Corporate Criminal Liability: is change on the horizon?

Keep up with emerging regulatory change for individual liability with CUBE.

Corporate criminal liability is, essentially, the legal blame game for crimes on an enterprise scale.

Right now in the UK, it’s incredibly difficult to prosecute large corporations in criminal law for actions committed by their employees. Typically, the individuals are receiving the sentences. Even if those same employees felt coerced by vague internal communication, or were convinced to cross their moral code ‘for the good of the business’.

But the state of corporate liability in the UK has reached a turning point. Recent spotlights on high-profile corporate crime cases have led to questions and investigations. Corporations can expect some change over the next few years.

How is corporate liability determined?

In the UK, corporate criminal liability is decided by a method called the ‘identification principle’. Only in cases where senior employees representing the company’s “controlling mind and will” are identified, can a company be made liable for criminal activity. 

There have only been a few successful prosecutions of corporate criminal liability, meaning that many cases of economic crime like money laundering, fraud, tax evasion and bribery have not been recognised by the legal system.  

One such attempt at this was the case of Tesco vs Brent from 1993. In this case, a trading standards officer gave a 14-year old boy the money to buy a video classified with an “18” certificate. 

Since the employee who sold the video could not be held accountable by the identification principle as a decision-making employee, he was not deemed to be representing the company’s “controlling mind and will”. Therefore, even though Tesco’s systems and culture made it possible to sell the video to an underage person, the company was subsequently prosecuted for strict liability, a lower offence. 

Problems with the current methods

In recent years, there have been several calls to change the law in cases of corporate criminal liability.

In 2020, the director of the UK’s Serious Fraud Office (SFO) –  Lisa Ofosky – called for changes to be made in line with the Bribery Act 2010 and Criminal Finances Act 2017. As one of the most prominent legal experts, her comments lined up with demands from others involved in specific legal corporate cases, too.  

Others believe that there is a clear issue in cases of corporate criminal liability in that the identification principle doesn’t work. At a large corporation level, the responsibilities of senior employees are difficult to isolate. Being so hard to directly attribute decision-making to senior individuals has prevented companies from being found guilty for a criminal offence. 

From law firm level right up to high court, many are calling for change in the UK corporate criminal liability proceedings.

UK’s Law Commission Investigation

In November 2020, the UK government asked the Law Commission to assess the current state of corporate criminal liability, as well as potential paths for legal changes. After holding consultations, internal investigations, testing different methods and assessing the impact of reforms, they published their paper, titled ‘Options for Reform’ in June 2021. 

Proposed changes to corporate criminal liability

In summary, here are the major points of consideration for potential changes in corporate criminal liability law: 

• Make it possible to attribute corporate criminal liability through methods other than the identification principle, such as on the basis of corporate culture
• Require proof of intent or dishonesty for corporate criminal liability cases
• Make it possible to convict corporations of negligence (even where individual employees are not deemed negligent and without proof of intent)

There have also been a series of “failure to prevent” offences proposed. These line up with more general financial regulation, such as the Prudential Regulation Authority appealing for pre-emptive action to prevent negligence. 

Examples of “failure to prevent” offences include: 

• Fraud by association
• Human rights abuse
• Ill-treatment
• Computer misuse

Several regulatory requirements have also been proposed, including to require public interest entities and large corporations to report on their anti fraud procedures. One of the newly-recommended deterrence measures is making corporate convictions publicly available. A monetary penalty has also been suggested. 

What to expect

This is now a wait-and-see situation. While we wait for the government to align with law reform options set out by the UK Law Commission, companies can start to get ahead of likely operational changes.

It’s possible that new regulations will allow businesses to get up to speed over a 12 – 18 month period. So use that time to implement best practices, train up your people and get ahead of further changes with CUBE.

If you’re struggling to keep up with the pace of regulatory change, we’d love to hear from you.