Corporate criminal liability.

• Author: Beck, Matthew E.
• Position: Annual white collar crime survey

1. INTRODUCTION

   While the common law concept of corporate criminal liability is not new(1), it is anything but straightforward.(2) In the early sixteenth and seventeenth centuries, courts grappled with the difficulty of charging crimes to a fictional being. Additionally, the common law had to expand its concept of moral blame to include mind-less entities as potential violators, and criminal procedure had to reconcile new requirements (e.g., appearing for a hearing or serving out a sentence) with the non-corporeal nature of the corporation.(3) While corporations have long faced liability in civil actions for the acts of their employees under the doctrine of respondeat superior,(4) it was not until 1909 that the United States Supreme Court extended the corporate liability concept into the criminal arena.(5)

   Since 1909, the development of corporate criminal liability doctrines and federal sentencing procedures has created two new difficulties. First, federal judges initially enjoyed broad discretion in the sentencing process. Prior to the development of the United States Sentencing Guidelines ("Guidelines"),(6) this discretion resulted in significant inconsistencies in the penalties imposed for similar offenses.(7) In the corporate criminal context the inconsistencies added a great deal of undesirable uncertainty to the corporate decision-making process. Corporations had to evaluate the costs and benefits of implementing compliance programs to discover acts of wrongdoing, and such analysis was complicated by the discrepancies in penalties. Second, the common law of corporate criminal liability developed such that, even if a corporation had programs in place to discourage potentially criminal activities, it could still be held criminally liable for its employees' or agents' illegal actions.(8) Accordingly, there was little incentive for corporations to expend significant resources on compliance programs.(9) Indeed, to the extent that the common law failed to account for a corporation's efforts to mitigate its blameworthiness in the event of a criminal prosecution, it encouraged a corporation to ignore, and even hide, potential wrongdoing.(10) In an effort to respond to the first of these difficulties, the United States Sentencing Commission ("Commission") promulgated the Guidelines in 1987.(11) The Guidelines, however, were inadequate as applied to corporations since they reduced judicial discretion only in cases involving individuals. Accordingly, in 1991, the Commission amended the Guidelines to include Chapter Eight, Sentencing of Organizations ("Organizational Guidelines").(12) The Organizational Guidelines encourage corporations to undertake compliance programs which will reduce criminal violations by their employees and to voluntarily report the discovery of any such criminal activity prior to formal federal action.(13)

   Part II of 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. Section A describes when courts consider an individual to be acting within the scope of employment. Section B addresses the traditional requirement that an agent's activity benefit the company. Section C explores the means courts have used to impute actions and mental states to corporations.

   Part III of this Article addresses organizational sentencing. Section A discusses the background, scope, and purpose of the Organizational Guidelines in detail. Section B outlines the provisions in Chapter Eight which include: (1) mechanisms to remedy harm caused by an organization, including restitution, remedial measures, and community service; (2) probation, ranging from the requirement that no further crimes be committed during the prohibition term to the issuance of surprise audits and periodic reports; and (3) the imposition of monetary fines, largely determined by calculating the base level, base fine, and culpability factor. Section B also discusses the structure and implications of compliance programs(14) designed to enable organizations to reduce potential liability by self-policing.(15)

2. CORPORATE CRIMINAL LIABILITY

   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.(16) Since corporations are purely incorporeal legal entities, they cannot actually do or intend anything. Accordingly, the Court had to look to employees of the corporation as a means of imputing intent, or mens rea,(17) as well as the guilty act, or actus reus,(18) to the corporation. Since the ruling in New York Central,(19) courts have developed a three-part test to determine whether a corporation will be held vicariously liable for the acts of its employees. First, the individual must be acting within the scope and nature of her employment. Second, the individual must be acting, at least in part to benefit the corporation. Finally, the act and intent must be imputed to the corporation.(20)

   1. Criminal Liability for Agent Action: Scope and Nature of Employment

      For a corporation to be liable for the illicit act of an employee, the employee committing the illicit act must be acting within the scope of her employment.(21) This requirement is met if the employee has actual or apparent authority to engage in the act in question.(22) Actual authority attaches when a corporation knowingly and intentionally authorizes an employee to act on its behalf.(23) Apparent authority is satisfied if a third party reasonably believes that the agent has the authority to perform the act in question.(24) 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.(25)

      Different sources of law and factual contexts determine whether or not a court imputes the intent and acts of an individual to a corporation. The rest of this section addresses these sources of law and factual contexts by examining (1) common law rules of agency, (2) the Model Penal Code, and (3) corporate attempts to limit agent actions.

      1. The Common Law

         Federal courts have continually held that a corporation can be liable for the actions of its agent, regardless of the agent's position within the corporation.(26) One court has gone as far as holding a corporation liable for the acts of an independent contractor it hired.(27) Many states have adopted specific statutory language(28) dealing with corporations that requires criminal acts be committed by "high managerial agents" in order to trigger liability.(29) 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.(30)

      2. The Model Penal Code

         The Model Penal Code (the "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 on behalf of the corporation within the scope of his office or employment."(31) 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.(32)

         Barring any statutory imposition, the Code enables a corporation to evade liability if it can demonstrate that supervisory agents(33) with power over the area in which the offense took place acted with due diligence to prevent the commission of a crime.(34)

      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.(35) Corporations that prove they established corporate policies in efforts to reduce crime may qualify for a reduced penalty.(36) Such policies 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.(37)

   2. Benefiting the Corporation

      The second element of corporate criminal liability requires that the employee act to benefit the company.(38) To fulfill this requirement the corporation need not actually receive a benefit; the employee's mere intention to bestow a benefit suffices.(39) It is also unnecessary that the employee be primarily concerned with benefiting the corporation since many employees act with their own personal gain foremost in mind.(40) 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.(41)

      Acts committed by an agent which are expressly contrary to the interests of the corporation, however, cannot bind the corporation for purposes of criminal liability. In Standard Oil Co. v. United States,(42) the Fifth Circuit refused to uphold Standard Oil's conviction since the agents who committed the criminal acts were acting for the benefit of a third party.(43) 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."(44) Thus, a corporation may avoid liability when an employee breaches his fiduciary duty to the...