Proposed amendments to the “directing mind and will” of a company

The government is proposing to significantly reform the so-called “identification” principle for certain economic crimes in an amendment to the Economic Crime and Corporate Transparency Bill (ECCT Bill) (which also contains the draft amendments to the Companies Act 2006 to facilitate the reform of Companies House and the proposed new failure to prevent fraud offence – for more information, see our blog post here). The government's intention is to make it easier to prosecute companies for the in-scope economic crime offences – particularly large companies with complex management structures.

A company may currently be criminally liable for the acts of its officers or employees. However, under the common law “identification” principle, for many offences – including fraud – that will only be the case if a prosecutor can identify an individual(s) whose conduct, and state of mind, can be attributed to the company, such that they represent the company’s “directing mind and will”. Particularly in large organisations, senior people who have decision making powers in respect of substantial areas of business are often not considered sufficiently controlling to hold the company liable.

The proposed amendment to the ECCT Bill places the identification doctrine on a statutory footing for economic crimes and will impose criminal liability on body corporates and partnerships for economic crime offences committed by their “senior managers”. The proposed definition of senior manager in the ECCT Bill (which replicates the definition in the Corporate Manslaughter and Corporate Homicide Act 2007) looks at what the senior manager’s roles and responsibilities are within the organisation, rather than their job title. It includes a person who plays a significant role in the making of decisions about the whole, or a substantial part, of the activities of the body corporate.

The new statutory attribution test would apply only to the specific economic crimes set out in a schedule to the ECCT Bill. In addition to the common law offences of cheating the public revenue and conspiracy to defraud, these include:

• fraudulent trading under the Companies Act 2006;
• misleading statements and impressions under the Financial Services Act 2012;
• theft, false accounting and false statements by directors under the Theft Act 1968; and
• fraud under the Fraud Act 2006.

If convicted, a company may be subject to an unlimited fine (in addition to any sentences imposed upon the individuals who are also found guilty of the same offence(s)).

Our corporate crime team considers the amendment further in their briefing, which is available here.

The ECCT Bill is now at the House of Lords report stage for further scrutiny and is expected to become law later this year.