Frequently Asked Questions: Corporate Crime

Corporate Crime FAQs

1) How is corporate criminal liability established?

2) Are there likely to be any changes to the law on corporate criminal liability? 

3) What about the position of individuals when companies are investigated and prosecuted? 
 

1) How is corporate criminal liability established?

In recent years, two important pieces of legislation have sought to overcome the historical difficulty in establishing corporate criminal liability by creating specific corporate offences:

For most other offences, there are two legal principles by which a company can be prosecuted for criminal offences: 

  • Vicarious liability, which applies principally to offences where there is no requirement to prove any mental element and nothing further needs to be proven beyond the existence of the facts amounting to the contravention. A number of statutes set out what are essentially strict liability offences, but the use of this principle as a basis for corporate prosecutions is most commonly found in quasi-regulatory areas of criminal law such as health and safety and environmental law.
  • The "identification principle" which applies to offences that include a mental element (such as intent, dishonesty or knowledge) within their definition.  The identification principle establishes that only the acts and state of mind of those who represent the directing mind and will of the company can be imputed to the company itself. Historically it has proven a hurdle that has often prevented companies from being held liable for the acts of individuals who work within them. 

2) Are there likely to be any changes to the law on corporate criminal liability? 

It is likely that 2017 is going to see changes relating to corporate criminal liability.  Changes which were initially proposed in December 2014 when the UK Anti-Corruption Plan was published are now making their way through the legislative process or being consulted upon.  Most recently, the Government has issued a call for evidence relating to Corporate Liability for Economic Crime.  The consultation which runs until 24 March 2017 focuses on whether existing laws sufficiently hold companies to account for the criminal wrongdoing of their staff. In particular, it will look at whether successful convictions are being hindered by the current position where prosecutors needing to prove the “directing mind and will” of businesses undertaking criminal activity. 

Two new offences are also expected to come into force this year.

  • A new corporate offence of failing to prevent the facilitation of tax evasion, based on the existing offence of failure to prevent bribery has been included in the Criminal Finances Bill. This is a strict liability offence meaning it is unnecessary to prove criminal intention, or senior management involvement, to establish guilt.  

    For a company to be guilty of the offence there must be proof of tax evasion to the criminal standard of proof - beyond reasonable doubt - but a prosecution and conviction of the individual taxpayer is not required. There will be a "reasonable procedures" defence: that reasonable procedures were in place or it was unreasonable to have them.
  • The Finance Act 2016 introduced a new offence of failing to declare offshore income and gains in an attempt to prevent tax fraud.  It is anticipated that this will come into effect from April 2017.  A strict liability offence it will apply where a taxpayer fails to notify HMRC that he or she is chargeable to tax, fails to file a tax return or files an inaccurate return.

3) What about the position of individuals when companies are investigated and prosecuted? 

The particular legislation under which the prosecution has been brought will determine which positions within a company are at risk of prosecution, though typically it will apply to directors and other senior officers and managers. As well as the substantive offences including fraud, false accounting misleading the market etc, there are over 400 statutes covering a range of economic and other activity that allow for individuals to be prosecuted because they have participated in criminal offending through consent, connivance or neglect. 

Where a person is convicted on this basis they are convicted of the offence of which it is said the company was guilty, although it is important to note that no conviction of the company is necessary to found the prosecution of one of its officers. All that is required is that the commission of the offence by the company is proven to the necessary standard, including the disproving of any corporate defence that may apply. 

The DPA scheme enables a company to negotiate a DPA, but a prosecution nonetheless takes place of officers whose consent, connivance or neglect is said to be attributable to the company's offending. Frequently a term of the DPA will include that the company assists in such a prosecution. Since part of the negotiation of a DPA involves drafting an agreed statement of facts giving the full particulars relating to each alleged offence, it is likely to include the role played by particular individuals. There may well be a conflict between the interests of the company and its senior officers. Lawyers advising the company will have to approach this issue carefully.

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