Background

The law on corporate criminal liability in England and Wales is one of the biggest obstacles to tackling economic crime, which the Treasury estimates costs the UK tens if not hundreds of billions of pounds[1]. Successive governments in the past decade have come under pressure to enact reform to enable corporate entities to be held firmly to account. However, reform has been slow.

In November 2020, the government published its long-awaited response to its January 2017 call for evidence on corporate liability for economic crime. The response is underwhelming in that it concludes that the evidence obtained and submitted in response was “inconclusive” and that “further work is required before considering any change to the law”. As such, the government has commissioned a focussed review by the Law Commission.

The government’s original call for evidence sought feedback on the extent to which the identification principle hinders effective enforcement of the criminal law against corporates. The identification principle requires a prosecutor to demonstrate that a company’s culpable state of mind is established through the actions and intentions of an individual who embodies the directing mind and will of that company.

The government consultation also surveyed the options for reform, the advantages and disadvantages of adoption and implications of change, particularly in terms of costs to businesses in implementing prevention policies and procedures. The consultation closed in March 2017 and the government’s subsequent review took three and a half years.

Government Response To Call For Evidence (November 2020)

The call for evidence asked for factual examples that illustrated the extent to which the identification principle is deficient. The principle has long been publicly maligned, with the director of the Serious Fraud Office, Lisa Osofsky, noting that it had been “hamstrung” in trying to prosecute corporate offenders.[2]

In its call for evidence, the government proposed five options for legislative reform:

  1. Legislation to replace the identification principle: this could extend liability by broadening the scope of persons who represent the controlling mind and will of a corporate entity.
  2. Vicarious liability: this would make a corporate entity liable through the actions of its employees. Lisa Osofsky has previously endorsed the UK adopting a variant of the US vicarious liability model, but has recently divulged that a 'failure to prevent' model is now top of her wish list instead[3].
  3. Failure to prevent economic crime: akin to the current section 7 Bribery Act 2010 offence.
  4. A variant of the failure to prevent model: this would require the prosecution to prove both the occurrence of the predicate offence, as well as management's failure to prevent the same. This would put the prosecution to a higher standard of proof.
  5. Investigate the scope for further regulatory reform: on a sector by sector basis.

Over three quarters of respondents agreed that the identification principle prevents corporate entities from being held to account, the prime examples of which being the failed prosecutions of individuals involved in the LIBOR and EURIBOR[4] benchmark manipulation. Furthermore, over half of respondents did not believe that the current legal and regulatory framework provides a sufficient deterrent for corporate wrongdoing.

Respondents also acknowledged that the identification principle acted as a disproportionate burden on small and medium sized companies, because it is typically easier to identify and prove complicity on the part of senior managers in smaller entities, as management is less devolved.

Comment

Notwithstanding the inconclusive outcome of the government's call for evidence, the Law Commission’s appointment to conduct a review is certainly an important step towards reform. However, it remains unclear exactly when, and in what shape, such reform will take place.

The review process is likely to move slowly, as the Law Commission has indicated that it aims to publish an options paper in late 2021, which will then be followed by a further government review. As such, any legislative reform is unlikely to take place before 2022 at the earliest. What is clear, however, is that the Law Commission does now have a rare opportunity to address some of the systemic issues and tensions in the UK’s legal framework regarding economic crime.

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[1] HM Government, Serious and Organised Crime Strategy, November 2018, p14: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752850/SOC-2018-web.pdf

[2] Lisa Osofsky interview, BBC Radio 4, Today Programme, 3 February 2020.

[3] Future Challenges in Economic Crime: A View from the SFO, 9 October 2020 (https://www.sfo.gov.uk/2020/10/09/future-challenges-in-economic-crime-a-view-from-the-sfo/)

[4] For example: R v Pabon [2018] EWCA Crim 240 and R v Bittar, Moryoussef, Palombo, Bermingham, Kraemer and Bohart [2018]. Other examples cited were the case of fraud involving former employees of the Halifax Bank of Scotland (HBOS) in 2017, and the 2005 SFO investigation into systematic fraud involving the Sweet and Maxwell publishers.

 

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