The passage into UK law last year of the Economic Crime and Corporate Transparency Act marks the first time the UK has made significant changes to the common law principles of corporate criminal liability.
For fault-based crimes, the 2023 act extends the common law practice of identifying a company with the criminal acts of its directors.
Under the new law, a company may now also be identified with fault-based criminal acts engaged in by its senior managers below the level of director.
The law also creates a new corporate offense of failing to prevent economic crime. Prosecutors may bring this charge only against large entities, not smaller ones.
In a new paper titled – Reforming Corporate Criminal Liability: Is the 2023 Act Too Much, or Not Enough? – Jeremy Horder, a Professor of Criminal Law at the London School of Economics, argues that the first of these reforms was not properly thought through, and that it should in any event have been made largely redundant by giving wider scope to the second of these reforms – failure to prevent economic crime.
“An opportunity was missed in the 2023 Act to make a failure-to-prevent serious crime a more generally applicable principle of corporate criminal liability,” Horder writes.
UK corporate crime law now embeds the idea of failure to prevent corporate crime in two laws – the UK’s anti-bribery law and the 2023 law that Horder addresses in his new article.
In fact, Horder was present at the creation of the failure to prevent corporate crime idea when he worked at The Law Commission in the UK and was tasked to come up with a law similar to the Foreign Corrupt Practices Act (FCPA).
“I did my graduate work and my doctoral studies at Oxford,” Horder told Corporate Crime Reporter in an interview earlier this month. “At that time I was working on the law of homicide in England and Wales. I got my first full time job at Worcester College in Oxford, teaching criminal law mainly but also legal theory.”
“Having spent a number of years teaching and publishing in that area, I got an opportunity to work at the Law Commission for England and Wales.”
“I worked for five years in the central government advising on criminal law reform. I did that part because at that time, the government was working on reform of the law of homicide. And there were some reforms to those laws that came into force 10 or 15 years ago.”
“But as part of my remit, I was asked to reform the UK bribery laws. The result of that work was the Bribery Act of 2010 – and in particular, the offense that statute created of corporate failure to prevent bribery, domestically or internationally.”
“That law has since become a model in some other jurisdictions for tackling international bribery, Australia being an example. And when I finished my term at the Law Commission as law commissioner, I then went to London School of Economics where I set up a course on corporate crime for master students. And I now teach corporate crime and corruption and supervise graduate students there.”
What was the transition for you from studying homicide law to corporate crime?
“It was fairly dramatic. In 2008, the OECD issued a very negative report about the UK bribery laws. There was a threat that the UK will be blacklisted by the OECD as a place that could not be relied on to enforce anti-bribery law.”
“The government wanted something done and done very quickly. And obviously it wanted buy-in from both anti-corruption activists but also the business community, who’d be primarily responsible for obeying the laws. And so they turned to the Law Commission and the criminal law commissioner – and that was me – and they said – we want you to sort it out.”
“And of course, it’s not an answer to say – Oh, well, I don’t know anything about the law of bribery – because it’s your job basically to get on and do it.”
“It was a very steep learning curve. But of course, I was assisted by a very wide consultation with experts in the field and over a period of intensive work became quite an expert myself.”
“In fact, for that reason, I’ve carried on and made it a kind of special subject if you like. So it’s now become my special interest. But at that time, in the early 2000s, relatively few scholars were interested in bribery law particularly. There were very few cases and as a result judges didn’t know a great deal about it.”
“It’s received a lot more visibility, publicity, debate in the media and in the scholarship over the last 10 or 15 years, than it probably did in the preceding 40 years.”
Horder says that the way in which the UK bribery law approaches corporate bribery “is very broadly similar to the US law.”
“In the US, a listed company can be liable for bribery, either through the actions of its employees or its subsidiaries under its control. If bribery is committed by any employee, no matter how lowly, so long as they act in order to benefit the company, vicarious liability is in effect.”
“The counterpart to that in the UK law is what’s called the offense of failure to prevent bribery. If an employee commits bribery overseas, or domestically, then the company will be guilty of a separate offense called failure to prevent bribery.”
“Under UK law, there is a defense to failure to prevent bribery if the company can show that it had adequate procedures in place to prevent bribery in general terms if you’d like, even though this particular instance of bribery may have slipped through the net.”
“So the idea behind the corporate failure to prevent bribery law was to incentivize companies to put in place procedures to prevent bribery in their own company and in the supply chains. There is no equivalent defense in US law. Although obviously, if a firm has or did take steps to try to prevent bribery, that will be a mitigating factor.”
But Horder says there are fundamental differences between the UK and US laws that arise out of the fact that UK corporate crime law is not centered on vicarious liability.
What is the genesis of the failure to prevent crime law? Where did that come from? Are you the father of failure to prevent?
