In this guest blog Andrew Smith and Danielle Reece-Greenhalgh of law firm Corker Binning discuss current trends in corporate criminal liability.
English criminal law has long recognised that companies can be criminally liable for strict liability offences (e.g. breaches of trade sanctions, where the company itself commits the crime). However, in relation to offences requiring mens rea (‘guilty mind’), a company’s criminal liability is normally determined according to the identification principle. This holds that a company can only be liable for the criminal acts or omissions of individuals if they can be identified as the company’s directing mind and will, i.e. directors and officers who carry out management functions. This explains why, historically, it has proved difficult to prosecute large companies for offences requiring mens rea, particularly if the companies operated through opaque decision-making structures.
In the sphere of economic crime, the first inroad into the identification principle was section 7 of the Bribery Act 2010. This created a novel offence, applicable to commercial organisations, of failing to prevent bribery committed by associated persons. If an employee or agent of the company commits a substantive bribery offence, the company itself is criminally liable unless it can demonstrate that it has adequate procedures in place designed to prevent the bribery. The offence is one of strict liability, and thus enables prosecutors to circumvent the identification principle.
The “failure to prevent” model of liability in the bribery context has its roots in the Corporate Manslaughter and Corporate Homicide Act 2007. Under section 1 of this Act, a company commits an offence of corporate manslaughter if the way in which it manages or organises its activities both causes a death and amounts to a gross breach of a relevant duty of care owed by the company to the deceased.
Whilst the offence attributes liability to a company based on its organisational failings or faults, it is not as radical as the “failure to prevent” offences. Whereas these offences are strict liability (in that the company can commit the offences without their senior management knowing that the associated persons are paying bribes), the corporate manslaughter offence requires the “substantial” involvement of “senior management”, and defines “senior management” as “those persons who play significant roles” in the company. In other words, the liability of the company is triggered by the acts or omissions of specified individuals, who are defined far more narrowly than “associated persons” in the “failure to prevent” offences. The offence of corporate manslaughter thus represents an uneasy middle ground between the old identification principle and the new failure to prevent model of corporate criminal liability. Partly because the corporate manslaughter offence has not freed itself completely from the identification principle, it has not been used to prosecute any large companies.
Another important difference between the “failure to prevent” offences and the corporate manslaughter offence is their jurisdictional reach. As noted above, failing to prevent bribery is an extraterritorial offence.
Under UK law, a UK national can be prosecuted in the UK for murder or manslaughter committed abroad. In contrast, a UK company cannot be prosecuted in the UK for corporate manslaughter committed abroad. This seems anachronistic in an era of multinational business. It is arguably irrational and unethical for a UK company to escape liability for deaths which, had they occurred in the UK, could be prosecuted here, simply because the country in which the deaths occurred is unable to bring criminal proceedings due to, say, corruption or a poorly functioning rule of law.
The limited jurisdictional reach of the corporate manslaughter offence makes it tempting to think that the next leap forward in corporate criminal liability may relate to human rights abuses committed overseas.
In the UK, an Action Plan was presented in September 2013 in order to implement the UN’s Guiding Principles. Nowhere in that document was there a reference to establishing a criminal offence, the focus apparently being on a more holistic and diplomatic approach to UK business and investment overseas. Whilst this document provides a useful indication of how businesses practising abroad should operate in order to safeguard human rights, it does not come close to addressing the impunity which was the target of the UN’s Guiding Principles.
Legislating for failing to prevent corporate human rights breaches will be no easy feat, and progress is likely to be slow. Challenges in defining what constitute human rights, in identifying jurisdictional applicability and in establishing the benchmark of responsibility by which corporate bodies will need to measure their international practices may prove to be an insurmountable hurdle.
But as the Serious Fraud Office brings further charges for the offence of failing to prevent bribery, the impetus will inevitably return for expanding the “failure to prevent” and “gross breach of duty” models into new types of corporate crime. Other prosecutors will look with envy at what the SFO is achieving. HMRC seems determined to introduce the offence of failing to prevent the facilitation of tax evasion. The Director of Public Prosecutions has signalled her frustration with the straightjacket of the identification principle. The landscape of corporate criminal enforcement looks set to change.
The full version of this blog was originally published in December 2015 at http://www.lexology.com/library/detail.aspx?g=8f122788-b32d-4d99-9