New law: New laws to increase risk of company liability for criminal offences

To find a company guilty of certain criminal offences the law currently requires that the offences are committed by one or more individual directors in control of events whose acts and state of mind can be attributed to the company – so that they can be considered its ‘directing mind and will’. Lawyers call this the ‘identification’ doctrine.

But in large and/or complex companies it can be difficult to identify which individuals were the directing mind and will – who took the decisions or actions amounting to an offence - and in some cases the directing mind and will may not be a director at all.

New laws have therefore been proposed that recognise that a senior manager or manager may be the directing mind and will of a company for the purpose of certain economic crimes.

A senior manager is defined in the new law as ‘an individual who plays a significant role in:

• the making of decisions about how the whole or a substantial part of the activities of the body corporate or (as the case may be) partnership are to be managed or organised; or
• the actual managing or organising of the whole or a substantial part of those activities.

Whether someone is a senior manager or not does not therefore depend on their job title, but on their actual job and the ‘managerial influence they might exert’.

The relevant offences where this applies include cheating the public revenue and conspiracy to defraud, fraudulent trading under company law, making and creating misleading statements and impressions under financial services law, theft, false accounting and false statements by directors under theft law, and fraud as defined in fraud law.

This expansion of the directing mind and will test to include senior managers makes it easier to prosecute companies – larger companies in particular, where decision-making can be diffuse and is often delegated, but also smaller companies – creating a significant risk of consequent damage to reputations and brands.

Operative date

• To be announced

Recommendation

• Companies should review their procedures and policies for combatting fraud, their staff structures - identifying and reviewing the roles and responsibilities of senior employees in particular – and their staff training.