When a company is under investigation for a criminal offence, careful thought has to be given to the issue of whether the company itself is liable or whether people within the company are personally liable. 

Earlier this year, the government stated that it was looking to seek opinions on reforming corporate criminal liability for economic crimes in the UK. The consultation period ran to 31st March 2017. One of the drivers behind this interest in corporate liability is the difficulty in prosecuting companies, due to the need to prove the guilt of the person who was the “directing mind’’ of the company and the so called ‘identification doctrine’.

In recent months, some high-profile cases have demonstrated a lack of coherent policy and more of a case-by-case approach in how the State tackles its biggest corporations when those companies commit crimes.    

Under a deferred prosecution agreement (DPA), Rolls-Royce paid £617M to avoid prosecution for serious and sustained bribery. Whether senior Rolls-Royce individuals are prosecuted remains to be seen. Tesco is paying £129M under a DPA for false accounting - and will not itself be prosecuted - while three of its senior executives await trial.. The Financial Conduct Authority (FCA) fined Deutsche Bank £163M for having poor money laundering controls, but neither the bank nor individuals were prosecuted.

The government’s consultation may lead to more people being defined as the directing mind of the company. Alternatively, it may create new strict liability offences: either making a company liable for the actions of its staff, in the same way the Bribery Act 2010 does, or by making it responsible for making sure no offences are committed in its name.

Issues

The recent 30-year anniversary of the Herald of Free Enterprise disaster is an example of some of the issues that can arise.  Townsend Thoresen, the ship’s operator, was prosecuted but was not convicted. The court had had to consider whether corporate manslaughter actually existed in English criminal law.  The answer was that it did – and gross negligence could be enough for the mens rea.

But this was not considered to be a satisfactory state of affairs. A consultation paper in 2000 eventually led to the Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA).  Prior to 6th April 2008, it was possible for a corporate entity to be prosecuted for a number of criminal offences, including the common law offence of gross negligence manslaughter. However, in order for the company to be guilty, it was also necessary for a senior individual who could be said to embody the company - the 'controlling mind' - to be guilty of the offence. This was known as the identification principle.

CMCHA came into effect on 6 April 2008 and addressed the problems with the common law.  But the issue of corporate liability is one that is of increasing concern to in-house legal counsel as criminal law creeps increasingly into the corporate world.

 

One of the major difficulties that has to be addressed is the potential conflict between a director and the company. If general counsel is advising the company board there can be tensions. For example, if the company is being investigated by the police or, alternatively, a company executive suspects some internal wrong-doing and causes an internal investigation then the murky issue of where personal liability stops and corporate liability begins – or vice versa - starts to rear its head.

Distinctions

The case of Lion Steel Equipment Ltd (July 2012) is a case in point. That was a criminal prosecution that started after a maintenance worker was killed after falling through the roof of the company’s premises.  The case began as a prosecution against three directors, who were charged with gross negligence manslaughter, and the prosecution of the company under CMCHA.

At half-time, two directors were acquitted on the direction of the trial judge after the judge found there was no case to answer. The judge, however, stated that there was a case to answer regarding the third director. There were discussions at court that led to the prosecution agreeing to offer no evidence against the director if the company offered a guilty plea to the CMCHA offence.

The final outcome, therefore, was the company admitting its guilt, saving one director from possible conviction after two others had already been acquitted.

This case raises two notable issues:

* The extent to which prosecutors are prepared and willing to bring charges against individual directors as well as the company. This gives prosecutors more scope to negotiate – and potentially puts pressure on the corporation to plead guilty to protect its individuals.

* The fiduciary duty of directors to act in the best interests of the company – and not just themselves.  A personal plea of guilty might, conversely, save a corporation from being prosecuted and then sued.   

 

Privilege Against Self-Incrimination

Those involved in internal company investigations into potential criminal wrong-doing may not be alive to the strictures of Article 6 of the ECHR.  The right to silence is a well-known concept in police criminal investigations, though the right not to incriminate oneself is just a facet of the wider right to a fair trial in Article 6.  In internal investigations, the investigators must be alive to Article 6 because the evidence obtained in the workplace investigation may potentially become evidence in the Crown Court. – then the circumstances of how that evidence was secured and Article 6 compliance may be argued by the defence. 

This was illustrated in Cancer Research UK v Morris & Morris [2008] EWHC 2678 (QB); a case in which we acted for a sacked employee; a project manager suspected by his employer of theft.  Cancer Research UK conducted an internal investigation and called the employee, without warning, to a meeting that was attended by solicitors from two prominent London corporate law firms and three senior members of Cancer Research UK. The employee was given no opportunity to take legal advice.

The accusations were put to him and a note was taken of all the answers. The charity then secured, ex parte, a civil freezing order – a Mareva - and then called the police. The order included a provision to permit Cancer Research UK to hand over to the police any information uncovered by its own investigation.  This included the interview notes.

This was challenged in the High Court.  The charity  argued that the remedy lay with criminal court and not the High Court and that in any event the comments made by the employee in interview were not themselves incriminatory and thus there was no breach of Article 6.  The court held that the employee was right.  The remedy lay with the High Court as that is where the order had been made.  The order could not permit disclosure to the police as the charity was wrong in how it interpreted ‘incriminating’ – it was just not words or documents that were necessarily directly incriminating that were caught by Article 6.  Saunders v UK [1996] had long established that the protection was not limited to admissions or remarks which were not directly incriminating.

 

Bribery and Corruption

The Bribery Act 2010 has led to  a very small number of prosecutions since it came into effect in 2011.  But the Act itself is a clear example of how the government and prosecution agencies now have a greater appetite for extending the traditional limits of the criminal reach so that our criminal courts will increasingly be concerned with corporations.  Quite rightly so but inevitably, as with day to day criminal practice, wrong decisions will be made: prosecutors will misunderstand the intentions of senior executives and, likewise, careless directors may be unpleasantly surprised at the consequences of their actions.

The enthusiasm for extending corporate liability is exemplified in the offence of failure to prevent bribery; s7 of the Bribery Act, which makes a company liable if it did not stop bribery being committed in its name. The company is liable whether it knew the bribery was happening or was oblivious to it. Its failure to prevent makes it liable, regardless of how much the company knew about it.

The current Criminal Finances Bill , expected to become law this summer follows a similar path .  It creates two new “failure to prevent” offences for corporate entities. Section 40 creates an offence where a company or a partnership is guilty if a person associated with it facilitates UK tax evasion, whilst s41 creates a similar offence regarding foreign tax evasion. Under each section a company will have a defence if they had in place reasonable prevention measures; much like the defence to the s7 of the Bribery Act offence.

 

Future

This new model for increased responsibility on corporations that we see in the Bribery Act and the Criminal Finances Bill has introduced the reality of very wide new criminal offences for all company directors and in-house counsel to worry about.  The tax evasion offences, for example, are directed at companies and partnerships where tax evasion is committed by those associated with the company, such as its employees, agents or anyone else performing services on behalf of it.  This then is the brave new world for senior executives.

The Bill’s emphasis on failure to prevent an economic crime is putting responsibility on those at the top - the “directing mind’’– to make sure that fraud, money laundering, theft and any other dishonest types of behaviour are neither promoted nor tolerated.

We predict that the end result of the government’s consultation will be to extend yet further the reach of the criminal law into the corporate world.