The centenary of a mistake: one hundred years of corporate criminal liability.

• Author: Hasnas, John
• Position: Achieving the Right Balance: The Role of Corporate Criminal Law in Ensuring Corporate Compliance

INTRODUCTION

There could be no more appropriate time for a symposium examining the theories of corporate criminality than this, the one hundredth anniversary of New York Central & Hudson River R.R. Co. v. United States, (1) the Supreme Court decision that created corporate criminal liability. We have now had a century of experience with the assignment of criminal responsibility to corporate entities. In this article, I will contend that the experience has not been a happy one.

Although it may be anomalous in a symposium on theories of corporate criminality, I will argue that there is no theoretical justification for corporate criminal liability. Indeed, I will argue that the assignment of criminal responsibility to corporate entities is a direct violation of the theoretical structure of Anglo-American criminal law that has had extraordinarily pernicious effects in practice. In short, I will argue that New York Central was a mistake when it was decided, remains a mistake today, and should be explicitly overruled.

I fully appreciate that such an argument is unlikely to carry the day. Advocating for the reversal of a one hundred year old precedent that is the foundation for much of federal criminal jurisprudence and law enforcement policy is certainly a bit quixotic. Few precedents are so deeply entrenched and have been so repeatedly affirmed in subsequent decisions. Hence, the prospects of the judiciary succumbing to the force of my arguments are not good. (2) Nevertheless, the process by which society determines who should be subjected to criminal punishment should not be like jazz, which I once heard defined as the musical form in which one legitimizes a mistake by repeating it. Hence, to the barricades I must go.

1. MORAL RESPONSIBILITY

   Criminal law is penal law. Its purpose is punishment. It is not designed to compose disputes, provide compensation to wronged parties, or impose administrative sanctions. It is designed to punish.

   Criminal law's punitive purpose limits the range of application of its sanction to those persons and entities that can be deserving of punishment--to those capable of acting in a morally blameworthy way. (3) Consequently, moral responsibility is a necessary condition for the application of the criminal sanction. This explains why infants, the incompetent, and the legally insane are excluded from criminal punishment. A reasonable starting point for our analysis, then, is the question of whether corporations, (4) separate and apart from the individual human beings who comprise them, can be deserving of punishment. Are corporations morally responsible agents?

   An examination of the philosophical literature reveals that this is a matter of some controversy. Some scholars argue that moral responsibility can indeed be attributed to corporate entities. For example, Peter French argues that because corporations possess internal decision structures by which corporate policy is determined, corporations can be said to act intentionally whenever they act in accordance with the output of these decision structures. (5) This, he claims, is sufficient for corporations to constitute "full-fledged moral persons" that can be morally responsible for their actions. (6) Others have argued somewhat more modestly that although not full moral persons, corporations can be moral agents that can bear moral responsibility for their actions. Thus, Thomas Donaldson argues that corporations qualify as morally responsible agents because they have "[t]he capacity to use moral reasons in decision-making [and are] capable of controlling the structure of [their] policies and rules;" (7) Patricia Werhane argues that as the authors of the "secondary actions" that they authorize their agents to take, corporations "are and should be held morally responsible for actions within their control when ... they could have acted otherwise;" (8) and Michael J. Phillips argues that because corporations are capable of taking actions that no natural person can be said to have caused, intended, or been reckless or negligent with regard to, they are best understood as "real entities" capable of bearing moral responsibility. (9)

   Many other scholars argue that it is logically incoherent to attribute moral responsibility to corporations. (10) Manuel Velasquez presents a particularly compelling version of this argument. (11) Beginning with the observation that "[m]oral responsibility is the kind of causal responsibility that we attribute to an agent when the agent acts intentionally," (12) Velasquez argues that it is absurd to attribute moral responsibility to corporations because (1) corporations are not agents, (2) corporations are not causally responsible for the actions of their employees, and (3) corporations do not act intentionally. (13)

   For corporations to be agents, it must be the case that "the corporate organization is a real individual entity that acts on the world and that is distinct from its members." (14) Velasquez points out that the various arguments designed to establish that corporations are such real individual entities all rest on the demonstrably false premise that "[i]f X has properties that cannot be attributed to its individual members, then X is a real individual entity distinct from its members." (15) He notes that all collections of objects have properties that are not attributable to its individual members. For example, a pile of sand can be large even though no individual grain of sand is large. In fact, one commits the logical "fallacy of division" by attributing the characteristics of a collection to its members. Thus, although

   [M]any of the properties that can be attributed to a corporate group cannot be attributed to its individual members.... this fact does not turn the corporate organization into a new real individual entity any more than any random collection of objects is constituted into a new individual entity by the fact that it has characteristics that cannot be attributed to its members. (16) Velasquez further contends that the arguments designed to show that corporations can be causally responsible for the actions of their employees rest on a similarly fallacious assumption that because corporate actions are not the actions of any particular individuals, the corporations, and not their individual members, must be causally responsible for such actions. (17) He neatly demonstrates the fallacy contained in this assumption with the illustration of a child's wind up toy--the toy's actions are not the actions of the child, but the child who winds up the toy, and not the toy itself, is nevertheless causally responsible for the toy's movements. Velasquez points out that corporations can act only when the individuals who comprise them act. Thus, "where A is an organizational act that can be predicated truly of an organization, but not necessarily of any individual member, there is always some individual member or members of the organization [that] are causally responsible for A." (18)

   Velasquez recognizes that corporations can exert causal influences on their employees in the sense that "when individuals gather together in groups they can get each other, or lead each other, to behave in ways that none would engage in if she was acting alone." (19) But since this effect is fully explainable in terms of "the interior desires and beliefs of the individuals in the organization that are leading them to behave as they do," there is no need to postulate "some kind of ghostly organizational spirit that is present in the organization and that somehow exerts external pressures and forces on its members." (20)

   Finally, Velasquez argues that corporations can be said to act intentionally in a metaphorical sense only. He recognizes that "[i]ntentional properties, such as purposes and beliefs, can be attributed to groups on the basis of a pattern which the activities of its members exhibit." (21) But this does not mean that "the collection has real intentions in a literal sense." (22) We frequently speak of markets as "trying" to find a bottom, but that does not imply that the market is literally capable of intentional action. This situation is not altered by the fact that advocates of the moral responsibility of corporations frequently identify intentional corporate action with the results of the procedures and policies .that constitute a corporation's internal decision structure. As Velasquez points out, "there is nothing about procedures and policies that can enable them to transform a metaphorical intention into a real one. Procedures and policies, however simple or complex, cannot create group mental states nor group minds in any literal sense." (23) Hence, "we have no reason to abandon the intuitive and plausible view that group intentions are metaphorical, in favor of the counterintuitive view that group intentions are literal." (24)

   In my judgment, Velasquez and the other critics of corporate moral responsibility has much the better argument. If I am right about this, then we are done. Moral responsibility is a necessary condition for punishment. If corporations are not morally responsible agents, then corporations are not a proper subject of criminal punishment. There may be good reasons for holding them civilly liable for the torts of their employees, (25) for imposing regulations on their behavior, and for applying administrative sanctions to their regulatory violations, but there are none for punishing them. No theory of corporate criminal liability can justify punishing an entity that is not capable of morally blameworthy behavior. If Velasquez and the other critics are correct, then for the last one hundred years the American criminal justice system has been making a fundamental category mistake in visiting criminal punishment on corporations.

   As convincing as Velasquez's argument is, it would be ill-advised to let the argument against corporate criminal liability rest on it alone. In the...