Functional Corporate Knowledge

By Diamantis, Mihailis E. | William and Mary Law Review, November 2019 | Go to article overview

Functional Corporate Knowledge


Diamantis, Mihailis E., William and Mary Law Review


TABLE OF CONTENTS  INTRODUCTION                                           322   I. BACKGROUND TO KNOWLEDGE, CORPORATE AND CRIMINAL   334  II. CURRENT DOCTRINES FOR CORPORATE KNOWLEDGE         337      A Respondeat Superior                             338      B. The Collective Knowledge Doctrine              344 III. EVALUATIVE FRAMEWORK                              349      A Optimal Deterrence                              352      B. Retribution                                    365  IV. A FUNCTIONAL ACCOUNT OF CORPORATE KNOWLEDGE       369      A. Insights from Collective Epistemology          371      B. Effort as a Relevant Variable                  374      C. Obviousness as a Relevant Variable             376      D. Summary of the Account                         378   V. EVALUATING THE FUNCTIONAL ACCOUNT                 381      A. Optimal Deterrence                             382      B. Retribution                                    389 CONCLUSION: BEYOND CRIMINAL DOCTRINE                   392 

INTRODUCTION

Suppose I hand you $1.61, $2.37, and $0.96. Do you have at least five dollars? If you are like most people, you do not yet know. With pen, paper, and a few seconds, you could add the numbers and find that you have only $4.94. You had the information you needed but did not at first know the answer.

Corporate law has yet to grapple with this intuitive distinction between information and knowledge. The incentives corporations have to implement the information-gathering compliance mechanisms they need to prevent misconduct turn on this distinction. So does the difference between a justly punished corporation and a casualty of prosecutorial or regulatory overreaching. As argued below, current doctrines either treat no information within the corporate structure as knowledge or risk treating it all as knowledge. Neither extreme serves the interests of corporate law or justice.

Knowledge plays an important role in corporate liability. (1) For simplicity, this Article focuses on criminal liability, though its arguments carry over with some modest modification to civil and regulatory contexts. Many of the most common white-collar crimes--things such as false claims, (2) mail and wire fraud, (3) securities fraud, (4)

money laundering, (5) and tax fraud (6)--require that the defendant acted knowingly. If corporate employees commit the proscribed acts with the relevant knowledge, that can spell trouble for them in their individual capacities. (7) Prosecutors wanted to find out which individuals knew about General Motor's faulty ignition switches (8) or Volkswagen's cheat devices (9) in order to bring those individuals to justice. But more than individual liability is at stake. Under long-established law, (10) the acts and knowledge of employees are the acts and knowledge of their corporate employers. (11) Corporations can be liable for the same crimes as individuals. (12) The prosecutors investigating individuals at General Motors and Volkswagen were also after the companies themselves. (13) The stakes for getting knowledge right in corporate criminal law are high. On the one hand, an overly restrictive definition will make it harder to prosecute corporate misconduct. (14) Some estimates already put the annual costs associated with white-collar crime in the United States at around half a trillion dollars (15) (just shy of Sweden's GDP), (16) which is twenty times the total economic costs associated with every other sort of crime in the United States. (17) On the other hand, an overly permissive definition of corporate knowledge risks choking the corporate engines of our economy (18) and discouraging corporations from taking advantage of socially beneficial economic opportunities. (19) In addition, under a broad definition of corporate knowledge, corporations would likely make wasteful investments in excessive compliance. (20) Corporate compliance costs already rival total municipal policing costs. …

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