This summer marked 10 years since the UK Bribery Act 2010 came into force.
Amongst many new powers granted under the law, a particularly significant one was that of the ‘failure to prevent’ corruption or bribery, under which businesses could be held liable and responsible for the actions of their subordinate, unless they had sufficiently robust preventative controls in place.
Understandably, many City firms – particularly those operating globally – followed the introduction of the new rules with great interest, uncertain what scrutiny they should expect while dealing with government representatives, companies or individuals at home and abroad.
The last decade has, however, shown that in reality it is extremely difficult to establish corporate criminal liability, with just five cases brought to trial by 2020 by the Serious Fraud Office (SFO) since its introduction.
Hannah Laming, a partner at Peters & Peters Solicitors, recently represented the Private Prosecutors’ Association at the Law Commission’s consultation on corporate criminal liability.
City A.M. caught up with Laming to understand why the current framework has had limited success in holding companies to account.
First of all, how easy is it to prosecute a company in 2021?
Whilst it’s completely possible for companies in England and Wales to be prosecuted and convicted of criminal offences, they rarely are. Why? Successfully prosecuting firms is extremely challenging due to the ‘identification principle.
To consider how this could be addressed, a wide-ranging consultation by the Law Commission is currently underway to determine whether the principle is delivering the results we need or if we need to overhaul the way that we hold corporates to account.”
The law stipulates the ‘identification principle;. What does that mean?
It is a test that the courts use to determine whether an employee who committed a crime was the “directing mind and will” of the company, were they sufficiently senior that the company should be accountable for their conduct?
Prosecutors have difficulty demonstrating that those involved in the conduct were sufficiently senior to meet the test as they are often stymied by arguments around the nature and extent of senior employees’ authority. The Director of the Serious Fraud Office has also made reference to the email chain “drying up” at the most senior levels, making it difficult to establish culpability against the highest level of executives.
I understood there has been a lot of criticism.
Yes, critics would say that the identification principle makes it harder to prosecute large companies and rewards opaque structures and poor record keeping. To address this, the Government has legislated for some specific offences designed to catch corporate criminal liability. These are primarily ‘strict liability’ and ‘failure to prevent’ offences, where a company can be convicted on the basis of the conduct of its employees or agents.
For a company to commit a strict liability offence, prosecutors need only prove that a particular rule was breached, such as proving that a spill or contamination occurred.
Failure to prevent offences, however, operate differently. Once the employee’s criminal act has been proven (such as the paying of bribe) the company must prove that it did everything it reasonably could to prevent it. Under both regimes, companies can be vicariously liable for the conduct of employees.”
So what other factors are at play?
The Law Commission’s consultation will ask whether the identification principle remains fit for purpose. Undoubtedly, this is a good thing, but the problems are not purely legal. Only a very small proportion of economic crimes, both committed by and against companies, are investigated due to underfunding of enforcement agencies.
At the same time, the cost and complexity of criminal cases of this nature are increasing. Simply making it easier prove that a corporate is criminally liable may not lead to a significant rise in the number of corporates investigated or prosecuted for crimes.
So what can be done?
A blanket application of strict liability, leaving firms with no defence to their employees’ conduct is too draconian for economic crime cases. However, one plausible proposal is to extend vicarious liability though failure to prevent offences to more types of economic crime, meaning firms would have to show that they had adequate policies and procedures in place to prevent misconduct.
If implemented, it would create clarity for prosecutors and companies and encourage firms to implement effective anti-crime compliance measures. However, this would almost certainly add to companies’ compliance-burden. This also raises questions about who should decide whether policies and procedures are adequate when deciding whether to prosecute.
Some agencies, such as the FCA, play an active role in setting and enforcing the standards of the companies they regulate.
Arguably, they are well placed to assess firms’ compliance with those rules. Other agencies, whose work is purely law enforcement, may struggle to persuade commercial enterprises that they have the right expertise to make these determinations.”
Finally, in your view, what should be done?
A pragmatic approach is needed, including applying a mix of existing and extended criminal and civil powers. Under existing laws in some circumstances, firms can be issued with financial penalties, have assets forfeited or be prohibited from trading in a particular field of work. However, these rules are applied inconsistently.
Many firms subject to criminal proceedings will secure a deferred prosecution, which means that they are not convicted and therefore don’t face consequent prohibitions for bidding for certain contracts.
This reduces the deterrent effect of the criminal regime. Changing the way that corporate liability is attributed would make it easier to prosecute corporates, but greater consideration should be given to the effective policing and sanctioning of companies using a full range of civil and criminal enforcement tools.