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No Body to Kick, No Soul to Damn — Salvatore Padula
During the 2012 Democratic National Convention, a video was played that claimed that “government was the only thing we all belong to.” As objectionable as the sentiment behind that statement was, it does highlight the important fact that a government, at least ideally, is an association of its citizens. Recently, Mike H argued persuasively that government should be held to the same standards of accountability for its conduct as are other entities consisting of associations of individuals: corporations. While I wholeheartedly endorse Mike’s point about the relative accountability of corporations and government, one paragraph of his post caused me to pause.
When a corporation does something that would be morally or ethically wrong in the case of an individual, the people and the corporation involved are rightly punished. They may have broken a law, or they simply may lose business because of unsavory practices. Either way, we know when a corporation has done something wrong because it has violated a tenet to which we hold each individual. The rules for corporations don’t change simply because of the label “corporation,” because it is still a “person.”
The preceding paragraph may seem unobjectionable; after all, who can seriously oppose holding malefactors responsible for their actions? I certainly don’t.
What then, you may ask, is the problem? The problem is the implicit acceptance of the premise that corporations are capable of committing crimes and should consequently be open to criminal liability. While it may seem a no-brainer that corporations should be subject to criminal liability I would argue that corporate criminal liability is both theoretically unsound and has seriously deleterious consequences in the real world. This is not to say that corporations should be exempt from accountability. Civil liability is an important check upon harmful conduct committed on behalf of corporate persons. But it is past time we did away with criminal liability for corporations.
The chief purpose of the corporate form of association is to limit the liability of its constituent members. The corporation, as a legal entity, has been in existence for several centuries and for the majority of that period was subject to liability only in the civil context.
To early commentators at common law, the inability of corporations to be liable for criminal sanction was self-evident. Lord Thurlow, Lord Chancellor of England in Lord North’s government, is famously quoted asking “Did you ever expect a corporation to have a conscience, when it has no soul to damn and no body to kick?” Lord Thurlow spoke with the clear implication that conscience, soul, and body were all prerequisites for criminal liability.
The incorporeal nature of corporate entities was seen as a decisive impediment to the imposition of criminal liability on corporate defendants. Corporations could not actually commit crimes as they were incapable of independent action.
As Chief Justice Marshall noted, a corporation was “an artificial being, invisible, intangible, and existing only in contemplation of law.” Because a corporation existed only in the contemplation of law, it could only act in ways the law (and the corporation’s charter) authorized. Therefore, any infraction of the law was ultra vires and could not be attributed to the corporation.
Relying somewhat less heavily on theory, Blackstone stated flatly that “a corporation cannot commit treason, a felony, or other crime,” and apparently felt the point to be “so obvious that it needed no elaboration.” Blackstone went even further, stating that the criminal punishment of a non-human defendant was nothing but a superstition originating in “the blind days of popery.” (Interestingly, in the 13th century, Pope Innocent IV, a former professor of canon law at the University of Bologna, forbade the practice of excommunicating corporations on the theological ground that they did not possess souls and, thus, could not be moral actors.)
Corporate criminal liability became an established feature of American law in 1909, in a case called New York Central. New York Central involved a violation of the Elkins Act, which set minimum prices for freight transportation by railroads. The defendant railroad’s liability was based on illegal rebates given to certain of the railroad’s customers by an agent of the railroad. In upholding the railroad’s conviction, the Supreme Court imputed both the acts and intent of the agent to the railroad by adopting the established tort doctrine of respondeat superior, which holds a principal strictly liable for tortious acts committed by an agent within the scope of the agency.
The decision to base corporate criminal liability on a doctrine formulated in the framework of tort law was a dramatic alteration in the scope of corporate liability. Not only did the Court open corporations to criminal liability for acts committed by corporate agents, by adopting respondeat superior it also ensured that the new liability would be strict.
In the opinion, the Court provided no explanation for its decision to radically alter the nature of corporate liability beyond stating that, in the absence of strict vicarious liability, “many offences might go unpunished and acts be committed in violation of law.” With this slim, but pragmatic, justification, the judiciary commenced an extended period of increasing criminal liability in a manner which professor Leonard Orland has characterized as “law in search of theory and scholarship.”
