The Law Commission has suggested that the laws on corporate criminal liability be reformed. Critics of the current law say it is difficult to prosecute large companies where responsibility for decision-making is more diffuse.

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Corporate criminal liability – the current rules

Although businesses are not human entities, they can still be prosecuted for criminal activity. In reality, these crimes are carried out by a person (or people) who are acting on behalf of the corporation. One example would be the finance department intentionally misrepresenting the company’s income in order to evade tax.

At the moment, the law in England and Wales uses the ‘identification principle’. This states that only the acts of senior people representing the company’s “controlling mind and will” can be taken into account. In practice, this means that corporate criminality has only occurred if the directors and senior managers were involved in the criminal conduct.

Critics say the identification principle is flawed, as it limits the prosecution of companies to very specific circumstances. In particular, it is difficult to prosecute large companies where it is harder to establish “the controlling mind and will” of the company. This differs to small companies, where it is often obvious who holds decision-making responsibilities.

What’s been suggested?

In light of these issues, the Law Commission recently published a paper providing a series of options for law reform. It sets out four principles that it thinks that law should reflect.

They are:

  • There is a need for one or more general rules of attribution to cover offences generally.
  • For offences of negligence, it should be possible to convict a corporation on the basis of collective negligence even if it is not possible to identify a natural person who was individually negligent.
  • There should be various principles for “failure to prevent” offences, including a requirement that the conduct should be intended to benefit the corporation or a client, and that the corporation should have a defence if it had reasonable prevention procedures in place, or it was reasonable not to have any.
  • Where an offence requires proof of intention, knowledge or dishonesty, directors’ personal liability for commission of the offence by the corporation should require proof that the director consented to or connived in the offence. Neglect as a basis of directors’ liability should be limited to offences of strict liability or negligence.

The paper puts forward a number of suggestions for law reform. These will now be considered by the government.

The options are:

  • Retention of the identification doctrine as at present.
  • Allowing conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence.
  • As above, with the addition that the organisation’s chief executive officer and chief financial officer would always be considered to be members of its senior management
  • An offence of failure to prevent fraud by an associated person.
  • An offence of failure to prevent human rights abuses.
  • An offence of failure to prevent ill-treatment or neglect.
  • An offence of failure to prevent computer misuse.
  • Making publicity orders available in all cases where a non-natural person is convicted of an offence.
  • A regime of administratively imposed monetary penalties.
  • Civil actions in the High Court, based on Serious Crime Prevention Orders, with a power to impose monetary penalties.
  • A reporting requirement based on section 414CB of the Companies Act 2006, requiring public interest entities to report on anti-fraud procedures.
  • A reporting requirement based on section 54 of the Modern Slavery Act 2015, requiring large corporations to report on their anti-fraud procedures.

We will provide an update, if and when the government decides to reform the laws on corporate criminal liability.

Are you facing corporate criminality charges?

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