White collar crime updates
Sign up to myFT Daily Digest to be the first to know about White collar crime news.
Has UK plc become too big to prosecute? The Serious Fraud Office, tasked with investigating and prosecuting the most complex financial crimes, thinks so. Successive SFO directors have called for reform of corporate criminal liability laws. A bad workman often blames his tools. The SFO has a poor record in court but in this area the apparatus it must work within is antiquated and ineffective. It needs an overhaul if the largest corporations are not to be above the law.
The Law Commission, whose consultation on corporate criminal liability closed on Tuesday, will offer reform options to the government by the end of the year. It is time ministers acted on proposals after years of dithering.
Laws dating back to the 19th century, when corporate structures were much simpler, currently demand that prosecutors prove a company’s “directing mind” was complicit when it comes to bringing a corporate prosecution for crimes that require intent, such as fraud. This “identification principle” has meant in practice that prosecutors can hold to account small companies, with clear lines of control, but not large ones, with often complex checks and balances such as boards. Lisa Osofsky, the SFO director, explained she can go after “Main Street but not Wall Street”. That undermines the idea that the law applies to all, equally.
There have been high-profile examples of companies escaping prosecution because of the law’s complexity: News Group Newspapers was not charged with phone hacking despite senior journalists going to jail, because of the identification principle. But it was the collapse of the SFO’s case against Barclays that strengthened calls for reform. There is no legal definition of what constitutes a directing mind, though before the Barclays case it was assumed that a chief executive would make the grade. Yet fraud charges against the bank stemming from the financial crisis were thrown out because the judge ruled that its then chief executive, John Varley, was accountable to the board. The judge also acquitted Varley during a 2019 jury trial.
Models for reform might include the US or Australia. But the US system of vicarious liability — where a company is held accountable for the actions of employees if they acted to benefit that company — is often criticised for being too blunt. Australia’s system, which attributes blame if there was a lackadaisical culture or where wrongdoing was sanctioned by senior management, is thought too uncertain.
Another option would be to mirror an overhaul of bribery legislation a decade ago. That followed criticism from the OECD over the UK’s record in prosecuting corruption. The Bribery Act holds companies liable for failing to prevent corruption, without the need for the identification principle. A corporate “failure to prevent” offence was also extended to tax evasion in 2016.
Scandal preceded both those reforms — the Al Yamamah controversy and the Panama Papers leak, respectively — fostering wide cross-party political support. In the wake of both Brexit and the pandemic, it is debatable whether similar political will — or the appetite to hold companies to account — exists now. A corporate prosecution that ultimately ends in fines not prison can still be disastrous for a company as it can bar it from public tenders.
Politicians need not worry about overburdening companies. The SFO has hardly blazed a trail with contested bribery prosecutions since 2011. But reform should not be about improving the SFO’s performance. It should be about improving public confidence that the law can hold even the largest and most powerful entities to account.