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14 Nov 2016

Convicting a corporate



Consider the following hypothetical prosecution. The SFO charges four defendants (D1, D2, D3 and D4) with conspiracy to commit false accounting. There is a fifth person, AB, who is not charged by the SFO but who is named as an unindicted co-conspirator. D1, D2 and AB are executive directors of D4, which is a multinational company. D3 is an accountant employed by D4. Each of D1, D2 and AB represented, at the time of the alleged offending, the “directing mind and will” of D4 under the identification doctrine of corporate criminal liability. D3 did not represent the directing mind and will of D4.

How do the jury’s findings in relation to the four individuals (D1, D2, D3 and AB) determine whether the corporate (D4) is convicted? It is tempting to think that the identification doctrine means that:

  1. D4 must be convicted if either one of its indicted directing minds is convicted (i.e. D1 or D2).
  2. D4’s guilt is not dependent on the jury’s verdict in relation to the defendant who is not D4’s directing mind (i.e. D3).
  3. D4’s guilt is not dependent on what the jury thinks about the unindicted directing mind (i.e. AB).

These propositions may seem logical, but they are all wrong.

On the first proposition, what happens if the jury decides there is overwhelming evidence against D1 but considers the evidence against D2, D3 and AB to be weak? In these circumstances, can only D1 and D4 be convicted? The answer is no because the only individual doing any conspiring is D1. As per R v McDonnell [1966] 1 QB 233, an individual (D1) cannot conspire with a corporate (D4) if it is only because of the individual’s actions that the corporate is criminally liable under the identification doctrine. In these circumstances, every defendant would be acquitted.

On the second proposition, what happens if the jury decides there is overwhelming evidence against D1 and D3 but considers the evidence against D2 and AB to be weak? Now there are two individuals (D1 and D3) doing the conspiring, including one of D4’s directing minds. On that basis, the principle in McDonnell is not contravened, and D4 would be criminally liable as a result of D2’s actions. In these circumstances, D4’s guilt is dependent not just on its directing mind (D1), but on the jury’s finding in relation to an individual who is not D4’s directing mind (D3).

On the third proposition, what happens if the jury decides there is overwhelming evidence against D1 and AB but considers the evidence against D2 and D3 to be weak? Is evidence relating to an individual who has not been charged and who is absent from a criminal trial (AB) admissible against a corporate defendant (D4) if that individual is the directing mind of the corporate? If it is admissible, D4 could be convicted on the basis that the jury thinks that two directing minds (D1 and AB) are guilty, albeit only one of those directing minds (D1) can be convicted. This issue faced the Court of Appeal earlier this year in R v A Ltd, X, Y [2016] EWCA Crim 1469.

R v A Ltd, X and Y

The case concerned an alleged conspiracy to commit bribery prosecuted by the SFO. The three defendants comprised a corporate (A Ltd), the Chairman and Chief Executive of A Ltd (X) and a director of a subsidiary of A Ltd (Y). The SFO’s case relied on evidence relating to an unindicted individual (BK) who had been a director of A Ltd at the relevant time. It was not in issue that BK was a directing mind and will of A Ltd. BK was a Swiss national and, exercising his right under Swiss law, refused extradition to England. BK declined to assist either the SFO or any of the defendants; he was effectively absent from the criminal trial.

The appeal focused on the admissibility of (a) diary entries made by BK, and (b) emails received by BK, during the period of the alleged conspiracy. If either of these two categories of material was admissible against BK, then insofar as they were probative of BK’s guilty state of mind, the SFO argued that they were admissible to prove the guilt of A Ltd. The lawyers for A Ltd applied to exclude the evidence under section 78 of the Police and Criminal Evidence Act 1984 (“PACE 1984”).

The trial judge had considered the admissibility of both categories through the prism of the hearsay provisions in Chapter 2 of the Criminal Justice Act 2003 (“CJA 2003”). These provisions render admissible in criminal proceedings defined categories of hearsay. Of particular importance for this case was (a) the preservation in section 118(1) CJA 2003 of the common law rule that statements made by a party to a conspiracy are generally admissible against other parties to the conspiracy provided, among other matters, those statements are made in furtherance of the conspiracy[1], and (b) the rule in section 117 CJA 2003 that statements contained in business records are generally admissible as evidence of any matter stated in those records.

