Law Commission seeks views on corporate criminal liability legislation

In the year to September 2020, there were over 5,000 convictions of ‘non-natural persons’ which includes companies, charities and local authorities. Organisations like these are capable of committing criminal offences ranging from regulatory offences including breaches of environmental or trading regulations through to offences such as manslaughter or fraud.

However, it’s abundantly clear that there are issues across a range of offences undermining the ability to effectively hold organisations to account for committing criminality.

In a joint statement, Professor Penney Lewis (Criminal Law Commissioner) and Professor Sarah Green (Commercial and Common Law Commissioner) have said: “In their current form, there is concern that the law on corporate criminal liability does not always appropriately criminalise corporate misbehaviour, especially when applied to large corporations. At the same time, it is important to ensure that any reform does not impose an undue burden of compliance on companies. Input from stakeholders will help us to provide options to Government to ensure the appropriate basis of corporate criminality, while avoiding disproportionate compliance costs.”

Identification principle

Where an offence requires proof of a particular mental state, such as intent, recklessness or dishonesty, companies can only be found guilty if someone who represents the company’s ‘directing mind and will’ has the requisite state of mind. This is known as the ‘identification principle’. For example, if the sole director of a company were fraudulently to increase the value of an invoice sent by the company then the company, as well as the director, could be found guilty of fraud.

However, there are concerns that the identification principle does not adequately deal with misconduct carried out by and on behalf of companies – especially larger organisations – with complex decision-making structures.

In smaller organisations, where decision-making is more centralised, it’s much easier to identify the company with the wrongdoing, and thereby hold the company to account for it.

Other jurisdictions have a wider basis of liability. For instance, in the United States, companies can be held criminally responsible for offending carried out by any employee in the course of their employment if it’s intended in part to benefit the employer. In Australia, companies can be held criminally responsible if there’s a corporate culture of non-compliance or the conduct was otherwise sanctioned by senior management.

Failure to prevent offences

In recent years, Parliament has created new offences of a failure to prevent bribery and a failure to prevent facilitation of tax evasion, which a company commits if a person associated with the business, such as an employee, engages in the conduct.

The company is liable unless it can show that it had adequate procedures in place to prevent the conduct. It has been suggested that similar offences should be introduced to cover other forms of economic crime, such as fraud.

The introduction of each of these ‘failure to prevent’ offences was accompanied by guidance from Government on steps companies should take to prevent their employees and agents from committing bribery or facilitating tax evasion. While this guidance is not binding, failure to follow it may make it harder for a company to show that it had adequate procedures in place in the event of a prosecution event.

It has been suggested that these corporate ‘failure to prevent’ offences could be extended to cover other criminal offences, such as fraud, which might be committed by an employee and from which a company might benefit. As is the case at present with bribery or the facilitation of tax evasion, the corporation could have a defence if it could show that it had taken steps to prevent such offending being committed.

The Law Commission’s review process will examine which further offences might be covered by any new corporate failure to prevent offence and what costs the introduction of such a new offence (or offences) would have for law-abiding businesses.

Discussion paper

There is clear concern that laws relating to corporate criminal liability are not working as well as they could. Reform may be needed to ensure that organisations of all sizes can be held to account and serious crimes can be punished.

However, reform of corporate criminal liability must also take account of the impact of increased costs on law-abiding corporations to ensure they are not overburdened by processes they’re expected to follow.

In its discussion paper, The Law Commission seeks views from stakeholders on how to achieve this. The Commission has asked a number of questions as to whether – and how – the law should be reformed. The responses received will inform The Law Commission’s options paper that will be provided to the Government towards the end of this year.