Corporate Criminal Liability – Consultation opened over need for reform

On 13 January 2017, the UK government published a call for evidence relating to possible reform of corporate criminal liability. The consultation seeks views on whether further reform is needed to combat corporate criminality in areas of economic crime other than bribery and tax evasion, which already have specific corporate offences under the Bribery Act 2010 and the proposed corporate tax offence of failure to prevent tax evasion set out in the Criminal Finances Bill.  The consultation closes on 24 March 2017.

The problem that this is intended to address is that enforcement agencies currently struggle to prosecute corporations, particularly larger ones, for criminal offences such as fraud, money laundering and false accounting. The government is considering whether existing laws sufficiently hold companies to account for the criminal wrongdoing of their staff. In particular, it will look at whether the current law is preventing prosecutors bringing successful convictions of companies for such offences. Currently prosecutors need to prove that the “directing mind and will” of companies, generally accepted to be only those at main board level or equivalent, are themselves guilty of the offence alleged against the company.

The need for reform in this area has been the subject of much debate over the past few years. The current Director of the Serious Fraud Office (the SFO), David Green ,proposed back in 2013 extending the “failing to prevent” offence found in the Bribery Act to other offences, and has maintained this view in a number speeches and articles since then. He suggests that a company that fails to prevent other economic crimes such as fraud or dishonesty committed by its employees or agents should be guilty of an offence. As with the Bribery Act offence he proposes an “adequate procedures” defence to be provided within the statute.  Similarly the Criminal Finances Bill, as currently drafted, includes a new corporate offence of failing to prevent the facilitation of tax evasion, which broadly follows this model. This approach creates a strict liability offence, meaning that it is unnecessary to prove criminal intention, or senior management involvement, in order to establish guilt. 

 All options remain open in the consultation including the US-style vicarious liability (previously championed by the Labour Party prior to the election in 2015). This provides that a corporation may be held criminally liable for the illegal acts of its directors, officers, employees and agents if it is established that the corporate agent’s actions were within the scope of his duties and intended, at least in part, to benefit the corporation.  Of the proposals set out in the consultation this would result in the greatest extension of corporate criminal liability.

 The proposal advocated by David Green QC is regarded as a mechanism to actively promote a change in corporate behaviour by encouraging companies to introduce policies and procedures to provide an “adequate procedures” defence.  Although potentially attractive to extend this to other areas of economic crime there are problems. Unlike the bribery and tax legislation which deals with specific offending, and which therefore allows a defence to be established through focused policies and practices, the more ambiguous and wide ranging prevention of fraud offence makes identifying what those policies and procedures should be and how they should be monitored and policed more difficult. 

The least dramatic proposal suggested in the consultation is strengthening the existing regulatory regimes, though this is unlikely to satisfy those campaigning for a cleaner corporate culture.  
 Further details are available on the Ministry of Justice website. Those wishing to respond the consultation are asked to respond to the following questions:

1. Do you consider the existing criminal and regulatory framework in the UK provides sufficient deterrent to corporate misconduct – yes / no / not sure - please give reasons
    
2. Do you consider the identification doctrine inhibits holding companies to account for economic crimes committed in their name or on their behalf? yes / no / not sure - please give reasons
    
3. Can you provide evidence or examples of the identification doctrine preventing a corporate prosecution?
    
4. Do you consider that any deficiencies in the identification doctrine can be remedied effectively by legislative or non-legislative means other than the creation of a new offence (Option 1)?
    
5. If you consider that the deficiencies in the identification doctrine dictate the creation of a new corporate liability offence which of options 2,3,4 or 5 do you believe provides the best solution? Reasons
    
6. Do you have views on the costs or benefits of introducing any of the options, particularly impacts on competitiveness and growth?
    
7. Do you consider that introduction of a new corporate offence could detract from individual accountability? yes / no / not sure - please give reasons
    
8. Do you believe new regulatory approaches could offer a better alternative, in particular can recent reforms in the financial sector provide lessons for regulation in other sectors? yes / no / not sure - please give reasons
    
9. Are there examples of corporate criminal conduct where a purely regulatory response would not be appropriate? yes / no / not sure - please give reasons
    
10. Should you consider reform of the law necessary do you believe that there a case for introducing a corporate failure to prevent economic crime offence based on section 7 of the Bribery Act model? yes / no / not sure - please give reasons
     
11. If your answer to question 10 is yes, would the list of offences listed below coupled with a facility to add to the list by secondary legislation be appropriate for an initial scope of the new offence? yes / no / not sure - please give reasons

• the common law offence of conspiracy to defraud
• the offences at section 1 of the Fraud Act 2006
• the offence of false accounting at section 17 of the Theft Act 1968
• the money laundering offences at section 327 to 333 of the Proceeds of Crime Act 2002
  a. Are there any other offences that you think should be included within the scope of any new offence?
  
  12. Do you consider that the adoption of the failure to prevent model for economic crimes would require businesses to put in place additional measures to adjust for the existence of a new criminal offence? yes / no / not sure - please give reasons
  
  13. Do you consider that the adoption of these measures would result in improved corporate conduct? yes / no / not sure - please give reasons