Applying section 118(1) CJA 2003 to BK’s diary entries, the judge held that: “they are not hearsay, as it was not BK’s purpose to cause another to believe the matters stated in the diaries […] the only relevance can be BK’s state of mind at a particular time. An entry in a document that merely goes to the state of mind of an absent co-conspirator, in my judgment, is inadmissible. […] Therefore, I have concluded the diary entries which are not acts or declarations in furtherance of the conspiracy are not admissible against the company to prove the company’s guilt by the identification principle.” Adopting this logic, the judge found that BK’s diary entries were inadmissible against A Ltd.

Applying section 117 CJA 2003 to the emails received by BK, the judge considered that these were business records and therefore, subject to further analysis as to the applicability of the conditions set out in section 117 CJA 2003, ruled that the emails were also admissible against A Ltd.

The Court of Appeal disagreed, holding that the judge had erred by considering the admissibility of the evidence through the prism of the CJA 2003 hearsay provisions. In reaching this decision, the Court held that the judge had compounded his mistake by eliding the hearsay provisions with the identification doctrine. In the Court’s view, these provisions were irrelevant. The only relevant provision was the identification doctrine. As BK was a directing mind and will of A Ltd, his diary entries and the emails he received were probative not only of his state of mind, but also of the state of mind of A Ltd. Accordingly, the Court held that both categories of evidence were admissible against A Ltd.

That BK had not been charged with any crime, had declined to assist the SFO or the defendants, and had refused to testify so could not be questioned in court about the evidence, was regarded as irrelevant. The Court of Appeal held that “a corporation can only operate through its directing mind or minds and their knowledge is, and must remain, the knowledge of the corporation.” In other words, proof of the guilt of any directing mind and will of a corporate is always probative of the guilt of the corporate.

Implications of the judgment

The judgment means that any evidence probative of the directing mind can be relied upon to prove the guilt of the corporate – regardless of whether that directing mind has been charged, and regardless of whether that directing mind is called as a witness by the prosecution or defence.

This outcome may seem unduly harsh on a corporate defendant. The lawyers for the corporate unable to question the directing mind are unable to demonstrate before the jury – other than through interpretation of the statement in the absence of the directing mind – what the directing mind thought at the time he or she wrote or received the statement in question.

This harshness nonetheless reflects the rigorous application of the identification principle. The opposite conclusion – by which a corporate cannot be prosecuted unless its directing mind is charged and is present in court – would be patently unjust. This would lead to corporate criminal immunity if the directing mind had died, had become incapacitated, or had absconded.

Thus, faced with evidence relating to an unindicted (and absent) directing mind, the corporate’s lawyers will be unable, in the vast majority of cases, to argue successfully for the exclusion of the evidence under section 78 PACE. The corporate’s lawyers would probably seek to make a virtue of the absence of the directing mind by suggesting to the jury that no weight should be placed on statements made or seen by persons who are unable to explain to the jury what their state of mind was when they made or saw the statements. Put another way, if the directing mind isn’t there to tell you what was in his or her mind, you can’t possibly know what the corporate thought.

So what does the judgment mean for our hypothetical prosecution?  It means that the corporate (D4) must be convicted if any two of D1, D2, D3 and AB are convicted, i.e. two individuals are doing the conspiring, at least one of whom is D4’s directing mind.

Interviews of directing minds

The Court of Appeal’s judgment focuses on statements made or seen by a directing mind which are contemporaneous with the allegations, e.g. diaries, emails, meeting minutes and recorded phone calls. According to the SFO’s Director, David Green QC, such contemporaneous statements are rarely found. The Director has often lamented the “drying up of emails” in middle management. Apart from contemporaneous statements, how else might a directing mind self-incriminate, and thereby incriminate his or her company? The likeliest forum will be in interviews conducted with those directing minds.

Consider an interview under caution (i.e. an interview in which the directing mind is designated as a suspect). The general rule is that evidence obtained in an interview under caution can only be used against the person being questioned; it cannot be used in evidence against another person, including a co-defendant. However, this general rule does not apply to a directing mind. Where the interviewee was, at the time of the suspected offending, a directing mind, anything he or she says is necessarily evidence which might be used to prove his or her guilty state of mind and, ergo, the company’s guilty state of mind. This exposure for the corporate is particularly acute in a dawn raid scenario, where the company will usually be caught unawares but keen to cooperate, which may translate into an understandable but naive desire on behalf of the directing minds to waive their right to silence and to answer questions. In the worst case scenario, those directing minds may, in the heat of the moment, make admissions in their interviews which are not only not evidenced in any contemporaneous material, but which do not properly reflect their true state of mind at the relevant time. When the dust has settled, the directing minds – and the corporate – may be stuck with a potentially damaging interview record which is admissible against all of them.

