Identification Doctrine Reform Could See More Corporates in the Dock

Identification Doctrine Reform Could See More Corporates in the Dock

A proposed addition to expand the identification doctrine in the Economic Crime and Transparency Bill could see more companies facing prosecution for crimes committed by executives.

The measure, which was tabled on 20 June 2023, will see a company’s senior staff fall under the definition of ‘directing mind and will’ of a business where fraud, money laundering or bribery are suspected and will increase the scope for companies to be held criminally liable for any offences their employees commit.

Current law requires that an offence must be committed by the ‘directing mind and will’ of a corporation to trigger attribution to the corporate itself. If the person identified as the ‘directing mind and will’ of the corporate commits a criminal offence in that capacity, that offence, including the guilty mind to commit the offence, is considered that of the corporation.

Previous interpretation of the identification doctrine has usually been limited to board directors, particularly chief executives, following the 1971 ruling in Tesco Supermarkets v Nattrass.

In this case, it was found that the supermarket group was not liable for the actions of a store manager who was selling washing powder for one shilling (5p) more than the advertised price, as he was not considered a part of the corporation’s ‘directing mind’.

This view has prevailed in cases that have been heard since, with senior executives generally not considered part of a company’s ‘directing mind’.

The Government believes that the new measure will strengthen the ability to apply corporate liability to the makeup of modern corporations, particularly large complex structures, and deter instances where senior managers use their authority granted under the corporation to commit economic crimes.

Security Minister Tom Tugendhat said: “This reform is a major reset that is urgently needed. Economic crime is not something you can always see in the light of day, but the shadow it casts impacts all our lives.

The National Crime Agency assesses it is a realistic possibility that over £100 billion pounds is laundered every year through the UK or through UK corporate structures.

“Our current system for holding corporations liable for conducting crime is based on legislation that has become antiquated. We must adapt to the challenges posed by modern practices and sophisticated criminality. With the tabling of this reform, we are doing just that.”

The Economic Crime and Transparency Bill imposes new requirements on companies, limited partnerships, and other corporate entities and is being introduced as part of the Government’s push to improve corporate transparency.

The Bill also includes a ‘failure to prevent’ offence, which will hold organisations to account if they profit from fraud committed by their employees, even if it is not clear that company bosses ordered or knew about the fraud.

The Economic Crime Bill is currently at the report stage in the House of Lords and looks likely to come into force later this year.

AML and Compliance Under the Economic Crime Bill

Companies should familiarise themselves with the proposals and undertake a risk review at the earliest opportunity to ensure they meet the required standards. It is always wise to make any changes well in advance of any deadlines being imposed to ensure your company and its policies, controls, and procedures are compliant.

Failure to act could result in serious sanctions. The UK Government has been clamping down on economic crime and has imposed record fines on companies that are not meeting their responsibilities.

Compliance Services For Businesses

If you want to know more about the proposed reforms and what they mean for your business, AML & Compliance can help.

We offer a full range of services focused on ensuring businesses across all regulated sectors create, maintain and evidence their compliance with the requirements of their regulators and legislation. We work with businesses of all sizes, from the smaller high street or niche businesses to the large multi-office and multinationals.

Our Packaged Services include:

These packages have been designed to provide a core compliance service to regulated businesses in the most cost-effective way to manage and control their AML and Compliance processes.

We adopt a sensible and pragmatic approach to fees, ensuring that we are competitive and always add value. As necessary, we will agree on packaged services to control cost and enable clients to spread payments to alleviate cash flow, yet ensure services are provided when needed.

If you want to discuss our services in more detail, contact us at 0203 985 8553, email us or complete an enquiry form.