Aziz Rahman outlines why a company and an individual may be treated differently in the same investigation.

Corporate liability can come with a hefty price tag. As two of the UK’s biggest business names have proved.

Last year, Rolls-Royce agreed to pay £497M plus £13M Serious Fraud Office (SFO) costs to settle allegations of bribery spanning decades and continents. Months later, Tesco paid a £129M fine for overstating its profits by £326M in 2014.

Both Rolls-Royce and Tesco had reached deferred prosecution agreements (DPA’S) with the SFO. This meant that they accepted the allegations against them, paid fines and agreed to meet certain conditions. In return, they avoided prosecution.

At the time of writing, however, the SFO has still to announce whether it will charge individuals who worked for Rolls-Royce, regarding the bribery.  The trial of three Tesco executives, charged with fraud and false accounting over the company’s wrongdoing, was stopped earlier this year due to, among other reasons, the health problems of a defendant. But prosecution of the trio is still a strong possibility, as the SFO has indicated it is seeking a second trial.

So while Tesco and Rolls-Royce negotiated settlements to avoid prosecution, the employees said to be involved in the wrongdoing on their behalf have no such opportunity: such is the difference between corporate liability and individual liability.

Mind and Will

The now former SFO Director David Green has, in the past, talked of the challenge of identifying and prosecuting the “controlling mind’’ of a company. This would mean the SFO proving, to the criminal standard, that those aware of the company’s criminal conduct are senior enough to speak for it or represent its directing mind and will.

On leaving his post, Mr Green spoke with regret about not reaching a decision on bringing charges against former Rolls-Royce employees before he stepped down. The SFO had hoped to make a decision on charges before the end of 2017.

In most company situations, it will only be those who are suitably senior – board level or equivalent – whose decisions and actions could be identified as those of the company. These would be the individuals that could be classed as the controlling mind. But this concept is far from clear cut. The bigger and more geographically diverse a company, the larger and more complicated its management structures can be. Identifying those at the top in order to pinpoint the controlling mind can be difficult.

It is an issue that prompted the UK government to announce consultations last year on the possibility of reforming corporate liability. This could be seen as an admission that the current system makes prosecution excessively difficult.

Options

The Ministry of Justice is still assessing the feedback it received from the consultation exercise so we are some way, it appears, from an announcement on any possible legal changes.

If the government was determined to see more corporate prosecutions, it could introduce legislation to make a corporate liable for all the conduct of those working for it. An alternative could be the creation of an offence of failing to prevent economic crime. This is a principle already enshrined in the UK’s Bribery Act, where a company can be prosecuted for a failure to prevent bribery by someone that represents it.

Either option takes away the troublesome (for the prosecution) need to establish the controlling mind of a company.  

A third possibility could be broadening the definition of the controlling mind of the company. This would mean that investigators would not have to work their way through a minefield of management structures and mountains of testimony to establish who knew or did what and what their precise importance was within a company. This could even be fine-tuned, with each business sector reviewed before having tailor-made regulations regarding corporate liability imposed on it.

Procedures

We already know that the fate of individuals in the Rolls-Royce and Tesco cases will differ from those of their former employers. There will be no DPA for the individuals investigated. As yet, we do not know the precise fate of those individuals investigated: whether Rolls-Royce employees will be charged or whether the SFO will gain a second trial of the Tesco trio.

It is difficult to say, at this moment, whether one or both cases will become instances of individuals being convicted while corporates escaping prosecution by doing a deal. Only when both cases have run their course will we be able to determine whether they have any effect on future legislation – if there is any – to change the criteria for corporate liability in the UK.

At this stage, however, we can argue that if there are legislative changes to corporate liability, they will most likely place a greater obligation on companies to make sure their procedures for preventing business crime are properly devised, introduced appropriately and carefully maintained and monitored. Such an approach is the only way to avoid investigation and / or prosecution, regardless of what legal definition of corporate liability is settled upon by the lawmakers.

All corporates should already have such procedures up and running, regardless of possible future legislation. Such procedures will both lower the chances of a company being the subject of a criminal investigation and be the most powerful defence to any allegations that a company was liable for wrongdoing.