Corporate liability: beware of rogues and ostriches.

Author:Miller, Thomas O.

A corporation can be liable for a criminal or Civil False Claims Act violation stemming from the conduct of "rogue employees," who are politely known as "adverse agents," and employees who are willfully blind or deliberately ignorant of ethical, legal and contractual requirements.

More exposure exists in high-risk foreign locations--especially if employees hide their heads in the sand.

Ethics and compliance standards can detect and prevent acts or omissions of corporate employees, agents, subcontractors and affiliates. Documenting use of these standards is invaluable during any enforcement investigation.

Special measures should govern employees--and responsible supervisors--who work in high-risk foreign locations, under accelerated U.S. contract performance requirements. In unfamiliar, remote environments, employees become increasingly autonomous, particularly if data and communications are exchanged without connection to a central data system.

Opportunities to bypass or ignore standards abound, and employees are vulnerable to pressures to deliver at any cost. In such circumstances, wisdom suggests heightened proactive measures to detect and prevent violations of law, standards and contractual requirements.

The legal doctrines of "respondeat superior" and "corporate collective knowledge" often lead to corporate responsibility for the acts and knowledge or deliberate ignorance of its employees acting within the scope of their employment. Under the collective knowledge doctrine, the acts and "knowledge" of the corporation's employees can be aggregated to impute certain liability where no individual employee's acts or knowledge is sufficient.

One exception is the "adverse agent doctrine." First, the presumed identity of interest between the employer and employee is offset when the employee acts outside the scope of his authority. Second, the presumption an employee will perform his responsibilities and communicate information to his employer is offset when the interests of the employee and employer become adverse. An exception to the adverse agent rule returns liability to the corporation if the adverse employee has sole responsibility for the transaction from which the violation arises, without effective supervision.

Together, collective knowledge and deliberate ignorance--by the corporation or an employee, whether a rogue or not--can expand corporate liability. If no single employee's acts are sufficient, liability instead may be based on...

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