The Solicitor General, Oliver Heald QC, has indicated that the government is actively looking at ways in which the law in the UK could be changed to make it easier to prosecute companies for financial crime. Currently, for any offence in the UK that involves a mental element, which includes offences such as fraud, the ‘identification principle’ applies to the prosecution of companies. This establishes that only the acts and state of mind of those who represent the directing mind and will of the company can be said to represent the company itself. It is only the most senior personnel in a company (generally understood to be those at main board level or equivalent) who might be said to represent the directing mind and will of the company. This doctrine has resulted in very few successful prosecutions of companies being brought for offences of this kind.
Mr Heald has indicated that the government is attracted to the proposal made by the current Director of the SFO, David Green. Last year he proposed that the “failing to prevent” offence found in the Bribery Act section 7 could be applied to other offences. Thus, he has suggested, a company that failed to prevent other crimes of fraud or dishonesty by its employees or agents would be guilty of an offence. As with the Bribery Act offence he proposes a statutory adequate procedures defence.
Alternative proposals have been made in recent months. The Labour Party has suggested that the directing mind doctrine needs to be adapted to be more in line with the US model of “respondeat superieur” (let the master answer). This provides that a corporation may be held criminally liable for the illegal acts of its directors, officers, employees and agents if it is established that the corporate agent’s actions were within the scope of his duties and intended, at least in part, to benefit the corporation.
In February this year, Deferred Prosecution Agreements (DPAs) came into being in the UK. These are an agreement by a prosecutor not to prosecute a company for a criminal offence in exchange for certain conditions being met. In the US where DPAs have been part of the legal landscape for a number of years, one of the conditions invariably found is the requirement for the company to pay a substantial financial penalty. In the US this has become an important means of generating revenue and partially funding the agencies that bring the cases. The attraction of such a system is obvious. As the law currently stands on corporate criminal liability in the UK, however, there are likely only to be a very small number of cases that will result either in a prosecution or a DPA.
There is no doubt that a substantial change to the law is required if there is going to be an increase in company prosecutions for offences such as fraud, and if DPAs are going to be used more widely. Whether such a change would be good for the UK remains to be seen, as does the ability of this government to bring about the major legislative changes necessary to give effect to this ambition.