Corporate criminal liability.

AuthorLewis, Brian
PositionAnnual Survey of White Collar Crime
  1. INTRODUCTION II. THE LAW OF CORPORATE CRIMINAL LIABILITY A. Corporations Are Only Liable for the Acts of Employees if the Employees Are Acting Within the Scope and Nature of Their Employment B. A Corporation Will Not Be Liable for the Acts of Its Employees Unless Those Actions Are Designed to Benefit the Corporation C. To Hold a Corporation Liable for the Acts of Its Employees, a Court Must Impute the Intent of the Individuals to the Corporation 1. Conspiracy 2. Mergers, Dissolutions, and Liability 3. Misprision of Felony 4. The Willful Blindness Doctrine 5. The Collective Knowledge Doctrine III. DEPARTMENT OF JUSTICE ENFORCEMENT POLICIES A. Controls on Prosecutorial Discretion B. Deferred Prosecution Agreements and Non-Prosecution Agreements IV. ORGANIZATIONAL SENTENCING GUIDELINES A. Introduction: Purpose and Scope of the Organizational Guidelines 1. General Principles 2. Organizations Covered by Chapter Eight of the Guidelines 3. Purpose and Effect of the Organizational Guidelines B. Guidelines Provisions: Offenses Covered and Sanctions Permitted 1. Remedies 2. Probation 3. Imposition of Fines a. Base Offense Level b. Base Fine c. Culpability Score i. Calculation: Increasing Factors ii. Calculation: Decreasing Factors (1) Effective Corporate Compliance Programs (2) Cooperation d. Multipliers e. Disgorgement f. Implementation g. Departures 4. Deferred Prosecution Agreements I. INTRODUCTION

    Corporate criminal liability developed as courts struggled to overcome the problem of assigning criminal blame to fictional entities in a legal system based on the moral accountability of individuals. (1) Courts began with the civil law- based doctrine of respondent superior (2) and gradually injected aspects of the criminal law, such as hearings and sentencing, into cases with corporate defendants. (3) This practice, however, raises theoretical questions because corporations can act only through individuals and not independently. (4) Although criminal prosecution of corporations is guided by recognized principles, many prosecutors still proceed against corporations with great caution, persuaded by the argument that punishing a corporation in effect punishes innocent stockholders and employees. (5)

    In response to increasing public outrage over corporate scandals at the turn of the century, Congress passed the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). (6) Although Sarbanes-Oxley exposes corporations to increased criminal liability, most investigations and prosecutions have targeted the wrongdoing of individual officers instead of the corporations for which they. (7) While recognizing that corporations will be subjected to criminal liability in a small percentage of cases, the Department of Justice ("DOJ") still insists that prosecutors seek indictments against companies guilty of corporate wrongdoing. (8) However, the DOJ has become increasingly willing to use deferred prosecution agreements ("DPAs") and non-prosecution agreements ("NPAs") as alternatives to criminal prosecution. (9) The government will be more likely to prosecute when a corporation impedes or obstructs a federal investigation. (10)

    Acting in response to the global financial crisis of 2008-2009, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") in July 2010. (11) Dodd-Frank introduced significant changes to financial regulation, changing more than two dozen criminal offenses, extending criminal liability to additional types of financial instruments (such as swaps), and criminalizing other conduct for the first time. (12)

    A broad range of principles guides the law of corporate criminal liability. These principles are outlined in the remainder of this Article. Section II of this Article describes the three elements required to incur corporate criminal liability. Section III addresses federal prosecutorial discretion and the government's increasing use of DPAs and NPAs. Section IV addresses the United States Sentencing Guidelines' ("Guidelines") mechanism for sentencing organizations, including the requirements of Dodd-Frank and Sarbanes-Oxley, (13) and the effect of the Supreme Court's decision in United States v. Booker. (14)


