Senior associate Tom McNeill’s article “Corporate Crime and the Regulatory Approach” has been published by Lawyer Monthly.

Here’s an extract from the article:

“Corporate criminal liability has been transformed beyond all recognition from what it was just 15 years ago.

Not merely have fines increased very significantly, the expectations placed on corporates have changed fundamentally. Companies are now expected to behave responsibly.

That doesn’t just mean doing no wrong, it means preventing others from doing wrong.

And if they do not, they risk not merely reputational harm but criminal prosecution and highly punitive fines.

Background

A key change has been the growth and development of the ‘regulatory’ approach.

Traditionally, the most serious offences were ‘mens rea’ offences. These offences require proof of the relevant mental state as well as the relevant act – for example, theft requires proof of dishonesty and not merely the appropriation of property belonging to someone else.

Regulatory offences, previously seen as less serious, are to the effect that if the proscribed thing happens, or the required thing does not, an offence is committed, and it doesn’t matter whether on organisation meant it or even knew about it.

Sometimes regulatory offences have a due diligence provision – so that it wouldn’t be an offence if the person did all they reasonably could, but the proscribed thing still happened.

But it is the nature of regulatory offences, even those with a due diligence defence, that they’re easy to commit and difficult to defend.

Identification doctrine

It’s hard for companies to commit mens rea offences because it typically requires a directing mind, usually a director, to commit the offence which is then attributed to the company.

Often directing minds aren’t involved with the relevant conduct – sometimes not provably so.

Legal scholars and practitioners used to query the justification for fining corporations, effectively the shareholders, for conduct they might not have approved or been aware of i.e. of which they were innocent.

It was also doubted that the shareholders would be moved (or be in a position) to take steps to address the offending. In any event, it was thought curious reasoning that an innocent person should be punished in order to compel him to do something which the law could do directly.

In more recent years the concern became that identification doctrine was shielding companies from criminal liability. The response has been the extension of the regulatory approach to mens rea offences.

Failure to prevent

In 2010, the UK introduced a failure to prevent bribery offence which makes commercial organisations criminally liable if a bribery offence is committed by an ‘associated person’ – a very broad term that could include sub-contractors or suppliers – so long as that person intended a business advantage for the organisation.

There is no minimum level of culpability – the draft bill required proof of negligence, but that requirement was removed during the legislative process.

It doesn’t matter if no one within the company knew about the offending or the organisation did gain an advantage. The only defence for the company is to show that it had adequate procedures to prevent such conduct.

In other words, commercial organisations are made criminally liable if someone else commits an offence, subject to a defence which requires them to prove that they did all they reasonably could to prevent the offending.

In 2017, a failure to prevent the facilitation of tax evasion offence was introduced, in similar though not identical terms. There is currently an ongoing Law Commission review which is considering extending the offence to other economic crimes, such as fraud, false accounting and money laundering.

FCA-regulated persons are already subject to substantial ‘regulatory’ (i.e. non-criminal) penalties that are frequently higher than those imposed by the criminal courts, [1] including for shortcomings in anti-money laundering controls and for failing properly to assess, monitor and mitigate the risk of financial crime.”

This article was published by Lawyer Monthly on 01/09/21. You can read the full article on their website.