Courts in UK may permit companies to be convicted of crimes even when no individual employee is criminally liable

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Due to loopholes that remain despite recent reforms to corporate criminal law in the UK, University of Surrey academics are calling for a new legal approach that could hold companies accountable for economic crimes, even when no single employee possesses the complete mental state required for a conviction.

In cases where senior managers deliberately interfere with the flow of information within a company to prevent any individual from having sufficient knowledge to be guilty of a crime, the “collective knowledge” of the company’s employees could be used to obtain a conviction.

The study, which appears in the Oxford Journal of Legal Studies, examines the limitations of the UK’s Economic Crime and Corporate Transparency Act 2023. While the Act introduced significant reforms, such as expanding the identification doctrine, Professor Alexander Sarch argues that these changes are insufficient to address sophisticated forms of corporate misconduct aimed at evading liability for the company.

To illustrate this, the study examines scenarios involving sophisticated efforts to evade corporate liability: Imagine a company that submits a false report to a regulator. No single employee is aware of the false statements in the report.

However, different employees possess fragments of information that, if combined, would reveal the report’s fraudulent nature, but which these employees were deliberately prevented from sharing in reasonable ways. The company benefits from this deception, while no individual employee can be held criminally liable.

Alexander Sarch, lead author of the study and Professor of Legal Philosophy at the University of Surrey, said, “To deal with efforts to evade criminal liability by interfering with the normal flow of information within a company, I suggest we should aggregate the divided knowledge of employees to construct a distinct ‘corporate mens rea’—a legal term for a company’s guilty mind.

“This approach, known as the ‘collective knowledge doctrine,’ is not without controversy. However, I argue that its application has significant benefits if it is restricted to cases where senior management demonstrably interferes with information flow to evade legal consequences.”

The paper focuses on scenarios where senior managers, aware of potential wrongdoing, create informational barriers within their organizations to prevent any individual employee from gaining a complete understanding of the criminal activity at issue. This deliberate compartmentalization of knowledge allows the company to benefit from causing harm or risks of a criminal nature while claiming ignorance.

Professor Sarch continues, “Even with the very welcome reforms in the Economic Crime and Corporate Transparency Act 2023 to expand corporate criminal liability, current law struggles to address instances where corporate structures are deliberately constructed to obscure knowledge of wrongdoing.

“My research suggests that prosecutors should invite courts to apply the ‘collective knowledge doctrine’ to extreme cases of evasion involving informational abuses within companies. When applied judiciously, the collective knowledge doctrine can be a powerful tool to hold companies accountable in these complex cases.”

The research utilizes legal, conceptual and doctrinal methodologies, analyzing realistic scenarios to test the boundaries of current legislation and legal precedent. This approach clarifies the legal arguments that prosecutors can use in litigation and offers a framework for courts to consider when dealing with similar real-world situations.