Report warns of key threats to rule of law within a business context
The foundations of the rule of law in the UK are weakening, and threatening the UK’s appeal to international investors as a result, a searing report by Linklaters has claimed.
The report, In defence of the rule of law, identifies five key threats to the rule of law within a business context: excessive executive power; retroactivity; uncertainty; unmanageability; and changes in the burden of proof.
It argues that the rule of law is being undermined by broadly drafted laws that, in practice, allow the regulators or prosecuting authorities to decide what is illegal, eg s 75 of the Banking Act 2009 gives the Treasury the power to disapply or modify the effect of any law without Parliamentary approval, and the financial services industry as a whole increasingly relies on “principles-based regulation”.
The report also objects to fines by regulatory authorities that have no understandable scale proportionate to the seriousness of the offence and reliance on laws that use vague and undefined concepts such as “adequate procedures” and “fairness”.
It criticises the application of vague principles and rules in a manner that effectively changes the law retrospectively, for example, the Data Protection Act 1998 requires that information be processed “fairly” but does not define this term, yet penalties for a breach are to be increased to 2-5% of a company’s global turnover.
The imposition of a compliance burden that is difficult even for major corporations to handle is another target for reproach within the report, and the practice of imposing penalties where guilt is only proved “on the balance of probabilities”, or requiring a business to prove its innocence is also criticised.
Richard Godden, partner at Linklaters, says: “Whether it’s ministers changing primary legislation without Parliamentary approval; regulators imposing huge financial penalties with no understandable scale; retrospective legislation; laws which rely on undefined concepts like ‘fairness’ or ‘adequate procedures’; reversing the burden of proof to require innocence rather than guilt to be proven, more and more we are seeing uncertainty and unfairness challenging the very principles of the rule of law.”
