Corporate criminal liability: the Law Commission considers how to apportion fault

On 10 June 2020 The Law Commission published a paper setting out a number of options with a view to potentially updating the law of corporate criminal liability.

The Commissioners' work began In November 2020, and following several consultations they have now published an options paper with possible avenues of reform.

The perceived problem

Although companies can be held criminally liable, enforcement authorities have long argued that the need to attribute the necessary mental element of any crime to the "directing mind and will" of the company renders prosecution, particularly in relation to large companies, evidentially very challenging.

The proposals

The Law Commission sets out ten options for reform:

• Retain the current general rule of criminal liability applied to corporations as it stands – the “identification doctrine” (where a company 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”).
• Allow conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence. This could be drafted so that chief executive officers and chief financial officers are always considered part of an organisation’s senior management.
• Introduce an offence of failure to prevent fraud by an employee or agent. This would apply when the company has not put appropriate measures in place to prevent their own employees or agents committing a fraud offence for the benefit of the company.
• Introduce an offence of failure to prevent human rights abuses.
• Introduce an offence of failure to prevent ill-treatment or neglect.
• Introduce an offence of failure to prevent computer misuse.
• Make publicity orders available (requiring the corporate offender to publish details of its conviction) in all cases where a corporation is convicted of an offence.
• Introduce a regime of administratively imposed monetary penalties.
• Introduce civil actions in the High Court, based on Serious Crime Prevention Orders, with a power to impose monetary penalties.
• Introduce a reporting requirement requiring large corporations to report on anti-fraud procedures.

'Failure to prevent' offences

The suggested "failure to prevent fraud" offence is an extension of the existing failure to prevent bribery and the facilitation of tax evasion offences.  As with the existing offences there will be a defence available to show that  reasonable prevention procedures were in place.

After some debate as to the ambit of this proposed offence, the Law Commissioners have recommended that fraud should include fraud by false representation, obtaining services dishonestly, the common law offence of cheating the public revenue, false accounting, fraudulent trading, dishonest representation for obtaining benefits, and fraudulent evasion of excise duty.

The Law Commission has also put forward three further options for "failure to prevent" offences which relate to human rights breaches, neglect and ill-treatment of vulnerable persons, and computer misuse offences.

Directors' liability

A key principle put forward is that directors should not be personally criminally liable on the basis of neglect if the offence requires proof of a particular mental state.

Similarly, where offences require proof of fault greater than negligence, the Law Commission has recommended that provision should be made to ensure directors are only liable if they committed, consented to, or connived in the offence.  

Additional corporate sanction

The Law Commission has suggested that publicity orders (a requirement to publish details of an offence) be made available in all cases where companies are convicted of an offence, concluding that making such orders more widely available would be valuable, especially where the offender is a public body or charity, or some other body with beneficiaries.

Civil penalties and actions

Recognising the time and cost benefits of criminal options, the paper suggests the introduction of a regime of administratively imposed monetary penalties. The Law Commission, however, recognises that the Crown Prosecution Service (CPS) and Serious Fraud Office are against this option - the CPS is of the opinion that enabling a quasi-judicial system for a criminal offence would make the tools for tackling fraud unwieldy.

The Law Commission has suggested that the High Court be empowered to impose monetary penalties on companies found to have conducted themselves in ways likely to facilitate fraud. The regime would take a similar form to the Serious Crime Prevention Orders as introduced by the Serious Crime Act 2007.

Finally, the Law Commission has suggested imposing requirements on public interest entities and large corporations to report on their anti-fraud policies.

What next?

The government will now review and consider the options paper before deciding whether to implement the suggestions.

Osborne Clarke comment

The Law Commission has set out a reasoned and well-intentioned set of options, but it will be for the government to decide which, if any, it seeks to carry into legislation.

In the current economic environment, there may be an unwillingness to impose a significant additional compliance burden on companies, and so it may be that the proposed failure to prevent human rights abuses and computer misuse may find political traction before the failure to prevent fraud offence.