The law is changing to make it easier to prosecute companies for certain corporate offences in the UK. By the end of this year, the general rule that only the conduct of "directing minds and wills" could create criminal liability for a corporate will be expanded to include liability based on the actions of senior management. Currently, this change will only apply to the economic crime offences listed at Schedule 12 of Economic Crime and Corporate Transparency Act 2023 (ECCTA), but is likely to be expanded. We have recently written on this topic for the New Law Journal and you will find a PDF copy of that article available to download below. Here, we take the conversation further as we consider what parallels can be drawn with concepts of senior management from the areas of health and safety and financial services.
Corporate criminal liability through senior managers – what could this mean?
Who could be considered a "senior manager" under the ECCTA?
In our article for the New Law Journal, we set out the statutory definition of "senior manager" as someone who plays a "significant role" in making decisions about how all or a substantial part of the organisation’s activities are to be managed or organised, or in actually managing or organising a whole or substantial part of those activities. But what does this really mean?
The ECCTA definition of "senior management" was drawn from the Corporate Manslaughter and Corporate Homicide Act 2007 (Corporate Manslaughter Act) but there are differences in the way that the concept applies. Under the ECCTA, an organisation will be liable only if a senior manager commits the underlying offence and was acting within the actual or apparent scope of their authority. By contrast, under the Corporate Manslaughter Act, an organisation can be guilty of corporate manslaughter if the way in which its activities are managed or organised by senior management caused a substantial part of the breach. This means that economic crime investigations will need to identify the roles, responsibilities and managerial influence of any implicated senior manager. There will not be a straight read across from corporate manslaughter cases, noting that there is currently very limited case law in any event.
Government guidance on the Corporate Manslaughter Act provides that "senior management" includes those carrying out headquarters functions (for example, central financial or strategic roles, or with central responsibility for, for example, health and safety), as well as those in senior operational management roles, and could also include regional managers in national organisations and the managers of different operational divisions.
The new rule will apply from 26 December 2023. Decisions about who qualifies as a senior manager will be organisation specific, taking into account factors such as the size of the organisation, the number of tiers of management, the diversity of the organisation's activities and individual job descriptions, roles and areas of responsibility.
We consider that there may be practical lessons from SMCR mapping exercises that can be applied for compliance purposes across different sectors. That said, it is important to bear in mind that the FCA's focus on individual accountability focused on board level individuals and specific functions reporting to the board. Individuals with senior management functions (SMFs) under SMCR are the most senior and influential decision makers in a firm. Another important difference is that decisions in relation to compliance with SMCR are made by a regulator with regulatory objectives, whereas any determination as to who a senior manager is for the purposes of s196 ECCTA will ultimately be a matter for a jury.
While the focus of the legislative changes is on UK companies, the impact is wider and will affect overseas businesses doing business in the UK.
Empty chair prosecutions
As noted in our article, it is currently unclear whether ECCTA requires a senior manager to be convicted of a crime in order to secure a conviction of the corporate; our view is that it does not. Ultimately, prosecutors could:
- a) charge a senior manager with a relevant offence and then prosecute the corporate afterwards, following conviction of the individual;
- b) prosecute the corporate on the basis of the senior manager's conduct without the senior manager being charged; or
- c) prosecute the corporate and the senior manager at the same time.
If a prosecution of a corporate under these provisions proceeds to trial, ultimately whether the elements of the offence and the attribution liability have been proven will be a matter for a jury. In such a case, the issues that any jury will have to decide are:
- Is the individual a senior manager?
- Did the "senior manager" commit the underlying offence?
- Was the "senior manager" acting within the actual or apparent scope of their authority?
The changes will need to be factored into compliance programmes, as well as the conduct of internal investigations.
Reach out to our team for training on the new law or an assessment of how it applies to your business.
For our further insight into the Economic Crime & Corporate Transparency Act and the upcoming changes to corporate criminal liability in the UK, you can download a pdf version of our article "Senior manager attribution: a new liability?" in the New Law Journal here. This was first published on 20 October 2023 and is available without subscription here, where you can sign up for two weeks free access.
For those you with subscriptions to Lexis Nexis, you can also view the article at: Senior manager attribution: a new liability? – 173 NLJ 8045, p12
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