Time to stop living vicariously: A better approach to corporate criminal liability

American Criminal Law Review

Volumn 46, Issue 4, 2009, Pages 1393-1415

  Pollack, Barry J ^a  

^a NONE

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EID: 76749113494     PISSN: 01640364     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (61)

1. *107 (William S. Hein Co. 1986) (1641) ;
2. WILLIAM BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 21 (1769).
3. See, e.g., Davis v. United States, 160 U. S. 469, 484-85 (1895) (quoting 4 BLACKSTONE COMMENTARIES 21) ;
4. see also Morissette v. United States, 342 U. S. 246, 250-51 (1952) ("The contention that an injury can amount to a crime only when inflicted by intention is no provincial or transient notion. It is as universal and persistent in mature systems of law as belief in freedom of the human will and a consequent ability and duty of the normal individual to choose between good and evil. A relation between some mental element and punishment for a harmful act is almost as instinctive as the child's familiar exculpatory 'But I didn't mean to,' and has afforded the rational basis for a tardy and unfinished substitution of deterrence and reformation in place of retaliation and vengeance as the motivation for public prosecution. Unqualified acceptance of this doctrine by English common law in the Eighteenth Century was indicated by Blackstone's sweeping statement that to constitute any crime there must first be a 'vicious will.'").
5. See New York Cent. & Hudson River R. R.. v. United States, 212 U. S. 481, 493 (1909) ("It is now well established that, in actions for tort, the corporation may be held responsible for damages for the acts of its agent within the scope of employment.") (citing Lake Shore & Mich. S. R. R. v. Prentice, 147 U. S. 101, 109 (1893)).
6. See United States v. S. Md. Home Health Servs., Inc., 95 F. Supp. 2d 465, 468-69 (D. Md. 2000) (holding corporation may not be held accountable for mere act of employing low-level personnel who commit unlawful acts outside the corporation's knowledge and consent).
7. See United States v. 111. Cent. R. R. Co., 303 U. S. 239, 244 (1938) (holding railroad liable for negligence of its yardmaster) ;
8. United States v. Harry L. Young & Sons, Inc., 464 F.2d 1295, 1297 (10th Cir. 1972) (holding employer liable for statutory violation by truck driver employee) ;
9. Riss & Co. v. United States, 262 F.2d 245, 250 (8th Cir. 1958) (holding employer liable for log clerk's negligence).
10. See United States v. Hilton Hotels Corp., 467 F.2d 1000, 1007 (9th Cir. 1972) (holding employer liable for agent's act, even though employer instructed agent not to commit the act) ;
11. Cont'l Baking Co. v. United States, 281 F.2d 137, 149 (6th Cir. 1960) (holding corporation liable for agent's acts outside scope of employment where employer "adopted and ratified" those acts).
12. Report of Investigation Pursuant to Section 21 (a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, Exchange Act Release No. 44, 969, Accounting and Auditing Enforcement Release No. 1470, 76 SEC Docket 220 (Oct. 23, 2001) [hereinafter Seaboard Report], http://www.sec.gov/litigation/investreport/34- 44969.htm.
13. See, e.g., U. S. SENTENCING GUIDELINES MANUAL ch. 8, pt. C (2008) (determining fines for organizations).
14. See also United States v. Four Pillars Enter. Co., 253 Fed. Appx. 502, 505 (6th Cir. 2007) (employing presumption of reasonableness under 18 U. S. C. § 3553 (a) to sentence imposed on organization that fell within the applicable Guidelines range).
15. See discussion, infra Part II. A (concerning the overwhelming percentage of corporate criminal cases that are not litigated, but rather are resolved, through a negotiated disposition).
16. U. S. SENTENCING GUIDELINES MANUAL § 8C2.5 (f) (1) (2008).
17. U. S. SENTENCING GUIDELINES MANUAL § 8B2.1 (b) (l) - (7) (2008).
18. Id. § 8B2.1 cmt. 2 (C).
19. U. S. DEP'T OF JUSTICE, U. S. ATTORNEYS' MANUAL §§ 9-28.300, 9-28.800, 9-28.900 (2008).
20. Id. § 9-28.800 (B).
21. Id. § 9-28.900 (A).
22. Id. § 9-28.800 (B).
