Rahman Ravelli considers what does and does not constitute the directing mind and will of a company.
In what has to be seen as a high-profile failure for the UK’s Serious Fraud Office (SFO), February 2020 saw a jury clear three former Barclays executives – Roger Jenkins, Tom Kalaris and Richard Boath – of criminal fraud charges. The SFO had brought the charges in relation to the arrangements that saw the state of Qatar provide financial assistance to the bank during the 2008 financial crisis.
The SFO had begun investigating Barclays dealings with Qatar eight years earlier. While the acquittal of the trio brought to an end a lengthy saga it also enabled earlier judgements to be made public. These judgements are of interest in providing more detail about aspects of the Barclays investigation. But they are perhaps of a more general value in detailing both the difficulties that the SFO (or any other enforcement agency) has in establishing corporate criminal liability and how a corporate’s structure can affect its chances of being found to be criminally liable.
In 2017, the SFO charged Barclays PLC with conspiracy to commit fraud by false representation (for failing fully to disclose to the stock market deals it had reached with Qatari investors) and with unlawful financial assistance (for providing a $3 billion loan to the Qatari state’s sovereign wealth fund). In February 2018, Barclays Bank PLC also was charged with providing unlawful financial assistance. Yet in May 2018, the charges against Barclays PLC and Barclays Bank PLC were dismissed by the Crown Court. This led to the SFO applying to have the charges reinstated. But this application was dismissed by the High Court in October 2018.
The precise reasons for the dismissal of both the charges and the SFO’s subsequent application for their reinstatement could not be immediately ascertained. This was because both the Crown Court and High Court judgements were subject to reporting restrictions until the trial of the three Barclays executives had ended. When they were acquitted, the restrictions were lifted by Lord Justice Popplewell. The removal of these restrictions provides a useful insight into corporate criminal liability and the courts’ consideration of it.
The Directing Mind and Will
There are various corporate strict liability offences in the UK, namely failure to prevent bribery under s7 of the Bribery Act 2010 and the offences of failure to prevent the criminal facilitation of tax evasion under the Criminal Finances Act 2017. But other UK offences where there is a need to establish corporate criminal liability depend on the identification principle: the prosecution has to prove that the individuals suspected of being involved in committing the crime represent the “directing mind and will” of that company. This means there is a need by the prosecution to establish that the actions of those individuals can be regarded as those of the company.
We now know that when he dismissed the charges against Barclays PLC and Barclays Bank PLC at Crown Court in May 2018, Mr Justice Jay concluded that a number of people – among them those being prosecuted as individuals – had the authorisation to conduct negotiations. But he concluded that those people did not have authority to commit Barclays to raising capital or to agree a secret commission if capital raising was achieved. Mr Justice Jay found that only the board of Barclays, its board finance committee or group credit committee had the power to make that commitment – and so those conducting negotiations could not be considered the directing mind and will of Barclays.
In dismissing the SFO’s application to have the charges reinstated at the High Court in October 2018, Lord Justice Davis said he had considered whether the allegedly dishonest acts committed by the individuals and their allegedly dishonest state of mind could be viewed as the acts and intentions of the bank itself.
He referred to Tesco v Nattrass . In this case, the House of Lords stated that while the board of directors, the managing director and maybe other senior figures can speak and act as the company their subordinates do not. The case had seen the Lords consider the chain of command from the company’s board to the managers of its shops. The Lords found that in such a situation the functions of the company’s board had not been delegated to the managers and so any acts or omissions by managers could not be considered to constitute those of the company.
Davis LJ believed that this decision could make it more likely for a bigger company to be cleared of criminal responsibility than a smaller one, as larger organisations have a more complex, involved decision-making process and numerous management levels. But he concluded that the boards of major international corporations could not be expected to know every transaction or activity; adding that devolved structures are a necessity rather than a tactic to avoid corporate responsibility.
Dismissing the SFO’s application for the charges to be reinstated, he said he viewed the various individuals as not having full discretion to act independently regarding the transactions, as they were responsible to another for the way they discharged their duties. As the individuals did not have complete autonomy to do the deals under investigation their autonomy was insufficient to attribute criminal culpability to Barclays.
Davis LJ’s remarks will have come as little comfort to the SFO. The SFO’s failure to have charges reinstated against Barclays and its subsequent inability to secure convictions against the individuals charged provided the worst case scenario for the agency. It is perhaps unsurprising the current SFO Director Lisa Osofsky Lisa Osofsky has voiced displeasure at the position her agency is placed in by the identification principle – and, specifically, how it means that large corporations and SME’s cannot effectively be held to account for their conduct in the same way.
She is certainly not the first head of the SFO to take the view that the issue of identification sets the bar way too high when it comes to proving corporate criminal liability and fails to acknowledge the large, complex structures of the big corporates. Defenders of the SFO’s activities and track record may see its latest Barclays defeat as being proof of the need for reform of the identification process rather than a sign of the agency’s failings.
The notion of a new corporate criminal offence of failure to prevent economic crime has been talked of in certain circles. But for now, there are no solid plans for such an approach. Which is why the full Barclays judgements are of value in helping determine what conduct by individuals can be seen to represent a company’s directing mind and will.
This article was also featured on Lexology.com.
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