US-style ‘vicarious liability’ and new ‘failure to prevent’ offences are under consideration in long-awaited government proposals to reform the law on corporate criminal liability published today. Initial reaction from corporate crime specialists was divided, with some lawyers seeing the proposals as a climb-down while others described them as a new burden on business.
The call for evidence published by the Ministry of Justice seeks views on whether the prosecution of companies for wrongdoing is hindered by the need to prove a ‘directing mind’ and whether companies can be held responsible for the actions of their staff without the need to prove complicity. It also seeks opinions on extending the ‘failure to prevent’ model introduced in the Bribery Act to offences such as money laundering.
The Serious Fraud Office has long argued for such measures to bring its ability to prosecute up to the level of its counterparts in the US. The consultation document admits that: ‘Under existing laws, enforcement agencies can struggle to prosecute corporations for criminal offences such as fraud, money laundering and false accounting.’
Announcing the consultation, Sir Oliver Heald, justice minister said: ‘I want to restore public faith in business and make sure we have the right tools available to crack down on corporate criminality. The government will consider whether existing laws sufficiently hold companies to account for the criminal wrongdoing of their staff.
‘For example, it will look at whether successful convictions are being hindered by prosecutors needing to prove the “directing mind and will” of businesses undertaking criminal activity.’
Solicitors specialising in corporate crime offered differing interpretations of the proposals.
Barry Vitou, head of global corporate crime at international firm Pinsent Masons, said the call for evidence ‘looks like a victory for those who have been campaigning to block a reform of the fraud laws concerning corporate crime'.
Until now there has been 'a broad consensus that the law needed changing', he said, noting that as recently as last month the former attorney general Sir Edward Garnier moved a private amendment to the Criminal Finances Bill to create a ‘failure to prevent economic crime’ offence. ‘In contrast today's publication by the MoJ is at risk of creating the impression that the MoJ favours taking a softer approach,’ Vitou said.
Louise Hodges, criminal litigation partner at Kingsley Napley, said: ‘This consultation has been long in coming and already has a chequered past with the proposals bouncing on and off the table over the last few years.'
However Hodges noted that: ‘All options remain open including US-style vicarious liability (previously championed by the Labour party) which 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.
‘This would present the greatest regime change and the mere fact of its inclusion will strike fear in the corporate world.’
On the ‘failure to prevent’ proposals, Hodges said: ‘Although potentially attractive, the ability for a company to predict and protect itself against every possible fraud that could be committed leaves the discretion to prosecute wide open and corporates facing increasing compliance costs and red-tape.’
Tony Lewis, head of fraud and corporate crime at European firm Fieldfisher, warned of ‘the continued march of criminal law into the business sphere’. He said: ‘Should the “failing to prevent” model for other economic crimes in business follow suit, it will be a further example of the continued erosion of the need for there to have been knowledge of an offence to be committed in order to be prosecuted for it.
‘What's more, this will place a significant financial burden on businesses which will need to implement and maintain thorough procedures to prevent any economic crime – but the reality is that they could be held liable for crimes committed by associated persons over whom they have no control.’
Elly Proudlock, counsel in WilmerHale’s UK investigations and criminal litigation practice, said ‘Although it is early days, it is at least encouraging that the government has not ruled out comprehensive reform of the law on corporate criminal liability. Rather than proceeding in a piecemeal fashion, the government should bite the bullet and look at the law more broadly,' she said.
‘Given the increasingly cross-jurisdictional nature of investigations, there are good reasons for bringing the UK more in line with the US.’
The call for evidence will run until 24 March.