In January 2017, the UK Government issued a consultation paper calling for evidence on reforming corporate criminal liability for economic crime. Nearly four years later, on 3 November 2020, the Government's response was finally issued. It was not headline grabbing. It concluded that the evidence gathered was inadequate and prevented any clear legislative reform from taking shape. The outcome of the consultation is that the Law Commission will initiate a review of the current law, the scoping work for which will take up to 15 months. The delay in the Government publishing its response and the response's deferral of any recommendations, suggest that there is no great urgency for reform, which may not be surprising given the wealth of other issues currently taking up Governmental focus.
Several features of the Government's response are worthy of note. First, it is important to stress the limits of the consultation. Many of the respondents focused their answers on liability for human rights abuses and environmental breaches, which were outside the scope. The consultation was focused exclusively on corporate liability for economic crime.
Second, the inadequacy of the evidence received may have been a function of the nature of the respondents. Out of sixty-two responses received, twenty-six were provided by law firms. Only two prosecution agencies responded, which likely contributed to the Government's subsequent request to law enforcement agencies to provide further evidence, to allow for a deeper assessment of the issues highlighted by the consultation.
Whilst there is little doubt that much of the input from law firms would have echoed the concerns of their corporate clients, the business community itself was significantly underrepresented. Only eight responses were from stakeholders of the financial services industry and even fewer (four) were received from industry and trade bodies. Ultimately, if there is to be any material reform of corporate criminal liability, it seems inevitable that the Government will need to canvass and reflect on a breadth of views from the business community, particularly on the impact and viability of the compliance requirements which would emerge from any proposal. The UK Bribery Act 2010 is a case in point. The corporate offence under section 7 of the Bribery Act - which criminalises a company's failure to prevent an associated person from committing bribery - was met with vociferous opposition and concern from business, including from the Confederation of British Industry.
The limited response from British business may in part have been because of the consultation's terms. The consultation advanced several options as an alternative to the current general common law ‘identification doctrine' relating to corporate liability, which hinges on the prosecution establishing the criminality of an individual who is properly regarded as being the directing mind and will of the company. The options for reform were as follows:
- Legislate to replace the common law, extending the pool of individuals through whose criminality corporate liability can be fixed, i.e. beyond those who are identified as the directing mind of the company.
- Introduce a model of vicarious liability, similar to the US model.
- Extend the failure to prevent model in the Bribery Act to all other economic crime. Under this approach, once criminality through the company is proven, the burden is on the defendant to show that adequate procedures to prevent the conduct were in place at the time.
- A failure to prevent model, but one in which the prosecution has the burden to prove that adequate procedures were not in place at the time. The suggested “initial” predicate offences were conspiracy to defraud, section 1 offences under the Fraud Act 2006, false accounting and the money laundering offences under the Proceeds of Crime Act 2002.
- Increasing individual accountability through regulatory liability: a model which would mirror the Senior Managers' Regime in the regulated UK financial services sector. Any reform adopting this approach would realistically need to be done on an industry specific basis.
The various alternative proposals had little meat on their bones and any consideration of them in the abstract was always unlikely to prompt adequate engagement from the business sector. Frankly, it seems unrealistic to believe that the consultation would have been capable of harvesting adequate and sufficiently consistent evidence from which a course for reform, if deemed necessary, could be set.
Finally, an observation on the substance. One of the consultation's questions was “Do you consider that the introduction of a new corporate offence could detract from individual accountability?” The majority of respondents thought not, and actually highlighted the likelihood that a new corporate offence would improve individual accountability and result in more individual prosecutions. Others disagreed and raised the risk that prosecutors would default to targeting corporates and that, in doing so, individuals would become a bargaining chip in corporate plea discussions. The deadline for submitting evidence for the consultation closed in March 2017. Aside from prompting the obvious question (why so long?), one wonders whether the minority view- that the availability of corporate offences leads to a disproportionate focus on the investigation of companies - may have now taken firmer hold, especially in light of the case portfolio and activities of the SFO in the intervening years.
Given that the Law Commission's scoping work for the review is set to take up to 15 months, one can be assured that reform will not happen any time soon. Legislating to replace the identification doctrine, with a model more akin to vicarious liability, would be dramatic and would require a significant amount of Governmental and Parliamentary will. It seems more likely therefore that the direction of reform will be towards the extension of the failure to prevent model, through the creation of a similar statutory offence focused on specific economic crimes. This will allow incremental change, as the range of predicate offences can be expanded over time. Whatever the future holds, it seems probable that the scope of corporate criminal liability is likely to see development. When? Who knows!
Originally Published by WilmerHale, November 2020
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