The government’s long-awaited response to a call for evidence on changing the basis for corporate criminal liability promises further analysis by the Law Commission, with potentially far-reaching changes to follow. Cindy Laing and John Binns explain.
On 3 November 2020, the Ministry of Justice published a Government Response to their Call for Evidence regarding corporate liability for economic crime. The Call for Evidence itself took place some considerable time ago, from January to March 2017. The Response acknowledges concerns that have been raised over the efficacy of the existing legislation surrounding criminalisation of corporate entities when they commit economic crime. As a result of those concerns, the Government has requested a review of the ‘identification doctrine’ (a common law test of whether corporations can be attributed with criminal liability) by the Law Commission.
For the past 10 years, the Government has been implementing a series of measures to tackle economic crime, including passing the Bribery Act 2010, section 7 of which makes it an offence for a corporate to fail to prevent bribery (subject to a defence that it had ‘adequate procedures’ to prevent it), and introducing Deferred Prosecution Agreements (‘DPAs’).
Indeed, in the time that has passed since the Call for Evidence in 2017, there have since been additional developments. These developments include new corporate criminal offences as set out in the Criminal Finances Act 2017, of failing to prevent the facilitation of tax evasion. In that time, we have also seen the failure of a high-profile attempt by the SFO to prosecute Barclays, in connection with its contract to pay consultancy fees to entities associated with the government of Qatar.
The Call for Evidence
The Call for Evidence sought views from industry and the public about whether there was a case for change in the current legislative framework of corporate criminal liability, and suggested 5 possible options for reform:
- Legislate to replace the current common law rules;
- A new form of vicarious liability, along the lines of the US model (which, broadly speaking, makes corporates liable for acts of individuals that have apparent authority to act for it);
- A new strict liability offence along the lines of the existing section 7 of the Bribery Act 2010 (the ‘failure to prevent’ model, which provides for corporate liability for the substantive offence of an ‘associated person’, where the defence has the burden of proving the existence of adequate procedures);
- A variant of the failure to prevent model as set out above (where the prosecution has the burden of proving a lack of adequate procedures); and
- Investigate the scope for further regulatory reform.
Concerns, but No Consensus
While the Response, quoting a House of Lords select committee, commended the Bribery Act as an ‘exemplary piece of legislation’, a slight majority of respondents felt that the existing framework (with this as the main exception to the general common law rule) was an insufficient deterrent to corporate misconduct (52.5%) and that there was a need for some type of reform. But there was also no clear consensus on the type of solution to be adopted.
A large majority of respondents raised concerns that the identification doctrine inhibits the ability to hold companies to account for economic crimes. In particular, some responses noted that the doctrine “acts as a disproportionate burden on small or medium sized companies”, on the basis that it is easier to prove complicity of senior executives of these companies than it is in larger corporations, due to the size and often complex governance structures of the latter.
Issues with ‘Failure to Prevent’ and DPAs under the Existing Law
The recent mixed success of high-profile prosecutions for economic crime has raised some questions about the existing framework, and the effectiveness of the existing corporate offence under Section 7 of the Bribery Act. Prosecutions by the SFO in relation to the section 7 offence have largely been resolved by DPA, by which a corporate can avoid conviction by agreeing to a statement of facts, and financial and other penalties.
DPAs are relatively new in the UK, have brought in over £1 billion in penalties, and have been praised by some for extracting real corporate reform. Due to the embargoes of the DPA negotiation process, case law in this area remains limited to the handful that have been agreed so far. So it is hard to extrapolate from these whether a combination of DPAs with either a common law or a ‘failure to prevent’ model is truly effective. In particular, the idea of corporates having to demonstrate adequate procedures (or ‘reasonable procedures’, as in the Criminal Finances Act 2017) is still relatively untested.
Furthermore, where there is a corporate admitting culpability in a criminal offence, by agreeing to a DPA to avoid prosecution, there has frequently not been a corresponding conviction for the individual (in the example of Tesco, the individuals said to be guilty were acquitted, after the case was found by a judge to be insufficient). While the SFO may wish to expand corporate criminal liability by lowering the bar for corporate prosecutions, it is questionable whether this is the right approach to deter economic crime, as it still fails to address the problems where no individuals are held accountable, or where corporates make admissions about individuals who are not guilty.
Is It Right to Go Further?
The idea of making UK corporates liable for crimes (beyond bribery and facilitating tax evasion) done ‘in their name’ raises some additional problems. Apart from the increased compliance costs and potential adverse impact on competitiveness and growth, as noted in the Response, there also exist issues of principle about when the actions of an individual, who may well be acting against the orders and interests of the corporate, can fairly be attributed to it.
There are also concerns as stated in the Response that reform would have a potential adverse impact on growth and competition. This concern is particularly acute in the current economic cycle, the uncertainty regarding Brexit, and the Covid-19 pandemic and related recession.
An Ongoing Debate
The Law Commission are due to publish their Options Paper in late 2021, indicating that actual reform is still a long way away. Until then, the Commission will undoubtedly consider many options for reform (including the suggested new ‘failure to prevent offence’).