Corporate crime – whose fine is it anyway?

David Little, a Partner in Bishop & Sewell's Corporate and Commercial department.

The Law Commission has put forward a range of options to the Government for enhancing the legal system’s ability to prosecute corporations for economic crime.

According to this ICAEW Insights article in the year to September 2020, more than 5,000 UK corporations and other registered entities were convicted for criminal acts; 0.6% of all convictions logged in that period. Many of those convictions were for relatively minor offences, such as breaches of environmental or trading regulations, writes David Little, a Partner in Bishop & Sewell’s Corporate and Commercial department.

Traditionally low conviction rates for businesses in relation to serious economic crime, such as fraud, have long fuelled concerns among legal and ethics experts that the law’s capacity to identify corporates as perpetrators for such offences is far too restricted.

With that issue in mind, the Law Commission launched this consultation last year to determine the effectiveness of the law as it stands, and to gather thoughts on how the relevant provisions could be improved, “As a rule of thumb, criminal liability for economic crime is applied to corporates via the ‘identification doctrine’, which holds that, typically, a business will be liable only for the conduct of an employee with sufficient status and authority to constitute that firm’s ‘directing mind and will’.

Is a corporate or an individual working for a corporate culpable?

So the question is whether a corporate or an individual working for a corporate is culpable. In relation to bribery or the facilitation of tax evasion alternative provisions exist to highlight a ‘failure to prevent’.

As a Senior Research Fellow in the Royal United Security Institute’s Centre for Financial Crime and Security Studies, Kathryn Westmore is familiar with the legal gaps that gave rise to the consultation.

“There are types of economic crime that can only be facilitated by companies and/or the services they provide,” she says. “But prosecutors have often struggled to prove that a specific individual meets the requirement of being a company’s ‘directing mind and will’ – let alone that they were responsible for the company’s wrongdoing. Over the years, that has hampered corporate prosecutions.

“Large corporates with decentralised decision-making structures are effectively immune from criminal prosecution. Given some of the egregious corporate behaviour we have seen over the past decade, that seems inherently wrong.”

It’s important to note that legislative changes alone won’t make up for the chronic underfunding of law enforcement and the legal system, which is also a significant barrier to prosecuting corporate economic crime.

As a Corporate lawyer, throughout my career, instances where I’ve been aware of such potential breaches could probably be counted on the fingers of one hand. So this consultation is really operating on the margins of jurisprudence rather than real politik. But still, English legislation needs to be as robust as it properly can be so that anyone doing business with firms under English law know that the system will always operate fairly, transparently, systematically and consistently.

Read the Commission’s full report here.

David Little is a Partner at Bishop & Sewell in our expert Corporate & Commercial team. If you would like to contact him please quote Ref CB327 on either 020 7631 4141 or email [email protected]

The above is accurate as at 4th July 2022. The information above may be subject to change during these ever-changing times.

The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.