A summary of the key takeaways from a recent webinar on the spectre of personal criminal liability for charity trustees.

During the recent Trustees’ Week the Chief Executive of the Charity Commission said that one of the week’s aims is to inspire more people to come forward to serve as trustees, to prepare a pipeline of able and passionate people, willing to take on the mantle of trusteeship, ensuring the good work of charities is sustainable. In a 2021 High Court judgment, in rejecting an application to disqualify as company directors the former trustees and chief executive of Keeping Kids Company, the judge acknowledged this public policy of encouraging volunteerism.

Nevertheless, by and large charities and their trustees owe the same duties as anyone else as regards compliance with the criminal law – the protection of funds, employees, visitors, members of the public, the environment, etc. And even though many trustees now serve on the boards of incorporated charities and have the benefit of trustee indemnity insurance cover for their work, there is no reason in principle why charities and their trustees cannot be subject to the scrutiny of regulators and prosecution in relation to most types of criminal offending, should the “wrong” facts arise.

While we are not aware of data on criminal prosecutions of charities and their trustees, more individuals are being investigated by regulators for regulatory offences than previously and more prosecutions are being brought against individuals than previously – and people are being imprisoned when convicted of the most serious offences.

Which offences might corporate charities and their trustees commit?

The types of offences are wide ranging. What type of offence may present the most risk will often be closely linked to the principal operational activities of the particular charity. So, for example, charities operating in providing activities or allowing access to land/buildings would very much have health and safety as a significant risk. And those operating in providing care and/or care accommodation would have care legislation and health and safety as significant risks.

Common examples of criminal offences which may apply to charities are as follows:

• Health and Safety at Work etc Act 1974 and related Regulations (corporations and individuals)
• Corporate Manslaughter and Corporate Homicide Act 2007 (corporations)
• Data Protection Act 2018 (corporations and individuals)
• Various Environmental Offences (often waste) (corporations and individuals)
• Consumer Rights/Consumer Protection from Unfair Trading Regulations (corporations and individuals)
• Proceeds of Crime Act 2002/Money Laundering legislation (corporations and individuals)
• Economic Crime and Corporate Transparency Act 2023/Bribery Act 2010/Criminal Finances Act 2017 (corporations and individuals)
• Food Safety Act 1990 and related Regulations (corporations and individuals)
• Common law offences – such as gross negligence manslaughter (individuals)
• General Product Safety Regulations 2005 (corporations and individuals)

Managing the risk

Whilst all relevant legislation is potentially applicable, charities should consider reviewing their operations against the legislative requirements and identifying the greatest areas of risk for prioritisation. Charities maintain risk registers to manage and mitigate risk – even the Charity Commission as regulator of the charity sector acknowledges that risk is ever present and cannot be avoided.

Many offences created by regulatory statutes and regulations are “strict liability” which means that unlike for many “traditional” criminal offences, “intent” is irrelevant – you do not need to have formed intent, to have been reckless, or to have been negligent, to commit the offence. To reduce the potential harshness of such a draconian approach regulatory statutes often provide statutory defences, all along the lines of “you could not reasonably have done more”

So in health and safety there is “reasonable practicability”; in food law, trading and consumer law, and product safety law there is the concept of “all reasonable precautions and all due diligence”, and in bribery laws etc there is the concept of “adequate procedures”

What charities put in place to try and achieve compliance/defend themselves against risk, should very much have in mind these concepts.

Potential consequences of a criminal investigation

There are many, including:

• An organisation can be subject to very significant fines.
• Individuals can be subject to terms of imprisonment, as well as fines.
• Matters giving rise to criminal investigations/prosecutions can also give rise to civil liabilities (e.g. damages for loss or injury).
• Brand/reputation threatening.
• Disqualification of individuals from acting in certain roles e.g. as a director or charity trustee.
• Massive disruption to day to day activities, huge amounts of management or personal time lost during an investigation/prosecution.
• Long running investigations hanging over heads/lack of control – serious impact on organisations and individuals.
• Police involvement. Far less civilised investigations.
• Being debarred from engaging with certain bodies for contractual/procurement purposes – government contract.
• In cases involving fatalities – the public scrutiny, often with hindsight knowing something has gone wrong, of an Inquest.

