Escaping conventional models of corporate criminal liability: a proposal for fundamental reform

If corporations are to be held criminally liable, how is this best achieved? What are the metaphysics of corporate criminal liability and why does this matter? Is it possible to successfully reform corporate criminal liability within the traditional paradigm or is it necessary, ultimately, to reject and replace it with different principles? What would such reforms look like?

Viscount Haldane’s 1915 judgment in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd established a requirement to identify a natural person acting as the ‘directing mind and will’ of the corporation before the acts and state of mind of that person can be attributed to the corporation. However, the UK and Commonwealth experience has shown that attempts to steer corporate criminal liability away from these imperial origins through judicial decision-making, legislative changes, and academic debate over a hundred years have not been successful. 

As the mercantile world has evolved significantly, the search for a directing mind presents seemingly insurmountable challenges to prosecutors trying to hold corporations criminally liable, exemplified by the decision in Serious Fraud Office v Barclays Plc in 2018. In this decision, the Court decided along traditional lines that neither the CEO nor the CFO, even though both members of the board, were to be treated as the directing mind and will of Barclays as far as the conduct of that case was concerned.

The pervasive mental image cast by Haldane’s paradigm gave rise to numerous legislative attempts to reset some of the more extreme consequences of its application. These range from the introduction of deferred prosecution agreements to designating certain office holders (‘senior managers’) for the purposes of identification. All with a view to increase the effectiveness of corporate criminal liability, yet with very little practical success.

Therefore, we embarked on a journey to steer a way out of the cul-de-sac into which the judicial mind has wandered and suggest a new direction of travel. In a recent publication in the Journal of Business Law we tackle head on, the history, method, and reforms in this field in the hope that we have provided a complete answer to these problems.

In that paper we explain the metaphysical underpinnings in Haldane’s approach, how he was influenced by German idealists, particularly Hegel, and how that resulted in his anthropomorphisation of the corporation. We then outline how that paradigm, trying to identify a directing mind and will, has imprisoned the judicial mind in a number of cases, ultimately arriving in a cul-de-sac, post Barclays.

Based on this, the construction of corporate mens rea is rejected, exorcising Haldane’s ghost from the boardroom in its entirety. The effectiveness of corporate criminal liability cannot be improved so long as those attempts persist in a search for the ‘very ego’ as Haldane would have it. Instead, the paper outlines first principles upon which corporate criminal liability should be based, acknowledging the nature of the firm as a nexus of contracts in line with Jensen and Meckling, the classical school of criminology and mercantile reality, where rational risk-taking is the sine qua non of any entrepreneurial activity. 

From these principles, we develop a proposal to base corporate criminal liability on a new statutory offence of failing to prevent ‘relevant’ crime. Rather than taking the UK’s current approach of codifying different failure to prevent offences, such as the facilitation of tax evasion, bribery, or fraud, we argue that liability should attach to the corporation where any crime is committed in the ordinary course of its business activities by a defined group of associated persons. The corporation has a defence if it can demonstrate that it maintained and applied adequate preventative measures. Only offences committed in the in the ordinary course of the corporation’s business activities are considered relevant, so for confiscation purposes, there is a rebuttable presumption that the offence was committed for the corporation’s benefit. 

This risk-based fault model better allocates responsibilities, and therefore culpability, as a result of specific commercial activities, whatever those might be. Yet, limiting culpability to those activities also represents a more nuanced approach to historical proposals which argued for a general failure to prevent (any) criminal offence, whilst the available defence avoids the harder edges of respondeat superior. Finally, the appendix of the paper outlines how this proposal might translate to a criminal statute.

We recognise that the proposed model is far reaching and might even be controversial, but it is likely to significantly improve the current state of corporate criminal liability. However, it can only do so, if there is sufficient political will to bring it about.

Bastian Hertstein is the Chief Advisor to Enforcement at the Jersey Financial Services Commission and can be reached at b.hertstein@jerseyfsc.org. 

Sam C. Brown is a Crown Advocate at the Law Officers’ Department, Jersey and can be reached at s.brown@lawofficers.je.

Any views and opinions expressed in this article are those of the authors and do not necessarily represent the views of the affiliated organisations.