“Well, actually, I am,” Horder says. “Long story short, before the Bribery Act, corporate criminal law was based very loosely on something like the Model Penal Code version of corporate crime.”
“In other words, you had to find someone at the top of the organization, someone very senior who committed the crime, in effect. And of course, in an international business, that’s almost impossible to do because the bribery will have been committed by some junior manager perhaps out in the Far East or wherever it may be. And headquarters in the UK won’t have known anything of that.”
“The Law Commission was basically tasked with trying to fix that problem. In the US, you’re very relaxed about the vicarious liability, although it promotes a lively scholarly debate.”
“There’s never been any movement, as far as I can tell, at the federal level to get rid of it. But in the UK, we are uncomfortable with vicarious liability, in essence.”
“So the challenge was to find a way of making it easier to convict companies for corporate bribery without going all the way to having a system of vicarious liability which would not have been acceptable to the business community here. And the failure to prevent model comes essentially from the regulatory sphere of law in the UK.”
“For example, it’s used as a model where firms allow contaminated food to enter the food chain without having put in place adequate checks.”
“These models do exist in the regulatory sphere. And it seemed to me that that was therefore a very good model to follow here.”
“So what I did basically was just look at the wording of a few of these regulatory statutes in relation to food safety and other areas and just basically took out bits and pieces from it that I thought were good and put together a new package if you’d like, a new offense.”
“That’s always risky for any law reformer, because when you’re using terminology in legislation that has never been considered before by the courts, there’s always a risk that they’ll interpret it or take a view of it that you don’t want or that a gap will be revealed in the law.”
“But so far, there have been no significant challenges to the failure to prevent model. Essentially it is modeled on offenses that come from the regulatory sphere. But at the same time, it’s not a purely regulatory offense. Failure to prevent bribery is a significant criminal label.”
“And for that reason, the government at the end of last year introduced the same model and offense of failure to prevent fraud. We now have that in the UK as well.”
“If a company is found guilty of failure to prevent fraud or failure to prevent bribery, that’s not just a regulatory matter. It’s now a significant moral wrong – if they didn’t have in place adequate procedures to prevent it happening. So we’ve tried to put together the best of the regulatory approaches to corporate crime, and on the other hand, the traditional moralized approach. Perhaps we’ve sort of fallen between two stools, but so far it’s been all right and quite reasonably successful.”
What’s the highest profile corporate criminal failure to prevent crime prosecution?
“Probably the most significant ones in the last five years would have been Airbus, the international aircraft company that was fined nearly a billion pounds internationally, which is an almost unimaginably large sum by UK standards. And a fine of that size might even cause a ripple in the United States. That was a big one.”
“But probably the most high profile one would have been Rolls Royce. Rolls Royce is an iconic company in the UK. And they were found to have engaged in very wide scale bribery across the globe over many years. It was endemic. And somewhat controversially, they were offered a deferred prosecution agreement if they admitted failing to prevent bribery.”
“And in the UK, we have a system in which judges oversee deferred prosecution agreements in economic crime cases. As a prosecutor, you’re not allowed just to strike a deal with a company. You have to put it before a judge and they have to approve it initially, and then they have to approve the final deal as well. So they get two looks at it.”
Is it easier to criminally prosecute a corporation for failure to prevent a crime than to prosecute the company for the crime itself?
“Very much so, yes, it is because so long as bribery or fraud has taken place – committed by an employee, a subsidiary, or agents – so long as that happened, the company in effect is automatically guilty of the failure to prevent offense unless it can show it had adequate procedures to prevent the crime. And the burden will be on the firm to show that it had adequate procedures to prevent those offenses.”
“And crucial therefore to the failure to prevent offense is that the prosecutor doesn’t have to show that anyone in the top management knew anything about it or intended it or was reckless about it or anything of that kind.”
“So the burden is on top management to make sure that throughout the firm, they have proper procedures in place to make sure that employees agents and indeed subsidiaries are not committing these offenses.”
“And we don’t just mean paper procedures. We mean procedures that are actually utilized and are live and put into operation.”
Is there a case in the UK where a large company has used a defense against failure to prevent bribery or fraud?
“No one has succeeded in doing that yet,” Horder says. “It’s going to be difficult to do. It’s going to be difficult for prosecutors, a jury or a judge to accept that if bribery took place there were nonetheless adequate procedures to prevent acts of that kind. It’s theoretically possible, but it’s not very likely in practice.”
“While the defense is very real – it’s there, it can be utilized – I think it’s not going to be easy for any firm to establish it. Although in theory they could do so.”
[For the complete q/a format Interview with Jeremy Horder, see 38 Corporate Crime Reporter 20(10), May 13, 2024, print edition only]