Consent connivance or neglect?

Of direct relevance to charity trustees, a very common provision in regulatory statutes is to seek to additionally criminalise senior managers and directors of incorporated bodies in respect of their actions, inactions, or decisions, on the basis that offences have been committed by those incorporated bodies “with the consent or connivance of, or to have been attributable to any neglect on the part of the relevant individual”, in their capacity of director, manager, secretary or other similar officer of the body corporate or a person who was purporting to act in any such capacity.

The courts have decided that “consent, connivance or neglect” can be established by inference. For example, if a junior member of staff dealing with health and safety matters tells a board that money need to be spent to secure parts of the charity’s property, but in balancing competing priorities for its limited resources the board decides to use available funds on something else, and an incident later occurs which vindicates the junior employee’s concerns, establishing that trustees have “consented” to an offence need not be express, and in assessing whether they knew the material facts which constituted the offence by the body corporate and to have agreed to its conduct of the business on the basis of those facts, a court might infer that there was consent, connivance or neglect on their part.

The limits of insurance cover

Proximity to events and decisions is important,  and the more remote a trustee’s area of responsibility is from the particular circumstances, the harder it will be to draw that inference, but trustees cannot delegate responsibility for ultimate supervision of what is done with their authority, even if they delegate day-to-day management to executive staff, and so despite the application of schemes of delegated authority the board members of the biggest charities could still face investigation for the commission of criminal offences.

And as a matter of public policy the consequences of criminal activity cannot be insured against, and so there is no insurance coverage for a fine imposed as a consequence of corporate or individual offending – but insurance coverage can be available in many policies (and should be checked) to cover the legal costs of representation throughout an investigation, prosecution, or other legal process, such as an Inquest or Public Inquiry. This is subject to section 189 of Charities Act 2011 which in particular prohibits any indemnity for a person in respect of any liability incurred by a charity trustee in defending any criminal proceedings in which they are convicted of an offence arising out of any fraud or dishonesty, or wilful or reckless misconduct on their part.

What can charities do to limit exposure to criminal investigation and prosecution?

• Assess and identify the risks your organisation faces in terms of potential criminal liability.
• Check whether there are any specific legislative steps you are required to take and the availability of official guidance/codes of practice.
• Conduct a gap analysis to identify where those risks have been well addressed and where they have not, whether in terms of identification, policy and procedure, training etc. Shoosmiths’ free of charge compliance audit tool may assist here: ESG 360 Shoosmiths lawyers
• Prioritise where effort and resource can reasonably practicably be directed to address any shortcomings identified.
• Ensure everyone understands with clarity what is required of them, whether by way of instruction or training.
• Engender and promote a culture where compliance and doing things correctly and lawfully is a core value, where leadership is demonstrated consistently.
• Monitor and check that implementation and performance matches policies, procedures and expectations and take action where there are deviations.
• As a trustee or director etc make decisions or issue instructions based on a clear sighted knowledge of the potential personal consequences and the consent, connivance and neglect provisions.
• Careful, conscious decision making is very important. The use of e-mail as a casual form of communication can store up issues for the future.

What should charities do if things go wrong?

• Consider whether you need to notify insurers to activate cover.
• Consider whether you have any other positive reporting duties.
• Do not generate huge swathes of communications based on inadequate information, speculation, or opinion.
• Take specialist legal advice.
• Conduct a privileged internal investigation.
• Understand the powers of the regulator involved.
• Understand that you will need to have a relationship with the regulator afterwards.
• Consider whether you need HR advice.
• Consider whether you need to have PR assistance and work up a communications plan.
• Look to the future – what recommendations come out of the investigation; what can you do better; what changes are needed.
• Consider whether any individuals need independent legal representation.