Corporate Criminal Responsibility

Several arguments are made against recognizing corporate criminal liability. The most consistent argument is that corporate criminal liability is inconsistent with basic tenets of criminal law. A corollary argument is that using the criminal justice system inappropriately, by imposing corporate criminal liability, distorts, cheapens, and ultimately weakens the criminal justice system. Proponents of this view argue that corporate criminal liability is inconsistent with the criminal law in two respects. First, the current standards of corporate criminal liability, which are based upon principles of vicarious liability, are incompatible with the criminal law's requirement that an actor be held responsible only for its own action and intent. Since fictional entities have no intent, they are not suitable for criminal prosecution, and the subterfuge of imputing another actor's act and intent to the corporation (even that of a corporate agent) cannot substitute for this deficiency in proof. This argument also points to imprisonment as a defining characteristic of the criminal law and argues that since fictional entities cannot be imprisoned, corporate criminal liability is inappropriate.

A variety of arguments against corporate criminal liability concern the harm such liability poses to businesses. One argument is that the vague and broad standards of corporate criminal liability confer too much discretion in prosecutors, too little guidance to courts as to how to apply the standards, and too little notice to businesses as to how to avoid criminal liability. Another argument is that the broad standards for corporate criminal liability, along with aggressive use of expansive statutes such as money laundering and RICO (Racketeer Influenced and Corrupt Organizations Act), have led to "overcriminalization." Actions once handled administratively through dialogue between regulator and regulated are now prosecuted criminally. Overcriminalization has caused American businesses to expend resources on expensive internal policing efforts that, in turn, leaves American companies less competitive in a global business environment.

Another argument advanced against corporate criminal liability is that it is unclear whether imposing such liability does any good. In fact, argue some critics, criminal prosecution with its heavy penalties and dire consequences for the corporation and its employees may encourage cover-ups of illegal activity. These critics suggest that regulatory oversight with continuing dialogue between regulator and those regulated is more effective in detecting and deterring corporate misbehavior.

The last argument advanced against corporate criminal liability is that imposing it hurts innocent actors: the shareholders, who especially in the context of a large publicly held corporation are powerless to effect the conduct of corporate executives; bondholders and other creditors; employees; the community in which the corporation is located and that may be adversely affected by serious consequences imposed on the corporation; and consumers, who likely will pay higher prices because of the criminal penalties imposed. This argument is, of course, just as applicable to imposition of civil penalties as to criminal penalties.

The major argument offered for corporate criminal liability is utilitarian: corporations are major actors in today's world and crime cannot be fought effectively without tools to pursue all major actors. A corollary argument is that allowing corporations to engage in criminal activity gives illegal corporations a competitive edge over law-abiding corporations. This, in turn, distorts and undermines market forces in a capitalist economy. This view is based upon the belief that criminal prosecution of corporations can change corporate behavior. Advocates of corporate criminal liability suggest that corporate behavior can be altered in two ways by criminal prosecutions. First, general deterrence of similar behavior by many corporations is achieved through publicity about corporate prosecutions. Second, options for sentencing convicted corporations, such as probation, which requires implementation of an effective corporate compliance plan, forces changes within a corporation.

The obvious alternative to corporate criminal liability is prosecution of culpable individuals within an organization. Proponents of corporate criminal liability argue that this alternative is inadequate because it is not always possible to identify the responsible individuals within a large organization; individuals are fungible and can be replaced by others who are willing to break the law; individuals are more likely than organizations to be judgment-proof and thus immune to financial penalties that accompany criminal liability and deter future unlawful conduct.

Most proponents of corporate criminal liability acknowledge many of the problems identified with the manner in which corporate criminal liability is imposed and urge adoption of a more appropriate standard for assessing such liability. These commentators agree that the problem with all current standards of corporate criminal liability is their reliance on vicarious liability, which is inconsistent with criminal law's focus on personal guilt through one's own conduct and intent. They argue that corporate criminal liability should hinge on an organization's own conduct and intent. Many commentators have suggested models for assessing corporate criminal liability. One view is that corporate criminal liability should not be imposed until an organization's "intent" is proven. Such proof would focus on corporate policies and procedures such as the effectiveness of corporate hierarchy in monitoring activities of employees; corporate goals; education and monitoring programs for employees; an organization's reaction to past violations and violators; and an organization's compensation incentives for legally appropriate behavior. This suggested approach is similar to that taken in the U.S. Sentencing Guidelines for assessing the culpability of a convicted organization about to be sentenced.

Another proposal focuses on a corporation's response to a violation of the law by corporate agents. Termed reactive corporate fault, this approach examines the corporate reaction after the crime is brought to the attention of the policy-making officials within the corporation. Although this approach provides a conceptual paradigm for measuring corporate intent, it measures it only after the criminal conduct has occurred. This is a problem since the relevant time to measure intent for any crime is at the time the offense was committed.

Another conceptual approach toward corporate criminal liability that respected scholars have advocated for years is a due diligence defense. The Netherlands and some American courts currently permit such a defense. A due diligence defense allows a corporation, otherwise criminally liable, to show that it exercised due diligence to prevent the crime. Presumably corporate policies and procedures existing at the time of the offense, such as the presence of a corporate compliance plan, would be relevant in assessing due diligence. The weakness in this approach is that it becomes available only after a corporation has been found liable under the inappropriately broad vicarious liability standard.