Corporate criminal liability – time for reform?

Throughout the years, various institutions and individuals have raised concerns regarding the law on corporate criminal responsibility and how smaller entities are being unfairly treated when being prosecuted, as opposed to their larger entity counterparts.

Many have proposed reforms and re-iterated how the current law and the ‘identification principle’ adopted in cases are not sufficient when dealing with the prosecution of corporations.

So what is the identification principle?

The general rule for attributing criminal liability to Companies in England and Wales is the ‘identification principle, this states that where a particular mental state is a required element of the offence, only the mental state of a senior person representing the company’s “directing mind and will” can be attributed to the company’. This principle was summarised in Tesco v Nattrass [1972] AC 153, [1971] 2 WLR 1166, [1971] 2 All ER 127.

Companies, just like individuals are capable of committing serious criminal offences such as fraud. Therefore, criminal law elements also need to be established when prosecuting companies, but the question that is often asked is, who is the directing mind and will of that company, particularly a company with a complex corporate structure, when it is difficult to establish who has given the instruction or carried out the act in question.

Furthermore, a company is a separate legal entity to its shareholders and directors.  It is however controlled by acts done by those shareholders and directors and even employees. The difficultly is establishing who is actually to be held responsible for the acts of the company, will it be the senior director or an employee who has taken an instruction from a senior member or another person who has been given the instruction and carried this out, without hesitation. Often the identification process, of who is the person/s responsible for the crime, creates problems, which can delay and hinder the prosecution process.

In usual circumstances the ‘identification principle’ is restrictive to what information is required i.e. a senior individual was complicit in the unlawful activity. It is problematic trying to establish who is the ‘directing mind and will’, of the company, thereby creating an identity crisis culture when an offence occurs.

Many criminal offences have been established on the principle that an individual has committed the offence, rather than a corporate entity.  The principles used to establish the offence are often difficult to establish on behalf of a company, such as the element of state of ‘mind’ , which is often a mental element that is easily established on behalf of a single individual or a smaller corporate entity with say one director/shareholder who deals with all matters.

The identification principle has been heavily criticised, as various individuals can carry out acts on behalf of companies, however they may not be ‘senior’ enough to represent the ‘directing mind and will’ of the company and therefore being unable to satisfy the identification element.

In light of the above, the Law Commission was requested by the Government to analyse the current law on corporate criminal liability and to present their findings to them.

The results highlighted many areas of concern, in particular the accountability of larger entities having committed a crime, due to the difficult nature of trying to prove, who is responsible for the actions of the company.

The Law commission however presented 10 reform options to the Government; these are intended to guarantee that different types of entities can be correctly convicted and prosecuted of crimes.

  • Retain the current general rule of criminal liability applied to corporations – the “identification doctrine” – as it stands.
  • Allow conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence. This could be drafted so that chief executive officers and chief financial officers are always considered part of an organisation’s senior management.
  • Introduce an offence of failure to prevent fraud by an employee or agent. This would apply when the company has not put appropriate measures in place to prevent their own employees or agents committing a fraud offence for the benefit of the company.
  • Introduce an offence of failure to prevent human rights abuses.
  • Introduce an offence of failure to prevent ill-treatment or neglect.
  • Introduce an offence of failure to prevent computer misuse.
  • Make publicity orders available (requiring the corporate offender to publish details of its conviction) in all cases where a corporation is convicted of an offence.
  • 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 requiring large corporations to report on anti-fraud procedures.’’

The Law Commission has also proposed new financial penalties and the requirement of further reporting from companies.

The Government will now look and assess the reforms suggested, before deciding whether to implement them into law.

This article is prepared with the intention of providing general information on the changes in law. AxiomDWFM accept no responsibility for errors it may contain and the coverage of the topic is not comprehensive. You are advised to speak directly to the writer or another partner within the firm. with regards to any specific enquiries on the topic addressed.

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