vocal critics of the Identification Doctrine, given the most senior employees are seldom privy to decisions made at the operational level of the business. By contrast, under US criminal law, organizations generally are vicariously liable for offenses committed by their agents.
There has been a long-standing concern amongst UK prosecuting authorities and elements of the legal profession that the current law has been falling short in adequately holding corporations to account, particularly for economic crimes such as fraud or money laundering. The first steps towards substantial change in the criminal liability of corporations came with the introduction of the failure to prevent bribery offence under the Bribery Act 2010. A further corporate criminal offence of failing to prevent the facilitations of tax evasion followed under the Criminal Finances Act 2017.
In November 2020, the UK government tasked the Law Commission with considering how to strengthen the criminal justice system under the current law without creating disproportionate burdens on business. In June 2021, the Law Commission published a discussion paper and launched a public consultation. The Options Paper follows the conclusion of that consultation.
The Options Paper
The Option Paper provides 10 possibilities for reform, designated by categories:
the Identification Doctrine; “failure to prevent” offences; directors’ individual liability; and civil law remedies. The 10 options are:
- Keep the Identification Doctrine and not move toward the US system.
- Allow criminal conduct to be attributed to a company if a member of its senior management engaged in, consented to, or connived in the offence. This could be extended so that CEOs and CFOs are always considered part of an organisation’s senior management.
- Introduce an offence of failure to prevent fraud by an associated person (an employee or agent) to benefit the organisation (or a person to whom the organisation provides services). There would be a defence for companies with reasonable preventive procedures.
- Introduce an offence of failure to prevent human rights abuses.
- Introduce an offence of failure to prevent ill-treatment or neglect.
- Introduce an offence of failure to prevent computer misuse.
- Make publicity orders available in all cases where a non-natural person is convicted of an offence. A publicity order requires the company to publish details of its conviction.
- Introduce a regime of administratively imposed monetary penalties.
- Introduce civil actions in the High Court based on Serious Crime Prevention Orders, but involving a power to impose monetary penalties.
- Introduce a requirement for public interest entities to report on anti-fraud procedures, or introduce a requirement akin to Modern Slavery Act statements for large corporations to report on their anti-fraud procedures.
“Failure to Prevent” Offences
Prosecuting agencies and some politicians have long proposed to extend the “failure to prevent” principle to all forms of economic crime. While the Law Commission did not favour that approach, it did suggest some general principles for failure to prevent offences in the future.
- Companies should only be liable if the conduct was undertaken with a view to benefiting the company directly, or benefiting a person to whom services were provided on behalf of the company (i.e., a company could be liable if the conduct was intended to benefit it indirectly by assisting a client).
- It should be a defence for a company to have reasonable prevention procedures in place, and the government should publish guidance on what prevention procedures an organisation might implement.
- There should not be a presumption that the failure to prevent offence would extend to conduct carried out by employees or agents overseas. Any decision to make the offence extraterritorial should be considered in the context of the specific offence.
What’s Next and Key Takeaway
The UK government will consider the Options Paper, as will interested parties in law enforcement, the legal profession. There is no exact timetable for any potential legislation, although the UK government made clear in March — when it passed the Economic Crime (Transparency and Enforcement) Act 2022 (check out our blog here)— that it intends there to be further legislation in the area of economic crime within the current Parliament.
Takeaway: Companies are well-advised to conduct risk assessments and ensure as good practice they have preventative policies and procedures in place to prevent economic crime.