Foreword to corporate criminality: legal, ethical and managerial implications.

• Author: Hasnas, John
• Position: SYMPOSIUM: CORPORATE CRIMINALITY: LEGAL, ETHICAL, AND MANAGERIAL IMPLICATIONS

It is becoming commonplace to refer to the contemporary business milieu as the post-Enron era. Doing so elevates the image of a major corporation brought low by the fraudulent practices of its executives to emblematic status. However, it may be just as appropriate to refer to the current period as the post-Arthur Andersen era--a designation that gives rise to the markedly different image of a major business organization destroyed by a federal indictment. Given that Arthur Andersen's crime, as determined by the jury, consisted solely of one of Andersen's in-house counsel recommending that a manager change the wording of a draft memorandum, (1) the post-Arthur Andersen era can be a very frightening time for corporate executives.

The alternative ways of referring to the present business environment highlight some of the tensions inherent in current attitudes toward white collar crime. On the one hand, the apparent failures of corporate governance suggest the need for more effective law enforcement. On the other hand, enhanced law enforcement risks causing harm to innocent parties and stifling the risk-taking necessary to successful entrepreneurship and innovation. In business, behavioral norms may be enforced either through internal governance structures and civil liability or through criminal prosecution. Where to draw the line between these enforcement mechanisms is an open, and very difficult, question.

Much of the reason for this is due to the particular nature of white collar crime, which presents several daunting challenges for those charged with enforcing the law. To begin with, white collar crime typically consists of deceptive behavior intentionally designed to be indistinguishable from non-criminal activity. Considerable investigation may be required to even establish that a crime has been committed, and a great deal of legal and accounting sophistication may be required to unravel the deception. Prosecuting such cases is necessarily an expensive and time-consuming task. No matter how large the Department of Justice's budget for white collar crime may be, it can never be sufficient to police all of the business concerns in the United States absent the active cooperation of the corporations themselves.

In addition, it can be particularly difficult to establish mens rea in the corporate context. Corporations tend to diffuse decision-making responsibility. Decisions made by one member of a firm may not be fully informed by what other members of the firm are doing or have decided. As the courts have noted, "[c]orporations compartmentalize knowledge, subdividing the elements of specific duties and operations into smaller components." (2) Further, corporations frequently take actions that are never explicitly known to or authorized by any identifiable individual or individuals within the firm. "Complex business structures, characterized by decentralization and delegation of authority, commonly adopted by corporations for business purposes, make it difficult to identify the particular corporate agents responsible for ... violations." (3) Such features of the corporate environment can make proving intentional wrongdoing on the part of particular individuals an exceedingly challenging task.

Moreover, evidence of white collar crime can be difficult to obtain. Evidence of business crime is almost always documentary in nature and usually consists of the business records of the firm for which the defendant works. To the extent that these records are in the personal possession of the defendant, contain communications between the defendant or other members of the firm and corporate counsel, or are the work product of corporate counsel, the right against self-incrimination and the attorney-client privilege may render them unavailable to the prosecution. Hence, the evidence necessary for a conviction for a white collar offense will often be in the hands of those who cannot be compelled to produce it.

These difficulties necessarily reduce the effectiveness of the criminal sanction as a deterrent. To some, this suggests relatively greater reliance on corporate governance and civil liability rather than criminal prosecution to control wrongdoing within business organizations. To others, it suggests the need for more effective tools for criminal enforcement, even if these come at the expense of some of the civil libertarian protections inherent in our criminal law. (4) Thus, the desire and effort to reduce corporate criminality raises several interesting and challenging questions on both the theoretical and practical levels.

Theoretical questions include: What is the proper balance between the criminal and civil/corporate governance enforcement regimes? Should the scope of white collar offenses be reduced or expanded? What tools do prosecutors need to effectively enforce the current white collar criminal law? Is more effective enforcement worth its cost in civil liberties? Is present white collar criminal law and law enforcement policy adequate to address the problem of dishonest business behavior? Is it too lenient? Is it overkill?

Practical questions include: What effects do current white collar criminal law and law enforcement policies have on business organizations' internal behavior and how would this be altered by proposed reforms? How do current law and policy influence the relationship between corporations and their employees? What financial costs do these measures impose on business organizations? How do they affect firms' willingness to take risks?

To answer such questions, the Georgetown Business Ethics Institute partnered with the U.S. Chamber Institute for Legal Reform, the National Association of Criminal Defense Lawyers, The Heritage Foundation, and the American Criminal Law Review to invite experts from academia, business, government, and legal practice to a symposium at the Georgetown University Law Center to explore the ramifications of the...