Locations
Pascarus of Fieldfisher LLP consider incoming reform of the law on corporate
criminal liability in the UK. They consider the background to the Law Commission’s
review, the key options proposed, the most notable issues raised and predict how the
government will respond.
This analysis was first published on Lexis®PSL on 15 June 2022 and can be found here (subscription
required).
What is the background to the Law Commission's review?
This review follows extensive criticism of the identification doctrine which is the general rule for attributing corporate criminal liability in England and Wales. The doctrine requires proof that the natural person who acted as the ‘directing mind and will’ of the company committed the offence with which the given company is charged. As far back as 2010, the Law Commission commented that the principle ‘can make it impossibly difficult for prosecutors to find companies guilty of some serious crimes, especially large companies with devolved business structures’.
SFO v Barclays plc and another [2018] EWHC 3055 (QB) provides a case study into the key problems with the doctrine. Rejecting the arguments for a ‘special rule of attribution’ the High Court followed the narrow definition in the identification doctrine and ruled that despite being senior executives (chief executive officer (CEO) and chief financial officer (CFO)), the respondents could not be the directing mind and will of Barclays as they did not have the required authority to bind the company on the relevant issue.
The difficulties with the current regime have led to long-standing concerns that the UK is falling behind internationally in tackling corporate crime. In November 2020, the UK government asked the Law Commission to examine how to strengthen the criminal justice system under the current law, in a way that does not overburden businesses.
What are the key options proposed by the Law Commission?
The Law Committee published ten options for reform on 10 June 2022.
- retaining or extending the identification principle (Options 1–2). Extending the principle might include attributing liability to the company where a member of 'senior management' engaged in, consented or connived in the offence (2A). It could additionally include the principle that a group's CEO or CFO would always be considered to be senior management (2A)
- extend failure to prevent offences to capture other crimes (Options 3–6). In respect of economic crimes, initially to fraud only in order that corporations can catch-up with the requirements (3). Other failure to prevent offences could include failure to prevent human rights abuse (4); failure to prevent ill-treatment or neglect by a care provider (5); and, failure to prevent computer misuse (6)
- make publicity orders available that require the corporation to publish details of its conviction as the reputational impact for certain organisations can be a more effective means of punishment (Option 7)
- implement a regime of administratively imposed monetary penalties (Option 8). Notably, the Serious Fraud Office and the Crown Prosecution Service were opposed to this option citing resource issues
- introduce the possibility of civil actions in the High Court based on Serious Crime Prevention Orders, but involving a power to impose monetary penalties as well as punitive and preventative measures which the company would be required to take without the need for a criminal conviction. (Option 9)
- reporting requirements to compel large companies or public interest entities to report on their anti-fraud procedures (Options 10A and B)
What are the most notable issues raised and why?
An amended identification doctrine
The Law Commission has received criticism for the proposed retention of the identification doctrine. While it is easy to adopt these criticisms, it is also important to remember the need for certainty in respect of the criminal law. Instead, the recommendation of extending the identification doctrine could be viewed as a pragmatic attempt to maintain certainty while also making the rule more applicable to the operating practices of 'big business'.
Extending failure to prevent
The suggestion to implement further ‘failure to prevent’ offences received overwhelming support from two-thirds of the respondents to the Law Commission's paper. The paper supports the expansion of these offences so as to foster greater responsibility within business while not needlessly expanding the availability of these offences to all criminal offences. The Law Commission points out that these offences are simply not appropriate in respect of all criminality as they can lead to disproportionate requirements on ‘small and medium-sized enterprises (SMEs)’ and the application of criminality to corporates where the underlying offence could not have brought any benefit to the company (eg, sexual offences).
Reasonable prevention measures vs adequate procedures
In respect of the defence of having ‘reasonable prevention procedures’ for failure to prevent offences, this represents a conscious departure from the ‘adequate procedures’ defence to a charge under section 7 of the Bribery Act 2010 (BA 2010). The Law Commissioners said this is because, with the benefit of hindsight, when an offence has been committed procedures are all too easily considered to be inadequate (see also p 102 of the Options Paper). In addition, reasonable prevention measures may mean in the case of small business that no prevention measures are required in view of the lower exposure to risk of certain criminality.
Are there any options which you expected to see in the paper which are missing?
The report is ambivalent on the need to ensure that additional failure to prevent offences have extra-territorial reach. The Law Commission suggests leaving it to Parliament to decide when these should apply on an offence-by-offence basis. This is a peculiar feature of the paper given that in the section setting out a human rights based failure to prevent offence, the Law Commission states that ‘contrary to our general position’ the human rights failure to prevent offence ought to be extraterritorial (p 116). In light of the extraterritoriality of BA 2010, it is difficult to see why this offending should receive a recommendation for extra-territoriality, while further economic crimes do not. In practice, it is probable that the government would apply extraterritoriality across the board.
Supporters of extra-territorial application such as Spotlight on Corruption want it in order ‘to capture the global nature of much corporate activity and [avoid] a competitive disadvantage for UK-based companies’. Given the extraterritorial reach of much of the FTSE100, and the centrality of financial services within the UK economy, it would certainly be difficult to argue against the application of economic failure to prevent offences to overseas activities, and equally difficult to justify a divergence in approach as between bribery and other kinds of economic crime.
What are your predictions for how the government will respond to this?
The government has received widespread and regular criticism in the press for having a poor record on combating fraud, particularly on its control of fraud during the pandemic. While there have been some recent changes to the financial crime landscape, including the Economic Crime (Transparency and Enforcement) Act 2022, there is as yet no sign from the government as to when any of the mooted Law Commission options might be considered.
One might safely assume that in the context of criminal policy issues, a higher priority for the government at present lies in better understanding the issues within the SFO. That might include a wholesale change to the way in which significant financial crime cases are prosecuted in the future including by whom. Perhaps, therefore, any proposed legislative changes needed to implement the Law Commission options in this paper might dovetail into any legislation required to alter the prosecutorial landscape. Until we have heard more on the findings of Sir David Calvert-Smith's report to the Attorney General on the SFO, it is difficult to anticipate the timetable as to when that might be.
Interviewed by Claudia Stein.