The Law Commission published the long-awaited Corporate Liability Options Paper on June 10, 2022. This followed a request by the British Government in November 2022 to consider “the challenges faced by the criminal justice system under the current law relating to corporate criminal liability.” An extensive consultation included the legal profession, academics, civil society organizations, and professional bodies.
The Options Paper is comprehensive in detail and sets out a range of options, not recommendations, for the Government to consider in their reform agenda.
The identification doctrine is the primary mechanism for attributing criminal liability to corporates. It means that corporates will only be held liable for the conduct of a person(s), if that person(s) represented the “directing mind and will” of the corporate at the time of the conduct. The question that has plagued those who prosecute corporates is who is capable of representing the directing mind and will of the company.
This doctrine has been a thorn in the side of the Serious Fraud Office. It was made worse by the ruling in R v Barclays (2018), in which the High Court held that the CEO and the Chief Finance Officer did not represent Barclays’s directing mind and will. The SFO’s attempt to prosecute Barclays failed because the board held the authority and had not delegated it to these officers of the company. This was a narrow application of the doctrine.
There was much hope that this review by the Law Commission would signal the death of the identification doctrine. Alas, it lives on. The Options Paper acknowledges the valid criticisms of the doctrine: its disproportionate impact on small companies; the unfair advantage provided to large companies with complex structures; the lack of certainty; and the difficulties in prosecuting companies for criminal conduct undertaken for their benefit.
The Options Paper provides a workaround to the identification doctrine with the option to attribute conduct and liability to the corporate if a member of its senior management “engaged in, consented to or connived in the offense.” It goes further by defining who would be considered as part of an organization’s senior management, with the CEO and Chief Financial Officer always considered part of the senior management team.
With the retention of the identification doctrine as an option for reform, the Law Commission “went to town” on options for new Failure to Prevent Offenses. This type of offense for corporate criminal liability was first deployed in the Bribery Act 2010 and later the Criminal Finances Act 2017 regarding the facilitation of domestic and international tax evasion. The only defenses available to corporates facing these Failure to Prevent offenses are that there were “adequate” procedures in place (Bribery Act) and “reasonable” prevention procedures in place (Criminal Finances Act). The burden of proof lies with the defense.
The Law Commission rejected the option of a broad Failure to Prevent Economic Crime in favor of separate and distinct offenses. The options are:
Failure to Prevent Fraud by an associated person
Failure to Prevent Human Rights Abuses
Failure to Prevent Neglect and Ill-treatment
Failure to Prevent Computer Misuse.
The Options Paper also considered possible additional sanctions could be levied against a company apart from the financial penalty. Publicity orders were identified as a viable option when a company has been criminally convicted. The court can order the company to publicize its conviction, including the particulars of the offense, the financial penalty, and any remedial orders.
The Law Commission provided the option of an administrative monetary penalty regime which could be deployed in instances where fraud was committed by an employee or agent of the corporate and the corporate was a beneficiary of that fraud. The company would be held liable and pay a financial penalty unless it showed that it had taken reasonable steps to prevent fraud. Such a regime would be overseen by either the SFO or the Crown Prosecution Service.
A further option set out was the use of civil action in the High Court. This would be based on Serious Crime Prevention Orders with the ability to levy financial penalties in addition to other sanctions and remedial measures. The final element of the Options Paper considered was a reporting requirement that would compel large companies to report on their anti-fraud procedures annually.
There is a lot for corporates to consider when reviewing their current risk profiles and undertaking a horizon scan of what new legislative developments may be forthcoming. It is clear from the Law Commission’s Option Paper that the trajectory is toward increased corporate criminal liability and civil accountability for corporate misconduct. Whether the current British Administration, beset by a myriad of problems both of its own making and globally, has the appetite for reform, remains to be seen.