Corporate criminal liability.

• Author: Crady, Ann
• Position: Eleventh Survey of White Collar Crime

1. INTRODUCTION II. CORPORATE CRIMINAL LIABILITY FOR AGENT ACTION

   1. Scope of Employment

   2. For the Benefit of the Corporation

   3. Significance of the agent's employment status

      1. Common Law Standard

      2. Model Penal Code Standard III. CORPORATE DEFENSES

   1. Compliance Programs

   2. Infeasibility IV. CORPORATE MENS REA

   1. Implications of management response to suspect activity by agents

   2. The Collective Knowledge Doctrine

1. INTRODUCTION

   The imposition of corporate criminal liability is an essential part of the regulatory process and is premised on the notion that it would be unjust to only punish individual corporate actors for criminal punishment when it is the corporate culture that is the origin of the criminal behavior.(1) Without corporate liability, many crimes would be insufficiently punished because the size and structure of many corporations makes it impossible to adequately allocate responsibility to individuals.(2)

   This article discusses the legal standards which allow an agent's acts to be imputed to the corporation for which he acts. Part II enumerates the elements of corporate criminal liability and discusses the significance of an agent's employment status with regard to imputation of liability to the corporation for the agent's actions. In Part II two corporate defenses to imputation of criminal liability for an agent's acts are discussed. Mens rea requirements for corporate criminal liability are discussed in Part IV, including the implications of management response to suspect activity by lower level agents and the collective knowledge doctrine.

2. CORPORATE CRIMINAL LIABILITY FOR AGENT ACTION

   A corporation may be held liable for the acts of its agents where an agent acts for the benefit of the corporation and within the scope of his employment.(3) This policy reflects the notion that because a corporation can only act through its agents, it should be bound by those who have been delegated authority to act on its behalf.(4) There are two basic requirements for imputation of an agent's acts to a corporation: the agent must act within the scope of his employment and must act for the benefit of the corporation. This section outlines these requirements and discusses whose actions can bind the corporation.

   1. Scope of Employment

      A corporation may be criminally liable for the acts of its agents, provided that such conduct is within the scope of the agent's authority.(5) An agent's scope of authority is broadly defined and includes acts done on behalf of the corporation and in performance of the agent's general line of work.(6) One case analogized that the agent who acts within the scope of his authority given to him by the corporation is deemed to be a spokesperson for the company and thus legally binds the corporation.(7)

      In the first Supreme Court case holding a corporation criminally liable, New York Central Railroad was convicted of violating the Elkins Act where a general and an assistant traffic manager paid rebates for shipments of sugar.(8) The court held that because the agents were authorized to establish rates at which freight should be carried, they acted within the scope of authority conferred upon them by the corporation and could criminally bind the corporation.(9) In a recent case, a corporation was convicted of violating obscenity laws where the corporation's president conspired to transport obscene videos in interstate commerce.(10) The president's unlawful acts could be imputed to the corporation because he was an "undisputedly authorized agent."(11)

      A corporation's liability extends to acts performed within the agent's apparent authority. Included in this definition is that authority which an outsider could reasonably assume that an agent would have "judging from his position within the company, and the responsibility previously entrusted to him, and the circumstances surrounding his past conduct."(12)

   2. Far the Benefit of the Corporation

      In order to impute an agent's acts to the corporation, the agent must act at least in part far the benefit of the corporation.(13) The requirement that an employee intend to benefit the corporation protects the corporation from criminal sanctions for actions which are inimical to its interests or which are undertaken solely for another's benefit.(14)

      [T]o say that acts done by servants actuated by such evil and specifically

      unlawful motives were the acts of the very corporations thus sought to be

      cheated or implicated in practices known to be in serious violation of law

      and, moreover, to impute not only accountability but "knowledge" of such acts

      to the corporations, would be to disregard every accepted notion of respondeat

      superior. (15)

      The "intent to benefit" requirement is satisfied by showing that the corporate agent originally acted in the corporation's interest.(16) A corporation will not absolve itself of responsibility by showing that it did not receive an actual benefit from the agent's actions.(17) Even where the agent acts primarily for his own benefit and secondarily for the benefit of the corporation, the corporation will be responsible for its agent's acts so long as he acted within the scope of his employment.(18)

      Some courts use a "respondeat superior" theory of corporate criminal liability, under which the "intent to benefit" requirement is subsumed by the "scope of employment" inquiry.(19) In this view, the "servant's conduct" is within the scope of employment if his conduct is "the kind which he is authorized to perform, occurs substantially within the authorised limits of time and space, and is actuated at least in part, by a desire to serve the master."(20) This view mirrors agency law, which says that an act is not within the scope of employment if there "is no intention to perform it as a part of or incident to a service on account of which [the agent] is employed."(21)

      A significant number of circuit courts follow this analytical approach to determining corporate liability and define acting within the scope of agency as including an intent to benefit the corporation.(22) Other circuits treat the "scope of employment" and the "intent to benefit" standards as independent standards, both of which must be shown to impute the acts to the corporation.(23) This different approach among the circuits is only of theoretical importance; there is agreement that in a criminal setting, the knowledge a corporate agent obtains while not acting with any intent to benefit the corporation will not be imputed to the corporation.(24)

   3. Significance of the agent's employment status

      1. Common Law Standard

         According to the common law, an agent's employment status is not a determinative variable in deciding whether his acts can be imputed to the corporation.(25) The most important consideration is whether the agent, no matter what his job title, acted within the scope of his employment and for the benefit of the corporation.(26) This standard reflects the fear that looking to employment status would allow a corporation to insulate itself from liability by delegating illegal acts to lower echelon employees. As one court expressed: "stringent standards must be adopted to discourage any attempt by `endocratic' corporations' executives to place the sole responsibility for criminal acts on the shoulders of their subordinates. "(27) Although the imposition of corporate liability does not spare the agent from individual liability, it forces the company to share the responsibility.(28) Examples of agents whose acts have been imputed to the corporation include a CEO and president,(29) a comptroller,(30) a low level salesmen,(31) a local branch manager,(32) a clerical worker,(33) and a truck driver.(34)

      2. Model Penal Code Standard

         The Model Penal Code establishes a more limited basis of liability than that developed in the federal courts.(35) In a jurisdiction following the Model Penal Code, a corporation may be criminally liable for its agent's acts where the illegal acts are codified or where "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 office or employment."(36) This standard recognizes inherent differences between acts of different level corporate agents and conditions liability accordingly.

         Under the Code, where no statutory scheme establishes corporate liability for the acts of its agents, a corporation may escape criminal liability if it can show that the high managerial agents with supervisory power over the subject matter of the offense employed due diligence to prevent its commission.(37) Conditioning liability on the actions or omissions of "high managerial officials"(38) assures that the commission of the illegal act reflects corporate policy, intent or character by virtue of the actor's position in the company.(39) One commentator reasoned that the Code reflects the belief that upper-level managers are the "mind" of the corporation while lower-level employees are the "hands."(40) The Code scheme seeks to minimize corporate liability where the hands acted without an "order from the brain."(41)

         Although many states have codified corporate criminal liability rules patterned after the Model Penal Code, few have incorporated it without significant change.(42) Of the twenty one states which have judicially or legislatively recognized a "high managerial agent" distinction, only eight define the term as restrictively as does the code.(43)...