Corporate Criminal Liability
To be guilty of committing a majority of crimes, corporations have to, in some sense, possess a form of criminal mental state. Scholars and lawmakers assume that factfinders require fundamentally different measures for attributing mental states to individuals and corporations. Initially, the law held that corporations could not form criminal intent, thus could not be criminally liable for actions perpetrated under them. The corporations were not answerable for the conduct of other parties, including employees and agents operating within the scope of their service on behalf of the organization. Currently, a corporation is viewed as a person; the word is utilized in most criminal decrees, and a corporation has criminal liability. It is possible to impose corporate criminal liability based on the common liability concept or the strict liability theory. Unlike older times, when corporates would not be accountable for the actions of their employees or agents, present times see the corporations being held liable for the deeds of all their employees, and often, even independent contractors. Given the increasing importance of the concept of liability for crimes and the ever-evolving business world, it is prudent to examine the theory of corporate criminal liability deeply, including its applications and consequences.
Corporate Criminal Liability: Culpability of Organizations
The advancement of corporate criminal liability epitomizes synthesis and tension in legal conceptions. It also symbolizes a response to social and economic concerns. However, it does not represent the application of an established hypothetical response to social issues. The general code of common law in the past was that corporations could not be held criminally liable (Leigh, 2016). This decree existed for various reasons. The essential bar on liability was due to the incapacity of a corporation to act or think for itself. This means that the corporation was never indeed regarded as performing under tutelage; instead, it enjoyed specific powers, including the right to prosecute and be sued in return under its corporate name, the right to alienate or hold property, and the right to form by-laws regulating its internal governing apparatus. The governing bodies could be ascribed to it.
Nonetheless, until the emergence of vicarious liability, there did not exist a basis on which positive actions could be attributed to corporations. However, criminal liability could be imputed to corporations for omissions that cause nuisance. Misfeasance liability was later formulated and came under the umbrella of vicarious liability. As a result, it offered a foundation for both liability and limitation. Historically, the view was that there would be zero vicarious liabilities for any serious criminal offenses. To overcome this impediment, courts of law had to either deny that the rules applied to individuals also applied to companies, or to differentiate between personal corporate liability and vicarious liability.
Corporate criminal liability has to meet various conditions. The obligation holds irrespective of the employee’s or agent’s or independent contractor’s position within the corporation’s hierarchy, and the form of infringement, provided that the cumulative conditions are satisfied. The conditions were: 1) the agent acted within the scope oh his responsibilities, and in the course of his or her employment, had expressed authority to act on behalf of the company with respect to the business that was conducted unlawfully; and 2) the agent worked with the intention of advancing the corporation’s business interests (Lederman, 2016). On various occasions, the United States courts add another condition: the criminal actions were tolerated, authorized, or endorsed by the corporate management. For example, the Minnesota Supreme Court, that was responsible for the third condition being added, admitted that such ratification was not anticipated to have been approved openly and maintained that the principle ought to be whether “those in positions of … responsibility acted or failed to act in such a manner that the criminal activity reflects corporate policy” (Lederman, 2016, p. 73). This third condition makes the principle of respondeat superior more similar to other the hypotheses of corporate liability. Within the American legal framework, due diligence defense is uncommon for statutory bodies, though sentencing guidelines permit for mitigation of consequences when sufficient compliance programs are demonstrated to be in force (Lederman, 2016). Under the dominant approach, a corporation may be found criminally liable for the conduct of a subordinate employee who acted in contravention of corporate dogma and to the sufficient compliance code of its company, into which it has invested expenses and time. Similarly, the courts have upheld felonious corporate liability when an agent has been found to act in breach of the instructions they were given.
Akin to other countries, American criminal law assumed the fiction that corporations are persons so that it could apportion them criminal liability for wrongdoing. However, it left the project unfinished. Although crimes characteristically require a mens rea and an actus reus, courts do not possess the real theory of the manner in which corporations (which do not have minds nor bodies), could instantiate either (Diamantis, 2017). The best they possess is an antiquated ploy – respondeat superior – for holding companies vicariously accountable for crimes committed by their employees. This approach may have the merit of making the courts somewhat dependable in determining when to hold companies responsible.
