Corporate Criminal Liability: A Response to the Law Commission’s Discussion Paper – Part Four: Some Questions About Enforcement

Corporate Criminal Liability: A Response to the Law Commission’s Discussion Paper – Part Four: Some Questions About Enforcement

Following an earlier call for evidence in 2017, the Law Commission has been tasked with considering options to reform the law on when and how companies should be held liable for criminal offences. Earlier this year it published a discussion paper and invited responses to 13 questions. BCL partner John Binns continues his four-part response. Read part one of this series here.

 

Civil Penalties

After considering options to change the identification principle and/or to build on the concept of ‘failure to prevent’, the Law Commission’s discussion paper poses a number of questions that relate to the enforcement of corporate offences (presumably, whether or not these or other changes are made). The first relates to administrative or civil penalties, which it notes are available in some contexts and some jurisdictions.  Notably, of course, Deferred Prosecution Agreements (DPAs) under the Crime and Courts Act 2013 are available as a tool to punish corporates for a long list of economic crimes, without the need for a criminal conviction. While far from perfect, these do involve the safeguard of judicial approval, which may not be present in other systems of administrative or civil penalties. A case would have to be made to introduce any new civil penalty powers, in the absence of which it is hard to see how any are needed.

 

Sentencing

The Commission then asks what principles should govern the sentencing of companies (or other ‘non-natural persons’). To support the operation of the 2013 Act, the Sentencing Council has issued guidelines about the sentencing of corporate offenders for offences of fraud (including tax fraud), bribery, and money laundering. Broadly speaking, these consider the culpability of the level corporate and the financial harm (or gain) done (or intended), to produce a financial penalty figure, which is then adjusted based on factors like deterrence and assistance to the prosecution. These are also the principles that feed into the financial penalties for DPAs, and it is hard to see a reason why they should be changed or replaced at this stage.

 

Offences by Directors

Next, the Commission asks about the standard provisions that make directors (or other officers) of companies liable for the company’s crimes, where they are attributable to that director’s ‘consent, connivance or [sometimes] neglect’. Those provisions are not often used at present, but if the identification principle were changed, or the ‘failure to prevent’ concept expanded, would (by default) be available in many more cases. It is not hard to see the problems that would arise, however, where an individual director disputed that the company had committed an offence at all (for instance, because of an issue about whether the perpetrator was a ‘senior manager’, or whether the company’s culture was to blame, or whether its procedures were reasonable). Would a company’s admission of guilt, perhaps in the context of a DPA, determine the issue? And in a similar vein, what relevance would a company’s assertions about the role of the director have in that director’s prosecution under these provisions? These are questions that would merit further consideration, as and when any of the changes mooted in the discussion paper are actively proposed.

 

Some Broader Questions

Is there a problem?

Finally, the Commission invites further suggestions ‘for measures which might ensure the law deals adequately with offences committed in the context of corporate organizations’. There are several assumptions embedded in this question, which require some careful unpacking.

First, is it right to imply that there is necessarily a problem (something ‘dealt with inadequately’) here at all? The Commission spends surprisingly little of its discussion paper on setting out what it is about the status quo that should be making us consider either wholesale changes to the law on corporate liability, or the creation of significant new offences. Instead the cases apparently cited by prosecutors in support of the idea are consigned to an annex, in which various complaints are made about an assortment of cases.

The common theme of these complaints is that, if the law were reformed to make it easier to convict corporates, there may have been a conviction in those cases. Even where that is true (and some of the examples, such as the failed prosecution of Barclays and its executives in connection with fund-raising in Qatar, are doubtful at best), it surely does not amount to an argument that any change is necessary.

The nature of the problem

Second, if there is a problem (or inadequacy) about the way cases are dealt with at present, is it necessarily about ‘offences committed’? The implication is that our focus should be on cases where one or more individuals have committed an offence, but where the option of prosecuting them is inadequate, and the company associated with them should be made liable too. This is not necessarily the only, or the best, way of approaching questions about the role of companies in preventing economic crime. If, as a society, we believe that they should be doing more, then we can (through the usual democratic processes) set out their responsibilities, with penalties if they feel to meet them. Obligations to have anti-fraud procedures, or to report suspicions of fraud, would be possible to introduce (though not, of course, without cost), and the enforcement processes would not require proof that any individual had committed an offence.

Third, if there is a problem (or inadequacy) about the way offences are dealt with at present, is it necessarily about the law? Criminal law practitioners have long argued that there is a significant problem in the system, in the resources and expertise of the law enforcement agencies whose job it is to combat economic crime. Complaints within the system about its inability to deal with the volume of suspicious activity reports, adding huge amounts of intelligence to the state’s arsenal every day, have also been commonplace over the last few years. Meanwhile, many of the prosecutors’ examples of cases that could or should have been dealt with better are those where a regulator, most commonly the Financial Conduct Authority, could alternatively be encouraged or given more powers to deal with the issues on a civil basis, rather than resort to the nuclear weapon of the criminal process.

A different approach

As a final thought, perhaps what this whole debate tends to show is that there is a limit to how far the square peg of corporate personality can be forced into the round hole of moral judgement, in the form of the criminal process. What the identification principle and the ‘failure to prevent’ offences have in common is there focus on the guilty conduct of an individual, by which a corporate can, by one process or another, be made liable. But many corporate offences (for instance under the Corporate Manslaughter and Corporate Homicide Act 2007, health and safety legislation, and money laundering regulations), and many other offences that in practice occur in a corporate context (for instance under the Proceeds of Crime Act 2002, cartel and market abuse laws, and sanctions regulations), can be and routinely are tackled (in the form of preventative procedures, internal investigations, and reporting to law enforcement) by responsible companies under existing law and regulation. The Commission would be well advised to consider those precedents as a route to tackle some of the inadequacies of the present system.

John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). His business crime experience includes representing suspects, defendants and witnesses in cases invoking allegations of bribery and corruption, fraud (including carbon credits, carousel/MTIC, land-banking, Ponzi and pyramid scheme frauds), insider trading, market abuse, price-fixing, sanctions-busting, and tax evasion. He is also one of the partners in BCL’s cannabis department, which assists clients with Home Office licences, listings, and proceeds of crime issues.

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