Reshaping the UKs law on corporate criminal liability - Law Commission consultation announced
18 June 2021
In the next step on the journey of revisiting the UK's approach to corporate criminal liability, on 9 June 2021, the Law Commission launched a consultation "seeking views on whether and how the law relating to corporate criminal liability can be improved"1. The discussion paper sets out a number of questions as to whether, and how, the law should be reformed. The Commission is expected to provide its views to the Government towards the end of this year.
Background
The law relating to corporate criminal liability has been a hotly debated topic in recent years, with many stakeholders expressing concern that the current legal framework does not effectively punish corporate entities for economic crime.
Those in favour of reform have argued that the current law is not fit for purpose, highlighting, in particular, the "identification principle" (which requires a prosecutor to demonstrate that those responsible for the misconduct represent the "directing mind and will of the company") as an unsuitable basis for dealing with acts carried out on behalf of companies.
Against a backdrop of public and political pressure, in early 2017, the Government commenced a review of the law in order to assess whether reforms should be implemented that may hold corporates to account more effectively. The Government's Call for Evidence gave rise to "inconclusive" results (published three years later, in November 2020) and led the Government to ask the Law Commission to investigate further.
As part of their consultation process, the Law Commission is running a series of webinars. There have been two webinars so far this month: the first was used as an introductory session to launch the consultation and the publication of the discussion paper2 and the second focussing on the potential reform of the "identification principle".
In the first webinar, Lisa Osofsky, Director of the Serious Fraud Office, reiterated the SFO's view of a need for reform in order to "level the playing field". In her view, not only does the current "identification principle" make it extremely difficult to prosecute corporates, it also unfairly disadvantages smaller companies who are more likely to be found liable than their larger counterparts in which decision making is more likely to be de-centralised across middle-management.
The current Director, and her predecessor, have long campaigned for the "failure to prevent" model, which forms the basis for the corporate bribery offence under section 7 of the Bribery Act 2010 and tax evasion facilitation offences under sections 45 and 46 of the Criminal Finances Act 2017. She seeks an extension of this model to all forms of economic crime (including fraud, false accounting and money laundering). An offence based on this model would make a company liable for economic crimes committed by any of its associated persons (which, it should be noted, is very broadly defined to include any person performing services for or on behalf of the company) therefore lowering the bar for successful prosecution.
Comment
The current consultation will be of interest to both UK companies and overseas companies which carry on some part of their business in the UK. The reforms being contemplated are likely to have broad extra-territorial effect – as the existing failure to prevent type offences do - meaning that corporates will be at risk of criminal enforcement action in the UK for conduct which takes place overseas.
It is therefore expected that the consultation will lead to a robust challenge from the corporate sector. Those against reform will highlight the compliance burden and associated costs that would result from a change in the law. Many will await eagerly the development of this debate, prior to the publication of the Law Commission's paper later this year.
Authors: Ruby Hamid, Partner, Neil Donovan, Senior Associate and Laura Bell, Trainee.
- https://www.lawcom.gov.uk/law-commission-seek-views-on-corporate-criminal-liability/
- Corporate Criminal Liability Discussion Paper
