CMS Expert Guide to COVID-19 corporate crime & regulatory issues

The COVID-19 lockdown will not last forever. Operating both during and beyond the lockdown could throw up novel and unexpected corporate crime and liability risks for businesses. Resuming or increasing business operations as restrictions ease will entail risk.  A resumption plan addressing logistical and operational complexities will be essential, but this should also take account of legal risks as part of overall risk mitigation measures.    

This high-level comparative guide aims to create business awareness of potential criminal and regulatory risks (and possible follow-on claims down the line) associated with operating or re-opening their businesses in and post-lockdown while risk of exposure to the virus remains. 

COVID-19-related legal risk may be particularly acute for:

• key businesses and services operating staff-attended work-sites through the lockdown
• corporates with large workforces (e.g. warehousing / delivery businesses, food processing plants and manufacturing or extraction plants), who may be at risk of contracting the virus
• sectors dealing with the public in large numbers (e.g. hotels, care homes, transport providers, events and venues)
• designers, manufacturers and suppliers of medical or other emergency equipment aimed at combatting the virus or its effects.

Businesses operating across international boundaries will face greater complexity.

Some countries have passed emergency laws to strengthen existing criminal offences or introduced new ones, to compel compliance with lockdown restrictions, and with harsher penalties for breach. Mostly these changes (and pre-existing laws applied to COVID-19 situations) apply equally to companies and individuals.

Despite some limited relaxation of regulation for particular business segments in areas of competition law, product liability and State Aid there has been no general relaxation of regulatory obligations.  It would be unwise to assume that enforcement policies will change to apply the rules less strictly in the absence of clear policy statements from regulators.

Companies whose staff continue to attend the workplace in order to operate during lockdown may have concerns about whether:

• to continue to operate at all
• to make special provision for staff with children who may lack child-care options
• measures they take to meet social distancing requirements are adequate
• they should provide protective equipment to staff or introduce partitions into working environments (e.g. open plan offices, or reception areas where the public interact with staff)
• they can and should be testing staff and, if so, how often
• special provisions are needed for staff who use public transport to get to work and whether such employees are additionally exposed to risk
• more regular and more expansive cleaning of work sites is required
• enhanced quality checks and controls are appropriate on goods sold to support the response to the virus (e.g. for medical or healthcare use, or for use by other public servants)
• existing HR processes are adequate for dealing with staff members (or people they live with) becoming infected with the virus
• wider support should be provided to staff, including mental health support
• any changes are appropriate for policies and procedures
• changes should be made to terms and conditions
• existing record-keeping will be adequate to ensure they can justify present measures if scrutinised later by regulators, prosecutors or the public with the benefit of hindsight
• criminal or regulatory exposure may already have arisen
• they may face claims in future if they take wrong decisions now, or if they are just unlucky with how things develop.

Many of the above will remain relevant considerations for businesses seeking to resume normal operations after lockdown as part of the balancing exercise senior management will need to carry out when making these difficult decisions and how to mitigate these risks.

Failures to take appropriate steps now could result in businesses and senior management later facing audit, public criticism and shareholder claims, including intense scrutiny by social media, increasing reputational risk. 

Corporate convictions could also result in prosecutions of senior business leaders in the context of a highly emotional social media narrative and companies could face very significant criminal fines, coupled with disgorgement and compensation orders for victims.  Even where criminal exposure is avoided, there is a significant risk of future civil claims, including the potential for group or class-based claims which could be very costly to defend (particularly if claims are brought in multiple jurisdictions on differing legal bases) and disastrous to lose, on the back of the economically damaging effects of the lockdown. 

Of course, there will be many other potential exposures for businesses arising from COVID-19, such as:

• reputational issues – seeking bailout monies or participating in aid schemes can backfire on certain businesses, leading to public condemnation and backtracking (e.g. certain football clubs furloughing staff in the UK). Others have faced criticism for staying open and unnecessarily exposing staff to risk of infection when the public do not perceive their business as critical. Others face allegations of profiteering from the crisis
• fraud – exposure both within and by businesses doing “whatever it takes” to win work or operating in new and different ways creating governance weaknesses ripe for exploitation
• commercial contract and other business disputes – where contracts have been breached or become difficult/ impossible to perform and no resolution can be agreed
• political process and engagement – for example businesses and senior management may be called to appear before parliamentary committees or become involved in public inquiries or inquests
• employment claims – including in respect of lay-off periods and dismissals (or constructive-type dismissals where staff are asked to work beyond contracted hours or in different locations or perform different roles).

These are beyond the scope of this guide, but many are covered in other materials produced by CMS.  You can access our wider COVID-19 related materials here.

Some companies will prioritise survival and/or maintaining the business over compliance at this time, so they can survive the pandemic with as little damage as possible.  While understandable, this could be a mistake, particularly if a lack of rigour leads to crime or regulatory breaches being committed by those acting on a corporate’s behalf, or simply activities that expose the business to the risk of future claims and reputational harm.  This is not a binary issue of compliance/non-compliance.  Rather, there needs to be a proportionate understanding of the relevant regulatory risks to inform and improve business decision-taking in a uniquely challenging environment.

In this guide we aim to help clients by answering the following key questions across jurisdictions covered:

• Could your business face criminal (or administrative) liability for exposure or risk of exposure to COVID-19 to (1) staff or (2) business partners and the public, under pre-existing laws or new measures to combat the virus? 
• Could senior management or other company representatives face criminal or other liability for any such exposure or risk of exposure?
• What are the potential penalties for (1) the business and (2) its management?
• Have prosecutors or regulators brought any cases so far?
• Are there any specific measures mandated for companies continuing to operate or resuming operations during the pandemic, concerning exposure to staff, business partners and/or the general public?
• What potential liability could there be for civil claims by (1) staff and (2) business partners and members of the public in respect of infection (or other health issues) allegedly connected with a business’ operations during lockdown or in the aftermath?  How might liability arise?  Could companies face class-actions/ group claims?

We also consider in the next section the practical steps businesses can be taking now to avoid or mitigate these risks as the lockdown comes to an end around the world. 

We hope you find this guide useful in understanding some of the potential criminal and regulatory exposures and their implications.  Should you require more information or more specific advice, whether in the jurisdictions covered here or beyond, please contact your usual CMS contact.