Proposals to overhaul the law to make it easier to prosecute companies and hold them to account for committing crimes have been put forward to the UK government by the independent agency that reviews legislation.
The Law Commission submitted on Friday several possible options to reform the laws governing corporate criminal liability in England and Wales, including widening the scope for attributing criminal liability.
It follows widespread concern from the Serious Fraud Office and wider legal profession that the law has been falling short in adequately holding corporations to account, particularly for economic crimes such as fraud. The government asked the commission last year to present options for reform and ministers must now decide whether to implement any of those, which may need primary legislation.
Under current fraud laws, prosecutors must demonstrate that the “directing or controlling mind” of a company, usually a very senior executive, was involved in alleged criminality. However, this is often difficult to prove when prosecuting large, complex corporations with many management layers.
In 2019, the criminal courts threw out a fraud prosecution brought against Barclays and its ex-chief executive, John Varley, over the bank’s 2008 £4bn fundraising from Qatar. The judges ruled that Varley could not be classed as the directing mind of Barclays because he was answerable to Barclays’ board of directors, which was responsible for the fundraising.
Among the options put forward by the commission are widening the scope for attributing criminal liability to businesses for the conduct of their senior managers. It also says the law could be changed to specify that chief executives and chief financial officers should always automatically be considered part of a company’s senior management team and so could be prosecuted as the “directing mind”.
It has also suggested the option of introducing a new offence for companies of “failing to prevent” fraud carried out by an employee or agent. This would mean companies could be prosecuted if they have failed to put in place adequate measures and internal checks to stop staff committing fraud to enrich the company.
A similar “failure to prevent” offence was introduced in the 2010 Bribery Act, which means companies can be prosecuted if they have inadequate measures to prevent their staff engaging in bribery to win contracts.
Professor Penney Lewis, law commissioner for criminal law, said: “There is broad consensus that the law must go further to ensure that corporations — especially large companies — can be convicted of serious criminal offences, such as fraud.”
Professor Sarah Green, law commissioner for commercial and common law, added that the proposed options were also aimed at reforming the law in a way that would not create an administrative burden for companies.
The commission has also put forward other options for reform, including introducing an offence of failing to prevent human rights abuses in their overseas operations. But it said further work would be needed if these proposals were to be taken forward.
Susan Hawley, executive director of Spotlight on Corruption, an anti-graft group, urged the government to adopt the proposals. “It would be a travesty if the government were to take this report as a green light to do nothing,” she said.
