Corporate criminal liability regime expansion confirmed by UK government
Published on 3rd Jul 2023
Senior managers within the ambit of the controlling mind test makes it easier to prosecute companies for economic crime
As flagged in our Insight in April on the likely extension of the corporate criminal liability regime, the Economic Crime and Corporate Transparency Bill now expands the scope of the "corporate criminal attribution" test to include senior managers within the ambit of individuals deemed to represent the "controlling mind" of a company.
The new amendment seeks to address the perceived imbalances in the corporate criminal liability regime, as highlighted in the Law Commission's report published in June 2022, and facilitates the prosecution of large companies for offences committed by their employees.
Tom Tugendhat, the UK security minister, announcing the proposal, commented: "This reform is a major reset that is urgently needed….Our current system for holding corporations liable for conducting crime is based on legislation that has become antiquated. We must adapt to the challenges posed by modern practices and sophisticated criminality."
What is the current law on corporate liability?
Currently, for a corporation to be prosecuted, the law requires that the offence be committed by the "directing mind and will" of that corporation. However, with governing structures becoming more complex, it can be difficult to determine who makes relevant decisions or if a director can be deemed to have sufficient control to hold the company liable.
This amendment to the bill will enable more prosecutions in circumstances where senior employees are found to have been involved in committing an offence.
Who is a senior manager?
The bill defines a senior manager as "an individual who plays a significant role in— (a) the making of decisions about how the whole or a substantial part of the activities of the body corporate or (as the case may be) partnership are to be managed or organised, or (b) the actual managing or organising of the whole or a substantial part of those activities.”
The government has confirmed that a person's title will not determine whether they are a senior manager, but rather their role and responsibilities within an organisation and the "managerial influence they might exert". This reflects more modern company structures where directing minds may be in various functions of the business.
What offences will the new law cover?
The new test will apply only to the specific economic crimes set out in a schedule bill. At present these include:
- The common law offences of cheating the public revenue and conspiracy to defraud.
- Fraudulent trading under the Companies Act 2006.
- Misleading statements and impressions under the Financial Services Act 2012.
- Theft, false accounting and false statements by directors under the Theft Act 1968.
- Fraud under the Fraud Act 2006.
If convicted, a company may be subject to an unlimited fine and confiscation of related profits (in addition to any sentences imposed upon the individuals who are also found guilty of the same offence(s)).
Osborne Clarke comment
While the Serious Fraud Office (SFO) has suggested that the new "failure to prevent fraud" offence will be a "game changer", in our view this reform has the potential to have a far greater impact on the corporate crime enforcement regime.
This amendment has the clear objective of making it easier to prosecute all businesses, not just small business where the directing mind is often readily identifiable when economic crimes occur.
The reputational risk to organisations that face prosecution, let alone conviction, will be significant and possibly terminal. This in turn is likely to lead to non-executive directors and shareholders alike requiring companies to have far more robust anti-fraud procedures in place.
All businesses, in advance of the law coming into force, should now be reviewing their risk profile and procedures to ensure that the risk of criminal activity happening on their watch is reduced as far as may be possible.
A new director of the SFO is to be expected to be appointed before the end of 2023, and it should be expected that the appointee will be keen to deploy the new tools that will be placed in the prosecutors toolbox.
