Corporate Criminal Liability

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

The Law Commission has published an options paper for the Government on how it can improve the law to ensure that corporations are effectively held to account for committing serious crimes. The Government has introduced legislation informed by some of the options we set out.”

Download the summary of the options paper here.

Download the full options paper here.

Download the impact assessment here.

View the press release here. 

 

The problem

The general rule for attributing liability to companies in English and Welsh criminal law is the ‘identification principle’. This states that where a particular mental state is required, only the acts of a senior person representing the company’s “controlling mind and will” can be attributed to the company. In practice, this is limited to a small number of directors and senior managers.

In recent years, concern has been expressed that the identification principle does not adequately deal with misconduct carried out by and on behalf of companies (and other ‘non-natural persons’). In particular, some have suggested that it has proved disproportionately difficult to prosecute large companies such as banks for economic crimes committed in their names, by senior managers, for the company’s benefit. In practice, it can be much easier to hold a small company to account for wrongdoing than a large business where responsibility for decision-making is more diffuse.

The project

In November 2020, the Government asked the Law Commission to examine the issue and publish a paper providing an assessment of different options for reform. The project was overseen by Professor Penney Lewis, Commissioner for criminal law, and Professor Sarah Green, Commissioner for commercial and common law.

We published a discussion paper in May 2021 and held a series of roundtable events to accompany the consultation.

Terms of reference

The following terms of reference were agreed with the Ministry of Justice, the Home Office, HM Treasury, the Department for Business, Energy and Industrial Strategy, and the Attorney General’s Office:

To review the law relating to the criminal liability of non-natural persons, including companies and limited liability partnerships. In particular, to consider:

1. whether the ‘identification doctrine’ is fit for purpose, when applied to organisations of differing sizes and scales of operation;
2.  the relationship between criminal and civil law on corporate liability;
3. other ways in which criminal liability can be imposed on non-natural persons in the current criminal law of England and Wales;
4. the relationship between corporate criminal liability and other approaches to unlawful conduct by non-natural persons, including deferred prosecution agreements and civil recovery of proceeds of unlawful conduct;
5. approaches to criminal liability taken in relevant overseas jurisdictions;
6. whether an alternative approach to corporate liability for crimes could be provided in legislation; and
7. the implications of any change to the liability of non-natural persons for the liability of directors and senior managers (including under ‘consent or connivance’ provisions, such as those in s. 92 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

With reference to the options for corporate criminal liability in general, to consider what additional provision for particular offences, including economic crimes, may be necessary and to set out the options for reform.

To consult with relevant government and external stakeholders

To ensure that any recommendations comply with, and are conceptually informed by, human rights obligations, including under the European Convention on Human Rights.

To ensure that any recommendations are supported by an analysis of the impact they will have on non-natural persons

Options paper 

Our options paper, published on 10 June 2022, provides a series of options for law reform, and sets out certain principles that we think the law ought to reflect.

Principles

1. We conclude that there is a need for one or more general rules of attribution to cover offences generally.
2. For offences of negligence, it should be possible to convict a corporation on the basis of collective negligence even if it is not possible to identify a natural person who was individually negligent.
3. We lay out various principles for “failure to prevent” offences, including a requirement that the conduct should be intended to benefit the corporation or a client, and that the corporation should have a defence if it had reasonable prevention procedures in place, or it was reasonable not to have any.
4. Where an offence requires proof of intention, knowledge or dishonesty, directors’ personal liability for commission of the offence by the corporation should require proof that the director consented to or connived in the offence. Neglect as a basis of directors’ liability should be limited to offences of strict liability or negligence.

Options

1. Retention of the identification doctrine as at present.

2A. Allowing conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence.

2B. As 2A, with the addition that the organisation’s chief executive officer and chief financial officer would always be considered to be members of its senior management.

3. An offence of failure to prevent fraud by an associated person.

4. An offence of failure to prevent human rights abuses.

5. An offence of failure to prevent ill‑treatment or neglect.

6. An offence of failure to prevent computer misuse.

7. Making publicity orders available in all cases where a non-natural person is convicted of an offence.

8. A regime of administratively imposed monetary penalties.

9. Civil actions in the High Court, based on Serious Crime Prevention Orders, with a power to impose monetary penalties.

10A. A reporting requirement based on section 414CB of the Companies Act 2006, requiring public interest entities to report on anti-fraud procedures.

10B. A reporting requirement based on section 54 of the Modern Slavery Act 2015, requiring large corporations to report on their anti-fraud procedures.

Next steps

The Economic Crime and Corporate Transparency Act 2023 introduced an offence of failure to prevent fraud, and reformed the identification doctrine in line with Option 2 for certain economic offences. Provisions in the Criminal Justice Bill will extend reform of the identification doctrine to all criminal offences.