    A corporation has no physical existence and can be held vicariously criminally liable for the acts, omissions, or failures of employees acting as agents. (15) The nature of incorporeal legal entities requires courts to look to employees of the corporation as a means of imputing intent, or mens rea, (16) as well as the guilty act, or actus reus, (17) to the corporation. Courts hold a corporation vicariously liable for the acts of its employee if: (i) the individual acted within the scope and nature of his employment; (18) (ii) the individual acted, at least in part, to benefit the corporation; (19) and (iii) the act and intent of the individual can be imputed to the corporation. (20)

    1. Corporations Are Liable for the Acts of Employees Only if the Employees Are Acting Within the Scope and Nature of Their Employment

      For a corporation to be liable for the illegal behavior of an employee, the employee must be acting within the scope of his or her employment. (21) The scope of an individual's employment is often broadly interpreted. One commentator has noted that a corporation will be vicariously guilty whenever an agent commits a crime related "in almost any way" to the agent's employment. (22) The requirement that an agent must act in the scope of his or her employment is met if the employee has actual or apparent authority to engage in the act in question. (23) Actual authority attaches when a corporation knowingly and intentionally authorizes an employee to act on its behalf, (24) whereas an employee is acting with apparent authority if a third party reasonably believes the agent has the authority to perform the act in question. (25) In either case, the government bears the burden of demonstrating the existence of the agency relationship. (26)

      Beyond this general framework, the question of whether an employee acted within the scope of his or her authority depends on the jurisdiction. In federal courts, a corporation may be liable for the actions of its agents regardless of the agent's position within the corporation. (27) The decision to impute liability is based on a fact-specific inquiry. (28) Federal courts have found that an employee's act can bind the corporation even where the corporation has implemented policies explicitly prohibiting the behavior in question; (29) however, corporations that prove they established corporate policies in an effort to reduce crime may qualify for a reduced penalty. (30)

      The Model Penal Code ("the Code") provides two standards for imputing corporate liability for employee behavior, depending on the source of liability. (31) First, the actions of any agent of the corporation may be imputed to the corporation if liability is imposed by statute and if "a legislative purpose to impose liability on corporations plainly appears" in the statute. (32) Second, in the absence of such a statutory provision, liability is imposed only if "the commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his or her office or employment." (33) Thus, the assignment of liability depends on the classification of the actors as agents (34) versus high managerial agents. (35)

      Many states have adopted specific statutory language limiting liability to criminal acts committed by "high managerial agents." (36) Some states have developed similar requirements through common law doctrine rather than through statutory enactments. (37) In some states, the corporation may be liable for employee actions even if the corporation's directors, officers, or other high managerial agents did not specifically approve of the employee's behavior. (38)

      Barring any statutory modification, the Code allows a corporation to avoid liability only if it demonstrates that supervisory agents with power over the area in which the offense took place acted with due diligence to prevent the commission of a crime. (39)

    2. A Corporation Will Not Be Liable for the Acts of Its Employees Unless Those Actions Are Designed to Benefit the Corporation

      The second element of corporate criminal liability requires that the employee acted to benefit the corporation. (40) The corporation need not have actually received a benefit; the employee's mere intention to bestow such benefit suffices. (41) Courts may find this intent manifested whenever the employee's actions are favorable to the interests of the corporation. (42) in addition, as courts recognize that many employees act primarily for their own personal gain, it is not necessary that the employee be primarily concerned with benefiting the corporation. (43)

      Furthermore, liability may be imputed to a corporation even when the agent violated a company policy. (44) However, acts committed by an employee that are expressly contrary to the interests of the corporation and for which the corporation derives no benefit, cannot subject the corporation to criminal liability. (45) In addition, a corporation may avoid liability when an employee's actions constitute a breach of fiduciary duty to the corporation. (46)

    3. To Hold a Corporation Liable for the Acts of Its Employees, a Court Must Impute the Intent of the Individuals to the Corporation

      The final element necessary to hold a corporation liable is that the act and intent of the agent can be imputed to the corporation. This Section addresses a number of ways in which courts have traditionally imputed intent. In particular, this Section will describe: (i) conspiracy; (ii) liability after mergers or dissolutions; (iii) misprision of felony; (iv) the willful blindness doctrine; and (v) the collective knowledge doctrine.

      1. Con...

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