Now consider interviews of directing minds in corporate internal investigations. The prime concern of the corporate in such investigations will be to establish the facts. But in seeking to establish whether any directing minds were complicit in criminality, interviewing them may create damaging interview records which could be admissible against both them and the corporate in criminal proceedings. The corporate may regard this risk as a necessary price to pay for establishing the “truth” (and if the evidence suggests that senior management may have been complicit, the corporate will probably be advised that it has no option other than to interview them). But the tension for the corporate is that, in waiving privilege over the interview records and providing them to investigators, or in providing “oral downloads” which do not waive privilege, the corporate may make it more difficult to secure the lenient outcome which its cooperative approach is designed to procure. Faced with this dilemma, a corporate could deliberately conduct the interviews so that they are unlikely to be admissible in future proceedings (e.g. by consciously ignoring the Upjohn warnings and other safeguards sometimes afforded to interviewees). However, this cynical approach generates its own risks, not least the risk that the corporate’s lawyers might be regarded as breaching their professional ethical obligation not to take unfair advantage of third parties (for a more detailed analysis of the admissibility of these interviews, see our previous blog here).

Now consider compulsory interviews of directing minds (i.e. an interview in which the directing mind is compelled to answer questions under a statutory power). By virtue of the compulsion, such interviews will, subject to certain exceptions, be inadmissible against the directing mind in criminal proceedings. But does it follow that the interview would also be inadmissible against the corporate, which can, after all, only speak through the directing mind who is being compelled? Is the company’s privilege against self-incrimination being indirectly overridden such that the interview record should be inadmissible against the company? This question was posed in Rio Tinto Zinc Corp v Westinghouse Electric Co [1978] AC 547. Lord Wilberforce said that the question “raised some novel and interesting contentions which may merit consideration in another case, or by the Law Commission” (page 671), before leaving the question unanswered. To the author’s knowledge, the question remains unanswered in case law nearly 40 years later. It may seem unfair for a corporate to be prosecuted on the basis of answers compulsorily given by its directing mind, when the directing mind cannot be prosecuted on the basis of those same answers. But the jurisprudence on compulsory interviews, both in Strasbourg and England, emphasises that the use immunity afforded to the interviewee is precisely that – an immunity specific to the interviewee and not to any third party. By analogy with R v A Ltd, X, Y, the words spoken by the directing mind in such interviews are, and must remain, those of the company. It is therefore difficult to see how the corporate defendant’s lawyers could successfully exclude such interviews under section 78 PACE.


As long as the prosecutor has identified incriminating evidence relating to a directing mind, that evidence is likely to be admissible against a corporate defendant. It does not matter whether the directing mind is physically present in court, either as a defendant or a witness. The directing mind could be dead, too ill to attend trial, or holed up in a safe haven, having absconded or found a favourable extradition jurisdiction. The directing mind could have answered questions in an interview under caution when he or she should have remained silent, or he or she may have had to answer questions in a compelled interview. Ultimately, the lawyers for the corporate suspect will be left to argue about the weight that should be attached to the directing mind’s evidence, not its admissibility.

The evidence implicating an unindicted co-conspirator affects the fate of all defendants, not just the corporate defendant. If, in our hypothetical prosecution, there was no unindicted co-conspirator, and the jury thought the evidence against D2 was overwhelming but the evidence against D1 and D3 was weak, neither D2 (the individual) nor D4 (the company) could be convicted under the McDonnell principle. But both D2 and D4 would be convicted, and the McDonnell principle would not be contravened, if the prosecution persuaded the jury that there was overwhelming evidence against an unindicted co-conspirator, regardless of whether the unindicted co-conspirator was a directing mind of D4 (such as AB) or not.

The McDonnell principle explains why the SFO and other prosecutors will often charge both a conspiracy and substantive counts against a mixture of corporate and individual defendants. In substantive counts, unlike a conspiracy, the prosecution needs to prove the guilt of any one directing mind – indicted or unindicted – for the corporate to be convicted. In our hypothetical prosecution, D1, D2 and D3 could all be acquitted of substantive counts of false accounting, and D4 nonetheless convicted on the same count, simply as a result of the jury’s view of the evidence in relation to AB. Put another way, convicting the corporate is more straightforward once the legal constraints of a criminal conspiracy are removed.


[1] This rule in section 118 CJA 2003 is subject to a three-stage test by which the statement is admissible only if the judge is satisfied that the statement (i) was made by a conspirator, (ii) was reasonably open to the interpretation that it was made in furtherance of the alleged conspiracy; and (iii) that there was some further evidence beyond the statement itself to prove that the other was a party to the alleged conspiracy. 


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