More must be done to hold senior executives accountable for criminal conduct, the Government’s senior law reform body has said.
The Law Commission proposes introducing a wider liability for criminal corporate misbehaviour as part of reforms to hold executives to account in the courts.
It has warned that public trust in the law and in business is likely to be damaged when firms cannot be prosecuted for criminal offences carried out in their name from which they would, or may, have benefited. The commission accepts the law must also operate in a proportionate way.
Other reforms proposed include extending “failure to prevent” offences so that they capture other economic crimes by corporations, including an offence of “failure to prevent fraud”.
Among the 10 “options” for legal reform the commission outlines are the creation of new financial penalties and a requirement for large corporations to report on their anti-fraud procedures.
It also suggests allowing the conduct of senior management, including chief executive and financial officers, to be attributed to a company where an offence occurs.
The commission does not specify extending the “controlling mind” test, which means firms can only be liable for most offences if those who represent the “directing mind and will” committed the wrongdoing. The test has been cited as a major hurdle in prosecuting companies where mid-level employees do wrong.
David Green, the former director of the Serious Fraud Office (SFO), said it was “almost impossible” to find and prove a controlling mind after the Supreme Court ruled that Barclays Bank was not liable for the alleged sexual assault of more than 100 patients by a doctor carrying out medicals on the bank’s behalf.
“While there were over 5,000 convictions for corporations and other bodies in 2020 alone, there is widespread concern that the law does not fully hold such entities to account for criminal acts, as there is often difficulty in pinpointing responsibility within organisations, where decision-making can be dispersed,” the commission said.
Prosecutors have repeatedly called for for reform of the law on corporate criminal liability to make it easier to prosecute large companies. Lisa Osofsky, the current director of the SFO said the introduction of a new corporate criminal offence for “failing to prevent economic crime”, running alongside the Bribery Act 2010 (UKBA) and Criminal Finances Act 2017, topped her wish list.
Other lawyers argue such a reform is incompatible with the criminal justice system and, if accepted, would create hardship and unfairness for innocent shareholders and creditors when criminal liability is imposed.
Individuals commit fraud and pay bribes they argue and should pay the price if offences against them is proven. To stop corporate crime, greater efforts should be put into investigating and prosecuting such cases rather than corporations.
Professor Penney Lewis, the Law Commissioner for Criminal Law, said that there is “broad consensus” that more could be done to ensure large firms could be convicted of serious criminal offences, including fraud.
“It’s imperative we have the right mechanisms in place to allow companies to be effectively held to account for misconduct carried out in their name,” she said.
Professor Sarah Green, the Law Commissioner for Commercial and Common Law, said the options for reforming the law “are designed to strike a balance between ensuring that the law works well to punish corporate entities when misconduct is committed on their behalf, whilst avoiding a new suite of burdensome administrative requirements for businesses”.