ECCTA – a reminder of the two key changes to corporate liability that it introduced
With effect from December 26, 2023, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) fundamentally changed the rules on whose conduct can be attributed to a company for the purpose of holding a company liable for a crime.
ECCTA significantly broadened the range of employees who can trigger corporate criminal liability for a wide range of ‘economic crime’ offences. With these offences, unlike the failure to prevent fraud offence (FTP Fraud offence) that was also introduced in ECCTA, there is no defence of having in place reasonable procedures and the senior manager test applies to all businesses, not just large ones. In addition, the senior manager test applies to a significantly wider list of offences than those caught by the FTP Fraud offence.
The “directing mind and will” has now, under ECCTA, been replaced for certain economic crime offences
Before ECCTA, the general position had been that where a criminal offence requires proof of a specific mental state (e.g. intent or recklessness, known as the mens rea), a company could only be prosecuted for an offence if an individual who represented the company’s “directing mind and will” possessed that state of mind. Prosecutors have often struggled to satisfy the test for large organisations with a decentralised chain of command.
There is now a new senior manager test for economic crimes
ECCTA supplemented the “directing mind and will” test with a new ‘senior manager’ test for a defined list of economic crimes. The economic crimes are listed in Schedule 12 to ECCTA, and include fraud, bribery, money-laundering, cheating the public revenue, false accounting, misleading the market, sanctions and certain financial services offences under the Financial Services and Markets Act 2000 such as misleading the FCA or PRA. The new senior manager test came into effect on December 26, 2023.
The new test means that a company or partnership commits an economic crime offence if the offence is committed with the involvement of a “senior manager”. In broad terms, a senior manager is defined as an individual who plays a significant role in the decision-making process, or actual management or organisation, of the business (or a substantial part of it). See our detailed article on the new senior manager test.
The primary purpose of the “senior manager” test is to make it easier for prosecutors to pursue a business for economic crimes. At the time of writing, there has still been no guidance to help organisations navigate this test and the difficult question of who qualifies as a senior manager, despite the expectation that guidance was being drafted.
The Crime and Policing Bill 2025 intends to expand the senior manager test all criminal offences
Section 130 of the Crime and Policing Bill proposes to expand the senior manager test to all criminal offences, not just economic crimes. It would mean that where a senior manager of a corporate entity (a company or partnership of any size), acting within the actual or apparent scope of their authority, commits a criminal offence, the organisation also commits that offence.
The expected impact of this proposed change is huge
Even before ECCTA, the UK Law Commission had recommended that the new senior manager test apply to all crimes, right from Day 1. The decision to limit it to economic crimes only in the first instance was blamed on the scope of the ECCTA (it was a Bill all about economic crime after all).
Nonetheless, that the UK Government is considering following this recommendation is a hugely significant step. If enacted, it will increase the compliance burden on organisations wishing to protect themselves from additional vulnerability to criminal prosecution, including private prosecutions.
If all criminal offences are added, then corporate liability would apply, e.g. where a senior manager commits an offence relating to the environment, computer misuse, data protection, modern slavery, human trafficking, and health & safety. Some of these types of offences make sense, e.g. computer misuse would appear to be an offence that might be particularly likely to occur in a corporate context as the commission of the offence might be aimed at providing a business advantage to the corporate employer (and therefore to the employee too). One can see an argument for a company being ‘morally’ culpable for such an offence. However, there are some offences where this argument is more difficult, e.g. sexual offences, harassment, and violent crime. The Bill therefore brings the question of whether an offence can (or should) be committed by a company into much sharper focus.
The widened scope of the senior manager test is exacerbated by the fact that:
- Unlike the ‘failure to prevent’ offences relating to bribery, tax and fraud, there is no reasonable (or adequate) procedures defence for a company charged with the criminal offence on the basis of the senior manager test.
- There is also no requirement under the senior manager test for there to have been an intended benefit to the company by the senior manager committing the offence.
- Some criminal offences can be committed ‘recklessly’, not just ‘intentionally’. This lower level of ‘mens rea’ means that if a senior manager is aware of a risk but goes ahead with it anyway, the ‘reckless’ test may be satisfied – and the company will have committed a criminal offence.
These consequences must be considered carefully during the legislative process. Is it right for a company to be charged even where it has good compliance procedures in place or where the senior manager did not intend to benefit the company through his or her actions?
Approach to prosecutions
Since the advent of deferred prosecution agreements (DPAs), many large scale corporate enforcements relating to economic crimes have resulted in DPAs. But the Bill does not propose to expand the list of offences for which a DPA could be offered. This has the potential to increase the administrative burden on the (already stretched) criminal court system, should more prosecutions be brought against companies.
Increased risk of personal liability
Any successful corporate criminal prosecution also brings enhanced risk of individual liability for company officers under ‘consent and connivance’ provisions. These extend criminal liability to directors and managers of a company where the company is guilty of a criminal offence, and the misconduct occurred with the consent or connivance of the officer, or in some cases attributable to their neglect.
The Law Commission reported in 2022 that there were ‘well over a thousand’ legislative instruments creating ‘consent and connivance’ type personal liability.1 If the bar is lowered for corporate offending, there is an increased risk of this type of personal liability too.
How to respond
If the Bill is passed:
- Businesses will need to risk assess which types of offence their senior managers might be capable of committing whilst acting on behalf of the business. Many businesses are already analysing who their senior managers are due to ECCTA having come into force on December 2023. As the explanatory notes to the Bill set out: “The term “senior management” is not limited to individuals who perform an executive function or are board members, it covers any individual who falls within the definition irrespective of their title, remuneration, qualifications or employment status.” An example given in the explanatory notes to the Bill is an individual with a significant role in relation to a human resources function.
- Organisations may wish to consider the potential mitigants they can put in place to ensure that senior managers do not commit offences. The presence of a good compliance programme will help. This is likely to include policies and procedures, clear chains of command, detailed record keeping and a good speak up culture.
- Whilst it may be difficult and disproportionate to train all possible senior managers on all possible criminal offences they may commit in the course of their business, businesses will want to carry out risk assessments and check that their current training modules cover the key offences and are delivered to potential senior managers under ECCTA (in the way that they should have already done for the Schedule 12 economic offences that are already in play).
Given all of the regulatory pressure that companies are already under this is going to potentially be quite a burden, at a time when growth is an economic imperative.
Timing
The Bill has passed its second reading in the House of Commons, and is currently at the Committee stage. So there are plenty more stages of the Parliamentary process to go, and potential for amendment. Once the Bill is passed however, this provision may come into force quite quickly. Under ECCTA, the new senior manager test came into force just two months after ECCTA was passed.
There is little commentary around what it will mean to extend this senior manager test to other non-economic crimes, and we consider that the impact of this proposed extension needs to be properly considered.
Ensuring that corporate compliance programs keep up with new criminal offences was one of the key challenges identified in our 2025 Cross-border White Collar Crime and Investigations Review.
Footnote
1 Law Commission Options Paper Corporate Criminal Liability June 2022 at footnote 294
