Corporate criminal liability.

Author:Hyewon, Han
Position:Twenty-Second Annual Survey of White Collar Crime
 
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  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. Conspiracies 2. Mergers, Dissolutions, and Liability 3. Misprision of Felony 4. The Willful Blindness Doctrine 5. The Collective Knowledge Doctrine III. ORGANIZATIONAL SENTENCING GUIDELINES A. Introduction: Purpose and Scope of the Organizational Guidelines 1. Controls on Prosecutorial Discretion 2. General Principles 3. Organizations Covered by Chapter 8 of the Guidelines 4. 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 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 respondeat superior (2) and gradually injected aspects of the criminal law, such as hearings and sentencing, into the abstract nature of the corporation. (3) Although criminal prosecution of corporations is guided by recognized principles, many prosecutors still proceed against corporations with great discretion, persuaded by the argument that punishing a corporation in effect punishes innocent stockholders. (4)

    However, recent corporate scandals led to increased public outrage and culminated in the passage of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). (5) Although Sarbanes-Oxley exposes corporations to increased criminal liability, most investigations and prosecutions have targeted the wrongdoing of individual officers instead of prosecuting corporations. (6) While recognizing that corporations will be subjected to criminal liability in a small percentage of cases, the Department of Justice insists that prosecutors seek indictments against companies guilty of corporate wrongdoing. (7) The government will be especially likely to prosecute when a corporation has obstructed a federal investigation. (8)

    A broad range of principles guides the law of corporate criminal liability. These principles are outlined in the remainder of this Article. Part II of this Article describes the three elements required to incur corporate criminal liability. Part III of this Article addresses the United States Sentencing Guidelines' mechanism for sentencing organizations, including the requirements of Sarbanes-Oxley and the effect of the recent Supreme Court decision, United States v. Booker. (9)

  2. THE LAW OF CORPORATE CRIMINAL LIABILITY

    A corporation may be held criminally liable for the acts, omissions, or failures of an agent acting within the scope of his employment. (10) The nature of incorporeal legal entities requires courts look to employees of the corporation as a means of imputing intent, or mens rea, (11) as well as the guilty act, or actus reus, (12) to the corporation. Courts hold a corporation vicariously liable for the acts of its employees if the individual: (i) acted within the scope and nature of his employment; (13) (ii) acted, at least in part, to benefit the corporation; (14) and (iii) the act and intent can be imputed to the corporation. (15)

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

      For a corporation to be liable for the illicit behavior of an employee, that employee must be acting within the scope of his or her employment. (16) This requirement is met if the employee has actual or apparent authority to engage in the act in question. (17) Actual authority attaches when a corporation knowingly and intentionally authorizes an employee to act on its behalf. (18) An employee is acting with apparent authority if a third party reasonably believes that the agent has the authority to perform the act in question. (19) The government bears the burden of demonstrating the existence of any agency relationship. (20)

      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. (21) The decision to impute liability is based on a fact-specific inquiry. (22) Federal courts have found that an employee's act can bind the corporation even where the corporation has implemented policies explicitly prohibiting the behavior. (23) However, corporations that prove they established corporate policies in an effort to reduce crime may qualify for a reduced penalty. (24)

      The Model Penal Code ("Code") provides two standards for imputing corporate liability for employee behavior, depending on the source of liability. (25) 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. (26) 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 on behalf of the corporation within the scope of his or her office or employment." (27) Thus, the assignment of liability depends on the classification of the actors as agents (28) versus as high managerial agents. (29)

      Many states have adopted specific statutory language limiting liability to criminal acts committed by "high managerial agents." (30) Some states have developed similar requirements through common law doctrine rather than through statutory enactments. (31) 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. (32)

      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. (33)

    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. (34) The corporation need not have actually received a benefit; the employee's mere intention to bestow such benefit suffices. (35) Courts may find this intent manifested whenever the employee's actions are favorable to the interests of the corporation. (36) In addition, it is not necessary that the employee be primarily concerned with benefiting the corporation, as courts recognize that many employees act primarily for their own personal gain. (37)

      Liability may be imputed to a corporation even when the agent violated a company policy. (38) 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. (39) In addition, a corporation may avoid liability when an employee's actions constitute a breach of fiduciary duty to the corporation. (40)

    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 must 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) the misprision of felony doctrine; (iv) the willful blindness doctrine; and (v) the collective knowledge doctrine.

      1. Conspiracies

        A corporation may be liable for a conspiracy to commit a criminal act by its employees, or for conspiracies involving one employee and others not employed by the corporation. (41) Conspiracies have traditionally been defined as conduct by two or more persons who agree to commit an offense, with one or more of those persons taking affirmative action to further the goals of the conspiracy. (42) There is some disagreement among Circuit Courts regarding whether a corporation may conspire with its own employee(s). (43) The "intracorporate conspiracy doctrine" declares that because a conspiracy requires an agreement between two or more distinct persons, and because a company is a single entity made up of its employees, it may not be convicted of conspiring with its own employees. Otherwise, the corporation would be guilty of conspiring with itself. (44) Most courts have declined to extend the "intracorporate conspiracy doctrine" to criminal cases, stating that to do so would shield corporations from liability. (45) However, the rule is not universal, and there is no definitive Supreme Court ruling on the matter. (46)

      2. Mergers, Dissolutions, and Liability

        Corporations can be criminally liable for the prior wrongdoing of a target corporation after a merger or consolidation. (47) To determine whether a corporation can be liable for the acts of its predecessor, federal courts will apply state corporation law governing successor...

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