On June 15, 2023, the UK Government announced that it would seek to introduce the biggest reform of corporate criminal liability in England and Wales for more than 50 years.

The proposals seek to amend the existing “identification doctrine”—the main way in which criminal liability is attributed to corporate entities in England and Wales—to allow for the actions of “senior managers,” acting within the actual or apparent scope of their authority, to fix the entity with liability with respect to a comprehensive list of economic crimes, including fraud, bribery, money laundering, sanctions, cheating the public revenue and conspiracy to defraud offences.

Should the proposals pass into law in their current form, the new basis of corporate criminal attribution would significantly increase the likelihood of companies being successfully prosecuted in the United Kingdom.

Problems With the Identification Principle?

The main way that the criminal law of England and Wales currently attributes liability to corporations for offences requiring proof of fault is through the “identification doctrine,” under which a corporate body will usually only be liable for criminal conduct by one or more natural persons representing its “directing mind and will.”

This contrasts with the position in the United States, where the respondeat superior doctrine attributes the criminal acts of any employee to the company if they were committed in the course of employment and with an intention to benefit the company.

The drawback of the identification principle is that those who can represent the directing mind and will is limited. It is necessary to establish whether the natural persons in question have the status and authority that in law makes their acts the acts of the company so that the natural person is to be treated as the company itself. It has been argued that the principle is too narrow and does not reflect the reality of decision-making in modern complex organisations. In practice, this can make it incredibly difficult to prosecute large companies with complex organizational structures and delegated authority matrices.

How Will Liability Be Attributed Under the New Proposal?

The proposed reform seeks to place the identification doctrine for economic crimes on a statutory footing, on the basis that senior managers are capable of fixing corporations with criminal liability.

Providing a senior manager is acting within the actual or apparent scope of their authority and commits a relevant offence, the corporation will also be guilty of the offence. The definition of “senior manager” is borrowed from the Corporate Manslaughter and Corporate Homicide Act 2007 to mean an individual who plays a significant role in:

(a) the making of decisions about how the whole or a substantial part of the activities of the corporation are to be managed or organised, or
(b) the actual managing or organising of the whole or a substantial part of those activities.

A senior manager therefore comprises not only those who decide on broad strategy but also those who make operational decisions covering the whole of the corporation or a substantial part of it. This may not capture someone whose role was limited to management of a discrete unit that does not represent a substantial part of the company’s affairs but probably would include someone whose responsibilities involve making decisions relating to corporate strategy and policy in a particular area—such as operations, legal or finance.

The definition of “senior manager” is not necessarily any clearer than that of “directing mind and will” under the current identification doctrine, but it is broader and should more accurately reflect the breadth of decision-making in modern companies.

How Will It Relate to the New Failure to Prevent Fraud Offence?

The proposal to reform the law of criminal attribution for economic crime sits alongside the proposed introduction of the new failure to prevent fraud offence in the Economic Crime and Corporate Transparency Bill (considered previously in this client alert).

The rationale for the failure to prevent fraud offence, together with the current equivalent offences of failure to prevent bribery and failure to prevent the facilitation of tax evasion, is clear notwithstanding the proposed reform of the identification doctrine. The strict liability failure to prevent offences will continue to offer a means of addressing conduct that cannot be attributed to the corporation even under the revised basis of attribution and, perhaps more importantly, will continue to impose a duty on companies to take positive steps to prevent the commission of offences by their agents and employees.

What Will Be the Impact of the Proposal?

The draft legislation is at the report stage in the House of Lords and remains subject to further debate and possible amendment prior to passing into law. Given that the legislation will not have retroactive effect, there will be an inevitable lag between any change in the law and the investigation and prosecution of any misconduct.

This does not, however, undervalue the significance of the proposed change. If implemented in its current form, the proposal is likely to make it easier for UK prosecutors to pursue corporations and thereby directly impact the decision-making of corporate boards regarding questions of voluntary self-reporting, cooperation with government investigations and whether to enter into negotiations with respect to deferred prosecution agreements.