Skip to main content

Insight article

December 8, 2022

Protect SMEs from corporate criminal liability

The law treats corporations as separate legal entities, but to what extent can your employees' actions result in your business being found criminally liable?

Earlier this year, the UK Law Commission reviewed corporate criminal liability law. Find out how proposed changes to the legislation could get your company into a pickle!

It is easier to hold smaller companies accountable for wrongdoings than multi-million-dollar companies. However, the bigger a company gets, the harder it is to identify individuals responsible for criminal acts. The review aims to ensure fair treatment between organisations of different shapes and sizes. But will it achieve this?

The general rule for corporate criminal liability is the ‘identification doctrine’. Identification doctrine means that a company will generally only be held liable for the conduct of a person with the status and authority to constitute the company’s “directing mind and will”. In short, those persons with oversight and control of operations. So, for example, the directors of small businesses are likely to have oversight and control over all operations and therefore be the ones identifiable as the directing mind and will. In contrast, in large companies, the decision-making powers are diffused. Because of this, the UK Law Commission’s review is considering reforming the doctrine.

The Commission is also considering whether to introduce a new offence of “failure to prevent” certain criminal acts (e.g., fraud) by an employee or agent. By way of illustration, as things currently stand, a company employee could commit criminal acts to benefit the company. The company could escape liability by arguing that the employee in question is not ‘senior’ enough to be the directing mind and will. In this scenario, the company would benefit from the criminal act in question but escape liability. However, by introducing an offence of failing to prevent, companies will not escape liability unless they can demonstrate that they have established appropriate policies and procedures to prevent such criminal acts from being carried out in the company’s name.

The costs of introducing new procedures, policies, and training to ensure compliance with the Commission’s proposed changes may be high. Small businesses may need help to meet these, especially post-pandemic and especially considering recent economic forecasts. The key for any business is to understand the proposed changes and ensure that appropriate and proportionate measures are taken, considering the business’s sector, size and risk exposure.

Ensure you have the right policies and procedures in place to help protect your SME from corporate criminal liability. Contact corporate lawyer Evangelos Kyveris today.

Note: This article is not legal advice; it provides information of general interest about current legal issues.

Stay in touch

Subscribe to our newsletter

Stay in touch

By completing your details and submitting this form you confirm you are happy for us to send you marketing communications and that you agree to our Website Privacy Policy and Legal Notice and to us using Mailchimp to process your data.


Sending

News/Insight

  • Autumn Budget Statement 2024
    Key implications for employment law, property law, and estate planning


    Read more
  • Disclosure against warranties in UK corporate transactions
    In UK corporate transactions, disclosure of information is a vital strategy for sellers to shield themselves from warranty claims when selling their shares or business.


    Read more
  • How the Employment Rights Bill 2024 impacts employers and businesses
    The government’s new Employment Rights Bill outlines significant changes to employment laws, focusing on workers' rights and flexibility.


    Read more
  • Business First Magazine
    Autumn/Winter 2024 Edition


    Read more
  • Non-Disclosure Agreements (NDAs): An Overview
    A Non-Disclosure Agreements (NDAs), also known as a Confidentiality Agreement, is a legally binding contract designed to protect confidential information. It is often used in employment or business settings. NDAs ensure that sensitive information rem


    Read more

What they say...

  • Sean Greathead, October 2024
    “Karen Cole has been superb in supporting us in dealing with some complex legal challenges. Her advice and guidance is timely, well communicated and provides direction on resolving the situations on hand. I would highly recommend Karen and the

  • Jonny Grossman, October 2024
    “Martin was everything I would expect a top solicitor to be. He was knowledgeable, responsive, supportive, calm, and overall an excellent professional to work with. I would use Martin and RIAA Barker Gillette again without hesitation. Sharon is

  • Carlo, September 2024
    “Very efficient. Maheen and Pippa were great, offered great advise and always available.” Family law and divorce

  • Tom Mulligan, September 2024
    “Charlotte and James did a very professional job, replied promptly to emails, usually within an hour, and were available to meet when necessary. Key though is their specific experience in these areas [LPA, Probate and Wills].” Wills, tax

  • Lucy, August 2024
    “Thank you for your support during the purchase of our first home.” Residential sales and purchases

Read more
Send this to a friend