A response to the critics of corporate criminal liability.

• Author: Beale, Sara Sun
• Position: Achieving the Right Balance: The Role of Corporate Criminal Law in Ensuring Corporate Compliance

INTRODUCTION

For more than fifty years, most criminal law and corporate scholars in the United States have been opposed to corporate criminal liability, arguing that it should be eliminated or at least strictly limited. (1) In this symposium issue, for example, Albert Alschuler argues that corporate criminal punishment is a mistake. (2) He likens corporate criminal liability to the ancient--and discredited--practices of deodand and frankpledge, and concludes that viewing it as frankpledge is less ridiculous than viewing it as deodand. (3) Many law and economics scholars have argued that corporate liability is inefficient and should be scrapped in favor of civil liability for the entity and/or criminal liability for individual corporate officers and agents. (4) Others, such as Pamela Bucy, (5) endorse the notion of corporate criminal liability but argue that it must be restricted. (6)

The purpose of my essay is to respond to claims that corporate liability is an embarrassing historical vestige or at least a uniquely troubling feature of U.S. criminal law, and that the elimination or limitation of such liability should be a top priority for law reform. Although I acknowledge there are problems with corporate criminal liability in the U.S., these problems are far from unique, and it would be a serious mistake to view corporate criminal liability in isolation. Indeed, a comparative view of corporate criminal liability suggests that if there is to be reform, the agenda should be broader. Reformers should consider whether to make it easier, rather than harder, to prosecute corporations, at least in certain contexts.

My essay will discuss four points. First, imposing criminal liability on corporations makes sense, because corporations are not, fundamentally, fictional entities. Rather, they are very real and enormously powerful actors whose conduct often causes very significant harm both to individuals and to society as a whole. Second, many of the problems with corporate liability are endemic to U.S. criminal law, rather than unique. The problems of corporations are not special, and they are not the most serious problems facing the criminal justice system. Third, a comparative review reveals something that may come as a surprise: in other countries, the focus in the past several decades has been on the creation of corporate criminal liability in jurisdictions in which it did not exist, and where such liability already existed the modern reforms included modifications intended to make it easier, rather than harder, to prosecute corporations criminally. In particular, there have been notable changes in both English and Canadian law in the last decade aimed at making it easier to prosecute corporations for homicide and for workplace injuries. Accordingly, if the reform of corporate criminal liability is to be made a priority, we should be asking about not only the need for restrictions, but also whether there is a need to expand liability or enforce existing offenses more vigorously. Finally, I will address the possible collateral consequences of a corporation's criminal conviction, such as debarment from government contracting. The key point is that these consequences are not intrinsically tied to criminal liability, nor are they limited to corporations. Accordingly, they should be considered by prosecutors on a case by case basis, but should not affect the policy questions addressed here.

1. CORPORATIONS ARE REAL

   A good deal of scholarship begins from the premise that corporations are fictional entities, which have no existence apart from the various individuals who act on behalf of the fictitious entity. This premise can lead quickly to the conclusion that corporate liability is unjust because it effectively punishes innocent third parties (shareholders, employees, and so forth) for the acts of individuals who commit offenses while in the employ of these fictional entities. (7) What this account misses is the reality that corporations are not fictions. Rather, they are enormously powerful, and very real, actors whose conduct often causes very significant harm both to individuals and to society as a whole. In a variety of contexts, the law recognizes this reality by allowing corporations to own property, make contracts, commit torts, and to sue and be sued. (8) Indeed, the Supreme Court has held that corporations have many constitutional rights under the U.S. constitution. (9)

