With the government looking at how to change the law when it
comes to prosecuting companies, Aziz Rahman considers the possibilities.

At the start of the year, the UK government announced
consultations on the possible reform of corporate criminal liability. The
reason for this was the difficulties faced when looking to prosecute companies
in England and Wales.

Currently, in England and Wales, a corporation is only
criminally liable if senior managers can be proven to be blameworthy culpable
under the “identification principle”. This means proving the guilt of the
person who is the “directing mind’’ of the company: the person whose intentions
are shown in the activities of the company that he or she controls. Many,
including the Serious Fraud Office (SFO), believe this is extremely difficult
to achieve.

Failure to Prevent

However, the issue of liability when it comes to companies
has already been the subject of change recently.

Section 7 of the Bribery Act 2010 introduced the concept of failure
to prevent bribery. This means that a company can be prosecuted for not
stopping bribery being carried out in its name; regardless of whether or not it
knew it was happening. The failure is an offence in its own right, although a
company has a defence if it can show it had adequate anti-bribery procedures in
place.

The Criminal Finances Bill creates two new “failure to
prevent” offences for corporate entities. Section 40 creates an offence where a
company or a partnership is guilty if a person associated with it facilitates
UK tax evasion, while Section 41 creates a similar offence regarding foreign
tax evasion. Under each section, a company will have a defence if they had in place
reasonable prevention measures; much like Section 7 of the Bribery Act’s
defence.

It is worth emphasising here, therefore, that whatever
changes may be introduced regarding corporate liability, companies have to act
to make sure they have proper business crime prevention procedures in place. If
changes are introduced, such procedures will go a long way towards ensuring you
have a chance of mounting a strong defence. This is already the case with the
Bribery Act and looks set to be with the Criminal Finances Bill.

OPTIONS

Why we do not know precisely what may happen with corporate
liability once the consultation is complete, we have an idea of the
possibilities.

The consultation puts forward five options:

* Broadening the scope of those people considered to be a
directing mind of a company.

* Creating a strict liability offence based on the
principles of vicarious liability, which would make the company guilty, through
the actions of its employees, representatives or agents. There would be no need
to prove knowledge or complicity. This, it would appear, would be similar
to the Bribery Act’s concept of liability.

* Creating a strict direct corporate liability offence. This
would make it the company’s responsibility to ensure that no offences were
committed in its name. The company would be convicted, without the need to
prove any fault, of a separate offence of a breach of its statutory duty to
ensure that economic crime is not committed on its behalf.

*Failure to prevent. A failure by those managing the company
to prevent an offence being committed would be an element of the offence. The
prosecution would have to prove both the initial business crime offence and
that it occurred due to a management failure to prevent it. This option would
pose a greater challenge to the prosecution than the previous three options.

* Looking into reforming business sector by sector, in the
way financial services has been the subject of regulation unique to itself.

The options differ in scope and focus. But they all contain an
element of companies having to create, introduce and maintain procedures to
prevent wrongdoing.

Already this year, we have seen the SFO ordering Rolls-Royce
to pay £671M for serous and sustained bribery that it failed to self-report and
the FCA fining Deutsche Bank £163 million for having poor anti-money laundering
controls. And yet neither was prosecuted; which may indicate a reluctance to
prosecute large companies.

These cases both involved enormous fines but no criminal
conviction, possibly giving the impression there is no appetite to prosecute
big companies. We wait to see what the consultation produces. Will it change
the perception that companies are too big or complex to prosecute?

Whatever course is taken, it is bound to mean those in
business having to make sure their compliance procedures are robust and fit for
purpose.