Government puts forward amendment to ECCT Bill to reform identification principle for corporate criminal liability relating to economic crimes
On 15 June 2023, the government announced that it had tabled an amendment to the Economic Crime and Corporate Transparency Bill (ECCT Bill) to significantly reform the common law identification doctrine and allow for the attribution of criminal liability to corporates where senior managers commit certain economic crime offences (Press Release). The provisions would place the identification doctrine on a statutory footing and bring senior managers within the scope of who can be considered the 'directing mind and will' of a company in relation to economic crime. The new clauses have been published in the latest ECCT Bill: Amendment Paper and a new Factsheet: Identification principle for economic crime offences has been added to the government's collection of Factsheets on various aspects of the ECCT Bill.
Background
The identification doctrine is the principle for attributing criminal liability to companies under the common law in England and Wales. It provides that a company will generally only be liable for the conduct of a person who has the status and authority to constitute the company's 'directing mind and will'. The doctrine has been criticised for being too narrow in scope and limited in its application to board level, at odds with the reality of the complex management structures of larger companies where decision-making is dispersed across many senior managers who have significant control over diverse areas of the company’s operations (see Corporate personality, Q&A here).
The proposed reform of the identification doctrine builds on recommendations made by the Law Commission in its 2022 Options Paper: Corporate Criminal Liability (see FC Feature 10 June 2022), which acknowledged that the principle's limited application is an obstacle to holding large companies criminally responsible for offences committed in their interests by their employees. The Law Commission set out several potential reforms to strengthen corporate criminal liability, including broadening the scope for attributing liability to a company if a member of senior management engaged in, consented to or connived in a criminal offence.
The widening of the identification principle in relation to economic crime also follows an earlier government amendment to the ECCT Bill tabled at the House of Commons Committee stage to expand the scope of 'failure to prevent' corporate criminal offences to encompass a new offence for failing to prevent fraud and false accounting offences committed by employees or agents (see FC Feature 12 April 2023).
Attribution of specified economic crime offences
Under the proposed new legislation, an organisation commits an offence if a senior manager, acting within the actual or apparent scope of their authority, commits or attempts to commit a specified economic crime. The offence also applies where a senior manager aids, abets, counsels or procures the commission of such an offence.
A senior manager is defined as any individual who plays a significant role in decision-making about how the whole or a substantial part of the organisation's activities are to be managed or organised, or manages or organises the whole or a substantial part of those activities. The definition replicates that used in the Corporate Manslaughter and Corporate Homicide Act 2007.
On conviction, the company will be subject to a fine, in addition to any sentence imposed on the senior manager found guilty of the same offence. The maximum fine will depend on the particular offence charged, and may potentially be unlimited.
Offence scope
The offence would apply to any body corporate, partnership or limited partnership, wherever it is formed or operates.
Specified economic crimes
The new statutory attribution offence would apply only to the specific economic crimes set out in a new schedule to the ECCT Bill. In addition to the common law offences of cheating the public revenue and conspiracy to defraud, these include certain offences committed by senior managers under the following legislation:
- Companies Act 2006 (s 993 - fraudulent trading);
- Financial Services Act 2012 (ss 89 to 91 - misleading statements and impressions);
- Financial Services and Markets Act 2000 (s 25 - unlawful financial promotions and s 398 - misleading the FCA or PRA);
- Theft Act 1968 (including theft, false accounting and false statements by directors);
- Fraud Act 2006;
- Proceeds of Crime Act 2002;
- Bribery Act 2010;
- Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; and
- Sanctions and Anti-Money Laundering Act 2018.
Next steps
The provisions will be considered by the House of Lords, along with other amendments, when the Bill's Report stage begins on 20 June 2023. The explanatory statement for the new clauses included in the amendment paper at page 60 states that the legislation will come into force two months after the ECCT Bill receives Royal Assent.
