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.