Today, Corruption Watch UK launches a new report on Corporate Liability, the options for its reform and the necessity of doing so. The report can be viewed in full here.
Corporate liability reform in the UK is long overdue. The inadequacy of the UK’s corporate liability laws has been recognised by the government, the Law Commission and by international bodies such as the OECD. The UK’s current laws are based on an outdated model that is not fit for the purpose of holding 21st century globalised companies accountable under the law. These laws:
– seriously disadvantage smaller companies who are far easier to prosecute than larger companies;
– create perverse incentives for large companies to insulate their boards from knowledge of wrongdoing, thus weakening accountability within corporations;
– provide little real deterrent against corporate wrongdoing.
As a result, the UK lags far behind other commercial centres, such as the US, in prosecuting corporate economic crime.
In 2012, the government recognised in introducing Deferred Prosecution Agreements that “options for dealing with offending by commercial organisations are currently limited and the number of outcomes each year, through both criminal and civil proceedings, is relatively low.” The Law Commission has called UK corporate liability laws “inappropriate and ineffective.” Most recently the government recognised in its July 2015 consultation on introducing a new corporate offence of failure to prevent tax evasion that “under the existing law it can be extremely difficult to hold .. corporations to account for the criminal actions of their agents.” Introducing a new offence of failure to prevent economic crime was a key manifesto commitment of the Conservative Party in the May 2015 elections.
The decision on 28th September 2015 to drop further corporate liability law reform on the basis that “there is little evidence of corporate economic wrongdoing going unpunished” is therefore incomprehensible, misguided and a serious failure of political will. Corporate liability law reform, which has been muted for over a decade, must not shelved once again.
Corruption Watch UK’s new report looks at the background to and arguments for corporate liability reform and the options for reform. It concludes that an extension of the offence of failure to prevent under Section 7 to economic crime, and possibly more broadly to serious crime, would be a significant step in the right direction of improving UK corporate liability laws. A failure to prevent model of corporate liability would also help ensure that the UK is able to comply with EU Directives which require liability for corporations where there has been “lack of supervision or control”. It is questionable whether the UK is currently compliant with several EU Directives which require liability for corporations without such changes to its corporate liability regime. However, extending Section 7 should be done in tandem with a broader and comprehensive review of the UK’s corporate liability laws to ensure coherence and consistency in how corporations are held to account.