   Moreover, the power now wielded by corporations is both enormous and unprecedented in human history. It misses a lot to compare corporations like Exxon Mobil, Microsoft, or AIG to a horse or a cart that was treated as a deodand under ancient English law. (10) The wealth of the top Fortune 500 corporations is one measure of corporate power. In 2008, annual revenues from the top ten revenue-producing corporations in the U.S. were more than $2.1 trillion; the profits from the ten most profitable U.S. corporations were more than $176 billion. (11) Exxon Mobil topped both lists, recording almost $445 billion in revenue and over $45 billion in profit. (12) Corporations also wield power more directly via their lobbying efforts. Since 1998 Exxon Mobil has spent over $120 million on, lobbying, including $29 million in 2009. (13) The U.S. Chamber of Commerce has spent over $477 million since 1998, more than twice the amount of any other corporation or industry group. (14) Other industry groups, like the Pharmaceutical Research and Manufacturers of America, spent hundreds of millions of dollars in the last ten years to lobby on behalf of multiple corporations. (15)

   Modern corporations not only wield virtually unprecedented power, but they do so in a fashion that often causes serious harm to both individuals and to society as a whole. In some recent cases, corporate misconduct and malfeasance destabilized the stock market and led to the loss of billions in shareholder equity and the loss of tens (or perhaps even hundreds) of thousands of jobs. Enron was the seventh-most valuable company in the U.S., until the revelation of its use of deceptive accounting devices to shift debt off its books and hide corporate losses led to losses of more than $100 billion in shareholder equity before it filed for bankruptcy. (16) But Enron was not alone in the use of fraudulent accounting practices. The revelation of similar misconduct by other corporations (including Dynergy, Adelphia Communications, WorldCom, and Global Crossing) also led to massive losses. (17) Federal prosecutors have also uncovered widespread wrongdoing in other industries, though the nature of the violations has varied over time. In the past decade, virtually every major pharmaceutical company has pled guilty to or settled charges arising out of serious misconduct. (18) In the previous decade, the 1990s, the most prominent cases concerned antitrust violations. The largest single fine imposed was $500 million for a worldwide scheme to fix the price of vitamins, and fines from the nine most serious antitrust cases of the decade totaled $1.2 billion. (19)

   Because of their size, complexity, and control of vast resources, corporations have the ability to engage in misconduct that dwarfs that which could be accomplished by individuals. For example, Siemens, the German engineering giant, paid more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East, and Latin America, using its slush funds to secure public works contracts around the world. (20) There is nothing wrong with recognizing that it was Siemens, not simply some of its officers or employees, who should be held legally accountable. U.S. investigators found that the use of bribes and kickbacks were not anomalies, but the corporation's standard operating procedure and part of its business strategy. (21) In my view, Siemens was properly prosecuted and convicted. (22)

   Professor Alschuler, echoing other classic critiques, argues that the corporation is a mere fiction that cannot be punished, and that it is innocent shareholders who are forced--wrongly--to bear the direct burden of criminal sanctions, and it is innocent employees, creditors, customers, and communities who must bear the indirect burdens. (23) This argument misses the mark in several respects. First, the entire point of the corporate form is to create a legal entity that is separate from its shareholders (as well as its employees, creditors, and others). Each corporation has its own assets, as well as its own liabilities. The shareholders of Siemens benefitted from its success when it used bribery and kickbacks to obtain contracts that generated billions of dollars of profit. They would have benefitted if the corporation had brought suit to enforce its contractual rights. On the other hand, if Siemens had breached its contracts or committed torts, no one questions that the corporation would have been liable, though the innocent shareholders would have lost equity. Note, however, that the point of the corporate form is that those losses would have affected the shareholders' equity in the corporation, but not their personal assets, even if the corporation's liabilities exceeded its obligations. Why, then, is it surprising that the corporation should be held liable for fines arising from criminal conduct, even though the fines might have affected the value of the shareholder's equity in Siemens? (Or the interests of Siemens' employees or its creditors?)

   Moreover, the argument that it is improper to impose criminal fines that effectively punish the innocent shareholders, employees, creditors, and others, proves far too much. These arguments apply equally to punitive damages, and indeed to any money judgment against a corporation, since such a judgment also reduces the shareholders' equity (as well as the corporation's ability to pay its employees and creditors). Is it conceivable that the need to protect innocent shareholders means they may...