Can Business Owners be Prosecuted for Fraud and other Crimes?

One of the main benefits of setting up a limited company is limited liability which means that the business is its own legal entity, separate from its directors and shareholders. In theory, this means that they cannot be personally pursued for the debts of the company, a concept sometimes poetically referred to as ‘the corporate veil’.

But how far does this protection extend? When it comes to criminal activity, business owners typically cannot hide behind the limited structure of their company. In recent years there has been an increasing tendency for business owners to be held liable for wrongdoing in the course of business (or under the guise of business), such as fraud. In these cases, the courts may disregard the separation between company and individual and hold the individual personally liable. This means the relevant person in control of the business or corporate activity – such as a director – can be prosecuted and face penalties such as fines or even a prison sentence.

It is possible for an individual to face criminal legal action even where the company itself may be prosecuted for corporate crime. In fact, the Crown Prosecution Service (CPS) states that,

“Prosecution of a company should not be seen as a substitute for the prosecution of criminally culpable individuals such as directors, officers, employees or shareholders. Prosecuting such individuals provides a strong deterrent against future corporate wrongdoing.”

So, when might a business owner be held liable for corporate criminal offences?

Fraudulent trading

When a company is struggling financially, it is extremely important for the directors to be mindful of their duty towards the creditors and shareholders. If directors continue to trade when they knew or should have been aware that the company was insolvent, this is called wrongful trading – a civil offence that can result in fines and a ban from acting as a director for up to 15 years.

Additionally, directors who go a step further and continue to trade with the intention to defraud its creditors can be prosecuted for the criminal offence of fraudulent trading under the Insolvency Act 1986 and severely punished.

Offences under the Fraud Act 2006

The Fraud Act 2006 covers all the major fraud offences, including:

Fraud by false representation
Fraud by failing to disclose information
Fraud by abuse of position
Possession of articles for use in frauds
Making or supplying articles for use in frauds (for example, counterfeit goods to be passed off as genuine)
Obtaining services dishonestly

Under the Act, company officers who are party to fraud offences by the company can also be held personally liable alongside the company.

Money laundering

Money laundering is the process of making funds obtained through financial crime look like they were legitimately earned. The definition of money laundering can be found under the Proceeds of Crime Act 2002 (PoCA) and covers all handling or possessing of criminal property.

It is a criminal offence if you fail to comply with anti-money laundering laws and regulations. As well as imposing serious penalties, including prison sentences, prosecuting authorities can take a wide range of enforcement action to seize and recover criminal funds, including confiscation proceedings under PoCA and Unexplained Wealth Orders.

Offences under the Companies Act 2006

The Companies Act 2006 covers a wide range of company director offences, including:

Failure to comply with duties to keep accounting records or preserve accounting records for the required periods
Providing false information to an auditor
Misleading auditors

Offences under the Theft Act 1968

The Theft Act 1968 contains the offence of false accounting which occurs when someone falsifies documents for an accounting purpose or used false/misleading documents for any purpose.

Any officer of a company can be held liable for false accounting, including company directors. The maximum penalty for the offence is six months in prison, a fine or both.

Insider trading

Insider trading (also known as insider dealing) under the Criminal Justice Act 1993 involves using sensitive or privileged information that has not been released to the public in order to take advantage of the market. It is commonly associated with stock brokers and market traders, but another example is a company director who knows the company’s share price is going to decrease selling their shares at market rate before the decrease takes place.

Corruption and bribery

The Bribery Act 2010 was introduced to tackle issues of corruption in public and private businesses in the UK and overseas. A bribe is defined as a ‘financial or other advantage’, such as giving gifts or vouchers or awarding contracts to particular companies in exchange for a benefit.

There are three classes of offences under the Bribery Act 2010:

The offence of bribing another person
Offences resulting from being bribed
The offence of bribing foreign public officials

Health & Safety law and manslaughter

Company directors and other officers can be held criminally liable for breach under the Health and Safety at Work, etc Act 1974.

Where the death of an employee or someone else (such as a member of the public) is concerned, directors can be prosecuted under the Corporate Manslaughter and Corporate Homicide Act 2007 or under the law of gross negligence manslaughter (which is a common law offence).

What should you do if you are being investigated for fraud or another business crime?

If you are being investigated or prosecuted for a business or white collar crime, such as fraudulent trading or bribery, get in touch with our specialist serious fraud & business crime solicitors today.

Our expert team specialises in defending individuals who have been accused of criminal activity in the course of business or while running a business.

As a firm, we are independently recognised for our Criminal Litigation expertise by the Law Society and highly ranked by prestigious client guide, the Legal 500.