Corporate criminal liability and the potential for rehabilitation.

• Author: Henning, Peter J.
• Position: Achieving the Right Balance: The Role of Corporate Criminal Law in Ensuring Corporate Compliance

INTRODUCTION

In December 2008, Siemens AG, the multinational German corporation with over 400,000 employees and annual revenues in excess of 70 billion [euro], entered a guilty plea to violating the Foreign Corrupt Practices Act (FCPA). The company agreed to pay a $450 million criminal fine and disgorged profits of $350 million in a related SEC civil enforcement action. This was by far the largest FCPA fine ever paid, and marked a significant turning point in international business corruption enforcement. (1) Just two months later, in February 2009, UBS AG, Switzerland's largest bank, entered in to a deferred prosecution agreement with the Department of Justice that included a payment of $780 million in fines, penalties, and interest for aiding United States citizens to avoid paying taxes on undeclared accounts at the bank. More importantly, the Swiss bank agreed to turn over information about its American clients to the IRS, apparently the first time in history the wall of secrecy surrounding Swiss banking operations had been breached on a significant scale. (2)

Each company undertook an extensive internal investigation to ascertain wrongdoing by corporate employees and agreed to restructure its operations to ensure future compliance with United States law. If the potential for criminal charges being filed against the companies had not been available, would either corporation have done anything to rectify the misconduct that occurred within the organization? While one can bemoan corporate criminal liability as a "weed" growing in the legal system, (3) it cannot be denied that the potential for criminal prosecution of an organization apart from its individual agents can serve important law enforcement purposes.

Yet the notion of corporate criminal liability continues to be questioned as an unwarranted extension of the criminal law that gives prosecutors too much authority over companies that feel compelled to cooperate. Recently, Andrew Weissmann proposed narrowing the scope of corporate criminal liability by requiring that the "government should bear the burden of establishing as an additional criminal element that the corporation failed to have reasonable policies and procedures to prevent the employee's conduct." (4) Professor Ellen Podgor went a step further in proposing a "good faith" affirmative defense if the company made efforts to achieve compliance with the law. (5)

Some have even asserted that the criminal sanction should be reserved solely to individuals rather than incorporeal organizations that cannot form criminal intent or act on its own, leaving the regulation of businesses to civil enforcement programs. For example, Professor Parker asserts that "there is no legitimate function of corporate criminal liability that cannot be served equally as well, if not better, by civil enforcement." (6) Mr. Lynch of the Cato Institute stated, "[p]olicymakers should excise the doctrine of corporate criminal liability from American law." (7) Professor Baker argues, "[m]odern corporations are abstract, impersonal, utilitarian entities lacking emotions and a personal story, and as such they do not deserve sympathy simply because they are not human. For that reason alone, they should not be the subjects of criminal prosecutions." (8)

So much has been made about prosecutorial unfairness in treating corporations, that some multibillion dollar enterprises have been bullied by the Department of Justice to cooperate with the government by acknowledging guilt and then turning over records and employee statements regardless of guilt or innocence. And for what crimes? According to former Attorney General Dick Thornburgh, Congress has adopted "artificial crimes" that criminalize acts which cause no cognizable harm to people or property." (9)

The demise of Arthur Andersen after its conviction in 2002 for obstruction of justice is often used to "prove" the purported overwhelming power of prosecutors and the trembling fear of corporations who dare not risk going to trial under any circumstances lest they face near-certain destruction. (10) However, there have been no other instances of a large firm suffering the same fate since then, even though other companies that have been charged with crimes and appear to have survived the ordeal, albeit quite a bit worse for wear. (11) Moreover, despite the oft-repeated statement that a corporation would never dare go to trial for fear of the consequences, W.R. Grace & Co. did just that in fighting environmental charges and was found not guilty along with three of its executives. (12) Somehow, citing to a single example of a firm's demise after a conviction and simply asserting that corporations "never" go to trial seems to be sufficient to establish the problematic nature of corporate criminal liability and its companion claim of prosecutorial overreaching. But this is hollow. Despite the repeated criticisms of corporate criminal liability, it is a staple of the criminal law in the United States, and unlikely to leave the scene any time soon. Indeed, it is growing outside the United States as a means of policing corporate misconduct. (13)

