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The economic crime and corporate transparency bill is currently in the final stages of the legislative process. The bill, if enacted, is set to make the most significant changes to corporate criminal liability laws for a generation.
This article summarises two key reforms, namely the introduction of a new corporate offence of failing to prevent fraud and amending a long-standing principle of English law, known as the identification principle, to make it easier for authorities to hold corporates to account for economic crimes.
The new ‘failure to prevent’ fraud offence
Companies will be criminally liable where an “associated person” commits a specified fraud offence, with the intention to benefit the organisation, or any person who receives services from the company.
The failure to prevent fraud offence will be a strict liability offence, meaning it will enable prosecutors to pursue acts of fraud where there is no knowledge or awareness of senior managers or board members.
A company will not commit the offence if it is the target or victim of the intended fraud.
Start identifying those individuals across the business who could potentially fall within the category of being a senior manager.The list of prescribed fraud offences is broad and covers existing common law and statutory fraud, in addition to offences relating to false accounting and cheating the revenue.
The scope of companies to whom the offence will apply has been the subject of ongoing debate in the Houses of Parliament.
The current proposal would extend the offence to all businesses other than micro-organisations, which are defined as a company that meets two of the following criteria: a turnover below £632,000; a balance sheet total under £316,000; or fewer than 10 employees.
It is a defence for a company to prove that it had reasonable prevention procedures in place at the time the fraud was committed or that it was reasonable to not have any procedures in place. A company convicted of the offence can receive an unlimited fine.
Reforming the identification doctrine
The current test for attributing liability for criminal acts of individuals to corporates requires that an individual who represents the “directing mind and will” of the company (usually a member of the board of directors) must have been complicit in the relevant conduct for the corporate itself to be held criminally liable.
As companies have grown in size and governance structures have become more complex, decision-making has been diffused across a large number of managers within the business.
As a result, it has become increasingly difficult for prosecutors to identify and prove wrongdoing by the directing mind and will of the company in order to establish corporate criminal liability.
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