Comparative corporate criminal liability: exploring the uniquely American doctrine through comparative criminal procedure.

AuthorDiskant, Edward B.

NOTE CONTENTS INTRODUCTION I. COMPARATIVE CORPORATE CRIMINAL LIABILITY A. The United States B. Germany C. Comparison 1. The Criminal Theorist's Account 2. The Functionalist Account 3. Enron "couldn't happen here" 4. The "European Efficiency" Account D. Summary II. THE COMPARATIVE CRIMINAL PROCEDURE ACCOUNT A. The Evidentiary Differences B. Prosecutorial Powers C. Finishing the Explanation: How the American System Works in Practice 1. The Thompson Memorandum and the Use of "Deferred Prosecution Agreements" 2. The American Outcome and Its Surprising Similarity to the German Outcome CONCLUSION INTRODUCTION

In post-Enron America, corporations are under attack. Increasing regulation and oversight, the threat of derivative shareholder suits, and the prospect of personal liability for corporate directors have created an atmosphere of constant risk for corporations, one decried by an increasingly vocal band of corporate leaders, legal scholars, (1) and practitioners. (2) At the core of that criticism, however, is the area of arguably greatest risk to corporations in modern America: criminal prosecution. In the United States, corporations--as entities--can be criminally tried and convicted for crimes committed by individual directors, managers, and even low-level employees. The risk of indictment alone is devastating: a criminal indictment promises a swift market response, the ouster of leadership, millions of dollars in legal fees, and, of course, the possibility of conviction. Such a conviction would lead not only to any criminal penalties imposed (usually a heavy fine), but also to what others have termed "collateral consequences"--devastating financial and reputational repercussions that can, and do, force companies out of business. (3) As a result, it is common wisdom within the business community that a conviction amounts to a potentially lethal blow for a corporation, (4) one from which the corporation may not recover even if it is actually innocent--just ask the former employees of Arthur Andersen. (5)

Corporate criminal liability has become the subject of piqued criticism not only here but also in the international business community. From a comparative perspective, such liability marks the United States as relatively unique. Few other Western countries impose entity liability, and those that do impose it comparatively infrequently and under the threat of far less serious punitive consequences. In countries like France and Germany, for example, the principle of societas delinquere non potest--"a legal entity cannot be blameworthy"--long prevented imposition of entity criminal liability at all. (6) More recently, France and several other European nations have cautiously experimented with corporate criminal liability. (7) Germany has held fast in refusing to punish criminally corporations for the acts of their individual directors or employees. (8)

The question of why the United States--and the United States virtually alone--imposes such significant corporate criminal liability has been the subject of limited scholarly attention. Those who have studied the field espouse varying rationales for America's unique position. Some have argued that the American system grew out of the common law tradition, one that historically embraced the legal fiction--prevalent in corporate law--of the business entity as a separate being. (9) Others have focused on the Continental system's use of administrative regulations and civil law remedies to hold corporate malfeasance in check, arguing that those approaches are the functional equivalent of criminal liability in America. (10) Finally, and more broadly, some have suggested that American punishment of white-collar crime is but another manifestation of this country's more general penchant for overcriminalization and harsh punishment of crime--harsh, that is, in comparison to other countries like Germany. (11)

Each of these explanations is surely right, at least in part, and yet each is just as surely incomplete. For example, Germany and France regulate corporate behavior largely through administrative and civil laws, but so does the United States. What makes America so unique is that it imposes significant criminal liability in addition to those administrative and civil regulations. Similarly, while it is certainly true that American law developed out of the common law tradition, one that has never embraced societas delinquere non potest, the United States has embraced a far more aggressive and far-reaching form of corporate criminal liability than any other common law country, most notably England. (12) Indeed, corporations today routinely take refuge from the harsh American regulatory system by listing themselves, not in a Continental law market, but on the London Stock Exchange. (13)

What, then, if anything, can explain the uniquely American propensity to hold corporations criminally liable and to maintain the fiction of entity culpability? This Note attempts to answer that question by placing corporate criminal liability within the broader context of the nation's criminal justice system. Comparing the United States to Germany, this piece argues that corporate criminal liability is not so much the result of increased American interest in penalizing or regulating corporate behavior but rather a unique response to, and manipulation of, American criminal procedure and the process by which the American criminal justice system operates.

The argument proceeds as follows: in the United States, criminal defendants enjoy significant procedural protections that are either unavailable or available in more limited form in Germany. The American Constitution of course affords all criminal defendants a bevy of protective rights that make it more difficult for prosecutors to interrogate a defendant or uncover evidence. (14) In the context of white-collar crime in particular, the protection of greatest significance is the corporate attorney-client privilege, a privilege that has been read expansively by American courts to shield virtually any conversation between in-house counsel and employees related to their work. (15)

Moreover, American defendants engaged in an adversarial system are guaranteed the assistance of defense counsel, who in turn are given significant tools to slow an investigation, block the admissibility of evidence, and combat a conviction at every stage of the proceeding. These difficulties, much like the evidentiary burdens, are only exacerbated in the context of white-collar criminal proceedings, in which the underlying facts are likely to be particularly complex, the investigations particularly time consuming, and the defense counsel particularly skilled.

But, in return, the American system gives prosecutors tools that simply are not available to prosecutors in countries like Germany: American prosecutors have the power to determine whether to bring charges, and if so, what charges to bring. Moreover, those prosecutors can negotiate plea bargains and demand that defendants cooperate with an investigation in return. It is by exercising those powers that corporate criminal liability comes into play in the American system: by threatening corporations with the prospect of criminal prosecution, prosecutors force them to plead guilty and then to cooperate in attempts to prosecute and convict individual corporate directors and employees. (16)

Cooperation, in turn, often involves taking steps to help prosecutors convict the individual employees also under investigation. Under the guise of "cooperation," federal prosecutors have compelled corporations to waive the attorney-client privilege, to complete thorough internal investigations and turn over any results to prosecutors, and perhaps most controversially, to cut off the advancement of attorneys' fees to individual employees under investigation. (17) Not surprisingly, therefore, when a corporation pleads guilty and cooperates, prosecuting the employees at the center of alleged corporate fraud becomes remarkably easier.

This Note thus argues that corporate criminal liability in the United States has developed, at least in significant part, because of the acts of American prosecutors. Conceptualizing corporate criminal liability in the United States as a tool used by prosecutors to manipulate unique aspects of American criminal procedure in an attempt to convict individual employees both helps to explain why it has taken on such a prominent role in the American adversarial system and why it has not similarly blossomed in so many European ones. Indeed, characterizing entity liability as a prosecutorially driven doctrine explains both its rapid growth in application and the vitriol it inspires in the business community--attributes that do not attach to corporate criminal liability in even those foreign countries that have vibrant doctrines of entity liability. (18)

To make its case, this Note will directly compare the systems of the United States and Germany. While a number of European nations could serve as appropriate foils to the American regime, for the purposes of this discussion, Germany serves as a particularly apt model for comparison. France, England, Italy, and several other European countries have recently begun cautiously to experiment with corporate criminal liability, but Germany has remained steadfast in refusing to hold corporations criminally liable. The contrast between the German and American systems, thus, is most stark, providing the ideal basis for this comparative project. (19)

Relying on that stark contrast, this Note argues that the differences between the American and German systems do not stem primarily from different conceptions of what constitutes a crime but rather from the very different criminal justice systems that the two countries employ. It shall take as its starting point the fact that both countries adopt traditional conceptions of white-collar crime; fraud, for example, is...

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