Government proposes reform to the identification doctrine to combat financial crime

The government announced on 15 June that its proposal to modernise the identification doctrine has been added to the Economic Crime and Corporate Transparency Bill, which will see senior managers brought within scope of those who can be considered the ‘directing mind and will’ of a business. The proposed reform aims to place greater scrutiny on businesses that commit financial crime, meaning that companies will be able to be held criminally liable for economic crime committed by a senior manager within the business.

According to the official press release, the proposed reform to the identification doctrine, which is over 50 years old and is a fundamental piece of legislation used to hold companies criminally liable for offences, follows collaboration with prosecutors, the Law Commission, and the private sector. The reform aims to bring senior executives within scope of the ‘directing mind and will,’ which is currently interpreted as being limited to more senior positions within firms, such as board members and chief executives. The government is of the view that senior executives often possess a huge amount of influence and autonomy and in such cases should be considered as part of the ‘directing mind’ of a company.

In regards to the application of the reform, the government states that a test will be applied to assess the specific decision-making power of the senior manager who is alleged to have committed an economic crime. The reform is limited to economic crime only and is part of the government’s wider actions to combat financial crime. The government’s aim is to reduce the ability for corporations to use complex management structures to conceal the identity of the actual decision makers.

Commenting on the proposal, Alun Milford, criminal litigation partner at Kingsley Napley LLP, said: “The proposed reform to the identification principle is potentially very significant in fraud cases, to which the reform is limited. However, the devil is in the detail and whether the dramatic promises made by the Government today will result in any successful corporate prosecutions for economic crime will depend to a very large extent on how exactly a ‘senior manager’ is defined in the new law; something that has not yet been made public.”