In this Essay, I focus on two questions that seem relevant to the current discussion about the scope of corporate criminal liability: first, is there a justification for applying the criminal law to a corporation or other type of business organization? While there is at least the possibility of deterring an individual from undertaking criminal conduct again by imposing punishment on the person, and society can exact retribution from the law-breaker to vindicate its interests and those of the victim, these rationales for punishment do not work well for organizations that do not act through the same individuals and will continue to exist even if individual miscreants are removed. My position is that designating conduct as criminal is important apart from any sanction imposed and that the application of the criminal law to an actor in society is a means to express a moral judgment about that actor's conduct. Corporations are as much a part of modern society as individuals, and so this expressive function of the criminal law is particularly worthwhile when applied to organizations that play such a significant role in the economy and indeed throughout society.

Second, if specific deterrence (14) and retribution are, at best, weak justifications for punishing corporations, is there a workable rationale for using criminal laws rather than civil regulatory actions against organizations? I argue in this Essay that the current trend toward using deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) to resolve criminal investigations of corporations highlight the proper focus on rehabilitation of the organization as the proper goal of the application of the criminal law to corporations. Not every transgression by a corporate agent can--or should--result in the prosecution of the organization, and, in fact, the number of criminal prosecutions involving corporations--which does not include cases resolved short of indictment by a DPA or NPA--is quite small, fewer than 200 per year at the federal level. (15) When the focus is on publicly-traded corporations and not closely-held businesses in which an owner or senior manager is also charged, that number shrinks dramatically.

If criminal law can be legitimately applied to corporations, then DPAs and NPAs are a worthwhile means to resolve investigations short of a full-blown indictment and guilty plea by the organization because the goal of these agreements is to take steps to prevent future violations. Rehabilitation focuses on the future, through which a defendant resumes being a law-abiding member of society. In a complex organization, it is a worthwhile use of the criminal law to create a means to ensure compliance with the requirements of a DPA or NPA while retaining the threat of a future, and perhaps highly destructive, criminal prosecution if a corporation persists in wrongdoing.

1. APPLYING THE CRIMINAL LAW TO ORGANIZATIONS

   The concept of corporate criminal liability has been assailed on a number of fronts. The common law of crimes developed around the concept that an individual can only be punished if there is a concurrence of a guilty mind--the mens rea element--coupled with culpable acts. (16) Because a corporation has no mind, and only acts through its agents, it has been posited that applying the criminal law to it was an unwarranted--or at least unreflective--extension beyond what society should otherwise permit. Professor Mueller noted that while the law of corporate criminal liability is easily understood, "[lit is safe to say that, for the most part, the law has proceeded without rationale whatsoever...." (17)

   The presumption of critics of corporate criminal liability seems to be that those who are capable of being prosecuted for traditional common law offenses that required proof of a criminal intent, like murder, rape, or larceny, are the only ones properly within the purview of the criminal law. A late arrival to the social scene, the corporation and its more recent descendants, like the limited liability company, do not fit comfortably within the traditional requirements for liability for a crime except through purportedly unacceptable legal fictions like "collective knowledge" or vicarious liability. Thus, so the critique goes, corporate criminal liability is an interloper in the criminal law.

   1. Mens Rea is not Always Required

      In conjunction with the critique of corporate criminal liability as falling well outside the requirements of the criminal law is the supposition that its recognition by the Supreme Court represented a radical--and unwarranted--break with the past. In New York Central & Hudson River Railroad Co. v. United States, (18) the Supreme Court adopted the respondeat superior theory of corporate criminal liability that allowed the criminal...