Expanding the scope of corporate criminal liability for economic crimes

On 15 June 2023, the government announced further amendments to the Economic Crime and Corporate Transparency Bill (the "Bill"), which, if enacted, are set to make the most significant changes to corporate criminal liability laws for a generation.

The government has proposed widening the scope of the identification doctrine - which is the principal basis for attributing liability for criminal acts of individuals to corporates - to the knowledge and actions of "senior managers" in connection with economic crimes (including fraud, false accounting, money laundering, sanctions evasion, bribery, and tax evasion).

This is the latest in a line of reforms which are intended to make it easier for authorities to hold corporates to account for criminal conduct, including the announcement of a proposed "failure to prevent fraud" offence in April 2023. For a full summary of the offence and the practical steps companies should take in response, see our articleshereandhere.

In this article, we highlight the key considerations for companies in light of the proposed reforms and our thoughts on how this may change the approach to managing corporate criminal liability risk.

Background

当前的测试要求个人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. Prosecutors, lawmakers and legal commentators have long criticised the current boundaries of the identification doctrine for being too narrow to effectively hold corporates to account.

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. Corporate prosecutions have been increasingly rare and there is a perceived lack of accountability for corporate wrongdoing for economic crimes.

What are the proposed reforms?

政府提出了一个新的法定依据for the identification doctrine in the Bill which will apply to economic crime offences. Under the proposal, a corporate will be capable of criminal liability where the offence is committed by a "senior manager". The definition of "senior manager" will be adopted from the Corporate Manslaughter and Corporate Homicide Act 2007, which refers to persons who play significant roles in:

• decision making related to how the whole or part of an organisation's activities will be managed; or
• the actual management or organisation of the whole or part of those activities.

Importantly for regulated firms, the definition of "senior manager" in the Bill does not align directly with the FCA's senior management functions. This opens up a particular risk for regulated firms around the mapping, and management, of those individuals who may fall within one, or both categories of "senior manager".

Assuming the reform makes its way onto the statute book, it will significantly expand the range of senior individuals whose conduct could expose the company to criminal liability for economic crime offences (for example, to encompass senior managers in large organisations with oversight for a specific business line, region, product area or function).

What does this mean for corporate criminal liability?

The expansion of the identification doctrine is another indicator of the government's appetite to tackle corporate criminality through a softening of existing prosecutorial hurdles.

The proposed reforms are set to embolden authorities (whose prosecutorial toolkits have been significantly enhanced in recent years) to pursue and investigate more cases of suspicious activity. The new provision will apply to a range of economic crimes (including fraud, money laundering, sanctions evasion, tax evasion and bribery) meaning it will be available to a number of different regulatory and criminal enforcement agencies.

Expanding the pool of individuals whose actions could lead to corporate criminal liability means that the management of economic crime risk will increasingly require Board level attention. For example, Boards may have to grapple more regularly with decisions as to whether they should self-report the conduct of individuals identifiable as "senior managers" to authorities so that they are in line to receive cooperation credit in the event that a penalty is imposed.

Alongside these reforms, existing failure to prevent offences for bribery and the facilitation of tax evasion, and the proposed failure to prevent fraud offence, regulated firms will face a real risk of criminal liability in circumstances where economic crimes occur within their business. 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.

What should companies do in response?

Compliance officers and executive boards should continue to monitor progress of this part of the Bill as it makes its way through Parliament.

As a preliminary step, and in anticipation that the reform will be enacted in line with the government's policy position, it would be prudent to start identifying those individuals across the business who could potentially fall within the category of being a senior manager. Regulated firms will want to conduct a distinct assessment to ensure they have mapped the individuals who may qualify as a senior manager under the expanded identification doctrine, but who may not be senior managers under the FCA's Senior Managers Regime. This will be a fact based assessment depending on the individual's role. Regulated firms should be clear on where decision making authority sits within the organisation and review governance processes so there is sufficient oversight and knowledge of where, how, and by whom decisions are being taken within the business.

Individuals identified as senior managers should be provided with targeted training on economic crime offences and companies should consider what enhanced controls measures may be required to monitor senior management conduct on an ongoing basis.