The cases extending corporate criminal liability include: Standard Oil Co. of Texas v. United States, holding that misconduct by even a low-level employee may give rise to liability; United States v. Bank of New England, creating the collective knowledge doctrine, whereby a corporation may be held liable even though none of its individual employees held the requisite knowledge or intent; United States v. Hilton Hotels, holding a corporate defendant liable for its agent’s actions that were contrary to both corporate policy and management’s express instructions and where the agent in question was individually acquitted of the crime; and United States v. Automated Medical Laboratories, which held the corporation liable for criminal acts that the corporate agent committed primarily for personal benefit.
While the courts were dramatically expanding the scope of corporate criminal liability, Congress was dramatically expanding the scope of the criminal law generally. Over the course of the last century, Congress created a multiplicity of new crimes ranging from a variety of federal conspiracy offenses to the imposition of criminal penalties for the insufficient breading of frozen shrimp, with many offenses, such as violations of the Elkins Act, falling somewhere in between the two moral extremes. Increased criminalization was the result of the shift toward a more comprehensive federal administrative state that regulated virtually every facet of commercial enterprise, combined with the omnipresent desire of politicians to appear tough on crime.
In addition to the proliferation of new criminal offenses exposing corporations to criminal sanction for a much wider variety of conduct, the expansion of the regulatory state caused a significant change in the consequences corporate defendants faced if criminally convicted.
For example, once convicted, corporations are barred from auditing companies listed on a public exchange or bidding on most government contracts, and criminal convictions often results in loss of licensing or disbarment from certain industries. Such delicensing or disbarment can, in effect, constitute a “corporate death penalty,” as in shown by the case of Arthur Andersen. Arthur Andersen was one of the world’s largest accounting companies, employing over 85,000 people. It was convicted of one count of obstruction of justice, which carried a penalty of only $500,000. However, because the conviction prevented Arthur Andersen from engaging in its primary business of auditing public companies, the single conviction caused the collapse of the entire company and the resulting unemployment of tens of thousands of people.
The current state of corporate criminal liability in America may be described as follows: Corporations face huge potential criminal liability. They may be held liable for any criminal act committed by any one of their employees, as long as the act was committed within the scope of the employment (scope of employment being broadly defined) and provided at least some benefit to the corporation. Once those facts are proved, the corporation has no way of escaping liability and may be convicted even if the employee acted contrary to express direction and corporate policy, and primarily for the purpose of personal gain.
Further, because mandatory disbarment or delicensing follows in many industries, corporations face potentially lethal consequences upon conviction of even relatively trivial offenses. The combination of the ease with which corporate convictions may be obtained and the extreme consequences of conviction, provides prosecutors with vast amounts of leverage when dealing with corporate defendants. As virtually every corporation is potentially indictable and indictments are all but certain to lead to conviction, prosecutorial discretion provides the only hope for a corporation seeking to avoid ruin. Perhaps unsurprisingly, criminal prosecutions of corporations are rare, as the overwhelming majority of corporations faced with the possibility of criminal liability seek to avoid indictment through deferred prosecution (DPAs) or non-prosecution agreements.
Often DPAs contain provisions with little relevance to the alleged wrongdoing or involving massive prosecutorial interference with the governance of a corporate defendant. Common characteristics of these agreements include: the payment of substantial fines, the implementation of substantial and costly compliance regimes, and complete cooperation with the authorities in the prosecution of the corporation’s employees. The demand for complete cooperation against corporate employees is so ubiquitous that one commentator has stated that “it is commonly accepted among practitioners that corporate criminal defense largely consists of being an arm of the prosecution.” As an aside, Chris Christie, while serving as U.S. Attorney for the District of New Jersey, was notorious for the heavy-handed use of DPAs, including one with Bristol-Myers Squibb that included a provision requiring the company to endow a chair of legal ethics at Christie’s alma mater.
I agree with Mike that government should be held to the same level of accountability as corporations, but I strongly dispute the notion that criminal liability is appropriate for non-human persons. Holding both corporations and government civilly liable for their actions would have the effect of decreasing corporate liability while increasing governmental accountability. In both cases, more equitable justice would result.
