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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.
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The theory behind it is that the reporting requirement makes money laundering and tax evasion more difficult.
And is it worth it? What’s the cost of a few uncaught criminals here and there compared to the cost of chronically impeding everyone’s business with reporting requirements?
I’m not defending the reporting requirement and this is certainly not my area of expertise, but my understanding is that requiring large cash transactions be reported can be a substantial impediment to some types of illegal activity and is not usually particularly onerous on the reporting entity. I’d be happy to do away with it, but I feel that way about most laws and it’s nowhere near as asinine as any number of other statutes and regulations which I’d go after first.
Fair enough.
We haven’t found having to ask the pharmacist and sign the state registry whenever we buy decongestant tablets particularly onerous, either. Of course, I have no idea how big the benefits are in that case.
This is a troubling remark. Governments can bureaucratize evil leading to crimes against individuals and crimes against humanity – I can imagine that corporate management can do so as well to a lesser degree by creating an environment where unethical action is rewarded. In cases, where a corporation has become so corrupt that its actions become routinely harmful or deadly to the public then punitive action to effectively dissolve the enterprise should result. The cases you cite (Arthur Anderson, breaded shrimp, etc.) show the excess of this for small infractions but have there not been cases where more extreme penalties have been warranted? Is it merely a civil infraction, when management and those complicit in their decision, make a calculation to release a product they know has an inherent flaw that will result in the death of an “acceptable” percentage of their customers?
Adolf Eichmann was an SS bureaucrat processing paperwork to transport Jews and other enemies of the Third Reich to the death camps and ultimately to be exterminated. He was merely following orders through a chain of command. Was the enterprise that he worked for committing crimes?
It’s absolutely true that governments, like any other bureaucracy, can be operated in a corrupt fashion and toward unjust or evil ends. They do not, however, commit crimes. Individual people do. While I think that non-human actors are incapable of committing crimes I think it imperative that individual human criminals be criminally prosecuted.
To use your Eichmann example, it was entirely appropriate and necessary that he be prosecuted and punished for his crimes. Acting on behalf of an organization or following orders does not absolve individuals of their moral or legal responsibility.
This is, once again, feeding the Left by agreeing with their premises. Ask why corporations are formed in the first place and go from there- esp. small business, charities, etc. Get rid of the underlying problems of over-regulation and most of all over complicated and onerous taxation. Follow the money and do not get involved in legalistic, pseudo-philosophic ‘discussions’. A better overall solution would be to over-regulate lawyers.
Either corporations are persons or they aren’t. If we wish for corporations to have the rights of a person (free speech, religious exemptions, etc.) then they must accept the same responsibilities as a person (criminal liability.) We can’t pick and choose which aspects of personhood we apply to corporations.
A corporation is not a non-human actor. It is a human agency comprised of humans and operates and behaves much like a cell comprised of constituent and cooperative smaller cells (individuals) for the survival and success of the larger cell. To the degree that an organization whether governmental or corporate makes conscious decisions and acts upon them by consensus or others in the organization follow these decisions complicitly — that is an exercise of cooperative and collective will and to the degree that those acts of will affect other human beings the government or corporation is thus acting as a moral agent not an amoral non-human one. The consequences of those acts of will can directly result in crimes. It’s one thing to say that an enterprise – whether governmental or corporate – is a wholey criminal enterprise committing crimes – very few are. But it is quite another to say that governments or corporations don’t commit crimes.
Just because Sal wrote it doesn’t mean it’s a secret agreement with the Left.
No, you don’t know what you’re asking. Regulatory capture is a big enough problem in the hands of non-lawyers. I don’t think you’d be pleased to see what lawyers can do with it (and in all likelihood probably are already doing with it).
< devil’s advocate mode = on >
That being said, not all human persons are subject to the same rights and responsibilities either. For example, a human person under the age of 12 cannot be charged with a crime in many jurisdictions. They are still a legal person, but they are immune from criminal prosecution.
< devil’s advocate mode = off >
I don’t see how we can avoid picking and choosing to some extent. Artificial persons aren’t natural persons, after all.
A natural person, for example, spends about 17 years as a minor, unable to enter into many binding agreements without parental consent. Now, I’m no lawyer, but I am capable of being very literal-minded. It would therefore seem to me that treating artificial persons exactly as if they were natural persons would require having them reach an age of majority before they can enter into legally binding agreements without “parental” consent. Does this make sense?
If my counterexample fails over some legal technicality, I’m sure an actual lawyer could come up with a counterexample that doesn’t.
Did you actually read my post?
This is simply not the legal basis of corporate personhood. Corporations are legal constructs. They are distinct from their employees. The relationship of a corporation (or a government) to its employees is not akin to the relationship of a person to individual cell. It is a contractual relationship between two independent legal entities.
Of course we can pick and choose which aspects of personhood we apply to corporations. Unlike natural persons, corporations are creations of the law. To the extent that they exist it is because the law allows them to. There is no natural right to incorporation; the corporate form has developed for purely pragmatic reasons.
In any case, doing away with corporate criminal liability would bring the obligations of corporate persons more in line with natural persons. In the majority of cases corporations are held criminally liable only by applying theories of liability which we (rightly) do not apply to natural persons.
