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According to suggestions made by the body that reviews U.K. law, the United Kingdom may make it simpler for executives and senior managers to be held directly accountable for corporate crimes, such as fraud and violations of human rights.
The U.K. government requested the Law Commission's review of corporate crime law reform in November 2020 to make it simpler to prosecute businesses and senior executives. The failure to obtain fraud convictions against former executives of retailer Tesco in 2019 despite the company's admission that it had overstated profits as part of a deal to obtain a deferred prosecution agreement with the Serious Fraud Office served as the catalyst.
The Law Commission returned on June 10 with ten reform options to take into account:
1. Maintain the existing general principle of corporate criminal liability, which limits liability to the "controlling mind" of the company.
2. Permit conduct to be associated with a company if a senior executive (chief executive officers and chief financial officers) participated in, approved of, or aided the offense.
3. Create the crime of failure to prevent fraud by an employee or agent, which would be applicable when the business has not taken the necessary precautions.
4. Create the crime of failing to stop violations of human rights.
5. Include the crime of failing to stop abuse or neglect.
6. Declare failure to prevent computer misuse a crime.
7. Whenever a corporation is found guilty of a crime, make publicity orders available.
8. Establish a system of financial penalties that are imposed administratively.
9. Give the High Court the authority to impose financial penalties in civil actions based on serious crime prevention orders.
10. Make reporting about anti-fraud procedures mandatory for large corporations.
The Law Commission reported that in 2020, there were more than 5,000 convictions for corporations and other entities. However, there is widespread concern that U.K. law does not fully hold companies accountable for corporate crimes due to the difficulty in identifying the senior individuals who decided to engage in wrongdoing.
Legal experts who specialize in white-collar crime believe that reform along the lines outlined by the Law Commission would significantly affect the way businesses are handled by the criminal justice system. The U.S. model of vicarious liability, according to which businesses can generally be held criminally liable for any criminal activities of employees, representatives, or agents acting in the course of their employment or agency, is rejected by the proposals as "unsuitable," they added.
Instead, the Law Commission's options, which are based on current British law, suggest that the identification principle might be expanded as well as the "failure to prevent" offenses that were introduced by the 2010 Bribery Act.
The options "give the government clear, practical options for reform of the current legal landscape," according to Alun Milford, partner in the criminal litigation group at the law firm Kingsley Napley.
It is now time for businesses to make sure this issue is front and center of their horizon scanning work, he continued, given the potential significance of the reforms that could result from this paper.
The proposal to expand the scope of potential prosecution from the "controlling mind" to senior management represents a "significant shift," according to Tom McNeill, senior associate in the business crime practice at law firm BCL Solicitors, in terms of holding corporates accountable for individual wrongdoing.
However, he went on to say that there are good reasons to question "whether it is right to make companies criminally liable for the actions of individuals, especially via a failure to prevent offense, where even conscientious organizations that have taken significant measures to prevent fraud and/or other economic crimes will find it difficult to defend themselves."
By fLEXI tEAM