Corporate liability for economic crime: call for evidence

Written on 16 Jan 2017

On 13 January 2017, the Ministry of Justice opened a consultation on the reform of corporate criminal liability with a call for evidence. The government intends to assess the evidence on the extent of any problems with the current state of the law and to examine the argument for reform of corporate criminal liability for economic crime, reflecting or potentially going beyond the existing provisions for bribery and tax evasion.

Sir Oliver Heald MP, Justice Minister, commented that:

Corporate economic crime undermines confidence in business, distorts markets, and erodes trust, Companies must be held to account for the criminal activity that takes place within them.”

The SFO, in particular, has repeatedly highlighted the difficulty in prosecuting companies in the UK due to the high evidential test that must be satisfied in establishing the “directing mind” of the company who participated in the criminal activity concerned (the so-called “identification doctrine”).

To address that difficulty, section 7 of the Bribery Act 2010 enacted a “failure to prevent” offence in relation to bribery, subject to an “adequate procedures” defence. A similar offence, to combat tax fraud, is included in the Criminal Finances Bill, which is passing through parliament at present and is expected to become law during 2017.

The consultation: possible options

The consultation proposes the following five options:

  1. Amendment of the identification doctrine.

Legislation could be enacted to amend the identification doctrine by broadening the scope of those regarded as representing the directing mind of the company.

  1. Strict (vicarious) liability offence.

A strict liability offence based on vicarious liability would render a company guilty, through the actions of individuals acting on its behalf (e.g employees or agents), of any substantive offence without there being a need to prove any fault at the corporate centre.

The consultation suggests that if this option were pursued, consideration would need to be given as to whether there ought to be an adequate procedures, or due diligence, defence to such an offence.

  1. Strict (direct) liability offence.

A strict direct corporate liability offence would require a company to ensure that offences were not committed in its name or on its behalf. This is the model of the section 7 Bribery Act offence.

As with the section 7 Bribery Act offence, a company could be convicted, without the need for proof of any fault element, of an offence of breaching a statutory duty to ensure that economic crime was not committed in the conduct of its business. As with the strict vicarious liability option above, if this option were pursued, it would be necessary to consider whether a due diligence-type defence should be available.

  1. Failure to prevent as an element of the offence.

In this option, the concept of a failure on the part of company management to prevent the relevant offending would be an element of the offence itself. It would be for the prosecution to prove not only that the predicate offence had occurred, but also that it occurred as a result of a management failure.

As such, the prosecution would have the burden of proving that the company had not taken adequate steps to prevent the unlawful conduct occurring, as opposed to the defence having to prove that the company had done so.

  1. Investigate the possibility of regulatory reform on a sector by sector basis.

The final option would not involve any new general corporate offence.  The government is examining whether, instead of a new general offence, there is the potential to adopt sector-based regulatory reforms, similar to those implemented in the financial services sector aimed at deterring misconduct through requiring enhanced individual accountability, particularly at senior manager level.

Our assessment

It appears that the government is willing to consider all options following the commitment to introduce new legislation made by David Cameron at the London anti-corruption summit in May 2016.  The consultation makes clear that this could potentially involve a combination of the options discussed above (for example, a new general offence, accompanied by regulatory reform in certain sectors).

Whilst the timescale of any changes is presently unclear, in our view it is likely that, in one form or another, additional powers will be made available to law enforcement agencies to tackle criminal conduct by businesses.  If so, the options proposed all point to a continuing US-style approach to enforcement which, if adopted here, would be highly likely to lead to more prosecutions and higher sanctions being imposed.

Businesses should therefore be taking the opportunity now to review their policies and procedures and ensure that all risks have been, and will continue to be, adequately monitored and assessed.

The consultation is open until 24 March 2017 and can be accessed here.