The law should follow an ethical construct, shouldn’t it? It should be a consequence of it. There is a reason that murder, rape and theft isn’t permitted. Not because they are simply against the law but because of the harm inflicted on individuals and to the civil cohesion of society. Your contention is that a corporation is a non-human actor. Mine is that corporations are comprised of humans who act often as moral agents. By rejecting the notion that corporations or governments commit crimes you open the door for what Hannah Arendt posited is the banality of evil. When human beings acting in concert in corporations or governments engage in criminality and an organization is reduced to a “non-human actor” and when other human beings get reduced to mere numbers on a piece of paper or on a computer screen then their humanity is obliterated. By ignoring the human element in the decisions a corporation or government helps to give license to unspeakable acts.
I just don’t see how this is the case. It is precisely because I don’t want to reduce human beings to mere numbers that I think treating corporations as if they were moral actors is ill-advised. If anything, pretending that an incorporeal legal construct can commit a crime masks the criminal and evil acts actually committed by human beings. Saying, “Acme Corp. committed massive fraud.” actually detracts moral opprobrium from the individual people who committed the fraud. To return to your previous example, the SS didn’t commit genocide; individual human beings did. They should be held fully accountable for their actions.
I would caution against buying into the media spin that the argument in Citizens United or the Hobby Lobby case revolves around the corporate entity having a right of free speech or free exercise of religion, it does not. The issue is whether individual persons surrender or forfeit their rights when they organize in a corporate structure. Sal’s argument is consistent with this as individuals retain their criminal liability despite acting withing a corporate structure.
I don’t think so. The legal process itself will reveal what decisions were made and by whom through discovery and depositions. If a judge exacts a penalty on a corporate entity beyond those involved in a crime, is that appropriate and just, since it will be harmful to some individuals in the corporation who may have had nothing to do with the acts of others in the same corporation? By what standard can a corporation pay so dearly as to nullify its existence as a going concern?
I’m not sure that I follow you here. Civil liability is perfectly capable of putting a corporation out of existence.
As to the justice of extracting a penalty from the corporation which has negative effects on people beyond the actual wrongdoers I’m not sure that this is a problem. Civil liability has two purposes. First and foremost, civil liability is aimed at making injured parties whole. Second, civil liability acts as a deterrent to conduct of which we disapprove. The doctrine of respondeat superior, which holds a principle civilly liable for the actions of its agent is about compensation, not punishment.
This also explains why individuals are more willing to commit crimes. They know most of the blame will be spread to the faceless organization. When the cost of crime is low, unscrupulous people will commit more crime.
That’s a very good point.
Corporations do not make decisions. A corporation is a conglomeration of pieces of paper, such as bylaws. Paper don’t decide nothin’ by itself.
People make decisions. Those people may be directors or officers put in positions of trust by the shareholders/members/citizens, etc. Or some low-level employee may make a decision that resounds and redounds throughout and upon the corporate entity. Or. the collective shareholders/members/citizens of the corporation may make a decision though an election, but it always comes back to people. Is there a computer running your corporation using random numbers? That may happen in the future, but at the moment all decisions I know of are human decisions and humans bear the responsibility.
Commercial corporations were created to limit fiscal liability of the owners. I buy ten shares of stock at $1,000 per, so I am in for $10,000. If the corporation goes bankrupt, I am out by $10,000, but not responsible if the corporation has a billion dollars in unpaid debt. The legal fiction of a corporation to be treated as a person allows the corporation to sue other people or corporate entities, to declare bankruptcy, etc.
If wrong is done by an individual who has some association with the corporation, maybe an officer or director, it it likely part of the wrong is against the corporation in the first place. If I’m the CEO of Widgets Unanimous and get caught trying to fix prices with other widget manufacturers, I have not only committed a crime against all widget customers, but also hurt the corporation through bad PR my illicit actions have engendered. Why should shareholders in the collective pay a fine for my action? If anything, I owe the corporation for damages.
This is not the same as if our widgets were hurting people, and the corporation should pay directly to make good the damages.
IF one follows the logic of the second paragraph, I don’t see why this should be true. After all, the corporation didn’t design the widget. A designer did that. The corporation didn’t approve the widget for sale. A manager did that. The corporation didn’t manufacture the widget. The employees on the assembly line did that. Therefore, following the logic of the second paragraph, those individuals should be liable for damages, not the corporation.
The differences come partially because there is a difference in criminal and civil law, partially because of who the damaged parties are and how much damage is caused to each, and partially because one case is where an individual breaks laws, versus the second case where no laws are broken, but harm is done.
In a sense, a civil case against a corporation is a suit against the owners’ limited investment into their “investment partnership.” The owners appointed those directors, the directors appointed the officers who made the decisions, so a finding against the corporation is a finding against the owners in reality. The owners are paying the damages and penalties for their liability in the investment’s actions through the assets of this corporate entity.
In the case of of criminal law, are you theoretically going to imprison all of the owners for indirect responsibility? If shares are owned by another corporation or fund, such as the widows and orphans pension fund, should those widows go to jail? One can always pursue something to absurd levels.
If you are looking to make an example of a corporation, please start with REI. Hippies just bother me. :)
What is this fairness of which you speak? The law has nothing to do with fairness, and fairness has nothing to do with the law. Any apparent congruence between law and fairness is either complete coincidence or a deliberate illusion created by politicians.
Now I understand why Liberal Democrats are almost never held criminally liable for their conduct. Thank you.