The Forlorn Hope: A Final Attempt to Storm the Fortress of Corporate Criminal Liability.

• Author: Hasnas, John

1. INTRODUCTION 1009 II. THEORY 1012 A. First Principles 1012 1. Criminal Law 1012 2. Criminal Punishment 1013 3. The Purposes of Punishment 1013 B. Application 1013 1. Metaphysics 1013 2. Analytics 1015 III. PRACTICE 1017 A. Two Approaches to Reducing Wrongdoing 1017 B. Perverse Incentives 1019 1. Summary 1023 IV. IMAGINING A WORLD WITHOUT CORPORATE CRIMINAL LIABILITY 1024 A. Prosecutors 1025 B. Corporations 1026 C. The Compliance Industry 1027 D. A Happy Place 1027 V. CONCLUSION 1027 I. INTRODUCTION

   In military parlance, the term "forlorn hope" refers to a body of picked troops assigned an exceedingly dangerous task where the chances of survival are poor. The forlorn hope was the name given to the troops selected to be the first storming party against the walls of a fortress. (1) Junior officers and enlisted men volunteered to join the ranks of a forlorn hope because those who survived were frequently rewarded with promotion or cash. The commanding officer of a forlorn hope was guaranteed a major career advancement if he survived. Thus, despite the risk, there was often intense competition for the chance to lead a forlorn hope and display conspicuous valor.

   For some reason, this came to mind as I sat down to write in favor of abolishing corporate criminal liability. In 1909, the U.S. Supreme Court authorized such punishment in the seminal case of New York Cent. & Hudson River R.R. Co. v. United States. (2) Since that time, the idea that corporations are subject to criminal punishment as collective entities has become ever more entrenched in our jurisprudence.

   New York Central, which held corporations criminally liable for the actions of their employees on a respondeat superior basis, rested, at least in part, on the fact that the statute that the corporation violated, the Elkins Act, explicitly authorized the punishment of the corporate entity. (3) That limitation was abandoned as courts regularly held corporations liable for the full range of criminal offenses regardless of whether the relevant statute authorized such corporate liability. (4) Hence, it was quickly established that corporations are criminally liable for offenses of their employees, acting within the scope of their employment, for the benefit of the corporation. (5)

   Once this liability was established, judicial walls were erected against attempts to undermine it. Courts held corporations liable for their employees' offenses even when the employees' actions were inconsistent with corporate policy or contravened explicit instructions to the contrary, (6) and indeed, even when the corporation had used its best efforts to prevent the offense. (7) Further, the employees' actions did not have to actually benefit the corporation. It was enough if the employees merely intended to benefit the corporation, and only in the minimal sense that they were aware that the corporation would benefit even if the employees' primary motivation was personal gain. (8)

   Redoubts were thrown out to encompass more jurisprudential territory. Courts ruled that corporations could be convicted of criminal offenses even when no individual employee committed the actus reus of the offense or possessed the necessary mens rea. Thus, courts upheld corporate convictions in which different employees performed the acts that constituted the actus reus, (9) and when the prosecution could not identify any particular employee who committed the offense. (10) They also created the collective knowledge doctrine, which holds that "the corporation is considered to have acquired the collective knowledge of its employees," (11) and which allows the conviction of the corporation even though no individual employee has the required mens rea. They have even gone so far as to suggest that juries need not agree on which employee committed the offense for the corporation to be convicted. (12)

   The ramparts of the judicial bulwark protecting corporate criminal liability grew ever higher. Battlements were added in the form of the United States Sentencing Commission's (USSC) adoption of the Federal Sentencing Guidelines for Organizations in 1991 (13) and the United States Department of Justice's (DOJ) development of the Principles of Federal Prosecution of Business in 1999. (14) They were reinforced by academic opinion in the form of myriad law review articles extolling the benefits of subjecting corporations to criminal sanction. (15) And, they were buttressed by the evolution of an entire industry of consultants teaching corporations how to avoid such liability; the compliance industry. (16)

   The last 112 years have seen an imposing jurisprudential fortress built around the idea that corporations can be held criminally liable as collective entities--so much so that attempting to breach the conceptual walls and bring the citadel tumbling down must seem like enlisting in a forlorn hope. Nevertheless, I volunteer.

