Crown Prosecution Service

Capitalist Efficiency or Corporate Liability?

Question

Who holds companies to account when risk taking goes wrong?

Answer

Commercial companies play a central role in the health and prosperity of our society. We rely on the expertise of commercial organisations in many areas of our lives, including finance, employment, transportation and the delivery of services. For a company to succeed - and perhaps to survive - it needs to exert a constant downward pressure on costs, to innovate and, importantly, to take on and properly manage risk. Risk taking is an important part of a vibrant economy and, arguably, commercial companies are the best risk takers.

The astute management of risk creates many benefits for employees, investors, governments and society as a whole. The airline industry is a case in point. Flight safety used to be safeguarded by granting monopolies to carriers; costs were high, but safety was good. The deregulation of the airline industry opened up international travel to the masses with no discernable increased risk to the traveller.

But what happens when risk taking goes wrong? Who is responsible and should criminal prosecution follow?

The list of corporate scandals is long and includes the Maxwell pension saga, the collapse of the Bank of Credit and Commercial International, and the fall of Barings Bank. Clear reasons for why things go wrong are difficult to cite, but the Ford Pinto case in 1978 [USA] - where in monetary terms a human life was rated far below the profit to be made by the company - suggests that the regulation of commercial operations is a necessity.

The law has moved from the outright protection of companies (safeguarding their economic benefits for society) towards recognising that companies have the potential to do enormous damage for which they should be held legally responsible (eg, in the case of the Herald of Free Enterprise, which sank in Zeebrugge harbour killing 154 passengers and 38 crew). Legal difficulties in prosecuting gross negligence corporate manslaughter have centred on whether it should be shown that there is a criminal controlling mind of the company or it is the aggregate conduct of the company and its outcomes that should be judged. Further complications concern penalties. Should a company be held liable in criminal law and, if so, are financial penalties enough? Should officers and staff be held accountable and, if so, how: professionally or criminally?

Further complexities arise when companies are used purposely by criminals to perpetrate crimes such as fraud and money laundering (the cost of fraud to the United Kingdom is estimated to be at least £14 billion per year).

The government has addressed these varied challenges by strengthening the law and re-organising regulatory, criminal detection and enforcement institutions. The Serious Organised Crime Agency was formed by the amalgamation of the National Crime Squad, the National Criminal Intelligence Service and the section of the Immigration Service dealing with organised crime. The Economic Crime Department, responsible for investigating major complex fraud and other economic crime, is based within the City of London Police. The Serious Fraud Office is an independent government department that investigates and prosecutes serious or complex fraud. Within the Crown Prosecution Service, the Fraud Prosecution Service specialises in fraud. The Department of Trade and Industry and the Financial Services Authority also play important roles in regulation. The Health and Safety Executive and local government are the enforcing authorities that work in support of the Health and Safety Commission.

In October 2005 the government commissioned a review of the detection, investigation and prosecution of fraud. The review was published in summer 2006 and, following public consultation, the government set out its strategy to combat fraud. Key components of the strategy include:

  • the creation of a national fraud body and reporting centre;
  • an increased role for the City of London Police;
  • a review of how fraud is dealt with by the courts; and
  • further study of plea negotiations.

Those who wish to work for the regulatory, criminal detection or criminal enforcement institutions need to understand business practices, as well as law and regulations. In terms of career development, commercial companies may want to employ lawyers with knowledge of law enforcement, as they try to anticipate what the view of regulators will be in particular circumstances. Conversely, industry practitioners are of appeal to enforcement agencies. When things go wrong, the criminal justice system needs talented lawyers who understand business practices to ensure that action is taken only when it is in the public interest to do so.

Gary Sparrow is a pupil barrister with the Crown Prosecution Service.

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