Business leaders have always faced the spotlight of market and media criticism for their board decisions, but now the spectre of court proceedings is an ever-present threat, following recent high-profile cases.
There is a contrast: in civil proceedings, courts are reluctant to hold directors liable for decisions that (with hindsight) turn out to be wrong - provided that they follow good processes. But boards are increasingly at risk of criminal liability, where the same deference to their business acumen may not apply.
Setting aside actual wrongdoing, why is criminal risk taking up increasing time on the board agenda?
It is all too easy to catastrophise – the common theme of what follows is a widening of the net of criminal sanctions. Please do bear in mind that with proper processes all of the below is eminently navigable; but it is vital to be aware of the changing environment in which you operate.
First, there is the march of 'failure to prevent' offences. Starting with bribery, progressing to facilitating tax evasion, and now looking ahead to fraud, boards must ensure that their companies have proper procedures in place to prevent these offences from taking place. Failing to do so can mean criminal liability at a corporate level, even where third parties are the culprits.
Another recent radical change expanded who can cause the company itself to be criminally liable. Previously, directors could look around the board table and, provided they were confident in the probity of their colleagues, there was little risk of the corporate committing an offence: only "a directing mind and will" could implicate it. Now, however, the conduct of a vast and poorly defined group of "senior managers" can cause the company to commit a criminal offence.
Economic crime statutes also contain consent and connivance provisions, which enable prosecutors to go after directors who are complicit in the company committing a crime, without the need necessarily to prosecute the company itself. Their purpose is to discourage directors from turning a blind eye or encouraging others to do the wrong thing.
Sanctions are another area where the combination of strict liability for sanctions breaches and very wide circumvention provisions mean that recalibrating a business strategy in the face of sanctions restrictions is a commercial exercise that is fraught with risk. The UK's money laundering legislation is also notoriously strict. A company that has a more than fanciful suspicion that it is dealing with the proceeds of crime may commit money laundering, even where the company has no involvement in the crime that generated those proceeds.
This raft of legislation means that directors are also more likely to be made suspects where corporate wrongdoing is investigated. This is for evidential reasons. If an enforcement agency in a particular jurisdiction wants a director's evidence to be admissible in court, the director's account often cannot be given as a witness. Certain agencies, such as the UK's Serious Fraud Office, also have the power to compel a director to give evidence (as a witness) if the company is suspected of wrongdoing, including before any formal investigation has been opened. This evidence can only be used against a director in very limited circumstances. It is nonetheless a stressful process that can make directors feel very exposed. Management information may suddenly become the backbone of a witness account.
We have also seen an uptick in enforcement against directors for UK Companies Act offences like failing to file accounts on time. Only a very narrow defence is available for this conduct and reasonable explanations and requests for extensions of time often fall on deaf ears. It can feel very harsh to face criminal liability for inadvertent or complacent conduct. Recent changes about the provision of information to Companies House make all directors potentially liable for the failure of one director.
These incremental changes have over time changed the environment. The busy boardroom schedule must find a place for proper consideration of these issues. The quality of data, risk identification and training have an important role to play in equipping directors to speak confidently about the company's compliance efforts. D&O insurance is also vital. And keeping yourself and your company out of trouble requires the right ethos, strong governance, education, diligence and thoughtful challenge.
The good news is that business leaders that have taken sufficient steps have given themselves the best possible chance of both averting problems, and insulating themselves should an unforeseen problem arise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
