Blog: The Law Commission’s review of corporate crime: it’s not about the law

As the Law Commission seeks views on the future of corporate criminal prosecutions, Hickman & Rose’s co-founder Ben Rose argues that politics is the main barrier to reform.

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In November 2020, the UK Government asked the Law Commission to investigate the laws of corporate criminal liability, and to provide options for their possible reform. As a result, during the summer months of this year, the Commission held a consultation process during which it received the views of stakeholders across the criminal justice and legal policy worlds.

These consultation submissions have not, at the time of writing, been published. However, given that one of the Commission’s seven terms of reference is to consider ‘whether the identification doctrine is fit for purpose when applied to organisations of differing sizes and scales of operation’ many are likely to have focussed on that issue, and to have addressed the specific question of whether it should stay, or go.

As a solicitor who specialises in representing executives caught up in allegations of corporate criminality, I welcome the attention on this important issue. The identification principle is, in my view, long overdue for replacement. However, the real question is whether this or any government has the political will to drive the necessary changes through.

The Identification Principle

Developed in 1915 by the House of Lords (and reaffirmed in 1971 in Tesco v Nattrass [1972] AC 153), the identification principle attributes criminal culpability to a corporate where it can be shown that an individual (who is ‘the controlling mind and will’ of the company) is guilty.

Critics have highlighted various problems with the principle, but the primary one is the difficulty it creates in prosecuting large companies. 

Many substantial modern companies operate diffuse management systems in which major decisions are often delegated to relatively junior staff. These structures may be informal and shaped by an organisational culture more than by any documented internal policies and procedures.  

The identification principle flounders in this situation. It becomes almost impossible for prosecutors to prove that anyone in a key decision-making role actually made the decision which led to the criminal conduct.

The perverse result is that larger organisations may become harder to prosecute than smaller ones. Last year the High Court held in SFO v Barclays [2018] EWHC 3055 (QB) that neither Barclay’s CEO, nor the bank’s Group Finance Director, could be said to be a ‘directing mind and will’.

The Strict Liability ‘Solution’

Corporate bodies such as companies are made up of people who behave lawfully and some who behave criminally. Prosecuting agencies such as the SFO and NCA could – in theory – stick to pursuing those individuals who break the criminal law and leave companies alone.

Whilst the simplicity of this approach may be superficially attractive, if we as a society want to encourage decent corporate behaviour (and discourage bad), then the criminal law offers a useful tool to do this.

Applying a strict liability doctrine to criminal corporate conduct is one simple means to achieve this. Once a prosecutor proves the act took place then liability is established. 

This doctrine is already applied in the regulatory setting. In recent years it has also begun to appear in criminal law, see for example the offences created by, S. 1 of the Corporate Manslaughter Act 2007, S.7 of The Bribery Act 2010 and Ss 45 & 46 of Criminal Finances Act 2017. 

Despite the existence of these new and ostensibly easier to prosecute offences, there has been a conspicuous absence of successful corporate prosecutions for them or indeed for any corporate offences over the past ten years. In documentation released as part of its current review, the Commission highlights a number of occasions when corporate prosecutions were lacking. These include:

• The ‘phone hacking’ scandal of 2011 in which a number of journalists were prosecuted and convicted of criminal offences. Their employers were held liable under civil law. Despite this no corporate prosecution was ever brought.

• The LIBOR manipulation scandal of 2012 where the SFO prosecuted 13 individuals, five of whom were eventually found guilty. The FSA and FCA fined banks over £700m. But no corporate was ever prosecuted in the UK. This is in sharp contrast to the US, where a number of banks entered into plea and non-prosecution agreements, admitted guilt and paid billions of dollars in fines. 

Deferred Prosecution Agreements

Deferred Prosecution Agreements (DPAs) are arguably the most successful attempt to make it easier to use the criminal law to hold corporates to account.

DPAs are made between a prosecutor and a company by which the company is able to avoid a criminal prosecution if it accepts its guilt, complies with the terms of the deal, and co-operates with the SFO both during the investigation and in any subsequent prosecution of individuals.

Introduced in 2014, DPAs were hailed as marking a sea change in the way the State can prosecute companies. But they have not lived up to their high expectations. At the time of writing (just over the six years since they came into force) the SFO has agreed a total of 12 DPAs – just over two a year, on average. 

The problem which has come to haunt the SFO is that DPAs routinely identify individuals as being responsible for the underlying criminal activity in the agreed ‘Statement of Facts’ document. At the time of writing not one person identified in any DPA has been convicted in a subsequent criminal prosecution. If this does not change there is a risk that DPAs will become discredited.

A Troubling Track Record

Notwithstanding reports of Petrofac’s imminent guilty plea, the recent history of Corporate Manslaughter, Bribery Act and Criminal Finances Act prosecutions does not bode well for corporate criminal law reform. While these offences made their way onto the statue books with great fanfare, they have resulted in remarkably little prosecutorial action.

During the ten years since the Bribery Act came into force we have – at the time of writing – seen just two convictions (of Sweett Group plc and Skansen Interiors Limited, a third against Petrofac is reported to be imminent) for offences contrary to S. 7 of The Bribery Act. More worrying is that there have been no prosecutions for the failure to prevent tax evasion offence under the Criminal Finance Act 2017. 

While an argument can be made that these law changes forced firms to reform their systems, this is a far from impressive track record. It is, in other words: a similar story to that of DPAs.

Governments of all political persuasions tend to talk a great game on law reform and have an unhealthy appetite for bringingnew criminal offences into existence. However, the trend is that once on the statute books, these offences languish unused. 

Meanwhile our investigative bodies remain underfunded, suffer from poor leadership and lack of political guidance. The SFO, NCA and soon-to-be-replaced Action Fraud all need more funding, management and training to enable them to properly, effectively and proportionally use the existing law.

Whilst an overhaul of the law relating to corporate criminal liability is a good idea and long overdue, real change will only follow with well-resourced, well led and competently staffed prosecting agencies.  There is little evidence of this happening at the moment.