The Identification Principle in the 21st Century – Chris Gillespie looks at the Law Commission’s remit in its review of corporate criminal liability.

Last November the Law Commission began its review of the law relating to the criminal liability of non-natural persons, including companies and limited liability partnerships. The review will focus in particular on the identification principle by which, where a particular mental state is required to prove an offence, only the acts of a senior person representing the company’s “controlling mind and will” can be attributed to the company.

This review follows the publication of the Ministry of Justice’s Call for Evidence on Corporate Liability for Economic Crime, which the Government deemed inconclusive on the basis that there was no clear consensus from respondents on the nature of any corporate liability offence if the identification doctrine was replaced.

The terms of reference agreed with the Ministry of Justice, the Home Office, HM Treasury, the Department for Business, Energy and Industrial Strategy, and the Attorney General’s Office are:

“To review the law relating to the criminal liability of non-natural persons, including companies and limited liability partnerships. In particular, to consider:

1. whether the ‘identification doctrine’ is fit for purpose, when applied to organisations of differing sizes and scales of operation;
2.  the relationship between criminal and civil law on corporate liability;
3. other ways in which criminal liability can be imposed on non-natural persons in the current criminal law of England and Wales;
4. the relationship between corporate criminal liability and other approaches to unlawful conduct by non-natural persons, including deferred prosecution agreements and civil recovery of proceeds of unlawful conduct;
5. approaches to criminal liability taken in relevant overseas jurisdictions;
6. whether an alternative approach to corporate liability for crimes could be provided in legislation; and
7. the implications of any change to the liability of non-natural persons for the liability of directors and senior managers (including under ‘consent or connivance’ provisions, such as those in s. 92 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

With reference to the options for corporate criminal liability in general, to consider what additional provision for particular offences, including economic crimes, may be necessary and to set out the options for reform.”

Currently, there are piecemeal exceptions to the identification principle. Examples include offences contrary to section 33 of the Health and Safety at Work Act 1974 of failing to discharge a duty under the Act where the onus is on all employers to ensure subject to reasonable practicability the health and safety of others, the offence of failing to prevent bribery contrary to section 7 of the Bribery Act 2010 and the offence of corporate manslaughter contrary to section 1 of the Corporate Manslaughter and Corporate Homicide Act 2007, where the focus is on the way in which a corporate’s activities are managed or organised.

One of the main criticisms of the identification principle is that it is increasingly ineffective the larger the organisation whose conduct is under scrutiny. Large organisations with diffuse management and decision-making structures are more opaque when it comes to identifying the “the controlling mind and will.” As a result, small and medium size organisations are at greater risk of prosecution and conviction because it is far easier in such cases to identify both the person with “the controlling mind and will” and the specific acts performed by that person. Any system, it is argued, that permits, even unintentionally, the richest and most powerful to escape criminal liability risks undermining the public perception of the justice system and the system itself.

On its website the Law Commission gives the example of the phone hacking cases where individuals were prosecuted for offences that were either tolerated or even arguably incentivised by their employers. Civil proceedings have been successfully brought against the employers but none has been the subject of any prosecution. A further example is the SFO’s failure in its attempt to prosecute Barclays in circumstances where it was alleging fraud by very senior executives.

By way of contrast, in the United States corporates are criminally liable under the doctrine of respondeat superior, which has its roots in civil law, whereby the performance of a legally prohibited act and the mens rea of an individual who acts within the scope of his employment on behalf of a corporate are automatically imputed to the corporate even in circumstances where the individual occupies a relatively low-ranking post. The corporate will remain liable even if it has a genuine and robust compliance regime.

The Law Commission has noted that “there are competing concerns that alternative models for assessing the criminal liability of corporations may place a disproportionate and costly compliance burden on law abiding businesses.” It is submitted that the primary question must be whether the identification principle is fit for purpose in the commercial world of the twenty-first century. If it is not, then there is a gap, which potentially allows large, wealthy organisations to profit from the activities of their employees and to escape criminal liability for those same acts.

One solution may be to enhance the state’s ability to pursue civil regulatory enforcement. However, this may well damage pubic confidence if it is thought that there is a two-tier system in which large corporates can buy their way out of trouble whilst smaller entities risk prosecution and criminal sanction.

Chris Gillespie