Corporate liability for economic crime: government consultation launched

Ministry of Justice opens consultation on corporate liability for economic crime, including fraud, money laundering and false accounting.

18 January 2017

The consultation (PDF) recognises the current difficulties faced by prosecuting authorities in obtaining convictions of corporations. This is primarily due to the fact that the English common law has not developed any US-style concept of vicarious corporate criminal liability. Instead, under the English “identification” principle, corporates can only be criminally liable for serious offences if their “directing mind and will” (i.e. the senior management) actively participated in the criminal activity. In many instances, this will simply not be possible: the senior management may have been entirely unaware of the criminal activity, far less participated in it.

The consultation sets out a number of possible solutions to this problem, including amendment of the identification principle, the creation of a US style vicarious liability offence or sectoral regulatory reform.

If the government does decide to take action, it will likely use the same model that it used in the Bribery Act 2010 (failure to prevent bribery) and also the draft Criminal Finances Bill (failure to prevent the facilitation of tax evasion).

That is, a strict liability offence, capable of being committed by a company operating in the UK, for any economic criminal activity carried out on its behalf by persons associated by it anywhere in the world. Associated persons will again include employees, subsidiaries, agents, sub-contractors etc. This will be subject to a defence of operating “reasonable procedures” (or similar) to prevent such activity.

On the one hand, as a point of principle, this would make sense: the inconsistency in using the model in respect of bribery and tax evasion, but not in respect of equally abhorrent economic crimes such as money laundering or fraud, is difficult to justify. On the other, the enactment of such an offence would impose a yet further significant compliance burden on UK businesses.

Whichever option the government ultimately chooses (if any) the consultation demonstrates that, despite the distractions it faces from Brexit and the new US presidency, it remains serious about combating corporate crime. The consultation closes on 24 March 2017.

For further information, please contact David Hall.

Key contact

David Hall

David Hall Partner

  • Head of Dispute Resolution
  • Banking Disputes
  • Business Crime and Regulatory Investigations

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