However, even this sole feature is now imperiled as respondeat superior progressively generates outcomes at odds with any practical concept of criminal justice. Often, respondeat superior exonerates criminal corporations. This is because, in complex and opaque corporations, the paper trail could be incomplete or too long to find the people who perpetrated crimes ascribed to the corporation. Similarly, it could also be because there was no particular employee who had committed anything prohibited by law. For instance, in a specific case, a ferry sank after sailing with the bow doors open and killed 200 passengers (Lederman, 2016). It was established that from the highest echelons of management to the lowest level workers, the corporate running the vessel was sloppy. The prosecutors conferred charges of manslaughter against the company, but no distinct employee was deemed to be so slack as to have been wholly negligent, the requisite mens rea (Lederman, 2016). On the application of respondeat superior, the court determined that the company could not be held liable, thus not guilty.
In other instances, respondeat superior subjects a company to criminal charges in spite of the overpowering sense that the real criminal is not the corporate entity but some reprobate employee within its books. For example, in the case of United States v. Sun-Diamond Growers of California, the corporation’s internal lobbyist defrauded it to make unlawful payments to some of his friends who were politicians (the United States v. Sun-Diamond Growers of California, 1999). Given that the lobbyist could also have been acting “with intent to further his employer’s interests”, the court endorsed the charges. However, in the court’s view, the company appeared more like the victim as opposed to the perpetrator. Therefore, the court felt that it was compelled to sustain the conviction by prevailing canons and dismal exercise of prosecutorial discretion (Muhwezi, 2016). Even when one is not forced by the specific facts in Sun-Diamond, reprobate employees remain a pervasive concern.
Pure individual crimes usually involve individuals seeking to harm a third party to derive some benefit. The core objective of personal liability is deterring all crimes that impose social costs bigger than the benefits derived from the offense (Arlen, 2012). Individual criminal liability achieves this objective by applying sanctions straight to the particular offender whose expected cost is equal to the crime’s social value. When such individual actors possess limited assets, the legal system could have to spend resources on non-monetary sanctions (like prison) or detection. Corporate crimes contrast from simple individual crimes due to the reality that they involve an extra actor, which is the firm (Diamantis, 2017). The firm can intervene to encourage or deter crime ex-ante and ex-post. They can dissuade crime ex-ante by adopting measures that escalate the direct costs of committing the crime or reduce the anticipated benefit of its commission. Companies possess express control over the projected benefit of crime, which is the control that even states do not, since the offenders frequently benefit indirectly from crimes through compensation and additional benefits obtained from actions, which raise the company’s profits. Whereas traditional criminal law infringements applicable to individuals (such as burglary) are relatively straightforward, desecrations of the many governing schemes pertinent to commercial enterprises today foster a much more intricate and hazardous environment for doing business. Additionally, it is not only the organization that might be liable for business crime infringement; undeniably, individual directors and managers can be culpable as the corporation’s agents.
Increasingly, organizations and officials that generally could have circumvented prosecution for different primary offenses (such as violating aspects of securities law) introduce a second surge of criminal investigations when it is established that officials have lied to investigators, hampered efforts of law enforcement officers, or destroyed documents. For example, in 2001 when Enron Corporation’s financial constraints became public, the petitioner, Arthur Andersen, who was the corporation’s auditor, instructed the employees to damage documents according to its policy on document retention (Weissmann, 2017). A jury established that this deed made the petitioner guilty of breaching 18 U.S.C §§ 1512(b)(2) (A) and (B). The sections decree it a crime to knowingly use intimidation or physical force, threaten, or corruptly persuade another person … with intent to … cause” that person to “withhold” documents from, or “alter” documents for use in, an “official proceeding” (Ferguson, 2010, p. 80). This was affirmed by the Court of Appeals for the Fifth Circuit.
