UK: England and Wales: corporate criminal liability - options for reform published by Law Commission

The Law Commission for England and Wales has today published a paper setting out options for reform in respect of the criminal liabliity of companies. The paper does not make recommendations but provides, instead, ten potential reforms.  These reforms include (a) permitting conduct to be attributed to a company if a member of its senior management engaged in, consented to, or connived in the offence; (b) introducing an offence of failure to prevent fraud by an employee or agent; and (c) introducing a reporting requirement requiring large corporations to report on anti-fraud procedures. Some potential reforms have been ruled out, including adopting models of attribution based on corporate culture or the principle of respondeat superior. 

For further information, see: press release | full options paper (pdf) | summary of options paper (pdf). 

 

UK: England and Wales: Law Commission discussion paper - corporate criminal liability

Earlier this month, as part of its project considering corporate criminal liability, the Law Commission published a discussion paper: see here (pdf).  The paper does a number of things: it provides an overview of the current law and the criticisms made; it considers the approach taken in some other jurisdictions; and it identifies various reform proposals.  While the paper asks a number of questions, views are not - at this stage - sought on provisional proposals.  The questions asked are as follows: 

1. What principles should govern the attribution of criminal liability to non-natural persons?
2. Does the identification principle provide a satisfactory basis for attributing criminal responsibility to non-natural persons? If not, is there merit in providing a broader basis for corporate criminal liability?
3. In Canada and Australia, statute modifies the common law identification principle so that where an offence requires a particular fault element, the fault of a member of senior management can be attributed to the company. Is there merit in this approach?
4. In Australia, Commonwealth statute modifies the common law identification principle so that where an offence requires a particular fault element, this can be attributed to the company where there is a corporate culture that directed, encouraged, tolerated or led to non‑compliance with the relevant law. Is there merit in this approach?
5. In the United States, through the principle of respondeat superior, companies can generally be held criminally liable for any criminal activities of an employee, representative or agent acting in the scope of their employment or agency. Is there merit in adopting such a principle in the criminal law of England and Wales? If so, in what circumstances would it be appropriate to hold a company responsible for its employee’s conduct?
6. If the basis of corporate criminal liability were extended to cover the actions of senior managers or other employees, should corporate bodies have a defence if they have shown due diligence or had measures in place to prevent unlawful behaviour?
7. What would be the economic and other consequences for companies of extending the identification doctrine to cover the conduct along the lines discussed in questions (3) to (5)?
8. Should there be “failure to prevent” offences akin to those covering bribery and facilitation of tax evasion in respect of fraud and other economic crimes? If so, which offences should be covered and what defences should be available to companies?
9. What would be the economic and other consequences for companies of introducing new “failure to prevent” offences along the lines discussed in question (8)?
10. In some contexts or jurisdictions, regulators have the power to impose civil penalties on corporations and prosecutors may have the power to impose administrative penalties as an alternative to commencing a criminal case against an organisation. Is there merit in extending the powers of authorities in England and Wales to impose civil penalties, and in what circumstances might this be appropriate?
11. What principles should govern the sentencing of non-natural persons?
12. What principles should govern the individual criminal liability of directors for the actions of corporate bodies? Are statutory “consent or connivance” or “consent, connivance or neglect” provisions necessary or is the general law of accessory liability sufficient to enable prosecutions to be brought against directors where they bear some responsibility for a corporate body’s criminal conduct?
13. Do respondents have any other suggestions for measures which might ensure the law deals adequately with offences committed in the context of corporate organisations?

UK: Law Commission - a couple of developments: intermediated securities; corporate criminal liability

A belated return to updating this blog, with apologies for my absence. Has it really been several months since the last post? Perhaps that question is best not answered. I will, instead, move quickly on to note a couple of initiatives from the Law Commission: [1] Today, the publication of a scoping paper as part of the project on intermediated securities, outlining problems and potential solutions; and [2] Earlier this month, the start of a new project on corporate criminal liability (see the terms of reference here, pdf).

UK: Criminal Finances Bill - third reading in the Commons

The Criminal Finances Bill was introduced in the House of Commons last year and yesterday received its third reading: see here. The Bill now proceeds to the House of Lords for its first reading. The Bill contains, amongst other things, provisions that will introduce a new corporate offence of the failure to prevent the facilitation of tax evasion. Further background information about this new offence is available here. Draft Government guidance is also available: see here (pdf).

UK: Ministry of Justice seeks views on the case for new corporate economic crime offences

The Ministry of Justice published a press release last week titled "New crackdown on corporate economic crime" but all was not what it seemed at first sight, the opening line of the press release saying that "[a] call for evidence seeks views on whether further reform is needed...". The call for evidence, which focuses on criminal offences designed to punish and prevent economic crimes including fraud, false accounting and money laundering when committed by companies, is available here. Views are sought on the identification doctrine and, if needed, various reform options including the creation of new 'failure to prevent' offences adopting the model found in section 7 of the Bribery Act 2010.