Published in General
Sal,
This is a subject I had never really considered before and I thank you for the education.
Although I believe your case is sound, I am afraid however the political repercussions of anyone advocating this position would be disastrous. I can hear the attack ads now.
Thanks. I’m on the same page as you are regarding the political viability my argument, but I think it worth challenging assumed premises every now and then.
If you remove the criminal liability to the company won’t that encourage corporations to look the other way when employees engage in criminal behavior that may benefit the company?
I noticed you never mentioned wood chippers. Such limited vision Sal, you make me sad ;-)
The header image uses false logic.
Persons are only executed for murder, even in Texas.
A corporation cannot commit murder. The closest thing that a corporation can be guilty of is criminal negligence causing death.
Criminal negligence causing death is not a capital offense.
There would still be civil liability for the corporation via the doctrine of respondeat superior. The distinguishing features of criminal, as opposed to civil, sanction are the restriction of liberty (usually via incarceration) and the social stigma attached to criminal conviction. Neither of these is a very effective deterrent for corporate defendants. Corporations cannot be incarcerated and as profit maximizing firms they care about social stigma only to the extent that it effects profits. Beyond that, the “corporate death penalty” effect can frequently cause dramatic over-deterrence as corporate compliance regimes will often be so comprehensive that the cost of their implementation outweighs the harm caused by the wrongdoing prevented. Due to space constraints I didn’t mention it in my main post, but there is fairly extensive academic literature on the subject of corporate malfeasance deterrence and it overwhelmingly has concluded that criminal liability is a less effective deterrent than is civil liability.
Continued.
Continued from #6
The proponents of corporate criminal liability have largely abandoned deterrence as a justification for their position (due to the aforementioned deterrence literature). Instead, their arguments tend to fall into two categories. The first is essentially retributive, that only criminal sanction is appropriate punishment for such wrongdoing. This strain of argument tends to anthropomorphize corporations, attributing real (as opposed to merely legal) personhood to corporations. The second category of argument commonly put forth is that the power corporate criminal liability gives prosecutors is a feature and not a bug of the system. I think this particular line of argument is especially pernicious as it makes a virtue out of prosecutorial tyranny.
I’m sorry to have disappointed you. My shame is overwhelming.
I’m afraid to say that my eyes glazed over a little bit there, when reading about railroad liability. Sorry, Sal! Nothing to do with you, and everything to do with me. I do agree with your general point about criminal liability, I think.
No worries. It’s a dry subject.
I picked the image in order to be provocative, not because I endorse it’s position.
It’s somewhat beside the point of my post, as I’m arguing that a corporation cannot commit any crime, but under our current legal regime a corporation can be held liable for murder. Beyond that, as I mentioned in my post, for corporate defendants even conviction for relatively trivial offenses can function as a death penalty.
But your article is great so I suspect you’ll rebound. Be strong.
No argument there.
However, the more that a corporation structures itself as a bureaucracy, the easier it is for individuals to create systems which obfuscate individual responsibility, which is why holding corporations criminally liable is a necessary evil, IMHO.
After all, if a corporation cannot commit a crime, by extension that would also mean that governments cannot commit crimes. They are both nothing more that bureaucratic organizations of individuals.
I don’t think governments can commit crimes.
Can it be simply said nouns don’t commit crimes?
Salvatore, perhaps what you describe (or advocate) breaks down when the matter at hand is:
a) cross-border;
and
b) hinging on a corporation’s ties to sovereign state actors under multi-nation sanction for expressly criminal activity?
See here, for example:
http://www.israelhayom.com/site/newsletter_article.php?id=17007
Yes, this case has been resolved via lawsuit/settlement, but per the article, the shell companies involved tied back to a bank that is banned in US and other markets for serving as an arm of the various agencies of the Khomeinist regime.
Why would it make a difference? Civil law can do everything needed in this situation. Individual people can be criminally prosecuted for breaking the law.
People commit the crimes. It may be the directors and officers of the corporation or an agent, but people commit the crimes and should be held accountable.
Second huge point is that there are three types of corporations: Commercial Corporations, Non-Profit Corporations (NGOs, Not-for-Profit), and Government Corporations. Your church is a corporation, assuming that it is not the non-profit version of a sole proprietorship and that you are in the United States, it is probably governed under section 501(c)(3). Your labor union/trade union is a corporation. Your town/village/city is a corporation, specifically classified as a municipal corporation.
