Corporate liability 3427888 139739348 2007-06-21T19:50:29Z RussBot 279219 Robot-assisted fix [[WP:DPL|links to disambiguation page]] Legal entity {{EngCrimLaw}} In the [[criminal law]], '''corporate liability''' determines the extent to which a [[corporation]] as a [[Juristic person|fictitious person]] can be liable for the acts and [[omission (criminal)|omissions]] of the [[natural person]]s it employs. It is sometimes regarded as an aspect of criminal [[vicarious liability (criminal)|vicarious liability]], as distinct from the situation in which the wording of a [[statutory]] offence specifically attaches liability to the corporation as the principal or joint principal with a human agent. ==The concepts== The imposition of criminal liability is only one means of regulating corporations. There are also [[civil law (common law)|civil law]] [[remedy (law)|remedies]] such as [[injunction]] and the award of [[damages]] which may include a penal element. Generally, criminal sanctions include [[imprisonment]], fines and community service orders. A company has no physical existence, so it can only act vicariously through the agency of the human beings it employs. While it is relatively uncontroversial that human beings may commit crimes for which [[punishment]] is a just desert, the extent to which the corporation should incur liability is less clear. Obviously, a [[company (law)|company]] cannot be sent to [[Prison|jail]], and if a [[fine]] is to be paid, this diminishes both the money available to pay the [[wage]]s and [[salary|salaries]] of all the remaining employees, and the [[profit]]s available to pay all the existing [[shareholder]]s. Thus, the effect of the only available punishment is deflected from the wrongdoer personally and distributed among all the innocent parties who supply the [[labour (economics)|labour]] and the [[capital]] that keep the corporation [[solvency|solvent]]. Because, at a [[public policy (law)|public policy]] level, the growth and prosperity of [[society]] depends on the business [[community]], [[government]]s recognise limits on the extent to which each permitted form of [[business entity]] can be held liable (including [[general partnership|general]] and [[limited partnership]]s which may also have separate legal personalities). ==Criminal or civil controls?== ===Using the criminal law=== *Represents formal public disapproval and condemnation because of the failure to abide by the generally accepted social norms, codified into the criminal law. [[Police]] powers to investigate can be more effective, but the availability of relevant expertise may be limited. If successful, [[prosecution]] reinforces social values and shows the state's willingness to uphold those values in a [[trial (law)|trial]] likely to attract more publicity when previously respected business leaders are called to account. The [[judgment]] may also cause a loss of corporate reputation and, in turn, a loss of profitability. *Justifies more severe penalties because it is necessary to overcome the higher [[burden of proof]] to establish criminal liability. But the high burden means that it is more difficult to secure a judgment than in the civil courts, and many corporations are cash-rich and so can pay apparently immense fines without difficulty. Further, if the corporation knows that the fine is going to be severe, it may seek bankruptcy protection before [[sentence (law)|sentencing]]. *The theoretical value of punishment is that the offender feels shame, guilt or remorse, emotional responses to a conviction that a fictitious person cannot feel. *If a state turns too often to the criminal law, it discourages self-regulation and may cause friction between any regulatory agencies and businesses that they are to regulate. ===Using the civil law=== *With the lower burden of proof and better case management tools, civil liability is easier to prove than criminal liability, and offers more flexible remedies which can be preventative as well as punitive. *But there is little [[morality|moral]] condemnation and no real deterrent effect so the general management response may be to see civil actions as a routine cost of business which is tax deductible. ==Criminal laws== Most states use criminal and civil systems in parallel, making the political judgment on how infrequently to use the criminal law to maximise the publicity of those cases that are prosecuted. Some [[state (law)|states]] enact specific [[legislation]] covering [[health and safety]], and product safety issues which lay down general protections for the public and for the [[employee]]s. The difficulty of proving a ''mens rea'' is avoided in the less serious offences by imposing absolute, [[strict liability]], or vicarious liability which does not require proof that the accused knew or could reasonably have known that its act was wrong, and which does not recognise any [[excuse]] of honest and reasonable [[mistake (criminal law)|mistake]]. But, most [[legislature]]s require some element of [[culpability|fault]], either by way of an [[intention (criminal)|intention]] to commit the offence or [[recklessness (criminal)|recklessness]] resulting in the offence, or some [[knowledge]] of the relevant circumstances. Thus, companies are held liable when the acts and omissions, and the knowledge of the employees can be [[imputation (law)|attributed]] to the corporation. This is usually filtered through an ''identification'', ''directing mind'' or ''alter ego'' test which proves that the employee has sufficient status to be considered the company when acting. ===Identification test in [[English law]]=== In ''[[Tesco Supermarkets Ltd v Nattrass]]'' [1972] AC 153, Lord Reid said: :The person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. This approach has been criticised because it restricts corporate liability to the acts of directors and a few high-level managers. This unfairly favours larger corporations because they will escape criminal liability for the acts of all the employees who manage the day-to-day activities of the corporations. This has proved problematic as in the cases involving [[corporate manslaughter]]. ===Aggregation test in [[United States]]=== By “aggregating” the acts and omissions of two or more natural persons acting as the corporation, the ''actus reus'' and ''mens rea'' can be constructed out of the conduct and knowledge of several individuals. This is termed the ''Doctrine of Collective Knowledge''. In ''United States v Bank of New England'' (1987) 821 F2d 844 the charge of wilfully failing to file reports relating to currency transactions was proved because the bank’s knowledge was the totality of what all of the employees knew within the scope of their authority. The Court of Appeals’ confirmed a collective knowledge is appropriate because corporations would compartmentalise knowledge and subdivide duties and avoid liability. ===A blameworthiness test=== Gobert argues that if a corporation fails to take precautions or to show due diligence to avoid committing a criminal offence, this will arise from its [[culture]] where attitudes and beliefs are demonstrated through its structures, policies, practices, and procedures. This rejects the notion that corporations should be treated in the same way as natural persons (i.e. looking for a "guilty" mind), and advocates that different legal concepts should underpin the liability of fictitious persons. This reflects the structures of modern corporations which are more often decentralised and where crime is less to do with the misconduct by or incompetence of individuals, and more to do with systems that fail to address problems of monitoring and controlling risk. ==Specific issues== ===Fraud=== In some instances of [[fraud]], the [[court]] may [[piercing the corporate veil|pierce the veil of incorporation]]. Most fraud is also a breach of the criminal law and any [[evidence (law)|evidence]] obtained for the purposes of a criminal [[trial (law)|trial]] is usually admissible in civil proceedings. But criminal prosecutions take priority, so if civil proceedings uncover evidence of criminality, the civil action may be stayed pending the outcome of any criminal investigation. ===Secondary liability=== Some crimes are considered [[inchoate offense|inchoate]] because, like a [[conspiracy (criminal)|conspiracy]] or [[attempt]], they anticipate the commission of the ''[[actus reus]]'' (the [[Latin]] for "guilty act") of the full offence. One option for [[prosecution]] would be to treat a corporation as an [[accomplice]] or co-conspirator with the employees. In general terms, most states permit companies to incur liability for such offences in the same way as natural persons so long as there are at least two natural persons involved in the conspiracy and one other accomplice to aid the commission of the offence by a principal. ==References== *Geraghty, ''Corporate Criminal Liability'', (2002) Vol. 39 American Criminal Law Review, 327. *Gobert, J. ''Corporate Criminality: New Crimes for the Times'' (1994) Criminal Law Review 722. *Gobert, J. ''Corporate Criminality: Four Models of Fault'' (1994) 14 Legal Studies 393. *Gobert, J & Mugnai, E. ''Coping with Corporate Criminality – Some Lessons from Italy” (2002) Criminal Law Review 619. *Lederman, E. ''Models for imposing corporate criminal liability: from adaptation and imitation toward aggregation and the search for self-identity'' (2000) 4 Buffalo Criminal Law Review 641 *Leigh, L. ''The Criminal Liability of Corporations and Other Groups'' (1977) 9 Ottawa Law Review 247. *Wells, Celia. ''Corporations and Criminal Responsibility'' (2nd edition), Oxford University Press, Oxford (2001). ISBN 0-19-826793-2 *Wells, Celia. "Corporate Criminal Liability in Europe and Beyond. New South Wales Law Society Journal, 39 (2001) 62-66. *Wells, Celia. ''Corporations: Culture, Risk and Criminal Liability'' (1993) Criminal Law Review 551. [[Category:Criminal law]]