News & what's on - Written by on Sunday, June 16, 2013 12:57 - 0 Comments

Another step towards US style enforcement. Respondent Superior on the cards for the UK?

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“Prosecuting a company for fraud is difficult under English law. With a few exceptions such as the Bribery Act, a prosecutor traditionally has had to show that a “directing mind and will” of the company was guilty of the offence. Generally, this means that a board member or senior manager would have to have been personally involved in the offending conduct.”

The Labour Party and Shadow Home Secretary Yvette Cooper (pictured) has announced proposals to transform the UK’s enforcement record on economic crime so says a new document published Friday by the UK Labour Party entitled: Tackling Serious Fraud and White Collar Crime.

The document is the latest in a series of developments which could herald a radical shift in criminal law in the UK.  The document, which suggests a consultation on updating UK criminal fraud law, essentially looks to the US for inspiration.  The inspiration – the possible import into UK corporate criminal law of the concept of ‘Respondent Superior’.

Put another way – vicarious liablility for corporations for the acts of their employees whether they know or approve of them or not.

The Director of the Serious Fraud Office, David Green QC, said something similar only a few weeks ago.

Speaking at a conference organised by law firm Baker & McKenzie, David Green proposed extending the criminal offence of failing to prevent bribery by employees or agents of a company to other corporate crimes. He said that the change would make it easier for the SFO, which investigates serious and complex fraud and corruption cases, to bring charges against companies.

“Only then would we be properly equipped to prosecute corporates rather than individuals,” he said, in comments reported by the Financial Times.

“Such a change would assist in the application of [deferred prosecution agreements]: if a corporate can’t be prosecuted, why should it agree to a DPA?” he said.

There is a growing tide of opinion which says that businesses sit up and take fraud within their businesses more seriously.

Last week in the House of Commons, Emily Thornberry MP quizzed the present Attorney General Dominic Grieve on possible changes to the corporate criminal liability regime in the UK asking:

“The new director of the Serious Fraud Office has said that we should have a sensible debate about the introduction of the new offence of corporate criminal liability, so that companies could be prosecuted for fraud, as they are under the Bribery Act 2010. Does the Attorney-General agree that it is a good idea to have such a debate…?”

Dominic Grieve the Attorney General replied equivocally:

“On changing the rules on criminal liability, I am the first to recognise that it is an important issue and one that will obviously require major debate and consideration in this House. There are compelling arguments for why that should happen, but equally perfectly sound arguments have also been made about why it should not happen”

Many commentators have complained that the fines for corporate fraud are rarely more than rounding errors in a company’s annual results.  The point is picked up in Labour Party consultation.

Notwithstanding the Attorney General’s equivocal response there is a lot of support within businesses for a tougher regime against corporate fraud. The vast majority of companies do things by the book and are rightly outraged if they feel that their competitors are gaining advantage over them by turning a blind eye to fraudulent activity by their employees such as rigging markets or deceiving their customers.

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Introducing tough legal sanctions to make sure businesses have effective systems in place to prevent their employees from carrying out criminal activities would help level the playing field.

One international example the Labour Party will be looking at very closely are the US rule of Respondent Superior and the possibility of linking fines to turnover – as is the case in Anti-Trust enforcement.  Adopting that sort of approach could lead to a real step change in the scale and impact of the fines against companies that have a lax approach to fraud prevention.

This would not be the first time that the suggestion has been made that criminal law should change to make it easier to make corporations share the criminal liability if they have deliberately ignored or simply failed to spot their employees’ criminal activity.

The Bribery Act was an important step in this direction.  However, a similar change to more general criminal law making it easier to prosecute corporates would be a radical shift in the current UK regime, bringing it more in line with the US.

Whether or not this change happens remains to be seen.  However in the wake of recent corporate scandals public and regulatory appetite to see businesses properly held to account for their employees’ actions continues to build.

However, changes to the law alone will not be enough.  If UK PLC is really serious about taking serious fraud seriously – it will need to put its money where its mouth is and properly fund law enforcement.

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