Rebuilding trust and confidence in business and markets has put tackling corporate criminality high on the Government’s agenda. To this end, it’s considering whether to reform economic crime, including corporate fraud, money laundering and false accounting, to make it easier to prosecute companies for criminal activity.
In this blog, we take a brief look at the Ministry of Justice’s proposals for extending corporate criminal liability beyond bribery and tax evasion in its call for evidence, Corporate Liability for Economic Crime, which closed on the 24th March. These proposals go beyond the corporate compliance requirements contained in the Bribery Act 2010 and Criminal Finances Bill, representing what could be a major shift in the law with potentially major consequences for companies and the wider corporate landscape. If you require more information, please contact us. Our specialist corporate crime team can help you resolve any corporate compliance or criminal issues your business may have.
Proposals to extend corporate criminal liability
The issue of corporate criminal liability comes to the fore every so often. Most recently, it’s been highlighted by recent court approval of a Deferred Prosecution Agreements (DFAs) between the Serious Fraud Office (SFO) and ‘XYZ Ltd’ under the Bribery Act 2010 concerning bribery in order to obtain contracts overseas. Yet, while DFAs represent a useful tool in combating corporate criminality, they also draw attention the difficulty prosecutors face when seeking to hold large modern multi-national businesses to account for criminal wrongdoing committed by their employees, agents or representatives in areas of economic crime other than bribery and tax evasion.
Prosecutions for corporate wrongdoing are usually sought under common law rules known as the identification doctrine. Under this principle, a corporation is only criminally liable if prosecutors can prove that individuals who can be regarded as ‘the directing mind’ of the company knew about, actively condoned or played a part in the offending. This is a very hard thing to do, and there have been many cases in which evidence of wrongdoing was insufficient to sustain a criminal prosecution. The Government has therefore sought views on a number of proposals aimed at improving effective criminal enforcement against companies in a way that will complement the regulatory regime.
Amend the identification doctrine
As the common law rules are considered to be a principal hurdle faced by prosecutors, the Government has sought views on whether legislating to amend the identification would be possible and desirable. For instance, legislation could amend the doctrine by broadening the scope of those regarded as a directing mind of a company. In putting forward this proposal, the Government emphasised that: ‘retaining the identification doctrine in any form would perpetuate the notion that a company can commit a criminal offence. It would encourage corporate efforts to limit potential liability through the adoption of evasive internal structures. It would not promote the prevention of economic crime as a component of corporate good governance’.
Create a strict vicarious liability offence
Vicarious liability, where a company is automatically responsible of the actions of its employees, representatives or agents, without the need to prove any fault, is well established in UK civil law. A form of vicarious liability also governs corporate criminal liability in the US. The Government asked whether such an offence should be subject to a due diligence type defence, so as to be an effective way of incentivising economic crime prevention.
Create a strict direct liability offence
Unlike vicarious liability, direct liability focuses on the responsibility of a company to make sure that offences are not committed in its name or on its behalf. It’s a separate offence akin to a breach of statutory duty, and when coupled with a due diligence type defence mirrors the corporate offences contained in the Bribery Act. The Government proposed that such a model, based on a failure to exercise supervision, could more accurately target the real nature of corporate culpability. It also sought views on whether such an offence should include the concept of a failure to prevent, which places a burden on the prosecution to prove that the company had not taken adequate steps to prevent unlawful conduct occurring.
Greater regulatory reform on a sector by sector basis
Finally, the Government noted that ‘strengthening deterrents to misconduct through regulatory reform in sectors where it is less developed must always be regarded as a possible alternative to the extension of the criminal law’, citing the reform of the financial services sector as a way of improving conduct through an increased focus on personal accountability for wrongdoing. It therefore sought views on the co-existence of regulatory and criminal law enforcement as a means of holding companies to account.
The Government is currently reviewing the information it has received following its call for evidence on these proposals. If it determines that a new form of corporate liability for economic crime is needed, a full consultation will be launched on detailed proposals and draft legislation. As ever, our specialist corporate crime lawyers are closely watching developments and keeping clients informed of relevant changes.
Lewis Nedas Law – Specialist Business & Financial Crime Defence Solicitors London
Our expert corporate crime defence team has over 40 years’ experience successfully defending clients against fraud and financial crime allegations. We are also ranked in Chambers and the Legal 500 for the high quality of our fraud work, and our expert solicitors are described as 'precise', 'steely determined' and 'always mindful of securing the best outcome'. Our specialist financial crime & fraud solicitors, based in the heart of London, therefore have extensive experience of preparing successful defences to corporate crime prosecutions, including corporate fraud, whether these are brought by the Crown or a statutory body such as the SFO, FCA or the Department of Business innovation and Skills. For more information, please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or contact us online.
