The United Kingdom might make it easier for executives and senior managers to be held directly accountable for corporate crimes, including fraud and human rights abuses, under proposals put forward by the body that reviews U.K. law.
In November 2020, the U.K. government asked the Law Commission to review how to reform corporate crime laws to make it easier to prosecute companies and senior officers. The impetus was the failure in 2019 to secure fraud convictions against retailer Tesco’s former executives even after the company admitted overstating its profits as part of a deal to secure a deferred prosecution agreement with the Serious Fraud Office.
On June 10, the Law Commission came back with 10 reform options to consider:
- Retain the current general rule of criminal liability applied to corporations as it stands, meaning culpability can only be attached to the company’s “controlling mind.”
- Allow conduct to be attributed to a corporation if a member of its senior management (i.e., chief executive officers and chief financial officers) engaged in, consented to, or connived in the offense.
- Introduce an offense of failure to prevent fraud by an employee or agent that would apply when the company has not put appropriate prevention measures in place.
- Introduce an offense of failure to prevent human rights abuses.
- Introduce an offense of failure to prevent ill treatment or neglect.
- Introduce an offense of failure to prevent computer misuse.
- Make publicity orders available in all cases where a corporation is convicted of an offense.
- Introduce a regime of administratively imposed monetary penalties.
- Introduce civil actions in the High Court, based on serious crime prevention orders, with a power to impose monetary penalties.
- Introduce a reporting requirement for large corporations regarding anti-fraud procedures.
There were more than 5,000 convictions for corporations and other bodies in 2020, the Law Commission noted. However, because of the difficulty in trying to pinpoint the senior people who made the decision to engage in wrongdoing, there is widespread concern U.K. law does not fully hold companies to account for corporate crimes.
White-collar crime legal experts believe reform along the lines proposed by the Law Commission would have a significant practical impact on the way companies are dealt with by the criminal justice system. They added the proposals reject as “unsuitable” the U.S. model of vicarious liability, whereby companies can generally be held criminally liable for any criminal activities of an employee, representative, or agent acting in the scope of their employment or agency.
Instead, the Law Commission’s options are based on existing U.K. law and call for the possible expansion of the identification principle, as well as further developing the concept of “failure to prevent” offenses introduced under the 2010 Bribery Act.
Alun Milford, criminal litigation partner at law firm Kingsley Napley, said the options “give the government clear, practical options for reform of the current legal landscape.”
He added, “Given the potential significance of the reforms which could flow from this paper, it is now time for companies to ensure this issue is front and center of their horizon scanning work.”
Tom McNeill, senior associate in the business crime practice at law firm BCL Solicitors, said the proposal to widen potential prosecution from the “controlling mind” to senior management represents a “significant shift” in terms of holding corporates to account for individual wrongdoing.
But he added there are legitimate concerns over “whether it is right to make companies criminally liable for the actions of individuals, especially via a failure to prevent offense, where even conscientious organizations that have taken significant measures to prevent fraud and/or other economic crimes will find it difficult to defend themselves.”