23. In a deferred prosecution agreement, the government agrees that if the corporation meets specified conditions over an agreed-upon period of time, the corporation will not be criminally prosecuted. Commonly, the corporation agrees to the payment of a substantial monetary penalty in return for obtaining a deferred prosecution agreement. In a non-prosecution agreement, the government simply agrees not to prosecute the corporation. The corporation may agree to a monetary penalty as part of a non-prosecution agreement. A plea agreement entails the corporation pleading guilty to an offense. It will typically include the payment of an agreed-upon fine. Any of these agreements, in addition to a monetary penalty, may also include an agreement by the corporation to implement certain compliance programs or procedures, or may require the corporation to appoint a monitor to oversee the corporation's compliance process.
24. Mark F. Mendelsohn, Remarks on Anti-Corruption Compliance at the Institute for International and Comparative Law, Center for American and International Law Conference in Washington, D. C.: International Corporate Compliance (Feb. 22, 2008).
25. See United States v. AGA Med. Corp., U. S. Dep't of Justice Press Release 08-491 (June 3, 2008) http://www.usdoj.gov/opa/pr/2008/June/08-crm-491. html;
26. United States v. Baker Hughes Servs. Int'l, Inc., No. 07-cr-00129 (S. D. Tex. Apr. 11, 2007) (requiring implementation of corporate compliance program as condition of plea agreement) ;
27. and United States v. Titan Corp., No. 05-cr-0314 (S. D. Cal. Mar. 1, 2005).
28. Seaboard Report, supra note 7.
29. Id.
30. See id. (listing inquiries appropriate in determining whether and how much to credit self-policing, self-reporting, remediation, and cooperation).
31. U. S. SENTENCING GUIDELINES MANUAL § 8C2.4 (2008).
32. Id. § 8C2.5.
33. Id. § 8C2.8 (a) (1), (4), & (7).
34. Arthur Andersen LLP v. United States, 544 U. S. 696, 708 (2005).
35. Likewise, the DOJ's assessment of "the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management!,]" U. S. DEP'T OF JUSTICE, UNITED STATES ATTORNEYS' MANUAL § 9-28.300 (A) (2) (2008), often does not lead to a declination of prosecution. Given the corporation's vicarious liability for the actions of its agents, the DOJ routinely determines, even in the absence of pervasive wrongdoing or complicity by senior management, that a negotiated resolution with a monetary penalty is appropriate.
36. Except where indicated otherwise, the statistics cited were all compiled by the author's co-panelist, United States Sentencing Commissioner Beryl A. Howell. The author thanks Commissioner Howell for her extremely informative compilation of the Sentencing Commission's statistical data and her thoughtful analysis of that data.
37. These statistics illustrate that both the DOJ and potential corporate criminal defendants learned the lesson of assured unilateral destruction.
38. In fiscal year 2008, 9, 246 criminal cases were commenced in United States district courts involving embezzlement, fraud, forgery and counterfeiting, and other property offenses ("white collar crimes").
39. See James C. Duff, 2008 Annual Report of the Director: Judicial Business of the United States Courts, at 232, Table D-3 (2009), http://www.uscourts.gov/judbus2008/JudicialBusinespdfversion. pdf. Subtracting the 199 cases prosecuted against organizations (calculated by Commissioner Howell) from the 9, 246 total white collar cases totals 9, 047 prosecutions of individual defendants.
40. This means that in fiscal year 2008, fewer than twenty companies with more than 100 employees were prosecuted and sentenced for a federal criminal offense. Fewer than two percent sentenced - just four corporations - had more than 1, 000 employees.
41. See, e.g., Corporate Crime: Preliminary Observations on DOJ's Use and Oversight of Deferred Prosecution and Non-Prosecution Agreements p. i (GAO-09-636T, June 25, 2009), http://www.gao.gov/new.items/d09636t.pdf ("Recently, DOJ has made more use of deferred prosecution and non-prosecution agreements (DPAs and NPAs), in which prosecutors may require company reform, among other things, in exchange for deferring prosecution, and may also require companies to hire an independent monitor to oversee compliance.") ;
