Possible Reforms to Australia’s Approach to Corporate Criminal Liability: “Failure to Prevent”, Strict Liability, or Something Else?

Many of the most significant bribery offenses, both domestically and internationally, involve corporations. When, and under what conditions, should the corporation itself—as opposed to, or in addition to, the individual employees involved in the wrongdoing—be held criminally liable? The attribution of criminal liability is sometimes thought to be conceptually or philosophically problematic: As Baron Thurlow LC once observed, a corporation has “no soul to be damned and no body to be kicked.” Yet it is clear that corporations can do wrong, and the prospect, and extent, of corporate criminal liability can have significant impacts on corporate behavior. Various legal systems have developed different approaches, but in some jurisdictions there has been considerable dissatisfaction with the status quo, and agitation for reform.

Australia is one such jurisdiction. In response to concerns about the Australian legal system’s approach to corporate criminal liability (an issue that is important in, but not limited to, the corruption context), last April the Commonwealth Attorney General of Australia, Christian Porter, announced that the Australian Law Reform Commission (ALRC)—the Australian Federal Government’s highly influential law reform agency—would conduct an inquiry into this issue. The Terms of Reference required the ALRC to review, among other things, the policy rationale behind Australia’s current framework for imposing criminal liability on corporations, as well as the availability of alternate mechanisms for attributing corporate criminal liability. This past November, the ALRC released a 279-page Discussion Paper that thoroughly canvasses potential approaches to reforming Australia’s corporate criminal liability regime; the ALRC is currently receiving comments on that paper, which are due at the end of this month (January 31, 2020), and after considering these submissions, the ALRC will release its final report by April 30, 2020.

The ALRC paper covers many issues, but perhaps the most fundamental concerns the basic rules for attributing criminal responsibility to the corporation. The ALRC, and the Australian government, faces a choice among several plausible alternatives:

Under current Australian federal law, the attribution of criminal liability to a corporation depends in part on the specific criminal offense alleged. For certain specified offenses, Part 2.5 of the Commonwealth Criminal Code allows for the attribution of criminal responsibility to corporations if two conditions are met: First, the criminal act must have been committed by a corporate employee, agent, or officer acting within his or her authority, and second, the corporation must have expressly, tacitly, or impliedly authorized or permitted the offense. This latter requirement can be satisfied in any one of four ways: (1) the board of directors carries out, authorizes, or permits, the offence, (2) a “high managerial agent” carries out, authorizes, or permits the offence, (3) the company’s corporate culture directs, encourages, tolerates, or leads to noncompliance, or (4) the company fails to create a corporate culture that requires compliance. For offenses not covered by Part 2.5 or a different statute, Australian common law generally follows the English approach, sometimes called the “identification principle.” Under this principle, criminal liability can only be ascribed to the corporation when it is possible to identify the “directing mind” of the corporation as supporting the relevant crime. The identification principle requires prosecutors to prove that particular officers constituted the directing mind and will of an entire corporation.

Many believe that these rules, especially the “identification principle,” make it too hard to establish corporate criminal liability, particularly in cases involving corporations with large and complex structures where decision-making is decentralized, and perversely create incentives for senior corporate officers to distance themselves from the granular workings of the corporation so they cannot be found to be its “directing mind.” If these criticisms are apt, what are the alternatives? The two most plausible are the “failure to prevent” approach that has been successfully employed under the UK Bribery Act, and the strict liability approach that the United States has used for over one hundred years.

  • The “Failure to Prevent” Approach. Section 7 of the UK Bribery Act reflects the United Kingdom’s resolve to improve upon the rigid application of the identification principle in cases involving foreign bribery. Section 7 imposes liability whenever a corporation has failed to prevent bribery. It is then incumbent upon the company to raise as an affirmative defense that it had “adequate procedures” in place to prevent bribery from occurring. The “failure to prevent” model incentivizes officers to involve themselves with the corporation’s conduct, so as to ensure that procedures to prevent bribery are indeed adequate. Some British politicians think this approach has been so successful that the government should simply criminalize all failures to prevent economic crimes. Of course, the utility of the failure to prevent model naturally hinges upon courts’ reading of “adequate procedures.” This entire model could effectively be hamstrung by weak interpretations of this phrase by judges.
  • Strict liability. In the United States, prosecutors have been able to rely upon the doctrine of respondeat superior (“let the master answer”), which provides that the corporation may be held criminally liable for any criminal act of any officer or employee, regardless of their status or role within the corporation, so long the wrongful act was committed within the scope of the employee’s duties and was undertaken for the benefit of the corporation. In the United States, the existence of procedures designed to prevent corporate misconduct is not an affirmative defense, but rather a potential mitigating factor during sentencing. Respondeat superior is of course just one variant of the strict liability approach. Another option would to ascribe criminal liability to corporations only where the crime was committed by, or with the knowledge of, an officer at a particular level of seniority. However, as the ALRC Discussion Paper notes, there are some shortcomings with vicarious liability models, including the fact that they may allow for the attribution of liability in circumstances where there is corporate blameworthiness but fault cannot reasonably be attributed to any particular individual.

The ALRC’s invitation for submissions provides a unique opportunity for Australia to revisit some of the fundamental pillars upon which corporate criminal law rests. Australia could improve upon the strict liability approach of the United States were it to ameliorate the harshness of its application by including an adequate procedures defense, or limiting the punishments available when no one individual can be shown to have acted in a blameworthy manner. So too could the ALRC recommend a version of the failure to prevent approach that carefully stresses the need for the new legislation to guide courts in their approach to what constitutes adequate procedures.

At this early stage, the ALRC itself has not committed to a particular stance. The Discussion Paper simply proposes that: “There should be a single method for attributing criminal (and civil) liability  to  a  corporation  for  the  contravention  of  Commonwealth  laws,  pursuant  to which: a)the conduct and state of mind of persons (individual or corporate) acting on behalf of the corporation is attributable to the corporation; and  b) a due diligence defense is available to the corporation.”

As noted above, the Report is ultimately due on April 30, 2020, and submissions in response to the discussion paper are due on January 31, 2020. The Discussion Paper raises a host of complex issues, and provides a unique platform for scholars and practitioners to influence important developments in this field.

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