Benjamin Bestgen

Corporate crimes make prominent headlines, particularly when they involve large multinationals like Volkswagen, WellsFargo, Pfizer or Odebrecht. But smaller businesses like Cambridge Analytica or your local fish wholesaler, chicken farmer or accountant might also commit crimes.

Examples of corporate crimes include: environmental pollution, tax evasion, exploitative and unsafe labour practices, fraud, modern slavery, bribery, coercion, money laundering, bid rigging, criminal threats, market manipulations, cartel offences, misuse of data, animal cruelty and even corporate homicide. Due to size, influence, nature of the crime or resources, corporate crimes can often be more severe in scope and consequences than crimes committed by individuals.

Who to punish?

Punishing a human is straightforward but it’s harder to pinpoint who is criminally culpable in a legal entity. To establish criminality, we require mens rea – the criminal mindset. The problem is that companies have no minds and only a select few individuals – directors and senior managers – can be said to embody the mind and enact the will of the company, as noted in Tesco Supermarkets Ltd v Nattrass 1971.

But what about lower-ranking employees or influential shareholders? Do you also prosecute the company’s advisers – lawyers, accountants, tax advisers, other consultants? Should a parent entity be criminally liable for the wrongdoing of a far-removed subsidiary or an entire company group be punished for the criminality of the parent?

Responses across jurisdictions appear inconsistent. In the US, companies can be vicariously liable for employees’ criminal actions committed as part of their employment. The US also accepts an aggregate mens rea: criminal intentions can be established by combining the conduct and knowledge of multiple individuals acting for the company. Other offences have strict liability, meaning mens rea does not have to be established.

Interestingly, criminologists James Gobert and Maurice Punch proposed that companies are not individuals and criminal law should analyse them differently. Instead of looking for human traits like mens rea, we should treat corporate crime as a systemic problem: for instance, a company that failed to establish or adhere to proper risk management and compliance procedures or has a poor grip on management conduct, policies and business operations can foster a culture that incentivises or ignores misconduct. Arguably, allowing such a corporate culture to endure and thereby increasing the risk of criminality is inherently blameworthy and should permit holding an entity criminally liable.

What penalties?

You cannot imprison a company, so many jurisdictions resort mainly to financial penalties to deter or punish corporates. But cynical “wisdom” dictates that businesses already price estimated financial penalties into any wrongdoing they contemplate: crime still pays if you get to keep some of the profits once all fines and legal costs have been settled. And if fines are too high and could threaten bankruptcy, a desperate business might still commit the offence if they think they’ve got little to lose. Others calculate that a court would consider the wider social, political and economic impact too dire and refrain from issuing crushing fines (“Too big/important to fail.”).

Legal academic Marc A. Cohen also discusses a variety of other options:

• Imprisonment of directors and/or owners: in many cases company officers act with relative impunity, relying on their insurance and the corporate veil for protection. If the humans running or owning a company could be readily imprisoned for corporate crime committed on their watch, they might take a keener interest in keeping the business honest.
• Incapacitation: a business could see important licenses revoked, be excluded from dealing with certain parties, in certain markets or have limits imposed on how big it may grow or what products it is permitted to buy or sell. A financial services business could also be restricted in how many funds it may have under management or which products or currencies it is permitted to trade in.
• Rehabilitation: a business can be ordered to submit to independent audits or be obligated to employ compliance officers or engage in other activities to benefit the communities it operates in (pro bono work, environmental improvements, job creation schemes).

Deferred Prosecution Agreements are options too, as they allow the state to avoid lengthy, expensive trials, are court-supervised, public, transparent and appropriate conditions and obligations can be imposed on the business to rehabilitate itself and improve – effectively a corporate probation.

Lastly, in some cases, judicial dissolution of the offending entity, also called a “corporate death penalty”, may be the just response. Some companies committed crimes so harmful, deadly or irresponsible that it can legitimately be asked that such an entity should no longer be allowed to exist, regardless of any market upset or unemployment this causes.

Future questions

Cohen notes that despite many corporate prosecutions, fines and other punishments, there is scant knowledge on the effect of available punishments on corporate behaviour. Is it better to punish individuals inside the company than the legal entity itself? Do criminal charges add any particular benefits to civil lawsuits regarding corporate misconduct? What penalties are most effective in changing corporate policies and behaviours? And how should we address cases where companies and the state cooperated in criminal actions? For anyone interested in corporate punishments, this may be further food for thought.

Benjamin Bestgen is a solicitor and notary public (qualified in Scotland). He also holds a Master of Arts degree in philosophy and tutored in practical philosophy and jurisprudence at the Goethe Universität Frankfurt am Main and the University of Edinburgh.