The Law Commission's Consultation on Corporate Criminal Liability – a second bite of the cherry or a measured approach to a thorny issue?
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The catalyst for the Law Commission's consultation derives from the difficulties with the prosecution of corporates and the prosecutorial authorities inhibited ability to hold companies and LLPs to account for criminal offences.
This is largely due to the identification principle, which is the central doctrine attaching criminal liability to corporates and which many prosecutorial authorities consider to be insufficient for modern corporate offending. The identification principle stipulates that where a particular mental state is required such as intent, recklessness or dishonesty, a company can only be found guilty if someone who represents the company's "directing mind and will" has that requisite mental state. This may lead to a conviction for a small or medium sized company, who may have a sole director, but it often fails to account for large organisations with multiple subsidiaries, offices or business divisions often involving complex decision making structures.
The Law Commission recognise that corporate criminal liability differs in other jurisdictions with a potential wider net of liability. This includes vicarious liability or quasi-strict liability doctrines. Similarly the Law Commission also recognise that in recent years, Parliament has created strict liability corporate 'failing to prevent' offences, notably the failure to prevent bribery under the Bribery Act 2010 or the failure to prevent the facilitation of tax evasion under the Criminal Finances Act 2017. The only defence to these offences is where the corporate has adequate procedures in place to prevent the conduct.
The Law Commission's Consultation is the consequence of a previous Government consultation in 2017 concerning reforms to corporate liability for economic crime, the outcome of which was that the Government needed further evidence to consider the position more carefully. Given the potentially wide-ranging impact that any reforms to the law in this area will have on business, we welcome the Law Commission's involvement (particularly given the attempt earlier this year to introduce a 'failure to prevent' offence for FCA regulated businesses through the backdoor – see Financial Services Bill: The "failure to prevent" offence raises its head again | Fieldfisher).
Although this may be considered by some as a second bite of the cherry on the same issues that have been addressed before, the previous consultation was inconclusive on how to deal with the issue of corporate criminal liability (e.g. only 51.6% of respondents considered that a 'failure to prevent' offence should be introduced for economic crime more widely), and the Law Commission's remit is wider than examining economic crime in isolation. Any shift in the doctrines of corporate criminal liability are likely to have a profound effect on economic crimes such as fraud, false accounting and money laundering and how businesses approach the risks associated with them. It is accordingly important that changes to the law should not be made without full consultation and proper consideration of their impact.
Fieldfisher will be responding to the Law Commission and will be inviting clients and contacts with an interest in this area to provide comments for the purposes of a collective response. If you have any comments in the meantime, please do not hesitate to contact Nicola Sewell and Elliott Kenton.