Corporate Crime – How does a corporation become a criminal?

Elements of a criminal offence

There are typically two main elements to a criminal offence: (i) the physical element (being the prohibited conduct) and (ii) the mental element (being intention, knowledge or recklessness).  Unless the offence is a “strict liability” offence, a prosecutor must show that both of these elements were present in order to prove the offence.  For example, in order to prove the offence of assault, a prosecutor must demonstrate that an assault took place (the physical element) and that the defendant intended to commit the assault (the mental element).

A strict liability offence is an offence which does not include a mental element. Strict liability offences are a common feature of regulatory frameworks which underpin corporate regulation.  For example, strict liability offences arise in: corporate and prudential regulation, work health & safety laws and environmental protection laws.  An example of a strict liability offence is the failure of an employer to maintain a policy of workers compensation insurance.  To prove the offence of failing to have this insurance, a prosecutor must only show that no relevant policy was in place.  It is not necessary for a prosecutor to show that the employer intended not to have the policy.

How can a Company become guilty?

The principles which govern how a company can be found guilty of a criminal offence are found in both the common law and in statute.

Common law

Unless the terms of the relevant offence expressly provide to the contrary, the criminal responsibility of a company (as distinct from its officers or employees) will be determined by common law principles. At common law, a company may be found guilty of a criminal offence based on the acts or omissions of its senior officers or “controlling minds”.  Proving both the physical and mental elements of a criminal offence against a company at common law is challenging, as it is often difficult, if not impossible, to show that a senior officer (as opposed to a lower level employee) had the requisite intent to commit the crime.

Statute 

Many statues which contain offence provisions that apply to corporations will include details of how the offences can be attributed to the corporation.  Section 244 of the Work Health and Safety Act 2011(NSW) effectively attributes both the physical and mental elements of a crime to the company if that person was acting within the scope of their engagement or within their authority.

For many Federal offences, the provisions that deal with attributing criminal conduct to corporations are contained in Part 2.5 of the Criminal Code 1995 (Cth).  For example, Part 2.5 of the Criminal Code applies to all criminal offences contained in the Corporations Act 2001 (Cth).[1]

The Criminal Code provides as follows:

• A physical element of an offence can be attributed to a corporation if it is committed by an employee, agent or officer of the corporation acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority.
   
• A mental element of an offence can be attributed to a body corporate that expressly, tacitly or impliedly authorised or permitted the commission of the offence. The means by which authorisation or permission may be established include: 
  • proving that the body corporate’s board of directors intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
  • proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly tacitly or impliedly authorised or permitted the commission of the offence; or
  • proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; or
  • proving that the body corporate failed to create and maintain a corporate culture[2] that required compliance with the relevant provision.

As is the case with the common law, it can be extremely difficult to attribute the mental element of an offence to a corporation under the existing framework in the Criminal Code. This difficulty has been recognised and in April 2019, the Commonwealth Attorney-General announced that the Australian Law Reform Commission (ALRC) would undertake a review of Australia’s corporate criminal liability regime with view to producing a simpler, stronger and more cohesive regime for corporate criminal responsibility in Australia.

Key Takeouts

While there are challenges for prosecutors to attribute criminal conduct to a corporation, often this difficulty is ameliorated through a statutory construct, such as that found in the Commonwealth’s Criminal Code. As the focus often becomes whether or not the corporation tacitly or impliedly authorised or permitted the conduct in question, it is imperative that corporations implement robust compliance models to combat the effect of the legislation.                                                                                        

[1] Section 1308A[2] Corporate culture means “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place.”

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This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.