UK: consultation on new corporate criminal offence - the failure to prevent the facilitation of tax evasion

Four consultation papers were published today by HMRC under the title of 'Tackling offshore evasion': see here. One of these papers seeks views on a new corporate criminal offence - the failure by a company or partnership to prevent the facilitation of tax evasion - and is available here (pdf). This new offence is modelled on one of the criminal offences introduced by the Bribery Act 2010: the failure by a commercial organisation to prevent bribery.

Europe: Directive on the criminal sanctions for market abuse - European Parliament approval

Earlier this week the European Parliament approved the Commission's proposed Directive on the criminal sanctions for market abuse: see here.  The text of the Directive is available here. Further background information is available here and some FAQs are available here. It is expected that the Directive will be published in the Official Journal in June this year, after which Member States have two years within which to implement it through national law.

Germany: Act on Ringfencing and Recovery and Resolution Planning for Credit Institutions and Financial Groups

Earlier this year the Act on Ringfencing and Recovery and Resolution Planning for Credit Institutions and Financial Groups (Gesetz zur Abschirmung von Risiken und zur Planung der Sanierung und Abwicklung von Kreditinstituten und Finanzgruppen) was passed by the Bundesrat: see here (pdf). An overview, in English, is available here. The Act has, amongst other things, introduced a new criminal offence in respect of the failure of senior managers to meet certain diligence requirements: see here.

UK: FInancial Services (Banking Reform) Bill - Committee stage amendments published by Government

The Financial Services (Banking Reform) Bill begins its Committee stage in the House of Lords on 8 October. The Government will be tabling various amendments to the Bill, details of which were published yesterday: see here. An overview of the proposed amendments, which introduce a wide range of new clauses, is available here (pdf). Amongst other things, the introduction of a new criminal offence is proposed in respect of a decision by a senior manager of a bank leading to bank failure. A short briefing note in respect of this offence is available here (pdf).

UK: Parliamentary Commission on Banking Standards - a response from the Chancellor

The Chancellor delivered his annual Mansion House speech yesterday evening: see here. He commented on the final report published earlier in the day by the Parliamentary Commission on Banking Standards and stated:

"...The Commission’s central judgment is absolutely right. As they put it: 'High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it. There’s a lot of detail here – I will respond more fully next month. We’ve already supported the recommendations on new criminal sanctions and cancelling bonuses where banks are bailed out. And let me be clear: where legislation is needed, the Banking Bill currently before Parliament will be amended to ensure the recommendations can be quickly enacted."

UK: 'Changing banking for good' - Banking Standards Commission publishes final report

The Parliamentary Commission on Banking Standards, established in July last year, published its fourth and final report today. Titled 'Changing banking for good', the report makes recommendations the purpose of which are to improve standards across the banking industry. The report is divided into two sections: volume one contains the summary, conclusions and recommendations (here or here, pdf); volume two contains chapters one to eleven, annexes and formal minutes (here or here, pdf).

There is much in the wide-ranging report concerning corporate governance, most specifically in chapter seven which is titled 'Bank governance, standards and culture'. The Commission states that there is no quick single fix but is wary of making many recommendations which, in its view, "may do little more than create yet more lucrative work for corporate governance professionals" (para. 676). This said, some recommendations are made against the background of the Commission's view that relying on greater shareholder empowerment is not the answer, given the misalignment between asset manager incentives and the long-term interests of a company, together with the fact that shareholders contribute only a small proportion of a bank’s capital. The Commission's recommendations in chapter seven include the following:

• The Financial Reporting Council should publish proposals, within six months, designed to address the widespread perception that some ‘natural challengers’ are sifted out by the nomination process. Consideration should be given to whether the Nomination Committee should be chaired by the Chairman of a bank or by the Senior Independent Director. 
• Regulators should examine the merits of requiring each non-executive vacancy on the board of a bank above the ring-fence threshold to be publicly advertised.
• The UK Corporate Governance Code should be amended to require directors of banks to attach the utmost importance to the safety and soundness of the firm.
• The PRA Principles for Businesses should be amended to include a requirement that a bank must operate in accordance with the safety and soundness of the firm and that directors’ responsibilities to shareholders are to be interpreted in the light of this requirement.
• The Government should consult on a proposal to amend section 172 of the Companies Act 2006 to remove shareholder primacy in respect of banks, requiring directors of banks to ensure the financial safety and soundness of the company ahead of the interests of its members.
• A full-time Chairman should be the norm; the Chairman should not usually hold any other large commercial non-executive or executive positions.

Elsewhere in the report, recommendations are made with regard to remuneration (see chapter eight) and for reform of the approved persons regime (chapter six). Chapter ten makes recommendations concerning sanctions and enforcement, including the Commission's view - widely reported in today's press - that there is a strong case in principle for a new criminal offence of reckless misconduct in the management of a bank.

Update (20 June 2013) - further volumes (numbered three to nine) have been published and these contain the written and oral evidence submitted to the Commission: see here.

