Corporate criminal liability.

• Author: Hall, Joseph S.
• Position: Thirteenth Survey of White Collar Crime

1. INTRODUCTION

   While the concept of corporate criminal liability is far from new,(1) greater efforts at enforcement(2) have recently been prompted by changes in the structure of health care systems,(3) changes in public attitudes towards white collar crime,(4) increases in enforcement of environmental regulations,(5) and a rise in corporate crime. In addition to litigating claims, government efforts such as the Sentencing Guidelines(6) have forced many corporations to settle claims and avoid embarrassing lawsuits by paying stiff sanctions. In some cases, corporations have been forced to adopt stricter compliance programs in order to detect and prevent other crimes.(7) In a recent survey, seventy-five percent of executives stated that the fear of criminal liability had prompted them to create compliance programs to reduce exposure to liability.(8)

   This Article outlines the elements of corporate criminal liability as well as recent trends in the area. For a corporation to be liable for the acts of an individual: (1) the individual must be acting within the scope of her employment; (2) the individual must be acting to benefit the corporation; and (3) the act and intent must be imputed to the corporation. Part II describes when courts consider an individual to be acting within the scope of employment Part III addresses the traditional requirement that an agent's activity benefit the company. Part IV explores the means courts have used to impute actions and mental states to corporations. Part V discusses various sentencing issues and defenses that a corporation might raise in the face of criminal charges. Finally, Part VI examines corporations' use of compliance programs to limit their exposure to liability and to discover their own criminal acts.

2. CRIMINAL LIABILITY FOR AGENT ACTION: SCOPE AND NATURE OF EMPLOYMENT

   In 1909, the Supreme Court ruled, for the first time, that a corporation could be held criminally liable for the acts, omissions, or failures of an agent acting within the scope of his employment.(9) More recent cases have stated that a corporation will be liable for the illegal acts of its employees if the employees act within the scope of their authority and intend to benefit the corporation.(10)

   Criminal violations normally entail two elements, actus rea and mens rea. Since corporations are purely incorporeal legal entities and cannot possess any mental state, courts have looked to employees of the corporation as a means of imputing intent, mens rea, to a corporation.(11)

   For a corporation to be liable, the employee committing the illicit act must be acting within the scope of her employment.(12) This requirement is met if the employee has actual or apparent authority to engage in the particular act in question.(13) Actual authority attaches when a corporation knowingly and intentionally gives authority to an employee.(14) Apparent authority is satisfied if a third party reasonably believes that the agent has the authority to perform the act in question.(15) Courts have construed actual authority to include a broad class of behaviors that might not necessarily be condoned by the corporation but are nonetheless within the scope of the agent's authority.(16)

   Different sources of law and different factual contexts have determined whether or not a court will impute the intent and acts of an individual to the corporation. Thus, the rest of this section addresses common law rules of agency, the Model Penal Code, corporate attempts to limit agent actions, and independent contractors.

   1. The Common Law

      Federal common law has held continually that corporations can be liable for the actions of their agents regardless of the agent's position within the corporation.(17) Many states have adopted specific statutory language dealing with corporations which requires criminal acts be committed by "high managerial agents" in order to trigger liability.(18) Some states, however, have adopted the rule that actions taken by a corporation's agents need not have been ratified by the corporation's directors, officers, or other high managerial agents in order to be chargeable to the corporation.(19)

   2. The Model Penal Code

      The Model Penal Code ("Code") advocates a stricter standard than traditional common law. The Code requires as an additional third element that the commission of the offense be "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."(20) Such a standard distinguishes between the ability of managerial employees and lower employees to understand and prevent crime. However, this does not allow a corporation to escape directly imposed statutory liability.(21)

      Barring any statutory imposition, the Code enables a corporation to evade liability if it can demonstrate that supervisory agents(22) with power over the area in which the offense took place acted with due diligence to prevent its commission.(23)

   3. Employee Actions Prohibited by the Corporation

      An employee's act can bind the corporation even where the corporation has implemented policies explicitly prohibiting the behavior.(24) While corporate policy may help employees determine the legality of their actions, it does not shield a corporation from liability when an employee contravenes the policy.(25) Corporations which prove that they established corporate policies in efforts to reduce crime may qualify for a reduced penalty.(26) Such policies aimed at preventing crime are usually part of a larger compliance program designed to insulate the company from liability, but they do not prevent a court from finding criminal liability.

