The death of the SFO and of corporate criminal law as we know it?

Jul 26, 2016

The future of UK enforcement in the corporate crime sphere has never been easy to predict. Indeed, Theresa May in her role as Home Secretary had long been an advocate of the SFO’s abolition, and its incorporation into the National Crime Agency, an organisation with no proven track record of prosecuting complex financial crime. Whether she takes up this mantle again in her new role remains to be seen, but the executive’s frustration at the inability of our criminal justice system to successfully punish corporate criminality in the corruption arena has been voiced over and over again.

The Identification Principle

May’s frustration at the SFO’s lack of success may however betray a limited understanding of the problems posed to prosecutors by the very nature of our criminal law, which the SFO say has for decades hindered the successful prosecution of corporate entities for palpable corruption.

SFO Director David Green has previously argued that the root of the problem lies not with the SFO itself, but with the so called identification Principle, a concept deeply entrenched in our criminal law by the judiciary:

“Companies are legal persons. They may also be criminally responsible for offences requiring mens rea (criminal intent) by application of the identification principle. This is where 'the acts and state of mind' of those who represent the directing mind and will will be imputed to the company”[1]

The criminal intent of a corporate entity’s (human) directing mind must therefore be established for even the most culpable of corporate entities to be found guilty of any criminal offence requiring mens rea. Indeed, the criminal intent requirement of offences with which corporates can sensibly be charged for corrupt activity is a reflection of that fact that our common law has developed over the centuries to deal with the criminality of individuals, rather than the criminality of corporate entities. A prosecuting body’s fight is therefore more with the common system than anything else, when it attempts to prosecute corporate entities. It really is a case of trying to hammer a square peg into a round hole.

How did it develop?

Established in Asiatic Petroleum,[2] the principle was expanded upon in Tesco Supermarkets v Nattrass, [3] during which a consensus was reached regarding who constituted the ‘directing mind and will’ of a corporation. In his judgement in Tesco Supermarkets, Lord Reid stated that:

It must be a question of law whether … a person … is to be regarded as the company or merely as the company’s servant or agent. [If the latter] any liability of the company can only be a statutory or vicarious liability[4].[5]

The case extended the definition of who was to be regarded as the company to include the ‘board of directors, the managing director and perhaps other superior officers of the company who carry out functions of management and speak and act as the company’[6].

What is its effect on prosecuting corporate crime in the corruption arena?

Prosecutorial frustrations with the Identification Principle were further highlighted by the CPS in a December 2015 announcement. Following their decision that prosecution of News Groups Newspapers and individuals at the Mirror Group was not a realistic prospect, they stated:

The law on corporate liability in the United Kingdom makes it difficult to prove that a company is criminally liable if it benefits from the criminal activity of an employee, conducted during their employment. The company will only be liable if it can be proved that the individual involved is sufficiently senior, usually close to or at board level, to be the ‘controlling mind and will’ of the company. Unlike other countries, the principles of vicarious liability or poor corporate governance, which are matters that are easier to prove, play no part in establishing corporate criminal liability.[7]

The prosecutorial temptation is therefore to seek the establishment of corporate liability via an innocent, but necessarily senior, figure within the company. So strong is their desire to secure conviction of the corporation itself, prosecutors sometimes find themselves slinging mud at senior company officers and seeing where, and to whom, it sticks. Mud sticking is however not enough for the SFO in corporate prosecutions: they must persuade a jury of said directing mind’s guilt.

Criminal law in its current form is/has until recently therefore not only struggling/ed to bring companies to justice, but the liberty of senior officers is being/has been put at stake in the pursuit of corporates. Although clearly unsatisfactory, the SFO have argues that it is not their fault, as they are not a law making body, and can only work with the tools that they are given.

Changes to the law, and a new (and growing) toolkit with which to prosecute corporate criminality

Cue much needed intervention from the legislature (as far as the SFO are concerned), who have over the past few years begun the process of rectifying the criminal law’s shortcomings in this field, by drafting laws which reflect the complexity of corporate offending and thereby improved the armoury available to corporate crime prosecutors.

Much has been written about the Bribery Act’s far reaching extra-territoriality, but it is its section 7 which is of most interest to us here, introducing as it does the offence of Failure of commercial organisations to prevent bribery. For a corporate prosecution, the new offence requires neither any element of criminal intent, nor the guilt of a directing mind to be proved. An otherwise culpable company will however escape criminal liability if it can prove that it had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct. It therefore signals a seismic shift in the very notion of corporate criminal conduct in the corruption arena, and represents the beginning of the end for the common law identification principle, whilst very much the beginning of a new era of compliance (being now a defence to corporate criminality).

Corporate compliance has therefore now become, and will continue to be, critically important for large corporates (in particular). Envisaged offences of failure to prevent economic crime and tax evasion may also follow soon, which are likely to carry with them defences of a similar nature to s7 of the Bribery Act’s.

So what next?

It is possible that the SFO will remain safe from Theresa May for a while longer, particularly in light of the fact that she now has a few more pressing issues on her plate than restarting her past pursuit of our most specialist corruption prosecuting body. Indeed, by the time she reverts her attention to it, the corporate corruption space is likely to have changed somewhat, with prosecutions and fines becoming ever easier to extract, and an SFO that more frequently shares the international anti-corruption stage with the DOJ. That is of course unless those growing armies of compliance specialists and lawyers following every commercial move of large organisations do too good a job..

[2] Lennard v Asiatic Petroleum [1915] AC 705

[3] Tesco Supermarkets Ltd. v Nattrass [1972] AC 153

[4] NB The existing principle of vicarious liability in a criminal law context is currently applied to those crimes which do not require a mental element, such as strict liability offences.

[5] Tesco Supermarkets Ltd. v Nattrass [1972] AC 153

[6] Tesco Supermarkets Ltd. v Nattrass [1972] AC 153

[7] A. Saunders, Statement from the Crown Prosecution Service: No further action to be taken in Operation Weeting or Golding (CPS, 11/12/2015)
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About Tom

Tom is a Corporate Crime litigator whose practice focuses on defending clients in both investigations and prosecutions brought by the SFO and HMRC. He also has experience in the field of public international law.