Changes are on the horizon: what can businesses expect from the new Criminal Justice Bill?

A number of reforms are being proposed by the new Criminal Justice Bill (the Bill), which will significantly broaden a corporation's exposure to criminal liability.

Our article summarises the key upcoming developments brought forward by the Bill and discusses what this could mean for your business.

Be prepared for legislative reforms, including the expanded scope of the "identification doctrine" in the ECCTA

One notable reform proposed is the expansion of the scope of the newly defined "identification doctrine" recently introduced in the Economic Crime and Corporate Transparency Act 2023 (the ECCTA).

Prior to the ECCTA, the identification doctrine was a common law concept which attributes criminal liability to a corporation where it can be established that, at the material time, an individual was the "directing mind and will" of the company or "the embodiment of the company".

This was a high threshold to meet particularly in corporations with more complicated management structures.

How has the ECCTA re-cast the identification doctrine?

The ECCTA has re-cast the identification doctrine by creating a statutory route to attribute criminal liability to a corporation where a senior manager of a body corporate or partnership commits an economic offence, provided they were acting within the actual or apparent scope of their authority in relation to specific economic crimes such as fraud, bribery and concealing criminal property, amongst others.

The Bill proposes to expand this doctrine further and will repeal the relevant section of the ECCTA which, as mentioned above, limits its scope to economic crimes.

The Bill will allow a corporation to be held criminally liable where a senior manager commits non-economic offences whilst acting within their actual or apparent authority.

What could this mean going forward?

This expansion to all criminal offences will significantly broaden corporate exposure to criminal liability. The new Bill also ensures that criminal liability will not attach to an organisation based and operating overseas for conduct carried out wholly overseas, simply because the senior manager concerned was subject to the UK's extraterritorial jurisdiction (for instance, because that manager is a British citizen).

The corporation will not be liable, where the senior manager's conduct took place wholly outside the UK, unless it would itself have been guilty had it carried out the acts that constituted the offence in the location, they took place.

However, it seems clear from the accompanying guidance that actual or apparent scope of a senior manager's authority does not mean that the senior manager must have been specifically authorised to carry out the specific offence in question.

For example, whilst a Chief Financial Officer (CFO) is not specifically authorised to give misleading or fraudulent statements about a company's financial position, the nature of the CFO role is that they give statements about the company's financial position.

Statements that are actually misleading or fraudulent may therefore appear within the scope of their authority. The company can therefore be liable under the scope of the offence.

Businesses will need to strengthen fraud prevention measures

Corporations will need to review, stress test and monitor existing fraud prevention controls to determine whether these are adequate in light of the new regime. Regulated firms will need to be alive to the scope for the re-cast identification doctrine to overlap with the FCA's existing Senior Managers and Certification Regime, given that the new test captures a broader set of individuals.

Corporations will need to conduct a review to determine who falls within the definition of "senior manager" under the Bill. Any changes to fraud prevention policies will need to be embedded through a programme of training and attestation which incorporates periodic testing of understanding.

The Bill is still being debated in parliament and is at the Commons' Report Stage (with a date yet to be appointed) in the process of gaining Royal Assent, whereby MPs are given an opportunity to consider further amendments or clauses to the Bill.

The Bill will then be given the opportunity for a third reading in the Commons, before progressing to the House of Lords to be further scrutinised and debated. As such, it is difficult to predict with certainty when the Bill will be given Royal Assent.

To find out more about any of the issues mentioned in this article, please contact a member of our Fraud team below.