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Corporate Prosecutions

 

Summary

1. This guidance sets out the common approach of the Director of Public Prosecutions, the Director of the Serious Fraud Office and the Director of the Revenue and Customs Prosecutions Office to the prosecution in England and Wales of corporate offending other than offences of corporate manslaughter. It has been agreed by the Attorney General. The guidance should be read in conjunction with, and is subordinate to, the Code for Crown Prosecutors.

2. Offences under the Corporate Manslaughter and Corporate Homicide Act 2007 are prosecuted by the CPS, which has issued separate guidance on those offences, see: Corporate Manslaughter elsewhere in the Legal Guidance.

3. There are specialist agencies that prosecute corporate offenders for specific offences under their designated statutory framework and this guidance is subordinate to those frameworks, for example the Health and Safety at Work Etc Act 1974.

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Definition of Company

4. A company is a legal person, capable of being prosecuted, and should not be treated differently from an individual because of its artificial personality.

5. A company normally means a company registered under the current Companies Act 2006; or one or more of its predecessors cited in the Act; or equivalent legislation in another jurisdiction.

6. Unincorporated bodies (for example, partnerships, and clubs) may also be prosecuted where criminal liability can be established (see Archbold [2009] paragraphs 1-78 and 1-81b).

General Principles

7. A thorough enforcement of the criminal law against corporate offenders, where appropriate, will have a deterrent effect, protect the public and support ethical business practices. Prosecuting corporations, where appropriate, will capture the full range of criminality involved and thus lead to increased public confidence in the criminal justice system.

8. Prosecution of a company should not be seen as a substitute for the prosecution of criminally culpable individuals such as directors, officers, employees, or shareholders. Prosecuting such individuals provides a strong deterrent against future corporate wrongdoing. Equally, when considering prosecuting individuals, it is important to consider the possible liability of the company where the criminal conduct is for corporate gain.

9. It is usually best to have all connected offenders prosecuted together at the same time. However there are circumstances where the prosecution of a company will take place before the prosecution of connected individuals or vice versa. This may occur where there is going to be delay in initiating proceedings which could result in unfairness to one or more parties.

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Establishing Company Liability

10. In the absence of legislation which expressly creates criminal liability for companies, corporate liability may be established by:

  • Vicarious Liability for the acts of a companys employees/agents. This has some limited application at common law e.g. in relation to public nuisance. Statutes frequently impose liability on companies. This is quite common for offences under the Road Traffic Act 1988. Many statutory/regulatory offences impose liability upon employers (corporate and human) to ensure compliance with the relevant regulatory legislation.
  • Non-vicarious liability arising from the so-called 'identification principle'. The identification principle determines whether the offender was a directing mind and will of the company. It applies to all types of offences, including those which require mens rea.

Limitations Governing Corporate Liability

11. The offence must be punishable with a fine (this excludes murder, treason, piracy).

12. A company cannot be criminally liable for offences which cannot be committed by an official of a company in the scope of their employment, for example rape.

13. A company can be party to a criminal conspiracy, but only with at least two other conspirators who are human beings - including at least one who is an appropriate officer of the company and acting within the scope of his authority.

Vicarious Liability

14. A corporate employer is vicariously liable for the acts of its employees and agents where a natural person would be similarly liable (Mousell Bros Ltd v London and North Western Railway Co [1917] 2 KB 836).

15. When determining if a company is vicariously liable, you must first consider the terms of the statute creating the offence. It may require mens rea, yet impose vicarious liability. Conversely, it may create strict liability without specifically imposing vicarious liability.

16. Normally vicarious liability will arise from offences of strict liability. These are offences which do not require intention, recklessness, or even negligence as to one or more elements in the actus reus. For example, all traffic offences carry strict liability unless they expressly require fault. If an offence of strict liability is committed by an employee of a company in the course of his employment, the company may also be criminally liable. It is likely that any corporate prosecution will be linked to the prosecution of a controlling officer and/or other employees.

Corporate Liability - Offences Requiring Mens Rea - The Identification Principle

17. As noted at 2 above, companies are legal persons. They may also be criminally responsible for offences requiring mens rea by application of the identification principle. This is where 'the acts and state of mind' of those who represent the directing mind and will will be imputed to the company, Lennards Carrying Co and Asiatic Petroleum [1915] AC 705, Bolton Engineering Co v Graham [1957] 1 QB 159 (per Denning LJ) and R v Andrews Weatherfoil 56 C App R 31 CA.

18. The leading case of Tesco Supermarkets Ltd v Nattrass [1972] AC 153 restricts the application of this principle to the actions of the Board of Directors, the Managing Director and perhaps other superior officers who carry out functions of management and speak and act as the company.

19. This identification principle acknowledges the existence of corporate officers who are the embodiment of the company when acting in its business. Their acts and states of mind are deemed to be those of the company and they are deemed to be 'controlling officers' of the company. Criminal acts by such officers will not only be offences for which they can be prosecuted as individuals, but also offences for which the company can be prosecuted because of their status within the company. A company may be liable for the act of its servant even though that act was done in fraud of the company itself, Moore v I. Bressler Ltd [1944] 2 All ER 515.

20. In seeking to identify the 'directing mind' of a company, prosecutors will need to consider the constitution of the company concerned (with the aid of memoranda/articles of association/actions of directors or the company in general meeting) and consider any reference in statutes to offences committed by officers of a company. Certain regulatory offences may require a more purposive interpretation in addition to the primary rules of attribution. In these types of offences, corporate liability may be determined by the construction of a particular statute, irrespective of the 'directing mind' principle. (See the approach of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 PC) and in relation to offences under The Health and Safety at Work etc Act 1974 see R v British Steel plc [1995] 1 W.L.R 1356.

Further Evidential Considerations

21. The legal basis of any corporate prosecution must be fully considered at review and noted in detail on the file. Evidential difficulties may arise where the company concerned has a diffuse structure, because of the need to link the offence to a controlling officer. The smaller the corporation, the more likely it will be that guilty knowledge can be attributed to the controlling officer and therefore to the company itself.

22. In a corporate prosecution, prosecutors must identify the correct corporate entity from the outset. It is crucial that prosecutors ensure that the corporation is fully and accurately named in the summons/indictment. If necessary, a company search should be conducted. Later amendment of the name may not be possible (Marco (Croydon) Ltd trading as A&J Bull Containers v Metropolitan Police [1984] RTR 24.)

23. The evidence must set out relevant employer/employee relationships, in order that both corporate liability and the admissibility of any admissions by an employee against a defendant corporation may be established (Edwards v Brooks (Milk Ltd) [1963] 3 All ER 62.)

24. In offences requiring mens rea, the controlling officer(s) must be clearly identified and their status and functions established. The required mens rea of at least one controlling officer of the company must also be established.

25. Where a number of officers in a company have been concerned in the act or omission giving rise to a potential offence but none individually has the required mens rea, it is not permissible to aggregate all states of mind of the officers to prove a dishonest state of mind: Armstrong v Strain [1952] 1 All ER 139. See also R v P&O European Ferries (Dover) Ltd & others [1991] 93 Cr App R 72.

26. It is important to prosecute not only the corporation but those who are in control (see 15 to 18 above). Certain types of offences (for example false accounting and regulatory offences) committed by a body corporate with the consent or connivance of a director/ manager/ secretary of a company make those officers criminally liable. When proceeding against company officers in these circumstances the offence by the body corporate must be proved, but it is not always possible to secure the conviction of the company, and this is not required (R v Dickson and Wright 94 Cr App 7). Prosecutors may consider proceedings against the company officers where the company has been dissolved, for example.

27. Dissolution of a company has the same effect as the death of a human defendant inasmuch as the company ceases to exist. It is possible, however, to apply for an order to declare the dissolution void or to restore the corporation to the register. Criminal proceedings can only be instituted by leave of the Court responsible for the winding up or liquidation.

Jurisdictional issues

28. It is important that the different jurisdictional interests (Regulatory and Law Enforcement) are reconciled and coordinated. In respect of domestic investigations and prosecutions, agencies other than the police (for example HSE) are often involved in investigating and/or prosecuting offences involving corporate liability. Prosecutors should be mindful of the protocols set out in The Prosecutors Convention and establish communication with any other relevant agency at an early stage to ensure effective liaison and co-operation.

29. In respect of overseas investigations and prosecutions both Eurojust and the Judicial Assistance Network play a crucial role in the coordination and facilitation of prosecutions. There is also the Guidance for Handling Criminal Cases with Concurrent Jurisdiction Between the United Kingdom and the United States of America which has been issued by Attorneys General of the respective jurisdictions and the Lord Advocate. See, the Legal Guidance on Jurisdiction.

Charging Companies - Additional Public interest Factors to Be Considered

30. Where the evidence provides a realistic prospect of conviction, the prosecutor must consider whether or not a prosecution is in the public interest, in accordance with the Code for Crown Prosecutors. The more serious the offence, the more likely it is that prosecution will be needed in the public interest. Indicators of seriousness include not just the value of any gain or loss, but also the risk of harm to the public, to unidentified victims, shareholders, employees and creditors and to the stability and integrity of financial markets and international trade. The impact of the offending in other countries, and not just the consequences in the UK, should be taken into account.

