Law Commission paper on Corporate Criminal responsibility

Quick read

On 10 June 2022, the Law Commission published its Corporate Criminal Liability 'options paper' for the Government. This paper aims to outline possible ways to strengthen corporate liability, both from a criminal and civil perspective.

The general rule in England and Wales to establish criminal liability in the corporate environment is the 'identification principle'. This is the requirement that prosecutors need to prove that the "controlling mind and will" of directors or other members of senior management was culpable.

However, successive cases have tended to narrow the operation of this principle, culminating in the Barclays decision in 2018 which held that a Chief Executive and Chief Finance officer were not, on the facts of that case, directing minds or wills of Barclays because in relation to the conduct in question they did not have full autonomy in relation to that conduct. One of the effects of such a narrowing is to unfairly penalise small companies, where senior officers are more likely to have such autonomy and authority, compared to large corporations where such authority is often much more diffuse.

In November 2020 the UK Government tasked the Law Commission to review the law. The Options Paper followed a period of consultation and outlined several options to strengthen corporate liability.

These are as follows:

After an exhaustive review, the commission seems to have concluded that the only viable options start with retention of the existing identification doctrine as interpreted by recent case law.
A second option involves modifying the identification doctrine, Canada-style, to extend the model of attribution to include the actions of individual directors and senior managers – a senior manager would be any person who plays a significant role in the making of decisions about how the whole, or a substantial part of the company's activities are managed or organised, and the actual managing or organising of a substantial part of those activities. A further suggested option involves specifying that a Chief Executive Officer and Chief Financial Officer would always be considered to be members of senior management.
The commission carefully considered existing 'Failure to prevent' offences, and while rejecting a general corporate Failure to Prevent Crime offence, set out some principles for future such offences, and cautiously allowed for an offence of failure to prevent fraud by an associated person, with a number of specific restrictions.
The commission was more willing to consider such a regime in relation to specific matters, and so suggests an offence of failure to prevent computer misuse, an offence of failure to prevent human rights abuses, and an offence of failure to prevent neglect and ill-treatment. Other recommendations include:
Making publicity orders available in all cases where a non-natural person is convicted of an offence.
Introduction of a regime of administrative monetary penalties – a company would be liable to pay a penalty unless it can show it has taken reasonable steps to prevent the misconduct.
Civil actions in the High Court, based on Serious Crime Prevention Orders, but involving a power to impose monetary penalties as well as preventive measures.
Introduction of a reporting requirement based on section 414CB of the Companies Act 2006 – requiring public interest entities to report on anti-fraud procedures.
A reporting requirement based on section 54 of the Modern Slavery Act 2015 requiring large corporations to report on their anti-fraud procedures.

In amongst the headline offences there is a wealth of detail which points to a direction of travel for corporate criminal law, should the government (and the courts) want to take it up: For example, there are principles for future 'failure to prevent' offences in relation to benefit, extraterritoriality and conspiracies, attempts, aiding and abetting etc. There was also a thorough review of the 'consent and connivance' provisions which appear in over a thousand legislative instruments, creating liability for directors and senior managers for corporate offences, effectively on the basis of negligence. This creates a potential for grave unfairness where a director could be convicted on the basis of mere negligence, even though the corporate offence requires some higher, more direct form of mens rea. Its conclusion is that where director liability is extended to offences requiring proof of intent recklessness or dishonesty, the individual's liability should be limited to connivance or consent (ie not mere neglect). Such is the potential unfairness they highlight, and so large is the task of amending legislation, that they suggest either a general provision or CPS guidance to the effect that it will rarely be in the public interest to prosecute a director for an offence requiring proof of fault unless there is evidence that the director consented to or connived in the commission of the offence.

The options raised by the Law Commission appear to be an attempt to strike a balance between corporate and individual culpability and accountability and suggest a move towards limiting over burdensome and costly self-regulation. Hopefully the government will act swiftly on the suggested reforms.