   In Part II, I argue that there is no theoretical justification for corporate criminal liability--that imposing criminal punishment on corporations as collective entities is inconsistent with the purposes of the criminal law and the normative values of a liberal legal regime. In Part III, I argue that corporate criminal liability cannot be justified on practical grounds--that empirical studies show that it does not effectively reduce wrongdoing within corporations. And in Part IV, I consider what would happen if we take the fortress by imagining what a world without corporate criminal liability would be like.

2. THEORY

   1. First Principles

      (1.) Criminal Law

      A perhaps apocryphal story about the great football coach Vince Lombardi recounts that after the Green Bay Packers had played a bad game, he began a team meeting by placing a football on the table in front of him and saying, "Let's get back to fundamentals. This is a football." In this Article, I intend to apply an analogous approach.

      So, let's get back to fundamentals by noting that criminal law is penal law. Its purpose is to punish wrongdoing. It is not designed to compose interpersonal disputes. That is what mediation is for. It is not designed to provide compensation to wrongfully injured parties. That is what tort law is for. It is not designed to regulate commercial activity. That is what administrative law is for. Criminal law is designed to punish.

      Criminal law's punitive purpose limits the range of the application of its sanction to those persons and entities that can be deserving of punishment--to those capable of acting in a morally blameworthy way. Consequently, moral responsibility is (or should be) a necessary condition for the application of the criminal sanction. This explains why infants, the incompetent, and the legally insane are excluded from criminal punishment.

      It also suggests that the starting point for any consideration of corporate criminal liability is to ask whether corporations, separate and apart from the individual human beings who comprise them, are morally responsible agents. If the answer is no, then the matter is settled.

      This Article, however, is not the place to discuss the ontology of corporations or the niceties of moral philosophy. (17) So, for present purposes, let's just assume it makes sense to ascribe moral responsibility to corporations. This assumption makes corporations candidates for criminal punishment.

      (2.) Criminal Punishment

      Punishment is the coercive imposition of a harm upon a party in response to that party's failure to behave as required by some binding code of conduct. Ordinarily, coercing others is a wrong. What distinguishes punishment from the ordinary application of coercion is that the harm imposed by punishment is deserved. It is the link between the coercion applied and the violation committed by the individual to whom it is applied that renders the coercion morally acceptable.

      Coercively imposing a harm on those who have not committed a violation is not punishment. Punishing the innocent is not simply a moral wrong. In a sense, it is oxymoronic. (18)

      Placing the adjective "criminal" before the word "punishment" identifies who is imposing the harm and what constitutes the offense. Punishment is criminal punishment when the state is imposing the harm for the violation of the state's rules of criminal law.

      Hence, criminal punishment is the coercive imposition of a harm by the state on a party who has violated the criminal laws of that state.

      (3.) The Purposes of Punishment

      Because criminal law is penal law, its sanction should be applied only where doing so advances the purpose of punishment. Although theorists disagree about what that purpose is, the candidates are retribution--requiting evil with evil in which harm is imposed on wrongdoers in proportion to the harm they have done, deterrence--inflicting harm on a wrongdoer to discourage others from committing similar wrongful acts, and rehabilitation--imposing treatment designed to reform the character of a wrongdoer so that they will behave better in the future. Regardless of which one or combination of these objectives is the true purpose of punishment, criminal punishment is justified only if it serves at least one of them.

   2. Application

      (1.) Metaphysics

      One reason why it is inappropriate to apply the criminal sanction to corporations is that corporations cannot be punished. (19) An oft-repeated aphorism holds that a corporation has "no soul to be damned and no body to be kicked." (20) This is a somewhat poetic way of recognizing that corporations are not the type of thing that can bear punishment.

      A corporation, like the White House, Congress, Georgetown University, and the New York Mets, is not a thing. These terms are all collective nouns that refer to complex networks of (constantly changing) human beings who are related to each other through certain formal and informal arrangements. Although in some sense, these are all real entities, none of them is a thing that has a physical existence in the world. The...