Global menu

Our global pages

Close

The Law Commission - Corporate Criminal Liability Project

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Litigation and dispute management

20-11-2020

When the Director of the UK’s Serious Fraud Office (“SFO”), Lisa Osofsky, asked herself on 9 October 2020,“what would be on my wish list for the SFO, if I had a magic wand?”, to which she answered “unsurprisingly, a ‘failure to prevent’ offence”, she was unlikely to have expected the announcement of a Law Commission investigation into the subject to come less than a month later.

On 3 November 2020 the UK government announced that they had requested the Law Commission to investigate “the laws around corporate criminal liability and provide options to reform them” , but also published the long awaited response to January 2017 Corporate liability for economic crime: call for evidence.

Prior to the introduction of the Bribery Act 2010 (“UKBA”), UK prosecutors had to reply upon the ‘identification principle’ in order to obtain a conviction of a corporate entity. Through the identification principle the criminal acts of an employee can be attributed to the company where the employee is represents the ‘directing mind and will’ of the company. Prosecutors often complain that it is difficult to reply upon this principle where often management structures are complex and the board can purposefully distance themselves from decision making.

Section 7 UKBA first introduced the first corporate ‘failure to prevent’ offence in the UK, in the form of failure to prevent bribery by a person associated with the company. The offence was accompanied by a statutory defence which can be relied upon where the company can demonstrate that it had in place at the relevant time, adequate procedures designed to prevent bribery, ie an anti-bribery and corruption (“ABC”) compliance programme.

Two further ‘failure to prevent’ offences were introduced in September 2017 through sections 45 and 46 of the Criminal Finances Act 2017 which created the offences of failing to prevent the facilitation of UK and foreign tax evasion. Again these offences are accompanied by a statutory defence where the company can demonstrate that it had in place at the relevant time, reasonable procedures designed to prevent the facilitation of tax evasion.

The SFO has successfully utilised the failure to prevent bribery offence in securing one conviction and six Deferred Prosecution Agreements to date. Whilst no criminal proceedings have so far been taken for the failure to prevent the facilitation of tax evasion offences, HMRC have reported that they have thirteen live investigations ongoing.

Since 2013, the SFO have called for the introduction of an additional ‘failure to prevent’ offence to assist them in tackling fraud and economic crime. Ms Ofsoksy argued most recently that such an offence was needed “in light of the Barclays Qatar judgment, which confirmed a narrow application of the ‘controlling mind’ test”.

The UK government issued a Call for Evidence on the topic in early 2017, however the results were deemed by the Government to be inconclusive as it failed to achieve any consensus about future reforms on criminal corporate liability and “produced no new significant examples that clearly illustrated the extent of the reported problems” with the current law.

The new Law Commission review, which is set to run for 12-15 months, will look at the current law and consider options for reform, and the following specific issues: (i) whether the identification doctrine is fit for purpose for businesses of all sizes; (ii) the relationship between civil and criminal law on corporate liability; (iii) ways that criminal liability can be imposed on non-natural persons; (iv) the relationship between criminal liability and other approaches to unlawful conduct; (v) the international approach to criminal liability; (vi) whether alternative approaches to criminal liability could be legislated; and (vii) whether changes to corporate liability would have an effect on individual liability.

The outcome of the review will be eagerly awaited by the SFO and corporate crime practitioners alike, however the burden that further a ‘failure to prevent’ offence would place on companies already heavily subjected to increased regulation, and having to navigate through the global pandemic-related economic crisis, along with the uncertainty of Brexit may prove a step too far for the government at this time.

For more information, please contact: