Corporate criminal liability: when does it make sense?

• Jurisdiction: United States
• Author: Bucy, Pamela H.
• Date: 22 September 2009

INTRODUCTION

This Article suggests three points. First, that extending criminal liability to fictional entities (1) is a good idea. Second, the current standard in American law for holding fictional entities criminally liable is flawed. Third, that adding an affirmative defense to the current standard for corporate criminal liability would repair the deficiencies in the current standard. Part I of this Article discusses the advantages and disadvantages of prosecuting fictional entities. Part II addresses the current standard for corporate criminal liability and explains why it is deficient. Part III proposes a new standard for extending criminal liability and explains how it remedies the problems posed by the current standard.

1. IS PROSECUTING CORPORATIONS A GOOD IDEA?

   1. Reasons to Prosecute Corporations

      There are two reasons why criminal liability should extend to corporations. First, corporations often engage in activity that harm lots of people. Mislabeling drugs, shipping contaminated food, dumping pollutants into waterways, and falsifying financial data are a few obvious examples. Any societal actor that engages in such wide-ranging and potentially harmful activities should be subject to criminal prosecution since it is the most potent regulatory mechanism society possesses.

      Second, because of their organizational structure, corporations pose unique opportunities for unlawful behavior to occur. For this reason, organizations are more difficult to control than individuals acting alone. There are two characteristics of organizations that help incubate criminal activity. The first is that group dynamics can cause individuals to suspend their own judgment and disregard their usual sense of caution. (2) Because of the pressure to hold on to a job, or please the boss and coworkers, the workplace presents especially strong temptations to "go along." Second, the diffuse nature of organizations creates conditions where violations of the law can occur, and continue undetected. When individuals are responsible for only their duties and do not have a full picture of corporate activities, it becomes difficult for even the most honorable to see that something is amiss. (3)

      Because of these two policy reasons, it makes sense to prosecute corporations. In addition, there are three facts about fictional entities that make criminal prosecution a tempting tool of social control. These facts are not justifications for prosecuting fictional entities and should not be mistaken for such; they are, however, benefits of such prosecutions.

      The first fact about prosecuting fictional entities is that corporate actors are highly deterable. (4) For this reason, criminal liability, or the threat of it, is an extremely efficient regulatory mechanism. Individuals who run corporations are trained to assess the benefits and costs of potential corporate actions and to choose the option they believe will bestow the greatest benefit for the least cost. This applies to criminal activity as well as to any other business decision. Thus, unlike most criminal defendants who are not deterable because they commit crimes without weighing the cost of doing so (i.e. they act in the heat of passion or under the influence of chemical substances, for example), corporate actors are highly deterable. Most corporate leaders make decisions based, in part, upon their best assessment of whether they (or their company) might be prosecuted if their company undertakes certain actions.

      The second fact about prosecuting corporations is that it is easier to prosecute them than it is to prosecute individuals. Piercing the corporate veil to identify who within an organization directed criminal activity or possessed the necessary intent to commit a crime is difficult, if not impossible. By comparison, prosecuting a fictional entity, certainly under the current standard for corporate criminal liability in American law, is easy. As noted infra, the current standard of corporate criminal liability imposes strict liability on fictional entities and permits broad assumptions about proving the elements of liability. Also, prosecuting a company often has more jury appeal than prosecuting individuals with whom the jury may identify or sympathize. For these reasons, when corporate misbehavior merits prosecution, prosecutors may be tempted to prosecute the company rather than the individuals responsible.

      The third fact about prosecuting fictional entities is that sentencing a convicted company provides opportunities to remedy harm, make victims whole, and prevent future harm. It is ironic that sentencing fictional entities can be of such practical assistance since corporations cannot be sentenced in the traditional sense. They cannot go to prison. Corporations can, however, be placed on probation, and the terms of their probation can be wide-ranging. Convicted corporations can be directed to replace directors or corporate leadership, to implement corporate compliance plans, to hire monitors, to perform community service, to repay victims; in short, to change all sorts of corporate policies. The opportunity to remedy corporate misbehavior through terms of probation is almost endless.

