Corporate Prosecutions

Legal Guidance

Summary

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

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.

There are specialist agencies that prosecute corporate offenders for specific offences under their designated statutory framework (for example, offences contrary to the Health and Safety at Work Act 1974 are prosecuted by the Health and Safety Executive).

Definition of Company

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

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.

It is also possible for a company to be created as a matter of law by a private Act of Parliament or by a Royal Charter, but these classes of company are small.

Unincorporated bodies (for example, partnerships, and clubs) may also be prosecuted where criminal liability can be established.

As a general rule of law, there is a presumption that reference in any Act of Parliament to a “person” will include a body of persons corporate or unincorporated (see Schedule 1 of the Interpretation Act 1978), i.e. companies, unincorporated associations and partnerships, unless there is a contrary indication (express or implied) in the Act itself (see Section 5) or any accompanying subordinate legislation (see Section 11). Conversely, if legislatures intend only to subject natural persons to the provisions of legislation, the term individual is used instead. However, in certain legislative contexts, the word person has been construed as referring only to individuals, so it is important to look carefully at the wording and purpose of the Act in question.

General Principles

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.

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.

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 a delay in initiating proceedings which could result in unfairness to one or more parties.

Establishing Company Liability

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 company’s 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 requires identifying and establishing  a directing mind and will [“DMW”] of the company, and then proving corporate criminal liability through his/her conduct and state of mind. It applies to all types of offences, including those which require mens rea.

Limitations Governing Corporate Liability

The offence must be capable of being punishable with a fine (this excludes murder, treason, piracy etc) as clearly a company or statutory corporation cannot be imprisoned.

Generally a company cannot be criminally liable for offences which cannot be committed by DMW  of a company in the scope of their employment, e.g. rape.

A company can, as a general rule, be party to a criminal conspiracy (see R. v. I.C.R. Haulage Co. Ltd [1944] K.B. 551, 30 Cr.App.R. 31, CCA), but only if there are at least two conspirators who are human beings – one of which who must be  the DMW of the company and acting within the scope of his/her authority (see R. v. McDonnell [1966] 1 Q.B. 233, 50 Cr.App.R. 5, Assizes).

Vicarious Liability

A corporate employer can be vicariously liable for the acts of its employees and agents where a natural person would be similarly liable as, “it may be the intention of the Legislature, in order to guard against the happening of the forbidden thing, to impose a liability upon a principal even though he does not know of, and is not party to, the forbidden act done by his servant” (see Mousell Bros Ltd v London and North Western Railway Co [1917] 2 KB 836).

When determining if a company is vicariously liable, you must first consider the terms of the statute creating the offence. It may be a strict liability offence, or require mens rea.

Normally vicarious liability will arise from offences of strict liability. These are offences which do not require proof of intention, recklessness, or even negligence. For example, most 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

As noted at paragraph 4 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” of the company are imputed to the company itself (see Lennard’s Carrying Co v Asiatic Petroleum Co [1915] A.C. 705, Bolton Engineering Co v Graham [1957] 1 QB 159 (per Denning LJ) and R. v Andrews Weatherfoil 56 C App R 31 CA).

In the  leading case of Tesco Supermarkets Ltd v Nattrass [1972] AC 153 – Lord Diplock set out the well known formulation of the identification or attribution test:

“In my view, therefore, the question: what natural persons are to be treated in law as being the company for the purpose of acts done in the course of its business, including the taking of precautions and the exercise or due diligence to avoid the commission of a criminal offence, is to be found by identifying those natural persons who by the memorandum and articles of association or as a result of action taken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of the powers of the company.”

More recently, in St Regis Paper Co. Ltd. v. R. [2012] 1 Cr App R 14 Moses LJ in the Court of Appeal reasserted the prominence of the primary rule of attribution in determining corporate liability for offences involving a mens rea element and reaffirmed the identification principles in Tesco v. Nattrass.

But note also, R. v Andrews Weatherfoil [1972] 56 C.App.R. 31 CA, in which it was held

“It is not every responsible agent or high executive or agent acting on behalf of a company who can by his actions make the company criminally responsible. It is necessary to establish whether the natural person or persons in question have the status and authority which in law make their acts in the matter under consideration the acts of the company, so that the natural person is to be treated as the company itself. It is necessary for the judge to invite the jury to consider whether or not there are established those facts which the judge decides, as a matter of law, are necessary to identify the person concerned with the company.”

(see Archbold Criminal Pleading Evidence and Practice 2019 Ed, paragraph 17-26).

This identification principle acknowledges the existence of corporate officers who are to be treated in law as 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 even be liable for the act of its servant even though that act was done in fraud of the company itself (see Moore v I. Bresler Ltd [1944] 2 All ER 515, which was approved in Meridian Global Funds Management Asia Ltd v. Securities Commission [1995] 2 A.C. 500, PC).

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), the governance of the company and any appropriate delegation of authority. .

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 Act 1974, R v British Steel plc [1995] 1 W.L.R 1356).

Further Evidential Considerations

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.

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 (see Marco (Croydon) Ltd trading as A&J Bull Containers v Metropolitan Police [1984] RTR 24, although contrast with Essence Bars (London) Ltd (t/a Essence) v Wimbledon Magistrates' Court [2016] EWCA Civ 63 in which it was held that there was no automatic rule that a mistake concerning a corporate entity was a mistake of identity or that where a name and a description was used it was the former that identified the parties in question).

