The recent proposals put forward by the Law Commission on corporate criminal liability were much heralded, particularly by campaign groups disappointed by recent high-profile failures of criminal prosecutions against companies. Several options for reform have been put forward. Whether any of them develop into firm proposals remains to be seen, but they are likely a disappointment to those hoping for more radical change.
Understanding the history is useful. In 2020, public and political pressure prompted the government to ask the Law Commission to review the existing law on corporate criminal liability. Many felt that current law makes it too difficult for corporate entities to be found liable for criminal offences committed by employees. This is not least because of the ‘identification doctrine’, which required the identification of the individual(s) responsible who were also the ‘directing mind and will’ of the company itself. The difficulty in identifying such individuals was particularly acute in large organisations where criminality might well occur in one part of the company.
For many the introduction of offences based on ‘failing to prevent’ criminality in the Bribery Act 2010 and the Criminal Finances Act 2017 was a positive development which could render a corporate liable for bribery and tax evasion carried out by individuals associated with the company, unless it could show that it had proper procedures in place to prevent such offences. Some expected that the proposals would include extending failure to prevent offences into other areas of criminality.
Identification doctrine
The paper published by the Law Commission acknowledges that the ‘identification doctrine’ lies at the heart of the difficulties in successfully prosecuting corporates, but the options set out amount to a broadening of that principle rather than an overhaul. The commission has rejected both the US-style approach to make corporates liable for criminal acts of employees, as well as the Australian approach in which a corporate is liable for its employees’ offences if the firm’s culture permits such criminality.
Instead, one of the principal options put forward by the Law Commission is a broadening of the identification doctrine to allow an employee’s criminal conduct to be attributed to a corporate if a member of its senior management engaged in, consented to or connived in the offence. This concept already appears in specific areas of criminal law (for instance health and safety) and will, to a certain extent, be familiar to criminal practitioners. However, the requirement that an individual must play a ‘significant role in making decisions’ about ‘a substantial part of the organisation’s activities’ is ripe for further debate on a case-by-case basis.
One of the difficulties with the current position is that it is much easier to prosecute smaller enterprises than larger ones. What is proposed is likely to do little to change the position, although a suggestion that the CEO and CFO would always be considered a member of senior management for these purposes does offer some greater clarity about who is potentially in the line of fire.
Failure to prevent
As for new ‘failing to prevent’ offences, the Law Commission’s options try to avoid a system which is overly burdensome on businesses. Many corporates will have experience of putting in place procedures aimed at preventing bribery and tax evasion as a result of the Bribery Act and the Criminal Finances Act. More ‘failure to prevent’ offences would require further procedures to be put in place, or at least to be considered. A common complaint has been that while it is a defence to have proper procedures in place, guidance from the government as to what amounts to a proper procedure has been lacking. As such the commission recommends that the government should publish guidance as to what constitutes appropriate procedures (including sector-specific guidance) for any new ‘failure to prevent’ offences.
The Law Commission does not recommend a general offence of failing to prevent economic crime, which it considers too burdensome not least because of the difficulty involved in defining ‘economic crime’. Instead, it recommends an offence of failure to prevent fraud by associated persons. This would be limited to circumstances where the fraud is committed with intent to benefit the corporation, or to benefit another person who is provided services by the corporation. Specific offences of failure to prevent human rights abuses, failure to prevent ill-treatment and neglect, and failure to prevent computer misuse are all included as options too, although it is clear that further work would be required before the scope of any of these offences could be properly formulated.
The paper does not suggest an offence of failure to prevent money laundering (which exists in Jersey as of today (24 June)). It may be argued that the now well-established proceeds of crime legislation already requires anti-money laundering/combating the financing of terrorism procedures to be in place, although some might be surprised to see a prominent offshore jurisdiction leading the way. The Law Commission suggests a presumption that any new ‘failure to prevent’ offence should not apply to acts carried out by employees and agents overseas. Given the multi-jurisdictional operation of many large corporates and the prevalence of complex offshore structures, this is likely to be considered a missed opportunity for those hoping for greater extra-territorial reach of the UK prosecution authorities.
Simon Thomas is a partner at Baker & Partners, Jersey
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