The proposal outlines 10 possible ways to strengthen corporate liability by both criminal and civil law reforms.
By Stuart Alford QC, Clare Nida, and Mair Williams
On 10 June 2022 the Law Commission published an eagerly anticipated set of proposals (the Options Paper) to overhaul criminal law as it applies to companies in the UK (see the summary here and full text here). The Law Commission is an independent commission created by Parliament to keep UK law under review and to recommend reforms. While the Options Paper holds back from making recommendations, it 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” (ie, directors or other senior management) was guilty (the Identification Doctrine). This requirement has made the prosecution of what are increasingly large organizations very challenging, as the most senior employees are seldom privy to decisions made at the operational end of the business. By contrast, in the US an employer can be automatically answerable for the crime of its employee.
There has been a long-running concern amongst prosecuting authorities and elements of the legal profession that the 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 offense under the Bribery Act 2010.
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 Options Paper provides 10 possibilities for reform, separating them by categories: the Identification Doctrine; “Failure to prevent” offenses; directors’ individual liability; and civil law remedies. The 10 options are:
- Retain the Identification Doctrine.
- Allow conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offense. This could be extended so that chief executive officers and chief financial officers are always considered part of an organization’s senior management.
- Introduce an offense of failure to prevent fraud by an associated person (an employee or agent) to benefit the organization (or a person to whom the organization provides services). This would not extend to inchoate offenses (eg, attempts or conspiracies). There would be a defense for corporations with reasonable preventive procedures.
- Introduce an offense of failure to prevent human rights abuses.
- Introduce an offense of failure to prevent ill-treatment or neglect.
- Introduce an offense of failure to prevent computer misuse.
- Make publicity orders available in all cases where a non-natural person is convicted of an offense. A publicity order requires the corporation to publish details of its conviction, such as under the Corporate Manslaughter and Corporate Homicide Act 2007.
- 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” Offenses
Prosecuting agencies and some politicians have long proposed to extend the “failure to prevent” principle to a wide range of economic crimes. While the Law Commission did not favor that approach, it did suggest some general principles for future failure to prevent offenses. These include:
- Organizations should only be liable if the conduct was undertaken with a view to benefiting the organization directly, or benefiting a person to whom services were provided on behalf of the organization (ie, an organization could be liable if the conduct was intended to benefit it indirectly). by assisting a client).
- It should be a defense for an organization to have reasonable prevention procedures in place, and the government should publish guidance on what prevention procedures an organization might implement.
- There should not be a presumption that the failure to prevent offense would extend to conduct carried out by employees or agents overseas. Any decision to make the offense extraterritorial should be considered in the context of the specific offense.
The UK government will consider the Options Paper, as will interested parties in law enforcement, the legal profession, and civic society. There is no timetable for the next steps, although the UK government made clear in March – when it passed the Economic Crime (Transparency and Enforcement) Act 2022 – that it intends there to be further legislation in the area of economic crime within the current Parliament. .