Corporate Criminal Liability

• Author: Elizabeth Mccready
• Pages: 571-607

CORPORATE CRIMINAL LIABILITY

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572

II. ELEMENTS OF THE OFFENSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574

A. Employee Acts Within Scope of Employment. . . . . . . . . . . . . . 575

B. Benefit to the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 578

C. Corporate Mens Rea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579

D. Specific Applications of Corporate Criminal Liability . . . . . . . 581

1. Conspiracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581

2. Mergers, Dissolutions, and Liability . . . . . . . . . . . . . . . . 583

3. Misprision of Felony. . . . . . . . . . . . . . . . . . . . . . . . . . . . 584

III. DEPARTMENT OF JUSTICE ENFORCEMENT POLICIES. . . . . . . . . . . . . . . . . 584

A. Controls on Prosecutorial Discretion . . . . . . . . . . . . . . . . . . . 585

B. Deferred Prosecution Agreements and Non-Prosecution

Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586

IV. ORGANIZATIONAL SENTENCING GUIDELINES . . . . . . . . . . . . . . . . . . . . . 588

A. Introduction: Purpose and Scope of the Organizational

Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588

1. General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590

2. Organizations Covered by Chapter Eight of the Guidelines 591

3. Purpose and Effect of the Organizational Guidelines . . . . 591

B. Offenses Covered and Sanctions Permitted under the Guidelines 593

1. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593

2. Probation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595

3. Imposition of Fines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596

a. Base Offense Level . . . . . . . . . . . . . . . . . . . . . . . . . 597

b. Base Fine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598

c. Culpability Score. . . . . . . . . . . . . . . . . . . . . . . . . . . 598

i. Calculation: Aggravating Factors. . . . . . . . . . . . 598

ii. Calculation: Mitigating Factors . . . . . . . . . . . . . 600

(1) Effective Corporate Compliance Programs. 600

(2) Cooperation . . . . . . . . . . . . . . . . . . . . . . . 604

d. Multipliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605

e. Disgorgement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605

f. Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606

g. Departures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607

571

I. INTRODUCTION

Corporate criminal liability, also called entity 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 inserted

aspects of criminal law, such as hearings and sentencing, into cases with corporate

defendants.

3

This practice, however, continues to raise theoretical questions

because corporations can act only through individuals and not independently.

4

Although criminal prosecution of corporations is guided by recognized principles,

many prosecutors still proceed against corporations with great caution, as they are

persuaded by the argument that punishing a corporation in effect punishes innocent

stockholders and employees.

5

In response to increasing public outrage over corporate scandals at the turn of

the millennium, Congress passed the Sarbanes-Oxley Act of 2002 (“Sarbanes-

Oxley”).

6

Although Sarbanes-Oxley exposes corporations to increased criminal

liability, it was not until the global financial crisis of 2008 that federal investiga-

tions and prosecutions began targeting corporations rather than the individual cor-

porate officers and employees responsible for the wrongdoing.

7

However, in

1. See generally Kathleen F. Brickey, Corporate Criminal Accountability: A Brief History and an

Observation, 60 WASH. U. L.Q. 393 (1982).

2. Respondeat superior is defined as “[t]he doctrine holding an employer or principal liable for the employee’s

or agent’s wrongful acts committed within the scope of the employment or agency.” Respondeat Superior,

BLACK’S LAW DICTIONARY (11th ed. 2019); see, e.g., Lake Shore & Mich. S. Ry. Co. v. Prentice, 147 U.S. 101,

109 (1893) (“A corporation is doubtless liable, like an individual, to make compensation for any tort committed

by an agent in the course of his employment . . . .”).

3. See V.S. Khanna, Corporate Criminal Liability: What Purpose Does It Serve?, 109 HARV. L. REV . 1477,

1479–81 (1996) (discussing obstacles to general acceptance of the concept of corporate criminal liability,

especially for crimes of intent); see also United States v. Sain, 141 F.3d 463, 474 (3d Cir. 1998) (reviewing

nature of a corporation as separate legal entity, capable of suing and of being sued).

4. See generally Khanna, supra note 3 (discussing the theoretical obstacles to, and the justifications for, the

development of corporate criminal liability).

5. See, e.g., Ben Protess, Robert Gebeloff & Danielle Ivory, Trump Administration Spares Corporate

Wrongdoers Billions in Penalties, N.Y. TIMES (Nov. 3, 2018), https://www.nytimes.com/2018/11/03/us/trump-

sec-doj-corporate-penalties.html (“Many Republicans in . . . law enforcement roles have resisted corporate

penalties, suggesting that they unfairly punish a company’s shareholders for the misconduct of employees.”);

John Hasnas, The Significant Meaninglessness of Arthur Andersen LLP v. United States, 2005 CATO SUP. CT.

REV. 187, 192 (2004–2005) (noting that 28,000 employees lost their jobs due to the collapse of Arthur Andersen

LLP resulting from its prosecution).

