A New Approach to Corporate Criminal Liability

Article excerpt

  I. THE CURRENT DOCTRINE OF CRIMINAL CORPORATE LIABILITY
 II. RETHINKING CRIMINAL CORPORATE LIABILITY
     A. Deterrence and Retribution in Criminal Corporate Liability
     B. Civil Law Limitations on Corporate Vicarious Liability
     C. The Benefits of Limiting Criminal Corporate Liability
III. DEFINING AN EFFECTIVE COMPLIANCE PROGRAM
     A. The DOJ's Internal Approach: The Thompson Memorandum
     B. Deferred Prosecution Agreements
CONCLUSION

I. THE CURRENT DOCTRINE OF CRIMINAL CORPORATE LIABILITY

It is time to take a new look at the standard for criminal corporate liability. Under current federal common law, a corporation is liable for the actions of its agents whenever such agents act within the scope of their employment and at least in part to benefit the Corporation. (1) The theory that has evolved is simple and seemingly logical: a corporation, being merely a person in law only, and not a real one, can act only through its employees for whom it should be held responsible.

But the simple application of vicarious liability principles can have far-reaching effects. Courts applying federal common law have upheld convictions based on vicarious criminal corporate liability even where the agent was acting contrary to express corporate policy (2) and where a bona fide compliance program (3) was found to be in effect. Many of these doctrines were developed in the context of antitrust law, (4) but have since been generalized to other contexts.

As to the limitation that employees must be acting within the scope of their actual or apparent authority, this requirement has been interpreted so expansively that it is practically invisible in many contexts. (5) Similarly, the requirement that an employee act to benefit the company has likewise been relaxed by a permissive interpretation; under the current doctrine, it "is not necessary that the employee be primarily concerned with benefiting the corporation, because courts recognize that many employees act primarily for their own personal gain." (6) Indeed, such is the state of the modern doctrine of vicarious criminal corporate liability that under federal law, a corporation can be held liable for agents no matter what their place in the corporate hierarchy (7) and regardless of the efforts in place on the part of corporate mangers to deter their conduct. (8)

Prosecutors have inordinate leverage due to the current application of the doctrine of vicarious liability. A single low-level employee's criminal conduct can be sufficient to trigger criminal liability on the part of the corporation. Moreover, it may not even be necessary for the jury to agree unanimously upon the identity of the same criminal employee in order to find the employer guilty. (9) Where such potential liability exists, corporations as a practical matter can rarely afford to take criminal cases to trial because liability can be triggered by such minimal employee conduct. (10)

A prosecutor's leverage is further enhanced because a criminal indictment can have devastating consequences for a corporation and risks the market imposing what is in effect a corporate death penalty or at the very least a significant drop in stock price. The willingness of companies post-Enron to agree to strict deferred prosecution agreements so as to avoid an indictment was greatly enhanced when Wall Street saw first hand the consequences of the decision by Arthur Andersen LLP to reject the government's offer of a deferred prosecution agreement in the winter of 2002. Although the company was at the time hemorrhaging clients and may have likely folded even absent prosecution, the company's decision to face indictment rather than enter into a deferred prosecution agreement was widely viewed as effectively extinguishing any hope of Andersen's continued viability absent an acquittal. Corporate America could see both the resolve of the government to prosecute even the largest of corporations, as well as the consequences that could ensue from a company's refusal to settle. …