42. Lynn Shapiro Snyder et al, Monitoring the Monitor? The Need for Further Guidance Governing Corporate Monitors Under Pre-Trial Diversion Agreements, 13 Health Care Fraud Rep. (BNA) No. 288 (Apr. 8, 2009) ("Over the last several years, there has been an increase in federal prosecutors' use of Deferred Prosecution Agreements ("DPAs") or, in some cases, Non-Prosecution Agreements ("NPAs"). From 2002-2005, the Department of Justice ("DOJ") entered into twice as many of these agreements with defendant-companies as it had over the previous 10 years. Between 2005 and 2007, the number of these agreements increased even more with approximately 12 in 2005, 20 in 2006, and 30 in 2007.").
43. See generally Pamela H. Bucy, Corporate Criminal Liability: When Does it Make Sense? 47 AM. CRIM. L. REV. 1437.
44. Andrew Weissmann, A New Approach to Corporate Criminal Liability, 44 AM. CRIM. L. REV. 1319, 1341-42 (2007).
45. Id. at 1335-37.
46. Id. at 1322.
47. Id. at 1335.
48. Id. at 1335-36.
49. See 18 U. S. C. §§ 1341, 1346 (2006) (defining statute's "scheme or artifice to defraud" element to include "scheme or artifice to deprive another of the intangible right of honest services").
50. 459 F.3d 509, 517 (5th Cir. 2006).
51. Id. at 513.
52. Id. at 522.
53. Id.
54. 554 F.3d 529, 546 (5th Cir. 2009).
55. Id.
56. Id.
57. Enron Corporation was not criminally charged for any of the alleged criminal conduct of its employees. This is despite the fact that at least twenty of its employees were convicted of criminal acts and the government named over 100 individuals, most of them Enron employees, as co-conspirators. Likewise, neither MCI/Worldcom nor HealthSouth was charged criminally. One could argue that in each case the collateral consequences of the criminal conduct was sufficient (each entity went into bankruptcy), such that criminal prosecution was not warranted. The author, however, views the failure to bring criminal charges against the entities involved in the largest corporate crimes in modern history as a further illustration of the flaws in the current regime of corporate criminal liability.
58. To implement the author's proposal that corporate intent be defined by the collective intent of senior management, obviously there would need to be a definition of who at a corporation comprises its senior management. For an instructive example of what should constitute senior management for the purposes of determining corporate criminal intent, see U. S. SENTENCING GUIDELINES MANUAL § 8A1.2 cmt. 3 (b) (2008) ('"High-level personnel of the organization' means individuals who have substantial control over the organization or who have a substantial role in the making of policy within the organization. The term includes: a director; an executive officer; an individual in charge of a major business or functional unit of the organization, such as sales, administration, or finance; and an individual with a substantial ownership interest.").
59. The subsidiaries or divisions may or may not be separately incorporated. In the current regime, only incorporated entities are prosecuted and the collateral consequences of conviction typically flow to the incorporated entity that was convicted. The author proposes that criminal liability, and collateral consequences, should attach to subsidiaries or divisions with criminal intent, regardless of whether or not the subsidiary or division at issue is separately incorporated. Conversely, a subsidiary or division lacking criminal intent, again regardless of whether or not separately incorporated, would not be subject to criminal liability and the attending collateral consequences. The author acknowledges that divorcing corporate prosecution from the entity's legal form of incorporation is itself a novel and fairly radical notion, and believes that its full development here is unnecessary and beyond the scope of this article.
60. The assessment would necessarily be a sliding scale. The higher the level of senior management involved, the fewer the number of senior managers who would need to have criminal intent for criminal intent to be imputed to senior management as a whole and therefore also to the corporation. Similarly, factors such as the duration and the magnitude of the offensive conduct could be considered.
61. See THE WHO, Won't Get Fooled Again, on WHO'S NEXT (MCA Records 1971).