Vol. 5, No. 4, Pg. 32. COLLECTIVE KNOWLEDGE AND VILLFUL BLINDNESS NEW LIABILITY UNDER OLD LAW.

• Author: By William S. Duffey Jr. and Phyllis B. Sumner

South Carolina Lawyer

1994.

Vol. 5, No. 4, Pg. 32.

COLLECTIVE KNOWLEDGE AND VILLFUL BLINDNESS NEW LIABILITY UNDER OLD LAW

32COLLECTIVE KNOWLEDGE AND VILLFUL BLINDNESS NEW LIABILITY UNDER OLD LAWBy William S. Duffey Jr. and Phyllis B. Sumner"[T]wo emerging theories . . . significantly expand the circumstances under which a corporation may be held criminally liable for the conduct of its employees."

In 1909 the United States Supreme Court in New Tork Central and Hudson River Railroad Company v. United States, 212 U.S. 481, 493-94 (1909), applied the doctrine of respondeat superior to hold a corporation criminally liable for the acts of itsemployees. Since that time numerous courts have held a corporation criminally liable for the acts of lower as well as upper level employees.

Other courts have held that a corporation may act with criminal intent if an individual employee actedin some way to benefit the corporation and the act constituted a crime. See, e.g., United States v. Automated Medical Laboratories, Inc., 770 F.2d 399, 407 (4th Cir. 1985).

Even more important for corporations are two emerging theories

33 that significantly expand the circumstances under which a corporation may be held criminally liable for the conduct of its employees. Under these developing new theories a corporation may be held liable for employee criminal conduct even though not a single employee had the requisite knowledge or intent to commit a crime when the crime was committed, or even though no one had actual knowledge that the criminal conduct was occurring but the corporation willfully avoided learning the truth about the conduct of its employees. Prosecutors use these two theories of corporate criminal liability, known as "collective knowledge" and "willful blindness" respectively, to hold corporations liable for the crimes of those who work for the corporation.

34 Collective Knowledge

Consider the following scenario. A bank employee handles multiple cash transactions for a single customer in one day. Each transaction exceeds $10,000, but the employee does not know that the bank is required to file a report on the transactions. Another employee of the bank is unaware of the particular transactions but knows the bank is obligated to file a report on cash transactions in amounts greater than $10,000.

Can the bank be found guilty for knowingly failing to report the transactions? Under the "collective knowledge" theory, the answer is yes. In United States v. Bank ofNew England 821 F.2d 844 (1st Cir.), cert. denied, 484 U.S. 943 (1987), the bank was convicted of knowingly failing to file required currency transaction reports when an employee was aware of transactions in excess of $10,000 but did not know of the requirement to file the reports, although others in the bank knew of the filing requirements. The bank appealed the conviction on the grounds that the trial judge's jury instructions on knowledge and willfulness were flawed. The trial judge gave the following "collective knowledge" instruction:

[Y]ou have to look at the bank as an institution. As such, its knowledge is the sum of the knowledge of all of the employees. That is, the bank's knowledge is the totality of what all of the employees know within the scope of their employment. So, if Employee A knows one facet of the currency reporting requirement, B knows another facet of it, and C a third facet of it, the bank knows all of them. So if you find that an employee within the scope of his employment knew that [reports] had to be filed, even if multiple checks are used, the bank is deemed to know it. The bank is also deemed to know it if each of several employees knew a part of that requirement and the sum of what the separate employees knew amounted to knowledge that such a requirement existed.

Id. at 855. The court of appeals rejected the bank's argument that this instruction eliminated the requirement that the government prove the bank violated a known legal duty. The appeals court held that the acts of a corporation are simply the acts of all of its employees operating within the scope of their employment and that the "collective knowledge" instruction that was given was appropriate to assess corporate criminal liability. Id. at 856.

Before the Bank of New England case, the collective knowledge theory of corporate liability generally developed...