Corporate criminal liability

Jon Mack FRSA argues that irrespective of their corporate structures, institutions should not be able to evade liability for economic crime and that the time has come for new legislation to reflect this.

In 2019 the government recognised that corrupt practices in the oil and gas, extractives, overseas development and construction industries pose “a significant reputational risk to the UK.” The World Economic Forum estimates that corruption costs at least $2.6 trillion per year. The abuse of corporate structures to launder money, or the commission of offences by corporations and the inability to hold corporations to account for the most serious criminal offences damages confidence in the UK.

A corporation can only operate through its officers and employees. But should a corporation be held liable for the criminal actions of its employees? At present, English and Welsh corporations are routinely prosecuted for regulatory offences, but rarely for criminal offences. Regulatory offences, such as breaches of fire regulations or the sale of unfit food, do not require an intention to commit the offence. Criminal offences, for instance economic crimes such as bribery or corruption, require an intention; you cannot accidentally bribe someone. A corporation can only form the intention to commit a crime through the intention of a senior company officer: the rule of attribution. The current law makes it difficult to attribute the intention of a company officer to the corporation, meaning it is difficult to prosecute corporations.

Almost every economic crime involves the misuse of a corporation, whether to launder stolen money, hide assets, or as a principal actor. Either a corporation has been set up or repurposed as a criminal enterprise (a front), or a company has engaged in criminal behaviour for business purposes. The practical effect is that corporations are rarely held accountable by the law for the actions of their employees. An English company may bribe politicians in the developing world in order to win contracts but escape criminal liability if there is a lack of clearly documented evidence that the board sanctioned the bribes. But how often does a board minute its ‘approval for the payment of bribes’? Never. It may know about the bribes and tacitly encourage the practice; but it will never commit itself to paper.

In corruption cases, ‘compliance’ (the mechanism by which good governance is enforced inside a corporation) may be a triumph of form over substance or what convicted Alstom executive Frédéric Pierucci called in his 2019 book The American Trap “window dressing, purely cosmetic”. Financial journalist Martin Vander Weyer cautioned in The Spectator on 30 October 2020: “In bad banks, the compliance function is dismissed and outflanked as an impediment to bonus-hunting – or worse, coerced into silence – and grief inevitably follows”. This failure of the English law to hold corporations to account and promote good governance as a moral good is not only unfair and unjust, it allows corruption to perpetuate in fragile economies, risks the prosperity of developing countries, weakens democracy, and damages the reputation of the UK as a place to do business.  

Half a century of complexity

For almost 50 years lawyers have grappled with the practical effect of complex legal rules determining the circumstances in which a company may be held liable for the commission of a criminal offence. In 1972 the House of Lords ruled that a company will only be guilty where the board has delegated the whole of its authority to act independently of instruction to a junior manager who is guilty of an offence. In other words, the company will only be guilty of an offence where it is clear that the board had intended that the manager’s actions would bind it. 

In 1995 the Privy Council suggested there might be circumstances in which a special rule of attribution should be fashioned, in order to give effect to the parliamentary intention of a particular statutory provision. This bound common-law countries for which the Privy Council was the final court of appeal (at the time countries such as New Zealand, but now limited to countries such as Jamaica, the Cayman Islands, the Bahamas and British Overseas Territories). The 1995 judgment seemed revolutionary, but it has since become clear that it is a restatement of the 1972 judgment rather than a radical departure from it.

The case for reform

The hierarchical rigidity of the House of Lord’s 1972 ‘identification doctrine’ judgment jars with the realities of modern business. The law does not envisage corporations being either decentralised in business units, or being too large for a small group of people to run. It is axiomatic that corporations with hundreds or thousands of employees cannot be run day-to-day by a single managing director.  The use of offshore vehicles, shell companies and consultants to obfuscate the source and ultimate recipients of payments was described by the former chief executive of Airbus as “bullshit castle.” The Irish Court of Appeal identified the problem in a 2018 judgment: “Very significant responsibilities can be entrusted to an Assistant General Manager, to regional managers but also individuals such as safety managers.” The more diffuse the decision making, the more difficult it is to ascribe corporate liability.

In 1972 the Law Commission, the body charged with interrogating English law and recommending changes, considered whether the law on corporate criminal liability was fit for purpose. In November 2020, it was asked to consider the law again, and will commence work at the end of 2021. In recent cases brought in London, prosecutors have found that it is almost impossible to attribute the conduct of a middle manager, and sometimes even the conduct of a board member, to the corporation.

In 2015 Sir David Green QC, then Director of the Serious Fraud Office (the UK’s chief economic crime prosecutor) advocated abandoning the identification doctrine in favour of “something closer to vicarious liability, as in the USA”. Vicarious liability would mean the corporation would be guilty owing to criminal actions of its employees. The Ministry of Justice called for evidence on the subject in 2017, but did not report. In the introduction to the Call for Evidence, the Solicitor General wrote, “It is important that firms are properly held to account for criminal activity that takes place within them, or by others on their behalf and at their behest.” The minister for security and economic crime expressed the government’s determination “to try to deal with” corporate criminal liability; his post was abolished later that year.

The Law Commission’s 2021 project provides an opportunity to strengthen corporate governance by not only holding corporations to account for their criminal (as opposed to regulatory) actions, but also in the exercise of soft power. Civil society organisations and non-governmental organisations attempt to change and improve corporate behaviour in an informal and sometimes disruptive manner. Pressure groups play an important role holding corporations and politicians to account for corruption. For instance, Transparency International publishes an annual corruption index ranking countries based on perceptions of public corruption, and academics such as Sussex University’s Professor David-Barrett bring quantitative

rigour to a supra-national analysis of public corruption. Not-for-profit corporate watchdog Rights and Accountability in Development (RAID) exposes the human cost of corruption – particularly in Africa – emphasising that corruption is not a victimless crime. The true cost of corruption is not simply a financial cost of doing business.

Meanwhile government can promote good governance informally through behavioural economics (nudge theory), or formally through policy implementation and legislation. As Professor Ringen argued when he spoke at the RSA some years ago, governments must be able to persuade others to go along with them. There seems to a growing body of opinion to the effect that legislative change is necessary in order to maintain the reputation of the UK as a trusted place to do business. Corruption risk is a reputational risk, but it should be principally a criminal litigation risk. There is only so much that corporate pressure groups can do. Soft power – what I call the “embarrassment factor” – is not enough. Parliament has recognised the problem in two notable statutory workarounds. The Bribery Act 2010 and Criminal Finances Act 2017 impose a general liability on a corporation for failing to prevent bribery or tax evasion, subject to a defence that it had adequate preventative procedures in place. Usually, such “failing to” offences are regulatory rather than criminal. As Amanda Pinto and Martin Evans (both QCs) write in their 2021 practitioner text on Corporate Criminal Liability: “There can be little doubt that legislation is overdue; the limitations of the judge made law are conspicuous”.

Jon Mack FRSA is a corruption prosecutor, and writes in a personal capacity. @JonDMack