Why is it so hard to put rogue companies in the dock?
This article is taken from the December 2020 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering three issue for just £5.
Why is the government so unwilling to tackle the problem of corporate fraud? Years pass and nothing is done. It’s almost as if ministers don’t want to see companies in the dock.
As the law now stands, a company can be convicted of an economic crime in the United Kingdom — but only if prosecutors can prove that individuals who can be regarded as the company’s “directing mind” knew about, actively condoned or played a part in the offending. The bigger the company, the harder that is to establish.
There’s an exception for bribery. That’s because parliament passed the Bribery Act in 2010. Under section 7, a commercial organisation may be convicted of an offence if it fails to prevent bribery by its associates. As a result, a number of companies have cleared out corrupt practices, secured deferred prosecution agreements and paid huge fines.
By contrast, corporate liability for crimes such as fraud and false accounting is governed by common law, developed by the courts over centuries. It is easy enough to find the controlling mind of a small family firm. But successive directors of the Serious Fraud Office have complained that it’s too difficult to convict multinational corporations of economic crimes.
In 2015 prosecutors announced that News Group Newspapers would not face criminal charges even though Andy Coulson, who edited one of its titles, had been imprisoned for conspiracy to hack phones: Coulson was not the company’s controlling mind.
Somewhat ominously, Raab’s successor Sir Oliver Heald also sought “evidence on the costs and benefits of further reform”
More recently, Barclays Bank and its holding company were acquitted of fraud charges relating to the 2008 financial crisis. Refusing the Serious Fraud Office permission to reopen the case in 2018, Lord Justice Davis confirmed that three senior executives — themselves acquitted of charges they had faced personally — were not the bank’s directing mind for the purposes of the transactions in question.
The first sign that the government might make it easier to prosecute came in May 2016. Dominic Raab, then a justice minister, announced a government consultation “on plans to extend the scope of the criminal offence of a corporate ‘failing to prevent’ beyond bribery and tax evasion to other economic crimes”. He promised a consultation “this summer”.
But Raab moved on, and the government’s call for evidence was not published until January 2017, when Liz Truss was justice secretary. Consultees were asked whether corporate crime was going unpunished because of the “identification doctrine” — the need to identify the criminal intent of someone who was the company’s “directing mind and will”.
Somewhat ominously, Raab’s successor Sir Oliver Heald also sought “evidence on the costs and benefits of further reform”. Consultees were given 10 weeks to submit evidence. The ministry of justice then pondered for nearly four years until the justice secretary Robert Buckland last month announced his conclusions to a waiting world.
“The findings . . . do not provide a conclusive evidence-base on which to justify reform,” he said. “This work was conducted thoroughly, but we were unable to draw decisive conclusions regarding whether, and how, our approach to corporate liability for economic crimes can be strengthened.”
And why was that? As Buckland’s paper confirmed, there were “clear concerns” about the current law. But “those views were not supported by sufficient new evidence that companies are not currently being held responsible for economic crimes undertaken by their employees”. And “there was no clear consensus from respondents on what corporate liability offence should be created if the identification doctrine was replaced.” Indeed, some “questioned whether there was a need for further criminal sanctions at all in the already heavily regulated financial services sector”.
I wonder who they were.
What next? In an inspired move, Buckland passed the buck to the Law Commission, asking the government’s law reform advisers to provide an independent assessment. “The commission’s work is also extremely well respected within government, parliament and amongst external stakeholders,” Buckland’s paper noted.
It is at this point that I should declare an interest as a non-executive member of the Law Commission board. That gives me some idea of what is going on but I have no say in policy: the commission’s proposals remain exclusively the responsibility of its five commissioners.
The Law Commission has been asked to consider the options for reform, taking into account not only the public interest in the prevention and prosecution of crime but also the legitimate interests of businesses. The review’s terms of reference require it to ensure proper accountability of corporations that engage in criminal conduct —without imposing disproportionate burdens on business.
Unusually, two commissioners will share responsibility for this somewhat nuanced project. Professor Penney Lewis, the criminal law commissioner, has promised “options for reform to ensure the law is fair and robust”. Professor Sarah Green, the commissioner responsible for commercial and common law, said the review was “an important step for protecting the UK’s internal competitiveness”.
The commission hopes to publish an options paper by the end of 2021. The government will then decide whether it wants the commission to launch a full project on corporate criminal liability that might lead, in turn, to legislation. But even if the “directing mind” finally disappears, I can’t see that happening before 2025.
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