British bosses threatened with velvet handcuffs
Government proposing to take companies to task for wrongdoings of staff
Oct 11, 2016
Britain's Prime Minister Theresa May. Scanpix Denmark/Liselotte Sabroe/via REUTERS
By George Hay
LONDON (Reuters Breakingviews) - Life is about to get even more stressful for British company bosses. Prime Minister Theresa May's government is proposing to take companies to task for the wrongdoings of their staff — correcting a key flaw in the domestic legal system. But while new rules would snare more managers of miscreants, another innovation could allow them to sidestep the implications of guilt.
Proving that a big corporate's senior staff — its "directing mind" in legal-speak — knew about the actions of misbehaving employees is notoriously difficult in the UK. When UBS trader and Libor manipulator Tom Hayes was found guilty, the bank itself was not.
Under new rules reminiscent of Britain's 2010 Bribery Act, companies would be criminally liable if "associate persons" — including agents, intermediaries or contractors anywhere in the world — do something wrong. Instead of just bribery, it is likely to apply to money laundering, fraud, false accounting, and more.
Bank executives have already tasted this kind of medicine through the Senior Managers Regime, enacted after the UBS case, which holds them potentially criminally liable for staff misdemeanours. The new law in effect widens this thinking beyond the financial sector and applies to foreign companies' subsidiaries in the UK, undermining hopes that Britain could become a light-touch oasis outside the European Union. Since it encourages companies to have more safeguards and more switched-on managers, it's a good thing.
Yet there's a back door of sorts — through U.S.-style "deferred prosecution agreements" (DPA), which effectively put a firm on probation. A company that is subject to a DPA must keep its nose clean for a number of years, as well as pay compensation and disgorge any profits from the corrupt transaction. At the end of the process, the record is expunged. HSBC and Standard Chartered have already received these from U.S. regulators. Standard Bank and another, unnamed company were the first to do so in Britain.
Such an outcome encourages guilty parties to come forward, which helps prosecutors. It could also benefit the firms involved. Besides enabling a less permanent stain on their records, less evidence needs to be marshalled to embark on a DPA than a normal prosecution. There's a danger the DPA process might effectively let a firm off too lightly, if the process to establish whether it is warranted is too perfunctory.
That doesn't detract from the fact that making bosses liable for their subordinates' economic crimes is a good move. Velvet handcuffs may be more comfortable to wear, but they still do the job.
© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.
Guest Blogger of the Week. Each week, we will feature commentary from thought leaders from across Canada and around the world.