Ever since 2008, I have been puzzled as to why individual directors are never prosecuted for corporate crimes in the UK. At the time of the financial crisis, I tried placing numerous stories and TV docs on the subject but nobody wanted to know.
The announcement this month by the US Department of Justice that there is to be a “crackdown” on company executives, is the first sign that the tide is beginning to turn
It will cause an uneasy stirring in corporate circles from Los Angeles to London, where the result of a UK Ministry of Justice “Call for Evidence” on a new “failure to prevent economic crime” offence has been pending since March 2017. Even the government’s own supporters are ashamed of this failure and the Law Commission is now due to issue an update at any moment.
There is widespread distrust of the system in Britain because of the scale and variety of large companies which break the law without their directors facing any criminal charges. chief executives argue that they are worth their hugely inflated salaries, and take the credit in full when things go well, but when large companies are found to have broken the law, its remarkably hard it is to prove that the boss was in charge of the decision making process that led to the crime.
When the companies themselves are fined, it is the shareholders or customers that foot the bill, not the law-breakers themselves. The rules of the game are rigged in favour of the wealthy , who can afford armies of expensive lawyers and tie prosecutors in knots for years on end. This makes a mockery of Britain’s reputation for rule of law, and is harmful to democracy in general.
Sewage dumping by Southern Water
Take the current outcry in coastal areas all around the country over sewage dumping. Southern Water has been repeatedly fined over the dumping. A judge has unequivocally found that previous court rulings were flouted and n evidence of illegal sewage dumping was destroyed or falsified. Nobody individual ever been prosecuted, or as far as I am aware even investigated by police.
The fury currently being expressed in Parliament, and on the nation’s beaches by swimmers is not just at the stench of the sewage, but also at the cosy system which allows company directors to hide behind evidential barriers which were designed to be insurmountable.
Proving a “Controlling Mind”
The issue in the case of Southern Water, and almost every other large corporate prosecution, is the difficulty in proving that the offence was committed by a “controlling mind.” The CEOs and CFOs of our biggest companies, who are happy to take the credit for success, draw large salaries and even larger bonuses, are mysteriously absent from the wheelhouse whenever there is a criminal investigation. You could say that McAvity-like quality is their biggest talent.
The Crown Prosecution service is quite clear that “Criminal acts by such officers will not only be offences for which they can be prosecuted as individuals, but also offences for which the company can be prosecuted because of their status within the company.” https://www.cps.gov.uk/legal-guidance/corporate-prosecutions
But company lawyers have been able to outmanoeuvre prosecutors with ease, by simply referring to the constitution and articles of association of the company, which specify that it is boards of directors or committees, rather than any one individual , which are ultimately responsible.
In seeking to identify the “directing mind” of a company, says the Crown Prosecution Service’s own web site “prosecutors will need to consider the constitution of the company concerned (with the aid of memoranda/articles of association/actions of directors or the company in general meeting), the governance of the company and any appropriate delegation of authority.”
Barclays Bank – failed prosecution
The 2008 financial crisis was the moment when this charade was most clearly exposed. All over the City of London and Wall Street, executives who had for years taken part in marketing knowingly worthless financial instruments were allowed to walk away. Not a single prosecution took place. To this day, there is not even an accepted definition of economic crime in British law.
Literally the only criminal prosecution in the entire financial debacle was at Barclays, where the charges related not to the mass financial fraud that took place across every bank and hedge fund, but to a narrow matter of bribes allegedly paid during the process of bailing out the bank when it needed emergency funding.
All defendants were found innocent, and top law firm Herbert Smith, which had defended one of them, summed up the case as follows: “The decision re-emphasises that it is impossible to apply any broad brush assumption that a director or senior manager (even the CEO) is the “directing mind and will” of a company for all purposes.
Both judges recognised the difficulty in identifying the “directing mind and will” in a large organisation – https://hsfnotes.com/fsrandcorpcrime/2020/05/05/no-directing-mind-and-will-found-in-sfo-prosecution-of-barclays/
In the case of Lehmans it quickly became obvious that the company had been surviving for months or years by shuffling money between New York and London bank accounts to maintain the appearance of liquidity. That is simply fraud. Why was it not investigated at the time?
But there is another question which is highly relevant to business activities today. Why are the individuals running the largest companies able to claim such large salaries and bonuses, if they can evade personal prosecution?. Either they are in full control of their businesses and are being justly rewarded, and are therefore responsible when criminal acts take place with their full knowledge. Or they are merely the puppets of the board, in which case their bonuses are unnecessary and counter-productive.
“Criminal acts by such officers will not only be offences for which they can be prosecuted as individuals, but also offences for which the company can be prosecuted because of their status within the company. A company may even be liable for the act of its servant even though that act was done in fraud of the company itself (see Moore v I. Bresler Ltd  2 All ER 515, which was approved in Meridian Global Funds Management Asia Ltd v. Securities Commission  2 A.C. 500, PC).