There have been extensive discussions on what the Economic Crime and Corporate Transparency Bill could mean for the conduct of business in the UK (for our views, see this 26 April 2023 On the Record blog post). Now, the government intends to use the bill as a vehicle to materially expand the historical trigger for corporate criminal liability – namely, the ‘identification principle‘.
Background
The identification principle requires a regulatory authority to prove that the ‘directing mind and will‘ of a company committed an offence for the company itself to be criminally liable. That typically requires regulators to implicate directors or senior management, which was an uncontroversial concept in the 1970s when the principle was first established, as companies tended to be smaller with less complex management structures. However, regulatory authorities struggle to identify the ‘directing mind and will‘ of modern multinational corporations with myriad interconnected management structures – each with overlapping responsibility for business functions and limited independent authority to direct matters without approval from elsewhere. In her November 2018 oral evidence before the House of Lords Select Committee on the Bribery Act 2010, Serious Fraud Office Director Lisa Osofsky stated that the SFO finds itself hamstrung by the ‘identification principle‘, which ‘made sense 100-odd years ago, when corporations were run by two, three or four people’.
Proposed reform
The UK government now proposes to make companies criminally liable for specified economic crime offences where it can be shown that they were committed by a ‘senior manager’ (qualifying offences are listed in Schedule 12 of the current iteration of the bill). The proposal adopts the approach of the Corporate Manslaughter and Corporate Homicide Act 2007 which states that a ‘senior manager’ is a person who plays a significant role in:
- Making decisions about how the whole or a substantial part of the company or partnership’s activities are to be managed or organised.
- The actual managing or organising of the whole or a substantial part of those activities.
The definition plainly expands, materially, the individuals who could trigger corporate criminal liability and, therefore, gives prosecuting authorities an easier route to holding companies liable for economic crime offences. However, significant questions remain. For example, what is a ‘substantial part’ of a company? Is this measured by the number of employees in the division, by the impact that the division has on the profitability of the company, or by something else entirely?
Takeaways
Historically, there have been few corporate prosecutions for economic crimes. If implemented, this reform is likely to increase the number of company prosecutions for the acts of senior managers – and, we anticipate, the number of deferred prosecution agreements – particularly in the context of other reforms, such as the proposed ‘failure to prevent’ offence (see our 26 April 2023 blog post linked above). Companies doing business in the UK should review and update their compliance measures to ensure they are fit for purpose.
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