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

Reviewing the law relating to the criminal liability of non-natural persons, including companies, and providing options for reform. This project is now underway.

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.

There are some exceptions to this principle, such as ‘regulatory offences’ and strict liability offences in which no particular mental state is required (although in this latter case, the question of whose actions the company should be liable for remains). In addition, there have been some specific offences created by Parliament which seek to avoid the problems associated with the identification principle by criminalising the “failure to prevent” other offences, such as bribery or tax evasion. The offence of corporate manslaughter was introduced in 2007 to provide a wider basis on which to attribute criminal responsibility to a company for deaths resulting from negligence.

Other jurisdictions such as the United States use different legal principles to establish whether a company is criminally liable for criminal conduct with which it is associated.

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. It is a fundamental principle of justice that everyone is equal under the law, and the impression that large companies are immune from the criminal law is liable to undermine respect for the rule of law.

As a result, it can be hard to prosecute a company for serious crimes, even where the commission of criminal offences by employees is incentivised or tolerated by the company.  For example, in the aftermath of the ‘phone hacking’ scandal of in 2011, several journalists were convicted of offences related to widespread ‘phone-hacking’ in the last decade, and their publishers were held liable (or accepted liability) under civil law, yet no prosecutions were brought against them as companies.

There are competing concerns, however, that alternative models for assessing the criminal liability of corporations may place a disproportionate and costly compliance burden on law abiding businesses.

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 and from which they would or have benefited. Likewise, the law must operate in a proportionate way and not place unnecessary costs on legitimate businesses.

The project

In 2017 the Ministry of Justice published a Call for Evidence on Corporate Liability for Economic Crime. The evidence submitted to the Call for Evidence was considered inconclusive by Government. There was no clear consensus from respondents on what corporate liability offence should be created if the identification doctrine was replaced. Equally, some responses disclosed significant opposition to reform while others questioned whether there was a need for further criminal sanctions at all in the already heavily regulated financial services sector.

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

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

The Terms of Reference for the project can be viewed here.