Long-awaited Law Commission proposal on Corporate Criminal Liability

On 10 June 2022, the Law Commission (the Commission) published its long-awaited Corporate Criminal Liability Options paper to help the UK Government wrestle with the question of how to ensure corporations can be effectively held accountable for criminal acts. The purpose of these reforms, according to the Law Commission, is to ensure that corporations of all forms can be properly convicted of crimes, without placing an ‘administrative burden’ on law-abiding businesses.

The Commission concluded that there was a need for reform, and that one or more general rules of attribution should be enacted to cover corporate criminal offences. It set out 3 options: 

(i) retaining the identification doctrine as it stands (which provides that a corporate will generally only be liable for the conduct of a person who had the status and authority to constitute the company’s “directing mind and will”); 

(ii) allowing conduct to be attributed to a corporate if a member of its 'senior management' engaged in, consented to, or connived in the offence - any person who played a significant role in the making of decisions about how the whole or a substantial part of the corporate’s activities were to be managed or organised, or the actual managing or organising of a substantial part of those activities; or

(iii) as (ii) but with the addition that the corporate’s chief executive officer and chief financial officer would always be considered to be members of its 'senior management'.

The key recommendation is expanding the 'failure to prevent' model.  General principles recommended include:-

(1) Corporates should generally only be liable for failure to prevent commission of an offence that was intended to confer a business advantage on the corporate, or on a person to whom the associated person provided services (unless the conduct was intended to cause harm to the corporate).

(2) Corporates should have a defence available on the basis of "reasonable", rather than "adequate", procedures to prevent the conduct, taking the language from the Criminal Finances Act offence of failure to prevent the facilitation of tax evasion, rather than the language of the Bribery Act.

(3) The burden of proving that the corporate had put in place reasonable prevention procedures, or that it was reasonable not to have any such procedures, should – as it does in the current model – lie with the defence.

Perhaps the most significant change is the suggestion of an offence of failing to prevent fraud by an associated person, which will expand the compliance requirements for all companies.  

Another option to note is a failure to prevent human rights abuses, which would boost the government's current armoury against modern slavery.  

No failure to prevent money laundering is contemplated.  As a result, the proposals have come in for criticism in some quarters: Dame Margaret Hodge, the Labour MP who chairs the APPG on anti-corruption and responsible tax has said the review was a “thundering disappointment” that let “corporate criminals and the enablers of economic crimes off the hook. What was couched as a once-in-a-generation chance for reform has instead left the door open for yet further inaction on tackling the scourge of dirty money.” She added  “It beggars belief that money laundering has been excluded from the new ‘failure to prevent’ offences.”

In light of the current global focus on the identification and prevention of money laundering and terrorist financing, the Commission may indeed have missed an opportunity.

Authors: Ruby Hamid, Partner; David Capps, Senior Consultant and Neil Donovan, Senior Associate.