6. See Sarbanes-Oxley Act, Pub. L. No. 107-204, §§ 802–807, 116 Stat. 745 (2002); Valerie Watnick,

Whistleblower Protections Under the Sarbanes-Oxley Act: A Primer and a Critique, 21 FORDHAM J. CORP. &

FIN. L. 831, 831 (2007) (“In the wake of scandals involving Enron, Arthur Andersen and other corporations,

Congress enacted the landmark Corporate and Criminal Fraud Accountability Act, more famously known as the

Sarbanes-Oxley Act . . . .”).

7. See Matt Apuzzo & Ben Protess, Justice Department Sets Sights on Wall Street Executives, N.Y. TIMES

(Sept. 9, 2015), http://www.nytimes.com/2015/09/10/us/politics/new-justice-dept-rules-aimed-at-prosecuting-

corporate-executives.html (“The Justice Department often targets companies themselves and turns its eyes

towards individuals only after negotiating a corporate settlement. In many cases, that means the offending

employees go unpunished.”); see, e.g., Press Release, U.S. Dep’t of Just., Five Major Banks Agree to Parent-

572 AMERICAN CRIMINAL LAW REVIEW [Vol. 59:571

September 2015, the United States Department of Justice (“DOJ”) announced that

it would return to holding individuals accountable for corporate wrongdoing.

8

While the DOJ still insists that prosecutors seek indictments against companies

guilty of corporate wrongdoing,

9

the DOJ has become willing to use deferred pros-

ecution agreements (“DPAs”) and non-prosecution agreements (“NPAs”) as alter-

natives to criminal prosecution.

10

In a DPA, the prosecutor files criminal charges

against a corporate defendant, but agrees to stay prosecution of the charges and dis-

miss them after a pre-set length of time, so long as the corporate defendant com-

plies with the terms of the DPA.

11

An NPA serves functionally the same purpose

as a DPA, but does not involve the filing of criminal charges.

12

In response to the global financial crisis of 2008, Congress passed the Dodd-

Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in July

2010 with the stated purposes of “promot[ing] the financial stability of the United

States by improving accountability and transparency in the financial system, . . .

end[ing] ‘too big to fail,’ .. . protect[ing] the American taxpayer by ending bail-

outs, . . . protect[ing] consumers from abusive financial services practices, and for

other purposes.”

13

Dodd-Frank introduced significant changes to financial regula-

tion by altering more than two dozen criminal offenses, extending criminal liability

to additional types of financial instruments (such as swaps),

14

and criminalizing

certain additional conduct for the first time.

15

Level Guilty Pleas (May 20, 2015), https://www.justice.gov/opa/pr/five-major-banks-agree-parent-level-guilty-

pleas.

8. See Memorandum from Deputy Att’y Gen. Sally Q. Yates on Individual Accountability for Corporate

Wrongdoing (Sept. 9, 2015), https://www.justice.gov/archives/dag/file/769036/download (discussing changes to

criminal and civil provisions of U.S. Attorneys’ Manual to improve individual accountability in corporate

criminal prosecutions); Apuzzo & Protess, supra note 7.

9. U.S. DEP’T OF JUST., JUSTICE MANUAL §§ 9-28.000–9-28.1300 (2018), https://www.justice.gov/jm/justice-

manual [hereinafter JUSTICE MANUAL].

10. See David M. Uhlmann, Deferred Prosecution and Non-Prosecution Agreements and the Erosion of

Corporate Criminal Liability, 72 MD. L. REV. 1295, 1315–20 (2013) (discussing the recent proliferation of DPAs

and NPAs).

11. See Christopher A. Wray & Robert K. Hur, Corporate Criminal Prosecution in a Post Enron World: The

Thompson Memo in Theory and Practice, 43 AM. CRIM. L. REV. 1095, 1104–05 (2006).

12. See id. at 1105.

13. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376

(2010); see also Damian Paletta & Aaron Lucchetti, Law Remakes U.S. Financial Landscape, WALL ST. J. (July

16, 2010), http://online.wsj.com/article/SB10001424052748704682604575369030061839958.html.

14. Swaps are defined as “[a]n exchange of one security for another” or “[a] financial transaction between two

parties, usu[ally] involving an intermediary or dealer, in which payments or rates are exchanged over a specified

period and according to specified conditions.” Swap, BLACK’S LAW DICTIONARY (11th ed. 2019).

15. See Dodd-Frank, 124 Stat. 1376. For example, Dodd-Frank makes it a criminal offense to offer or provide

to a consumer any financial product or service not in conformity with federal consumer financial law, or engage

in any unfair, deceptive, or abusive act or practice. Id. § 1036 (codified at 12 U.S.C. § 5536 (2010)). Dodd-Frank

also criminalizes failure or refusal, as required by federal consumer financial law or any rule or order issued by

the Bureau of Consumer Financial Protection (“Bureau”), to permit access to or copying of records, establish or

maintain records, or make reports or provide information to the Bureau. Id. Finally, Dodd-Frank criminalizes

knowingly or recklessly providing substantial assistance to a covered person or service provider in violation of

2022] CORPORATE CRIMINAL LIABILITY 573