Applying the responsible corporate officer doctrine outside the public welfare context.

• Author: Kushner, Amiad

As corporate scandals have returned to the front pages, it may be an appropriate time to reconsider the responsible corporate officer ("RCO") doctrine, a striking yet seldom-used innovation in the criminal law. (1) The doctrine holds a corporate officer vicariously liable for the criminal violation of a subordinate, where the officer occupies a position of responsibility and authority in the corporation, has the power to prevent the violation, and fails to do so. (2) It imposes liability upon officers for the illegal acts of other corporate agents, without proof that the officers directly participated in or authorized the crime. (3) The doctrine presents an opportunity to modernize the criminal law in order to address the difficulty of proving that a senior officer authorized a subordinate's criminal act. (4) Classical criminal law, in seeking to prove that an officer directed or authorized a criminal act, is frustrated by the ease with which the origin of a criminal decision is lost in bureaucracy. (5) It clings to an archaic common law emphasis on overt criminal acts, (6) blinding itself to the corporate prime mover who disguises his transactions among routine corporate events, acting exclusively through subordinates scattered throughout an amorphous bureaucracy. (7) Sophisticated crimes by corporate officers are difficult to detect, and in an advanced industrial economy they threaten society en masse, (8) by means of toxic waste, misbranded drugs, or securities fraud. (9) In response to the historic elusiveness of crimes by corporate officers, the RCO doctrine imputes, in limited situations, the acts of the corporation to its officers. (10)

The RCO doctrine has been unwisely viewed as a special rule to be applied exclusively to "public welfare offenses," such as the food and drug violations implicated in the seminal RCO cases. (11) The strongest rationale for the doctrine does not lie in the activity sought to be regulated, but in the elusiveness of the defendant sought to be prosecuted. (12) The vast expansion of the modern economy, combined with the proliferation of large international corporations, suggests that the classical public welfare doctrine is outdated as a controlling concept of an expanded officer liability regime. The Supreme Court has narrowed the scope of the public welfare doctrine, (13) suggesting that it is an inadequate basis upon which to construct a coherent and vigorous theory of officer liability. (14) Courts have applied the RCO doctrine to felony prosecutions under environmental laws, placing only nominal reliance on the inherited traditional public welfare rationale. (15) A reexamination of the RCO doctrine is necessary, in order to explain recent developments and to guide the application of the doctrine to new offense contexts.

This Comment argues that the RCO doctrine, although originally developed in response to misdemeanor prosecutions for public welfare violations, should be recast as a general theory of criminal liability of corporate officers. It is a flexible tool which is a powerful antidote to the bureaucratic concealment which shields criminal actors in a modern corporation. As the successful application of the doctrine to environmental crimes indicates, the doctrine should be applied outside of the classical public welfare context to crimes with mens rea requirements. Part I describes the inherent limitations on the liability of corporate officers for criminal acts performed by subordinates. Part II analyzes the origins and development of the RCO doctrine. Part III critiques the association of the RCO doctrine with "public welfare" offenses. Part IV describes the application of the doctrine in the context of environmental crimes and proposes a new application to per se violations of the Sherman Act. Part V concludes with some general observations.

1. THE WEAKNESS OF CURRENT DOCTRINE: RESTRICTIONS ON THE LIABILITY OF CORPORATE OFFICERS FOR ACTS PERFORMED BY OTHER CORPORATE AGENTS

   Whereas a corporation is liable for crimes of its agents acting on its behalf in the scope of their employment, (16) a corporate officer is generally not liable unless he personally participates in (17) or aids and abets (18) a criminal act. (19) When personal participation or express authorization is shown, it is no defense that the crime was committed on behalf of the corporation. (20) But an officer cannot be held liable for acts performed by other corporate agents unless it can be proved that they acted under the officer's direction or with his permission. (21) This requirement is rooted in agency principles: the officer as principal can only be liable for the crimes of a subordinate who was acting as his agent. (22) Thus, the law draws a clear distinction between affirmative authorization of subordinates' acts, which is sufficient for liability, (23) and passive acquiescence or even knowledge of such acts, which is insufficient standing alone. (24)