In pursuit of this, the requirement of the extent to which employees have to be acting in the scope of their apparent or actual authority has been construed so widely that it is realistically invisible in most contexts. Correspondingly, the requirement that employees undertake actions to benefit their firms has been relaxed by lenient interpretation: under the present code, “it is not necessary that the employee be primarily concerned with benefitting the corporation, berceuse courts recognize that many employees act primarily for their gain” (Weissmann, 2017, p. 1320). This is the state of the contemporary dogma of vicarious criminal company liability, which means that, under federal law, a company can be found culpable for agents regardless of their position within the organization’s hierarchy and irrespective of whether the efforts enforced by the corporate managers deter their conduct. Prosecutors possess excessive leverage because of the present application of the dogma of vicarious liability (Lederman, 2016). A low-level worker’s behavior can be adequate to trigger criminal culpability on the corporation’s part.
Furthermore, it might not even be essential for the jury to concur unanimously on the identity of the criminal wrongdoer to find the corporation guilty. Where potential liability is present, companies as a pragmatic matter can seldom afford to carry criminal cases to trial since obligation can be generated by such insignificant employee conduct. The prosecutors’ leverage is further heightened since a criminal indictment can pose devastating penalties for a company and risks business losses.
The readiness of corporates post-Enron to conform to strict deferred prosecution arrangements in order to circumvent an indictment was significantly enhanced when Wall Street witnessed firsthand the outcomes of the decision made by Arthur Andersen in rejecting the state’s offer of a delayed prosecution arrangement in 2002 (Ferguson, 2010). Even though the company at that moment was losing clients and had a high probability of folding, its decision to go ahead and face indictment as opposed to entering into the deferred prosecution arrangement was broadly perceived as effectively dousing any expectation of Anderson’s continued sustainability absent of an acquittal. The corporate world could see both the government’s resolve to prosecute even large corporations, and the consequences which could result from an organization’s rebuttal to settle (Lederman, 2016). Consequently, a corporation has little in terms of choice but to consent to the state’s demands. Today, it is normal post-Enron among the white-collar (amongst both prosecution and defense) that corporate defense comprises largely of being a branch of the prosecutor.
When corporates are convicted of national crimes, they are subject to considerable penalties, which include non-monetary criminal sanctions, criminal monetary sanctions (like remediation and restitution), administrative and civil sanctions enforced by the state, reputational penalties, private civil liability, criminal fines, and collateral penalties associated with conviction (Arlen, 2012). Today, companies sentenced for federal crimes face significantly larger monetary penalties than they faced two decades ago. During the mid-1980s, median and average fines imposed on convicted corporations were $10,000 and $108,000 respectively (Arlen, 2012). In contrast, between 2006 and 2008, the average penalty imposed on convicted corporations was between $5.7 million and $17.3 million. Nevertheless, criminal penalties often surpass the corporation’s ability to compensate, since most of the convicted corporations are usually small and do not possess enough assets to cover the whole criminal penalty imposed.
Corporations are answerable to a host of laws criminalizing actions that are possibly profitable for business but harmful to society. Some of the laws, for instance those proscribing healthcare and securities fraud, outlaw intentional transgression. Others, for example, many environmental laws, utilize criminal law to inspire corporations in measures to deter harms that otherwise could occur naturally as part of their firm operations. Virtually all the laws are imposed through an amalgamation of corporate and individual liability enforced on wrongdoers. The core policy question that faces enforcement authorities is the manner in which to structure corporate criminal and civil sanctions to prevent such crimes optimally.
Arlen, J. (2012). Corporate criminal liability: Theory and evidence. In A. Harel, & K. Hylton, Research Handbook on the Economics of Criminal Law. New York, NY: Edward Elgar.
Diamantis, M. E. (2017). Corporate criminal minds. Notre Dame Law Review 91(5), 2050-3000.
Ferguson, J. E. (2010). White-Collar Crime. New York, NY: Infobase Publishing.
Lederman, E. (2016). Corporate criminal liability: The second corporate criminal liability: The second. Stetson Law Review 46, 73-90.
Leigh, L. H. (2016). The criminal liability of corporations and other groups. Ottawa Law Review 9(247), 247-301.
Muhwezi, M. G. (2016). The case for corporate criminal liability. Kampala: Uganda Christian University (UCU).
United States v. Sun-Diamond Growers of California, 526 US 398 (United States Court of Appeals for the District of Columbia Circuit Mar. 02, 1999).
Weissmann, A. (2017). A new approach to corporate criminal liability. American Criminal Law Review 44:1319, 1319-1344.
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