   4. Independent Contractors

      Courts have held that independent contractors may act for the benefit of the corporation thereby exposing it to criminal liability.(27) The rationale presumably lies in preventing corporations from avoiding liability by simply contracting-out the more risky elements of their business.

      In United States v. Parfait Powder Puff Co.,(28) the defendant entered into an independent contractor agreement in which the contractor would manufacture and distribute the defendant's cosmetic products.(29) Unbeknownst to the defendant, the contractor used ingredients that had not been approved under the Food, Drug and Cosmetic Act.(30) The defendant argued that since the contractor, and not the defendant company, had committed the crime, the defendant corporation should not be liable. The Seventh Circuit rejected these arguments stating that these were the risks the corporation bore when it assigned manufacturing and distribution responsibilities to the contractor.(31)

3. BENEFITTING THE CORPORATION

   The second element of corporate criminal liability requires that the employee act to benefit the company. For this requirement, the corporation need not actually receive a benefit; the employee's mere intention to bestow a benefit suffices.(32) It is also unnecessary that the employee be primarily concerned with benefitting the corporation since many employees act with their own personal gain foremost in mind.(33) In some cases courts have held that an agent acting against a corporation's express instructions or policies can impute liability to the corporation even if the corporation derives no actual benefit from the action.(34)

   However, acts committed by an agent which are expressly contrary to the interests of the corporation, cannot bind the corporation for purposes of criminal liability. In Standard Oil Co. v. United States,(35) the Fifth Circuit refused to uphold the conviction of the corporation since the agents who committed the criminal acts were acting for the benefit of a third party. As the court stated: "the corporation does not acquire that knowledge or possess the requisite `state of mind essential for responsibility,' through the activities of unfaithful servants whose conduct was undertaken to advance the interest of parties other than their corporate employer."(36) Thus, a corporation may avoid liability when an employee acts in breach of the employee's fiduciary duty to the corporation.(37)

4. IMPUTING KNOWLEDGE AND ACTION TO THE CORPORATION

   Courts have devised a number of theories which allow them to impute knowledge and action from individuals to the corporation. This Section addresses the collective knowledge doctrine, the willful blindness doctrine, conspiracies, and the possibility of imputing liability to corporations after mergers or dissolutions.

   1. Collective Knowledge Doctrine

      Federal courts have found corporations liable even when there was no single employee at fault. The so-called "collective knowledge" doctrine permits the prosecution of a corporation if its employees collectively knew, or reasonably should have known, that a criminal violation existed.(38) The apparent rationale behind this doctrine is a desire to prevent corporations from evading liability by compartmentalizing and dividing duties such that the corporation could plead ignorance in the face of any criminal prosecution.(39)

   2. Willful Blindness Doctrine

      Corporations also can be criminally liable for deliberately disregarding criminal activity. This "willful blindness doctrine" usually is applied to situations in which a corporate agent became suspicious of a criminal violation, but in order to avoid culpability took no action to mitigate or investigate further. The deliberate avoidance of such investigation will subject a party to liability.(40)

      United States v. Bank of New England, N.A.,(41) illustrates this doctrine. There, the bank failed to file properly the federal form required when an individual makes a series of withdrawals on the same day.(42) The First Circuit upheld the conviction and jury instructions stating that a corporation could be liable if it willfully and knowingly disregarded the required filing and subsequently remained consciously indifferent to...