Law commission

UK Law Commission proposes 10 reforms for corporate accountability

The UK Law Commission has published its proposals (the Option Paper) to overhaul criminal law as it applies to businesses in the UK. The Law Commission is an independent commission set up by Parliament to monitor UK law and recommend reform. The options paper outlines 10 possible ways to strengthen corporate accountability through criminal and civil law reforms.

Background

To establish corporate criminal liability, long-standing English law requires prosecutors to prove that a “directing mind or will” (i.e. directors or other senior executives) was guilty (the doctrine of identification). This requirement has made it very difficult for law enforcement agencies to pursue large organizations, with the Serious Fraud Office (SFO) being the most vocal critic of the identification doctrine, given that the most experienced employees are seldom aware of decisions made at the operational level of the business. In contrast, under US criminal law, organizations are generally vicariously liable for offenses committed by their agents.

British law enforcement authorities and some elements of the legal profession have long feared that the current law will fail to hold companies adequately accountable, particularly for economic crimes such as fraud or money laundering. The first steps towards a substantial change in corporate criminal liability were introduced with the introduction of the offense of failure to prevent bribery under the Bribery Act 2010. .

In November 2020, the UK government commissioned the Law Commission to examine how to strengthen the criminal justice system under current law without creating disproportionate burdens for businesses. In June 2021, the Law Commission published a discussion paper and launched a public consultation. The options paper follows the conclusion of this consultation.

The options paper

The options paper proposes 10 reform options, designated by category:
the doctrine of identification; “failure to warn” offences; individual liability of directors; and civil law remedies. The 10 possibilities are:

  1. Keep the doctrine of identification and don’t go to the American system.

  2. Allowing the attribution of criminal behavior to a company if a member of its senior management engaged in, consented to or connived at the offence. This could be extended so that CEOs and CFOs are still considered part of an organization’s senior management.

  3. Introduce an offense of failure to prevent fraud by an associated person (an employee or agent) for the benefit of the organization (or a person to whom the organization provides services). There would be a defense for businesses with reasonable preventative procedures.

  4. Introduce an offense of failure to prevent human rights violations.

  5. Introduce an offense of failing to prevent abuse or neglect.

  6. Introduce an offense of failure to prevent computer misuse.

  7. Make publicity orders available in all cases where a non-natural person is convicted of an offence. A publicity order requires the company to publish details of its conviction.

  8. Introduce an administratively imposed pecuniary penalty regime.

  9. Bring civil actions in the High Court based on the Serious Crime Prevention Orders, but involving a power to impose pecuniary penalties.

  10. Introduce a requirement for public interest entities to report on anti-fraud procedures, or introduce a requirement similar to Modern Slavery Act reporting for large corporations to report on their anti-fraud procedures.

“Failure to prevent” offenses

Prosecuting authorities and some politicians have long proposed extending the principle of “non-prevention” to all forms of economic crime. Although the Law Commission did not favor this approach, it did suggest some general principles for not preventing future infringements.
These include:

  • Businesses should only be liable if the conduct was undertaken with a view to directly benefiting the business or benefiting a person to whom services were provided on behalf of the business (i.e. that a company could be liable if the behavior was intended to benefit it indirectly by assisting a customer).

  • A company should defend itself for having put in place reasonable prevention procedures, and the government should publish directives on the prevention procedures that an organization could implement.

  • There should be no presumption that the failure to prevent the offense would extend to the conduct of employees or agents abroad. Any decision to make the offense extraterritorial must be considered in the context of the specific offence.

What’s next and the main takeaways

The UK government will review the options paper, as will law enforcement stakeholders, the legal profession. There is no specific timetable for any potential legislation, although the UK government made this clear in March – when it passed the Economic Crimes (Transparency and Enforcement) Act 2022 (see our blog here)— that she intends to pass new legislation in the area of ​​economic crime in the current Parliament.

Takeaway: Businesses are well advised to conduct risk assessments and ensure, as good practice, that they have preventative policies and procedures in place to prevent economic crime.

© Copyright 2022 Squire Patton Boggs (USA) LLPNational Law Review, Volume XII, Number 165