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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

Law Commission to investigate corporate criminal liability laws in the UK

The Government has recently asked the Law Commission to consider options for reforming corporate criminal liability – but this is unlikely to be the magic wand that those calling for reform have hoped for.

In a request by the Ministry of Justice, HM Treasury, the Home Office, the Attorney General’s Office, and the Department for Business, Energy and Industrial Strategy, the Law Commission has been asked to investigate the laws around corporate criminal liability and to provide options to reform the corporate criminal liability framework.

Calls for reform of the corporate criminal liability framework are not new – both the current Director of the Serious Fraud Office (SFO) Director Lisa Osofsky and her predecessor David Green have long called for changes to be made to the existing law, as did the House of Commons Treasury Select Committee in March 2019. Yet the law has been slow to move in this area.

Timetable of calls for reform

May 2012

Ministry of Justice Consultation acknowledges the difficulties of applying the principle of a "directing mind" in prosecuting companies for criminal offences.

June 2013

David Green, Director of the SFO, calls for change to extend the corporate offence of failure to prevent bribery under s. 7 of the Bribery Act 2010 to other acts of financial crime. 

September 2014

David Green calls for the UK to widen corporate criminal liability.

Attorney-General Jeremy Wright confirms proposals to create a cross-departmental team to examine the structure of the various bodies that investigate and prosecute bribery.

January 2016

Smith & Ouzman convicted of foreign bribery and ordered to pay £2.2 million, demonstrating the SFO is willing to pursue corporate prosecutions. 

May 2016

Justice Minister Dominic Raab announces proposed extension of the Bribery Act 2010 to make companies liable for any fraud by their employees or contractors worldwide. 

2017

The Criminal Finances Act 2017 criminalises an organisation’s failure to prevent the facilitation of tax evasion. 

January 2017

Ministry of Justice issues Corporate liability for economic crime: call for evidence.

March 2017

House of Lords proposes extension to Criminal Finances Bill enabling corporate criminal liability to be extended to the failure to prevent economic crime. 

November 2018

Sir Brian Leveson, President of the Queen's Bench Division, states that extension of failure to prevent to other offences of fraud "would be in the public interest". 

March 2019

Letter from a cross-party group of MPs and peers to the Prime Minister and the Treasury Committee urges the introduction of a new corporate offence of failing to prevent economic crime.

House of Commons Treasury Committee Economic Crime Report concludes that it was wrong for the Government not to reform the corporate criminal liability framework for economic crime.

May 2019

Government response to Treasury Committee Economic Crime Report deferred addressing calls for reform of the corporate criminal liability framework.

March 2020

David Green states "It is almost impossible to find a controlling mind and prove that controlling mind is complicit in any criminality", following acquittals in SFO v Barclays.

November 2020

Ministry of Justice publishes Corporate liability for economic crime: call for evidence.

Law Commission announces a review of the law on corporate criminal liability and intended Options Paper.

The Spring 2017 Call for Evidence (a softer form of "Consultation") by the Government related to consideration of further legislation to criminalise corporate involvement in economic crime. The Government's request of the Law Commission, published over three years later, is broader than that Call for Evidence. The terms of reference for the Law Commission's review indicate that the review will consider the challenges faced by the criminal justice system relating to corporate criminal liability more generally, not just for economic crimes.

It is envisaged that the Law Commission will undertake a detailed review of a number of points including: the 'identification doctrine' and whether it is fit for purpose; the relationship between corporate criminal liability and other approaches to unlawful corporate conduct (including deferred prosecution agreements (DPAs) and civil recovery of proceeds of unlawful conduct; and the implications of any change to corporate liability for the liability of directors and senior managers.

The 'identification principle'

Where there is no specific offence in legislation which expressly creates corporate criminal liability (such as the 'failure to prevent offence in section 7 of the Bribery Act 2010), liability for a criminal offence can attach to a corporate entity in the UK through the doctrine of vicarious liability which generally applies to strict liability of 'no fault' offences) or non-vicarious liability arising from the so-called 'identification principle'.

The identification principle means that, for serious, non-strict liability offences, a corporate entity will normally only have criminal liability where the commission of the offence can be attributed to someone who at the relevant time was the "directing mind and will" of the entity or an "embodiment of the company", and then proving corporate criminal liability through his/her conduct and state of mind.

In the case of SFO v Barclays  in 2018, the most high profile defeat of the SFO's attempts to prosecute corporate crime to date, a high bar was set for prosecutors to provide corporate criminal liability under the identification principle, with LJ Davis stating: "As the individual defendants, despite being senior executives, did not have "full discretion" or "entire autonomy" to act independently, and they were "responsible to another person for the manner in which they discharged their duties" they could not be regarded as the directing mind and will for the purpose of performing the functions in question…..that the individuals had some degree of autonomy is not enough. It had to be shown, if criminal culpability was capable of being attributed to Barclays, that they had entire autonomy to do the deal in question."

While those who have called for reform will no doubt welcome this response by the Government, but the 12-15 month expected timeframe to consider options for reform (and the additional work expected thereafter) will likely disappoint the SFO, Lisa Osofsky having recently said in a speech at a RUSI event that, if had a magic wand then top of her wish list for the SFO would be a 'failure to prevent' offence for economic crime given the narrow application of the identification principle in the SFO v Barclays judgment.

The Law Commission is not expected to publish the Options Paper until late 2021, after which it intends to work with the Government on next steps, including the potential for a full Law Commission project on corporate criminal liability. As such, the prospect of change any time soon is very limited.

While this development may amplify the calls for reform, there is no guarantee that the Law Commission will, for example, recommend a further legislation in the form of failure to prevent offences (noting that the options to be reviewed include consideration of other ways in which corporate criminal liability can be imposed in the current criminal law of England and Wales). In the immediate term there is likely to be only more debate rather than substantive change.