New Zealand: Government tables amendments to the Companies and Limited Partnerships Amendment Bill

Last week a supplementary order paper was tabled in Parliament containing amendments to the Companies and Limited Partnerships Amendment Bill: see here (pdf). Four main proposals are contained within the amendments, one of which is new: granting the Registrar of Companies to identify the controllers of companies. Other amendments concern Clause 4 of the Bill, which has been redrafted and now provides that a director will commit a criminal offence where he exercises powers or performs duties as a director (or omits to exercise powers or perform duties) in bad faith towards the company and believing the conduct is not in the best interests of the company and knowing, or being reckless whether, the conduct will cause [i] serious loss to the company, or [ii] benefit or advantage to a person who is not the company (including, for example, the director).

Ireland: Corporate Manslaughter Bill 2013 to begin second stage

The Corporate Manslaughter Bill 2013, a private member's bill, was introduced in the Seanad Éireann on 2 May and completed the first stage: see here. Second stage debate has been scheduled to begin today: see here (pdf). A copy of the Bill is available here (pdf). An explanatory memorandum is available here (pdf).

New Zealand: health and safety task force publishes report and recommendations

The Independent Task Force on Workplace Health and Safety published its final report and recommendations today: see here (pdf). The report concludes that the health and safety system is not fit for purpose. Many recommendations are made including the creation of a due diligence obligation for those with governance roles in companies. In this regard, the task force states: "We believe strongly that directors’ duties in relation to workplace health and safety should be as strong as other fiduciary duties" (para. 223). The introduction of a new law on corporate manslaughter law is not proposed; the task force instead proposes that the existing manslaughter offence is extended to companies and the general rules on corporate liability are revised.

For further information see: main report (pdf) | executive report (pdf) | working papers | press release | consultation |.

UK: Partnerships (Prosecution) (Scotland) Act 2013 comes into force

The Partnerships (Prosecution) (Scotland) Act 2013 received Royal Assent yesterday and comes into force today: see here. The Act, a copy of which is available here or here (pdf), will make it possible to prosecute a dissolved partnership notwithstanding its dissolution, where the proceedings are commenced within 5 years of the date of the dissolution. Further background information is available here and here.

UK: Scotland: Partnerships (Prosecution) (Scotland) Bill introduced in Parliament

The Partnerships (Prosecution) (Scotland) Bill 2012-13 was introduced in the House of Lords earlier this week by Lord Wallace of Tankerness QC (the Advocate General for Scotland) and received its first reading: see here. The Bill provides, amongst other things, that a partnership will be capable of prosecution after its dissolution. It is based on recommendations made by the Scottish Law Commission (about which see here, pdf), following the High Court of Justiciary opinion Balmer v HM Advocate [2008] HCJAC 44, 2008 SLT 799.

New Zealand: first reading for Companies and Limited Partnerships Amendment Bill

The Companies and Limited Partnerships Amendment Bill has received its first reading: see here. The Bill provides, amongst other things, for the criminalisation of certain breaches of directors' duties (see clause 4) and the requirement for New Zealand registered companies to have a resident agent (responsible for reporting and recording keeping obligations) if they do not have a director who lives in New Zealand or in a country in which New Zealand judgments imposing regulatory fines can be enforced (see subpart 2 of the Bill). The explanatory note accompanying the Bill is available here.

UK: convictions for corporate manslaughter

The first conviction under the Corporate Manslaughter and Corporate Homicide Act 2007 was secured last year: see here. Earlier this month the Crown Prosecution Service announced that Lion Steel Ltd. had received the "second ever conviction for corporate manslaughter": see here. It would, however, be more accurate to state that this is the second conviction that the CPS has secured in England and Wales rather than the second conviction under the Act because, in May this year, a company was convicted in Northern Ireland: see R v JMW Farm Ltd. [2012] NICC 17, a summary of which is available here (pdf).

Ireland: the Criminal Justice (Corruption) Bill 2012 - general scheme published

The Department of Justice and Equality has published a draft general scheme of the Criminal Justice (Corruption) Bill 2012: see here (pdf). The purpose of the scheme is to clarify and strengthen the principal corruption offences. Head 13 outlines the circumstances in which a company will be guilty of an offence in respect of the corrupt acts of its directors, officers and employees, where there was the intention to obtain or retain business or an advantage for the company. A defence is provided where the company can prove that it took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

UK: Government consultation 'Sanctions for the directors of failed banks'

HM Treasury yesterday published a consultation paper titled Sanctions for the directors of failed banks: see here (pdf). Views are sought on two proposals: [1] the introduction of a rebuttable presumption that the director of a failed bank would not be suitable for approval by the regulator to hold a senior executive position in a bank; [2] the introduction of a new criminal offence for serious misconduct, based on recklessness, in the management of a bank. The consultation paper rejects the introduction of strict liability offences.

The first proposal, if adopted, would be included in the Financial Services Bill currently before Parliament. The Government is less clear about how the second proposal, if adopted, would be introduced. Elsewhere in the paper several suggestions are made for the FSA (and its successors) to consider, including providing greater clarity with regard to regulatory and management responsibilities.