The Federal Government of the United States is a corporation that was established by the several states, much as commercial corporations in a city might establish a chamber of commerce (also a type of non-profit corporation). It has a board of directors as was mentioned recently by a retiring member of that board. That board is known as Congress. It has an executive and officers. The CEO is called the President of the United States. The other corporate officers are called Cabinet Officers. It has an audit wing, called the Judiciary.
Thank you for the whole post and thread, Salvatore. It’s good by me.
Nicely done Sal. And thanks for the heads up. It’s funny, that line could best be described as the one I was least confident in. Something where I hesitated when I wrote it and thought little more of it. You’ll notice I didn’t end up using that phrase later in my argument, but I’m glad it inspired such a correct clarification.
Yowza!
Rights or obligations granted to entities that can’t testify for themselves always unnerve me.
Animal rights are problematic partly because animals can’t speak for themselves. How can we know that those claiming to speak for animals’ interests really speak for animals’ interests? Are they animal psychics or something?
Similarly, how can a claim that a corporation “knew” something “collectively” that no one within the corporation knew individually be verified? Who testifies to that? Psychics specializing in reading the hivemind of corporations?
How is it any more than imaginatively putting words into the mouth of an entity that doesn’t even have a mouth to begin with (since the mouths of the people running the corporation apparently don’t count)?
I agree that it’s ridiculous, but the theory behind the collective knowledge doctrine is that the corporation is imputed to have the knowledge of all of its employees. It is possible for a situation to arise where no individual employee has all the knowledge requisite for criminal liability, but where sufficient knowledge is dispersed among several employees. In that case, sufficient knowledge is imputed to the corporation.
I’m sorry if I came across as picking on you. I agree with the point of your post. Corporate criminal liability is a bit of a sore subject with me and I’ve been thinking about posting on it for a while.
That people cooperating in a corporation may collectively have enough knowledge to accomplish something that no individual within the company has the knowledge to accomplish makes sense. That’s what cooperation is for, after all. But how does this knowledge become guilty knowledge without some consciousness of guilt in at least one employee’s mind?
And if individual employees knowingly did wrong, then shouldn’t they be the ones punished? If no individual employee knowingly did wrong, how can the corporation as a whole be called guilty? Where is the guilty mind in that scenario?
A concrete example might help. I tried imagining one, but it was too ridiculous to be believed. Like something out of an Agatha Christie novel, if she wrote about people who routinely murdered each other without realizing it.
(Apologies in advance if I got the legal jargon wrong.)
It doesn’t really.
They frequently are. I’ve argued in academic papers that the real reason we have the corporate criminal liability system we do is because of the vast amount of leverage it gives prosecutors. As I mentioned in the OP one of the common features of deferred prosecution agreements is that the corporation cooperate fully with investigators, essentially rolling over on its employees. DPAs also frequently prohibit a corporation from paying for the legal defense of indicted employees.
In Bank of New England the one of the issues was whether the bank engaged in a “pattern of illegal activity” regarding a series of unreported cash withdrawals made by a customer who structured the individual transactions so as to avoid the reporting trigger of $10k. While several bank employees were aware of individual transactions, no individual employee knew of enough of them to rise to the level of a pattern, but since the knowledge of all employees was imputed to the bank it was held to have the requisite intent. (The matter was made more complicated by the fact that until the court ruled otherwise the bank was of the opinion that the individual transactions in question did not have to be reported as the checks the customer cashed were all under the reporting threshold. The court aggregated the value of all checks cashed at the same time into a single “transaction” for reporting purposes.)
Thanks for the example.
So if a shady customer manages to dupe me and my coworkers in the right way, our company becomes the criminal? That hardly seems fair. If lack of omniscience is a crime, then everyone is guilty.
Also, just to be cranky, why should there be a reporting trigger in the first place? Why should moving large chunks of money around be treated with innate suspicion? It seems odd, like treating everyone who’s driving a car as if they were under suspicion of using their car to deliberately run people over.
No problem. You’re right. It isn’t fair.