Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
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.