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 (see Edwards v Brooks (Milk Ltd) [1963] 3 All ER 62).

In offences requiring mens rea, the directing mind  must be clearly identified and their status and functions established. The required mens rea of at least one directing mind  of the company must also be established.

Where a number of directing minds  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 (see Armstrong v Strain [1952] 1 All ER 139).

It is important to prosecute not only the corporation but those who are in control. 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 or 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 (see R. v Dickson and Wright 94 Cr App R 7), e.g. prosecutors may consider proceedings against the company officers where the company has been dissolved.

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.

The leading case on the meaning of “consent, connivance or neglect” is R. v Chargot Ltd (t/a Contract Services) [2008] UKHL 73 in which it was held that, “[N]o fixed rule can be laid down as to what the prosecution must identify and prove in order to establish that the officer's state of mind was such as to amount to consent, connivance or neglect. In some cases, as where the officer’s place of activity was remote from the work place or what was done there was not under his immediate direction and control, this may require the leading of quite detailed evidence ... In others, where the officer was in day to day contact with what was done there, very little more may be needed”. The Court later went on to state that an officer, “had to be proved to know the material facts which constituted the offence by the body corporate and to have agreed to its conduct on the basis of those facts”, but that “consent can be established by inference as well as by proof of an express agreement”. Thus, “the state of mind that the words ‘connivance’ and ‘neglect’ contemplate is one that may also be established by inference”.

Jurisdictional Issues

It is important that the different jurisdictional interests (regulatory and law enforcement) are considered. In respect of domestic investigations and prosecutions, agencies other than the police (for example the Health and Safety Executive) 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.

In respect of overseas investigations and prosecutions, both Eurojust and the European Judicial 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

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.

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.

In addition to the public interest factors set out in 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 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.
  • The conduct alleged is part of the established business practices of the company.
  • The offence was committed at a time when the company had an ineffective corporate compliance programme.
  • 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.
  • 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).
  • Failure to report properly and fully the true extent of the wrongdoing.

Additional Public Interest Factors Against Prosecution:

  • 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.
  • 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.
  • The existence of a genuinely proactive and effective corporate compliance programme.
  • 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 Attorney General’s Guidance on Asset Recovery Powers for Prosecutors: Guidance and Background Note 2009 (Guidance for prosecutors and investigators on their asset recovery powers under Section 2A of the Proceeds of Crime Act 2002).
  • The offending represents isolated actions by individuals, for example, by a rogue director.
  • 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.
  • 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 (as per 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.
  • The company is in the process of being wound up.

Prosecutors dealing with bribery cases are reminded of the UK’s commitment to abide by Article 5 of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, namely, that the 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.

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

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

Sentencing

The Sentencing Council has provided general guidance on the imposition of fines applicable to corporate offenders that should be considered by the prosecutor prior to any sentencing hearing.

General principles to follow in setting a fine

The court should determine the appropriate level of fine in accordance with Section 164 of the Criminal Justice Act 2003, which requires that the fine must reflect the seriousness of the offence and the court to take into account the financial circumstances of the offender. The level of fine should reflect the extent to which the offender fell below the required standard. The fine should meet, in a fair and proportionate way, the objectives of punishment, deterrence and the removal of gain derived through the commission of the offence; it should not be cheaper to offend than to take the appropriate precautions.

Obtaining financial information

Offenders which are companies or partnerships are expected to provide comprehensive accounts for the last three years, to enable the court to make an accurate assessment of its financial status. In the absence of such disclosure, or where the court is not satisfied that it has been given sufficient reliable information, the court will be entitled to draw reasonable inferences as to the offender’s means from evidence it has heard and from all the circumstances of the case.

Normally, only information relating to the organisation before the court will be relevant, unless it is demonstrated to the court that the resources of a linked organisation are available and can properly be taken into account.

For companies: annual accounts. Particular attention should be paid to turnover; profit before tax; directors’ remuneration, loan accounts and pension provision; and assets as disclosed by the balance sheet. Most companies are required to file audited accounts at Companies House. Failure to produce relevant recent accounts on request may properly lead to the conclusion that the company can pay any appropriate fine.

For partnerships: annual accounts. Particular attention should be paid to turnover; profit before tax; partners’ drawings, loan accounts and pension provision; assets as above. Limited Liability Partnerships (LLPs) may be required to file audited accounts with Companies House. Failure to produce adequate accounts on request may properly lead to the conclusion that the partnership can pay any appropriate fine.

Deferred Prosecution Agreements (“DPA”)

A DPA is an agreement between a designated prosecutor and a person whom the prosecutor is considering prosecuting for an offence specified in Part 2 (see paragraph 1 of Schedule 17 of the Crime and Courts Act 2013 (CACA)).

Under a DPA, the person agrees to comply with the requirements imposed by the agreement and the prosecutor agrees that, upon approval of the DPA by the Court, the proceedings will be suspended (see paragraph 7 of Schedule 17 of the CACA).

Only a body corporate, a partnership or an unincorporated association may enter into a DPA (see paragraph 4 of Schedule 17 of the CACA).

See Deferred Prosecution Agreements elsewhere in the Legal Guidance for further details.

Annex A

Companies Act 2006, Schedule of Company Offences (PDF document, approx 135kb)