   It is extraordinarily difficult, however, to prove that a corporate officer authorized the criminal act of a subordinate, because such authorization is rarely documented. (25) A powerful executive with vast control over corporate operations can easily create the impression that he did not know the details of illegal activity. (26) To some extent the law encourages this concealment, because many statutes explicitly require proof of an affirmative illegal act before imposing liability upon an officer. (27)

   In some cases, juries are permitted to infer knowing authorization from circumstantial evidence, yet these cases typically involve small, closely-held corporations where the inference is compelling. (28) In a closely-held corporation, an officer often closely supervises and has intimate knowledge of all business operations, justifying the inference that the criminal act was performed under that officer's direction or with his express or implied consent. (29) For example, in United States v. Andreadis, (30) an officer who dominated a closely-held corporation (31) was charged with mail and wire fraud arising out of a scheme to market fraudulent weight loss pills. (32) The advertisements for the pills contained extravagant and scientifically false claims, (33) which the defendant officer knew were false because of repeated protestations by officials in industry and government. (34) Nevertheless, the prosecution lacked direct evidence that the officer had instructed the advertising agency to make what he knew to be false claims. (35) The court, however, permitted the inference of such knowing authorization from circumstantial evidence, because the officer reviewed and approved the advertising strategy (36) and had even interviewed the "endorsers" who claimed to have lost weight using the pills. (37) Thus, the deciding factor was the officer's controlling and intimate supervision of the illegal marketing plan, regardless of the fact that the advertisements were physically produced by an independent advertising agency. (38) Because of the pervasive control which the officer exercised over the advertising campaign, the court appropriately referred to the advertising firm as the officer's agent. (39) Without proof of an agency relationship, however, an officer cannot be held liable for mere "knowledge plus acquiescence;" there must be evidence of affirmative authorization. (40)

   Although a trier of fact is permitted to infer that an officer knowingly authorized a criminal act when he exercises complete control over the direct criminal actors, such pervasive control is exceedingly difficult to prove, as illustrated by Bourgeois v. Commonwealth. (40) Bourgeois was the president of Revco, a corporation which trained people to operate trucks. (42) He was held liable in the trial court for defrauding a state program which reimbursed companies for providing job training to disabled persons. (43) The prosecution presented evidence that twenty-four disabled students had paid Revco for some of the cost of their training, yet Revco fraudulently sought reimbursement for the full cost of the training from the state. (44) One student gave $200 in cash directly to Bourgeois as partial payment for the course, which Bourgeois then recorded on a signed receipt, yet Revco proceeded to bill the state for $795, the full cost of the training. (45) The Virginia Supreme Court reversed Bourgeois' conviction, however, because the prosecution failed to prove that he had personally authorized each fraudulent reimbursement presented into evidence. (46) The court noted that the State had not proved that Bourgeois controlled all of Revco's employees or its funds, noting that a vice-president also had authority to sign checks on behalf of Revco. (47) This case illustrates the difficulty of holding an officer liable for subordinates' acts, because only in rare cases is an officer's control so pervasive that it compels the inference that he authorized the criminal acts. (48)

   Bourgeois demonstrates that mere knowledge of a criminal violation is insufficient to incriminate an officer, because the officer might lack complete power over the criminal activity and thus may not have been responsible for authorizing it. (49) This requirement applies even in strict liability offenses; although it is unnecessary to prove that the officer knew the facts constituting the violation, the prosecution still needs to show that the officer either personally committed the illegal act or completely controlled the subordinates who did. (50) On the other hand, in an offense with a mens rea requirement, power alone without culpable knowledge is insufficient, because it would allow a guilty subordinate to automatically implicate his superior, (51) Thus, in the vast majority of cases the officer must have both complete power over the activity giving rise to the crime and sufficient knowledge of the activity so that the criminal act can be shown to have been impliedly authorized. (52)

   While an...