31. Prosecutors must balance factors for and against prosecution carefully and fairly. Public interest factors that can affect the decision to prosecute usually depend on the seriousness of the offence or the circumstances of the suspect. Some factors may increase the need to prosecute, but others may suggest that another course of action would be better. A prosecution will usually take place unless there are public interest factors against prosecution which clearly outweigh those tending in favour of prosecution.

32. In addition to the public interest factors set out in section 4 of the Code for Crown Prosecutors, the following factors may be of relevance in deciding whether the prosecution of a company is required in the public interest as the proper response to alleged corporate offending. This list of additional public interest factors is not intended to be exhaustive. The factors that will apply will depend on the facts of each case.

Additional public interest factors in favour of prosecution:

(a) A history of similar conduct (including prior criminal, civil and regulatory enforcement actions against it); failing to prosecute in circumstances where there have been repeated and flagrant breaches of the law may not be a proportionate response and may not provide adequate deterrent effects;

(b) The conduct alleged is part of the established business practices of the company;

(c) The offence was committed at a time when the company had an ineffective corporate compliance programme;

(d) The company had been previously subject to warning, sanctions or criminal charges and had nonetheless failed to take adequate action to prevent future unlawful conduct, or had continued to engage in the conduct;

(e) Failure to report wrongdoing within reasonable time of the offending coming to light; (the prosecutor will also need to consider whether it is appropriate to charge the company officers responsible for the failures/ breaches);

(f) Failure to report properly and fully the true extent of the wrongdoing.

Additional public interest factors against prosecution:

(a) A genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims:

  • In applying this factor the prosecutor needs to establish whether sufficient information about the operation of the company in its entirety has been supplied in order to assess whether the company has been proactively compliant. This will include making witnesses available and disclosure of the details of any internal investigation;

(b) A lack of a history of similar conduct involving prior criminal, civil and regulatory enforcement actions against the company:

  • contact should be made with the relevant regulatory departments to ascertain whether investigations are being conducted in relation to the due diligence of the company;

(c) The existence of a genuinely proactive and effective corporate compliance programme.

(d) The availability of civil or regulatory remedies that are likely to be effective and more proportionate:

  • Appropriate alternatives to prosecution may include civil recovery orders combined with a range of agreed regulatory measures. However, the totality of the offending needs to have been identified. A fine after conviction may not be the most effective and just outcome if the company cannot pay. The prosecutor should refer to the Attorneys Guidance on Civil Recovery (see Proceeds of Crime Act 2002: Section 2A [Contribution to the reduction of crime] Joint Guidance given by the Secretary of State and Her Majestys Attorney General) and on the appropriate use of Serious Crime Prevention Orders.

(e) The offending represents isolated actions by individuals, for example by a rogue director.

(f) The offending is not recent in nature, and the company in its current form is effectively a different body to that which committed the offences. For example it has been taken over by another company, it no longer operates in the relevant industry or market, all of the culpable individuals have left or been dismissed, or corporate structures or processes have been changed in such a way as to make a repetition of the offending impossible.

(g) A conviction is likely to have adverse consequences for the company under European Law, always bearing in mind the seriousness of the offence and any other relevant public interest factors.

  • Any candidate or tenderer (including company directors and any person having powers of representation, decision or control) who has been convicted of fraud relating to the protection of the financial interests of the European Communities, corruption, or a money laundering offence is excluded from participation in public contracts within the EU. (Article 45 of Directive 2004/18/EC of the European Parliament and of the Council on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts). The Directive is intended to be draconian in its effect, and companies can be assumed to have been aware of the potential consequences at the time when they embarked on the offending. Prosecutors should bear in mind that a decision not to prosecute because the Directive is engaged will tend to undermine its deterrent effect.

(h) The company is in the process of being wound up.

33. Prosecutors dealing with bribery cases are reminded of the UKs commitment to abide by Article 5 of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions: investigation and prosecution of the bribery of a foreign public official shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.

34. A prosecutor should take into account the commercial consequences of a relevant conviction under European law, particularly for self-referring companies, in ensuring that any outcome is proportionate.

Suitable Charges

35. Annex A contains a list of possible offences under the Companies Act 2006 for consideration when you are reviewing a case against a company.

Annex A

Companies Act 2006, Schedule of Company Offences

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