The proposals are intended to remedy a problem that has plagued UK prosecutors in their attempts to effectively police corporations: the difficulty of establishing corporate criminal liability under the "identification principle". In order to convict a corporation, the prosecutor must prove, to the criminal standard of proof, that an individual at executive or board level (the "directing mind and will" of the company) committed the acts amounting to the commission of an offence, and also had the criminal intent to commit those acts.

In an address to the London School of Economics in April 2013, the Director of the Serious Fraud Office (SFO), David Green QC, highlighted the evidential difficulties of the identification principle (www.lse.ac.uk/collections/law/projects/lfm/final%20proof%20as%20published.pdf). He explained that board members might deliberately separate themselves from any incriminating emails, while mid-level managers might simply follow the orders they are given. In addition, decisions might be split between several individuals at different levels with different states of knowledge. Mr Green concluded that the identification principle creates a perverse incentive for a board to insulate itself from the criminal activities of its employees.

Section 7(1) of the 2010 Act, on which the new failure to prevent economic crime offence would be modelled, criminalises a commercial organisation's failure to prevent bribery committed by an employee or agent. Section 7(2) creates a defence available to the commercial organisation if it can prove that it had in place adequate measures designed to prevent this conduct.

According to Ministry of Justice guidance on the 2010 Act, the commercial organisation must establish the section 7(2) defence on the civil standard of proof; that is, the balance of probabilities. In his April 2013 address, Mr Green noted that any extension of the "failure to prevent" principle for corporate crime would include the accompanying defence of having adequate procedures in place, which, as with the section 7(2) defence, would need to be proven only to the civil standard. Therefore, to escape liability, companies would need to provide evidence of the procedures that were in place to prevent the conduct that formed the basis of the offending.

Having these procedures should be a priority for all companies. The resulting rewards are that:

Part 2 of Schedule 17 to the Crime and Courts Act 2013 sets out the existing economic crime offences to which a deferred prosecution agreement is potentially applicable. Therefore, in order to create the new offence of failing to prevent economic crime, the government could use the simple legislative mechanism of amending section 7 of the 2010 Act to include these offences. This would provide companies with more certainty over the nature of the threat from prosecution that they might face.

Mr Green expected the proposals to be controversial and that objections would be "deeply embedded and predictable". He noted that the proposed change in the law would effectively:

However, he defended the proposals on the grounds that existing health and safety legislation, as well as section 7 of the 2010 Act, already made use of negligence principles to impose corporate criminal liability on those companies that fail to operate effective preventative governance. Companies are already under a duty to protect the physical safety of their employees, and would be liable if an employee were injured through negligence.

In Mr Green's view, companies that do not have a preventative regime in place against the commission of specified criminal offences by its agents and employees should not escape liability. Companies enjoy the right to make money through the activities of their employees and agents, so they should also have a duty to provide an effective preventative regime. A corporate defendant charged with a "failure to prevent" offence would also have the protection of a jury's assessment of the adequacy of its procedures and of the precise circumstances of the offence.

Mr Green concluded pragmatically that if it is in the public interest for more companies to be prosecuted, the current identification test is unrealistically high. The new offence would have a greater chance of success and there are a number of public policy arguments to support it.