Corporate criminal liability: A not so unexpected volte-face by the UK Government by Diana Czugler
The Government has quietly dropped plans to expand corporate criminal liability in the UK following an announcement by the Under Secretary of State for Justice on 28 September 2015. For those of us who do not spend our lunch breaks browsing Hansard the short statement, made in writing by Andrew Selous as a ministerial response to question posed by Tory MP Byron Davies, seems decidedly low-key compared to the past’s high-profile public statements on tackling corporate wrongdoing. But is the Government’s u-turn truly as unexpected as it first seems?
The current state of affairs
The only piece of criminal legislation targeted at punishing corporate entities, apart from the Corporate Manslaughter and Corporate Homicide Act 2007 and specific pieces of regulations relating to matters such as health and safety, can be found in the Bribery Act 2010. Under section 7 the failure of a commercial organisation, including unincorporated and incorporated companies, partnerships and other trading businesses, to prevent employees, agents or other associated persons from committing bribery is an offence in its own right. The offence is punishable with an unlimited fine; however it is a defence to show that adequate preventative procedures had been put in place by the corporate entity prior to the individual committing bribery.
Beyond the 2010 Act, other forms of corporate economic wrongdoing are dealt with under the common law principle of identification. The doctrine requires the “directing mind and will of the company” to have committed the offence in order for the company to be imputed criminal liability through the status of the individual. In practice for an offence requiring mens rea, such as the common law conspiracy to defraud, it must be shown that the “controlling mind” of the company, such as the CEO or the managing director, personally acted dishonestly before the corporate entity can be held criminally liable.
Voices of change
There is an obvious difficulty in bringing criminal prosecutions under the “controlling mind” doctrine; the criminal burden of proof will need to be passed in relation to the mental state of one or more of the most senior members of a company’s board or other executive function. Gathering evidence of what happened at the highest levels of corporate hierarchy, often years ago, is difficult enough, particularly in large multinational companies. Couple this with whistleblower reluctance, top-tier corporate operations clouded in secrecy, dwindling public prosecution resources and competing priorities; it is no wonder that fruitful corporate prosecutions are few and far between. (The SFO’s success in December 2014 in securing the conviction of a printing firm as a result of its chairman and sales director bribing foreign public officials is an exception, but perhaps not one to send shockwaves around the boardrooms of Britain and beyond, given that the misconduct took place at such a high level in a relatively small company.) In addition, the SFO is yet to bring a case to court under section 7 of the 2010 Act.
It is against this background that a range of state agencies such as the SFO, the Crown Prosecution Service and HMRC as well as NGOs such as Corruption Watch have called for a change in legislation and an expansion of corporate criminal liability for economic wrongdoing. The latter published a report on corporate impunity called Off The Hook only last month, calling out the current regime for disproportionately targeting small companies, creating an incentive for large corporations to “insulate their boards from knowledge of wrongdoing” and providing no deterrence (cue the title).
David Green QC has spearheaded this campaign for change since his appointment as director of the SFO in April 2012. He has stressed the importance of punishing corporate wrongdoing during many public appearances since, most recently at the Cambridge Symposium in September 2015. Whilst the SFO is yet to officially comment on the sudden change in government policy on the matter, this is no doubt a blow to Green QC’s well publicised fight for holding corporate entities accountable for economic crimes committed during and since the global economic crisis.
It all started out so promisingly. Both the Attorney General and the Solicitor General of the previous coalition Government expressed their support for a new, widened corporate economic crime offence.
Furthermore, in the then Government’s UK Anti-Corruption Plan published in December 2014 the state executive seemed to fully endorse the SFO’s stance. Paragraph 4.64 of the Plan stated that “In addition to bribery, there are likely to be other forms of economic crime for which it is appropriate to ensure that senior corporate actors are sufficiently accountable. The Government will therefore examine the case for a new offence of corporate failure to prevent economic crime and look at the rules on establishing corporate criminal liability more widely.”
The Government’s perceived enthusiasm went even further, to including the promise in the Conservative’s 2015 Election Manifesto. Page 11 of the Manifesto clearly states that “We are also making it a crime if companies fail to put in place measures to stop economic crime”. Tellingly, however, the planned new criminal provisions did not feature in the Queen’s Speech in May 2015 and nor have they been subject to any further political discourse since. So what went wrong?
Followed by a political u-turn
In the Under Secretary of Justice’s own words “The UK has corporate criminal liability and commercial organisations can be, and are, prosecuted for wrongdoing. (…) Ministers have decided not to carry out further work at this stage as there have been no prosecutions under the model Bribery Act offence and there is little evidence of corporate economic wrongdoing going unpunished.”
Let us leave aside for a moment the obvious question of why the current lack of prosecutions under section 7 of the Bribery Act would logically lead anyone to conclude that a strengthening of the corporate prosecutions framework, let alone the introduction of additional corporate economic crime offences that would target wrongdoing other than bribery, is not required.
Ignoring the circularity of the above, we also need to examine the cold hard figures. According to the latest official statistics released the SFO opened only 16 new investigations and charged only 23 new defendants in 2015. As discovered above, none of these relate to corporate wrongdoing under section 7 and other forms of corporate prosecutions under the “controlling mind” doctrine have been few and far between for decades. Contrast this with the amount of money supposedly being lost to economic crime each year.
A wider trend?
Mr Selous’ statement is consistent with a wider governmental shift towards promoting free corporate enterprise and market de-regulation. In a speech held in July 2015 Chancellor of the Exchequer George Osborne stated that “simply ratcheting up ever-larger fines that just penalise shareholders, erode capital reserves and diminish the lending potential of the economy is not, in the end, a long term answer.” He then proceeded to replace Martin Wheatley as CEO of the FCA in what was seen as an obvious ousting by some commentators.
In the meantime the SFO has seen its budget cut once again by 34% this July; even though it has opened more investigations than in 2014. The cut sees the SFO left with an annual budget of £45mil compared to the £55mil of 2014 – a year when the SFO was forced to ask for an emergency budget of £19mil to pad out scarce resources and enable its investigative and prosecutorial work.
This is somewhat inconsistent with David Cameron’s expressed tough stance towards tackling corruption worldwide.
Consequences and implications
Commentators have expressed disbelief at the Government’s u-turn, calling the decision “shockingly short-sighted” and “frankly laughable” just to name a few.
Mr Selous’ statement also seems to sit at ill ease with the recently introduced US-style Deferred Prosecution Agreements. DPAs are aimed at incentivising corporate self-reporting and settling with the authorities through the payment of a fine in exchange for avoiding corporate criminal prosecutions. Whilst the SFO is yet to enter into a single DPA there are rumours that they are on the brink of announcing two DPA settlements with UK corporate entities. The decision for each corporate was no doubt based on legal advice about the prospect of conviction. However, the message sent by this recent news will do nothing to encourage others. Quite the opposite, in fact. The incentive for entering a DPA is the avoidance of prosecution. But if the law continues to make it difficult to prosecute corporates for economic crime (other than the s7 Bribery Act offence) where is the incentive?
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