A step closer to reform of corporate criminal liability? The Law Commission publishes its options.

• United Kingdom

• Fraud and financial crime

13-06-2022

The Law Commission has published a set of options on reform of the law on corporate criminal liability, following a more than 18 month-long review process.

The Commission has concluded that there are 10 potential ways in which the law could be changed “to ensure that corporations of all forms can be properly convicted of crimes, without placing an administrative burden on law-abiding businesses” – but has not suggested the introduction of a general failure to prevent economic crime offence as had been anticipated. However, it has included the possibility of introducing an offence of failure to prevent fraud by an associated person.

The background to the Law Commission’s publication is long and tortuous. In January 2017, the UK government issued a call for evidence into reform of corporate liability for economic crime. The response to this call for evidence was published in November 2020; at the same time, the government announced that they had asked the Law Commission to investigate the laws around corporate criminal liability and provide options to reform them (the “Review”).

There has been considerable interest in the Review over the intervening period, and much expectation as to whether the project would ultimately lead to the introduction of a general corporate offence of ‘failure to prevent economic crime’, based on the structure of the offence introduced by section 7 of the Bribery Act 2010 (which was echoed in the failure to prevent tax evasion offences brought into law by the Criminal Finances Act 2017).

In January 2021, the House of Commons debated a proposed corporate offence of failure to prevent economic crime, the form of an amendment to the Financial Services Bill. This followed six years of calls from a number of parties interested in combatting economic crime, including the previous and current Directors of the Serious Fraud Office. The amendment was not accepted by the House of Commons on the basis that it would pre-empt the outcome of the Law Commission’s review, which at that point was due to be published in late 2021.

As we wrote in January 2021, the presentation of the failure to prevent economic crime offence to Parliament represented a very significant development, and indicated a willingness at government level to introduce a new corporate offence of this type in the future.

It is of interest, therefore, that the 10 options presented by the Law Commission do not include a general failure to prevent offence.

The Law Commission has, however, suggested four other potential criminal offences following this structure, namely failure to prevent: fraud by an associated person; human rights abuses; ill‑treatment or neglect; and computer misuse. The recommendation of a failure to prevent offence for human rights abuses should be closely watched by corporates; certain forms of financial crime are closely linked to human rights considerations, so this may be another way through which financial crime is tackled.

Although narrower than the much-discussed idea of failure to prevent economic crime, the first of these is likely to have broad application and a wide impact on companies’ compliance procedures, requiring significant further investment in areas such as policies and training.

The 10 options also include retention of the current identification doctrine (where prosecutors must prove that senior officers or management of the corporate (the “directing mind and will”) had the required criminal intent) and other, more innovative, solutions such as making publicity orders available in all cases where a non-natural person is convicted of an offence, an administrative penalty regime, and reporting requirements (based on those currently found in the Companies Act and Modern Slavery Act).

Professor Penney Lewis, the Law Commissioner for Criminal Law, has commented: “There is broad consensus that the law must go further to ensure that corporations – especially large companies – can be convicted of serious criminal offences, such as fraud. It’s imperative that we have the right mechanisms in place to allow companies to be effectively held to account for misconduct carried out in their name. Our ten options for improving the law on corporate criminal liability mean that the Government now has several viable routes to reform at its disposal.”

Now that the results of the Review have been published, and despite some surprises, it seems that we are one – big – step closer to possible reform becoming a reality. We will be watching the situation closely, and will be publishing a more detailed analysis of the results of the Review in due course.

The Law Commission’s full report is available to download here. The 10 options are as follows:

1. retain the current general rule of criminal liability applied to corporations – the “identification doctrine” – as it stands
2. allow conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence. This could be drafted so that chief executive officers and chief financial officers are always considered part of an organisation’s senior management
3. introduce an offence of failure to prevent fraud by an employee or agent. This would apply when the company has not put appropriate measures in place to prevent their own employees or agents committing a fraud offence for the benefit of the company
4. introduce an offence of failure to prevent human rights abuses
5. introduce an offence of failure to prevent ill-treatment or neglect
6. introduce an offence of failure to prevent computer misuse
7. make publicity orders available (requiring the corporate offender to publish details of its conviction) in all cases where a corporation is convicted of an offence
8. introduce a regime of administratively imposed monetary penalties
9. introduce civil actions in the High Court, based on Serious Crime Prevention Orders, with a power to impose monetary penalties
10. introduce a reporting requirement requiring large corporations to report on anti-fraud procedures

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