Corporate Criminal Liability - Elephant in the room spotted

14 June 2013

Recent comments made by SFO Director David Green and shadow Attorney General, Emily Thornberry, have revealed a recognition that there remain significant challenges in prosecuting companies for most financial crime. Speaking last week at a conference, David Green suggested the need to change the law to make it easier to hold companies criminally accountable, an idea echoed in proposals announced by Emily Thornberry over the weekend. For many lawyers practicing white collar law this addresses an issue that has been significantly absent throughout the debate over the last couple of years in relation to Deferred Prosecution Agreements (DPAs) namely, exactly what corporate prosecutions it is thought may be deferred under such agreements.

The difficulty lies in the fact that in respect of the majority of criminal offences, to prove that a company is guilty, it is first necessary to prove that someone in the senior management of the company is guilty. This "identification principle" as it is known, is the means by which the courts have established it as necessary to prove that the "controlling mind" of the company had the necessary criminal knowledge or intent to establish corporate criminal liability. It is an extremely high hurdle and one at which the prosecution has typically faltered historically. There have been very few attempts to prosecute companies for the type of financial wrongdoing of the kind likely to be of interest to the SFO due to this inherent difficulty.

The Bribery Act 2010 deals with things in a different way by creating a strict liability offence in Section 7 of failing to prevent bribery. It is a defence for a company to prove that it had in place adequate procedures to prevent bribery.

Green's proposal is that a similar offence might be created in respect of other financial crime such that the company's failure to prevent an offence by an employee might be an offence on the part of the company. Labour's detailed proposals are yet to be unveiled though from Thornberry's comments as it appears that they will be different to those of Green and seek instead to attribute criminal liability to companies whose employees commit criminal offences.

Any proposal that changes the basis of corporate criminal liability will require primary legislation that is unlikely to be in force by the time DPAs come into force next year. Green's and Thornberry's comments do however point to a growing realisation that such a step is necessary if DPAs are going to have any real effect. Whether such a development in the law would be either fair or good for British business is highly questionable. These are issues that should now be debated as these proposals develop.

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