Corporate criminal liability.

• Author: Bajkowski, Sean
• Position: Twelfth 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 MENS REA

   1. Implications of Management Response to Suspect Activity by Agents

   2. The Collective Knowledge Doctrine IV. CORPORATE DEFENSES

   1. Compliance Programs

   2. Infeasibility

1. INTRODUCTION

   While at one time there was a great deal of resistance to the notion of holding corporations criminally liable for the illegal actions of their employees,(1) in recent years the number of criminal prosecutions against corporations has increased dramatically.(2) The prevalent view today is that corporate criminal liability is an essential part of the regulatory process and is premised on the notion that it would he unjust to only punish individual corporate actors for criminal behavior when its origin is the corporate culture.(3) Without corporate liability, many crimes would he insufficiently punished because the size and structure of corporations makes it impossible to adequately allocate responsibility to individuals.(4)

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

2. CORPORATE CRIMINAL LIABILITY FOR AGENT ACTION

   In order for a corporation to he criminally liable for the illegal acts of its employees two conditions must be satisfied. The act must have been (1) for the benefit of the corporation and (2) within the scope of the actor's employment.(5) Some jurisdictions require a third element that the actor must be a "high managerial agent."(6) 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.(7) 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 agents' authority.(8) The scope of an agent's authority is broadly defined and includes acts done on behalf of the Corporation and in performance of the agent's general line of work.(9) One case analogized an agent acting within the scope of his authority to a spokesperson for the company capable of legally binding the corporation.(10)

      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.(11) 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.(12) In another recent case, a corporation was convicted of violating obscenity laws where the corporation's president conspired to transport obscene videos in interstate commerce.(13) The president's unlawful acts could be imputed to the corporation because he was an "undisputedly authorized agent."(14)

      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."(15)

   2. For the Benefit of the Corporation

      In order to impute an agent's acts to the corporation, the agent must act at least in part for the benefit of the corporation.(16) 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.(17) As one court pronounced,

      [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.(18)

      The "intent to benefit" requirement is satisfied by showing that the corporate agent originally acted in the corporation's interest.(19) A corporation will not absolve itself of responsibility by showing that it did not receive an actual benefit from the agent's actions.(20) Even where the agent acts primarily for his own benefit, with a secondary benefit flowing to the corporation, the corporation will be responsible for his acts so long as he acted within the scope of his employment.(21)

      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.(22) 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 authorized limits of time and space, and is actuated at least in part, by a desire to serve the master."(23) This view mirrors agency law, which states 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."(24)

      A significant number of circuit courts follow this analytical approach to determining corporate liability and define acting within the scope of agency as necessarily including an intent to benefit the corporation.(25) Other circuits treat the "scope of employment" and the "intent to benefit" standards independently requiring both to be shown before imputing the acts to the corporation.(26) This different approach among the circuits is mainly of theoretical importance, however, as 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.(27)

   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.(28) This rule is adhered to in the federal court system and in those states which have not added such a restriction either by statute(29) or by modifying the common law.(30) The only important considerations are whether the agent acted within the scope of his employment and for the benefit of the corporation, regardless of his job title.(31) Such a 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 stated, "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."(32) Although the imposition of corporate liability does not spare the agent from individual liability, it forces the company to share the responsibility.(33) Examples of agents whose acts have been imputed to the corporation include a CEO and president,(34) a comptroller,(35) a low level salesmen,(36) a local branch manager,(37) a clerical worker,(38) and a truck driver.(39)

      2. Model Penal Code Standard

         The Model Penal Code (the "Code") establishes a more limited basis of liability than that developed in the common law by adding a third requirement for liability in most cases.(40) In a jurisdiction which has adopted the Model Penal Code, a corporation may be criminally liable for its agent's acts in three ways. First, the employment status of the employee is immaterial in two limited areas: where the legislature clearly intended to impose liability upon corporations irrespective of employment status,(41) or when the corporation omits to perform an affirmative duty.(42) In all other circumstances, however, a corporation may be held liable only if the act was "authorized, requested, commanded, performed, or recklessly tolerated by the board of directors or by a high managerial agent."(43) Thus, for the majority of crimes, the Code imposes a third element necessary for the imposition of corporate criminal liability in addition to the "scope of employment" and "intent to benefit" requirements. Such a standard recognizes the inherent differences between acts of agents at different corporate levels and conditions liability accordingly.

         Under the Code, where no statutory scheme establishes corporate liability the acts of its agents, a corporation may escape criminal liability if it can show the agents with supervisory power over the subject matter of the offense employed due diligence to prevent its commission.(44) Conditioning liability on the actions omissions of "high managerial officials"(45) assures that the commission of the illegal act reflects corporate policy, intent, or character by virtue of the actor's position in the company.(46) One commentator reasoned that the Code reflect the belief that upper-level managers are the "mind" of the corporation, while lower-level employees are its "hands."(47) The Code scheme seeks to minimize...