Since its publication, the Options Paper has been greeted by a mix of outrage, scepticism and some cautious optimism.  In this article we look in detail at the proposed options and look at possible next steps.

The options for reform were explored with a view to addressing the challenges faced by the criminal justice system under the current law relating to corporate criminal liability, whilst seeking to avoid disproportionate burdens upon business.

The project, which started in November 2020, focussed primarily on economic crime, such as fraud, tax evasion, bribery or money laundering, the Law Commission noting that these types of offences are particularly likely to be committed in a corporate context.

The Law Commission set out ten options for reform, which are now to be considered by the Government:

• Retain the “identification doctrine” as it presently stands, i.e.  that a corporate’s guilt will be entirely contingent on the guilt of its  “directing mind and will”^[1];

• Allow conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence, with the addition that chief executive officers and chief financial officers would always be considered part of an organisation’s senior management;

• Establish an offence of failure to prevent fraud by an associated person (for example, an employee or agent) who performs services on behalf of the organisation. This offence would cover a limited number of core fraud offences^[2] but would not extend to conspiracies or attempts. As with existing “failure to prevent offences”, there would be a defence available that a corporate had in place reasonable procedures in place to prevent fraud by its associated persons. Government guidance on reasonable procedures would also be published.

• Introduce an offence of failure to prevent human rights abuses. This option is largely intended to address human rights abuses overseas;

• Introduce an offence of failure to prevent ill-treatment or neglect. In an exception to the Law Commission’s general principle, there would not be a requirement to demonstrate that the conduct was intended to benefit the organisation;

• Introduce an offence of failure to prevent computer misuse. Any such offence would have to take account of the complex extraterritoriality provisions in the existing computer misuse legislation;

• Make publicity orders available in all cases where a corporation was convicted of an offence;

• Introduce a regime of administratively imposed monetary penalties; 

• Introduce a regime of civil actions in the High Court, based on Serious Crime Prevention Orders, but with a power to impose monetary penalties as well as punitive and preventative measures; and

• Introduce reporting obligations requiring public interest entities and large corporations to report on anti-fraud procedures.

Opposition MPs and NGOs have criticised the lack of ambition in trying to tackle the identification doctrine.  There has also been criticism of the lack of more aggressive options to increase the routes to make company management criminally liable for white collar crime.

However, many lawyers and corporates have welcomed the Law Commissions decision to reject, at least at this time, an option to introduce a catch all offence of failure to prevent economic crime. It was recognised that reform of corporate criminality should be incremental and that “reasonable procedures” (as used in the anti-facilitation of tax evasion defence) rather than “adequate procedures” (as used in the failure to prevent bribery legislation) will be favourable for any future defence created. This is of assistance to many smaller organisations, and would allow for the possibility of it being reasonable in some circumstances not to have had prevention procedures in place at all, as per the Criminal Finances Act. There is no such provision in the Bribery Act.

The two standout  options relate to the “failure to prevent” offences in respect to fraud and human rights.

The notion of a specific offence dealing with corporate failure to prevent human rights abuses in supply chains has been welcomed by human rights groups.  Certainly, such a development is consistent with the direction of travel across Europe in respect to making corporates more accountable for human rights failures.  However, the Options Paper fails to outline any detail of what such an offence would look like and critically, it is unclear whether such an offence would ever become a legislative priority under the current Government. 

How much of an impact a stand-alone failure to prevent fraud offence remains to be seen. Fraud, or dishonest representations of some kind, are commonly interwoven with bribery and facilitation of tax evasion; these offences rarely occur in isolation. This raises the question of whether the compliance burden placed on corporations to assess risk, design and then implement controls to tackle fraud is disproportionate to the impact any legislation of this type is likely to make. Adequate and reasonable procedures in place within organisations will largely focus on the theme of eradicating dishonesty of any kind.

The Options Paper includes many and diverse options.  Whatever happens it is almost inconceivable that the Government will be able to legislate for them all.  In that respect the Options Paper has been criticised for being too ambitious because it proposed too many options and failed to focus on potential legislative priorities.  

There is also a serious question as to which law enforcement agency will be responsible for investigation and prosecuting any new corporate offences.  In that respect the future of these potential reforms are intrinsically linked to the future of the Serious Fraud Office (“SFO”).

The UK’s leading fraud agency is presently subject to independent review being undertaken by previous Director of Public Prosecutions, Sir David Calvert-Smith, into its workings following its handling of the Unaoil case, focussing particularly on the agency’s contact with third-parties and disclosure. The decision to launch this review was quickly followed by the findings of the High Court that the SFO acted with "bad faith opportunism" in its interactions with the lawyer representing Kazakh miner Eurasian Natural Resources Corporation.   The Government’s intentions in respect to the SFO will need to consider any proposed new offences and vice versa.

Although the Government has committed to introducing a second economic crime bill in the upcoming parliamentary session (2022/23) we need to be realistic that these proposed reforms may not become law before the next election.  So perhaps it is not a case of whether the options are unambitious or too ambitious, the real question is whether the Government will have the resource or inclination to focus on appropriate legislation to deal with any of these possible reforms.  

Nevertheless, change is coming – both in respect to legislation and in respect to the structure and future of our law enforcement agencies; the question is when and how extensive that change will be.

Authored by Liam Naidoo, Olga Tocewicz, and Alex Hohl

References

1. Tesco v Nattrass [1972] AC 153.

2. Fraud by false representation, obtaining services dishonestly, the common law offence of cheating the public revenue, false accounting, fraudulent trading, dishonest representation for obtaining benefits, and fraudulent evasion of excise duty.