      This opportunity to "fix" corporate problems is not limited to placing convicted corporations on probation. "Deferred prosecution" agreements ("DPAs") and "non-prosecution" agreements provide the same flexibility. (5) In a DPA, prosecutors agree to stay formal charges and allow a corporate target to implement steps prosecutors deem necessary. If the target company performs adequately, the "deferred" criminal charges are never brought and the company is never prosecuted. Similarly, in a non-prosecution agreement, prosecutors agree not to prosecute a company for criminal acts committed if the company completes the terms of the "non-pros" agreement entered into between the company and prosecutors. Both DPAs and non-pros agreements are used extensively by businesses and prosecutors in lieu of actual prosecution of a company. Businesses have compelling reasons to enter such agreements: to avoid publicity, to reduce the costs of defending against criminal charges, to minimize disruption to their business. Law enforcement is willing to enter into such agreements. Resolving a matter with such an agreement takes fewer prosecutorial resources than going to trial, provides a mechanism for redressing problems and making restitution to victims. If they are made public, DPAs and non-pros agreements can provide for as effective deterrence as an actual prosecution.

      There are, of course, serious questions whether it is wise public policy for prosecutors, or the courts, to direct "probationary" terms whether a corporation is convicted or enters into a DPA or non-pros agreement. It is not at all clear that prosecutors, who may have little or no business experience, are able to adequately assess the full implications of the decision to prosecute a company, or are experienced enough in business issues to craft probationary or agreement terms. Nor is it clear that the judges who place corporations on probation, or the court personnel who help design and monitor such probation, have adequate business acumen to serve in such roles. Nevertheless, the fact remains that these avenues, probation upon conviction, and DPAs and non-pros agreements in lieu of prosecution, all made possible because of the existence of corporate criminal liability, can be quick and efficient ways to remedy harms and change corporate culture, leadership and behavior.

   2. Reasons Not To Prosecute Corporations

      While the above reasons favor the prosecution of fictional entities, there are reasons not do so, or at least to be very careful doing so. Criminal prosecution can be extremely disruptive to a business and to its many constituencies, most of whom have no culpability for the wrongdoing. Employees, shareholders, bondholders, lenders, customers, and the community where the company is located are all affected when a company is prosecuted. This disruption is particularly worrisome since, as noted infra, the standard for imposing corporate criminal liability is broad and the prosecutorial discretion for applying the standard is expansive.

      The second policy concern with prosecuting corporations, again exacerbated by the breadth of the standard of corporate criminal liability and extent of prosecutorial discretion, is that criminal prosecution, or simply the potential of it, may deter appropriate and needed entrepreneurial spirit and risk taking. Businesses, fearful of aggressive criminal prosecutions, may become overly cautious and avoid fully exploring new business models and opportunities.

      Third, the comparative aggressiveness of criminal prosecution in the United States and its unpredictability (in light of the broad standard of liability and the large amount of prosecutorial discretion) may discourage foreign companies from operating in the United States. It may also render American companies, which are subject to such liability, less competitive in the global economy.

      Three concerns regarding the prosecution of companies are: the disruption to businesses and their constituencies, the potential for making businesses overly cautious, and the comparatively aggressive prosecutorial atmosphere in the United States, making it imperative that the American legal system develop a fair and reasonable approach to prosecuting fictional entities if it is going to do so.

2. WHY THE CURRENT STANDARD OF CORPORATE CRIMINAL LIABILITY IS INAPPROPRIATE

   The current standard for imposing corporate criminal liability provides that a corporation "may be held criminally liable for the acts of any of its agents [who] ... commits a crime ... within the scope of employment ... with the intent to benefit the corporation." (6) As construed by most courts, the last two requirements are almost meaningless.

   Courts deem criminal conduct to be "within the scope of...