Corporate Criminal Liability: A Jurisprudential and Comparative Approach
Large multinational corporations have come to dominate the national and global economic scene. The scale of their operations is enormous. The largest have grown into enterprises of astonishing magnitude that in their economic dimensions are fully comparable to nation states. Imposing adequate controls over multinational conduct and achieving accountability by multinationals for their conduct both at home and abroad should be a major objective of every industrialized power.
Historically, the criminal law has been the vehicle for deterrence. Corporations are increasingly significant actors in our economy and, to the extent their actions can victimize society, they too should be deterred.
Two major issues which were of dominance, during the phase of evolution of the doctrine of Corporate Criminal Liability were:
# One is the failure to identify or prove corporate intent. Traditionally, the criminal law has been reserved for intentional violations of the law. Yet, our prosecutions of corporations have been marked by floundering efforts to identify the intent of intangible, fictional entities.
# A second issue is regarding sanctions. In addition to proof of intent, a major distinguishing characteristic of the criminal law has been the threat of imprisonment. It was said that a corporation couldn’t be imprisoned; the criminal law is not an appropriate vehicle for controllingcorporate behavior.
Corporate criminal liability under environmental, antitrust, securities and other laws has grown rapidly over the last two decades. The general belief in the early sixteenth and seventeenth centuries was that corporations could not be held criminally liable. In the early 1700s, corporatecriminal liability faced at least four obstacles.
# The first obstacle was attributing acts to a juristic fiction, the corporation. Eighteenth-century courts and legal thinkers approached corporate liability with an obsessive focus on theories of corporate personality; a more practical approach was not developed until the twentieth century.
# The second obstacle was that legal thinkers did not believe corporations could possess the moral blameworthiness necessary to commit crimes of intent.
# The third obstacle was the ultra vires doctrine, under which courts would not hold corporations accountable for acts, such as crimes, that were not provided for in their charters.
# Finally, the fourth obstacle was courts’ literal understanding of criminal procedure; for example, judges required the accused to be brought physically before the court.
Resistance prior to the twentieth century to extension of the doctrine of corporate criminal liability was tied to the widely held juridical belief that a corporation lacked the requisite mens rea essential to sustain a criminal conviction. It was widely prevalent and followed that:
A Corporate has ‘no soul to damn, and no body to kick.’
“The corporation is invisible, incorporeal, and immortal; it cannot be assaulted, beaten, or imprisoned; it cannot commit treason . . . .”
So, one can find that history of Doctrine of Corporate Criminal Liability is full of problems and then solutions to it. At present, different nations have diverse notions regarding the applicability and extension of the Doctrine of Corporate Criminal Liability.
Corporate Criminal Liability in America: A Jurisprudential Approach
Although some earlier cases took the position that a Corporation is not indictable, but the particular members of it are liable, the rule is now well established that a corporation may be held criminally liable. It is immaterial that the act constituting the offence was ultra virus. The Corporation may be held responsible, even though its employees or agents acted contrary to express instructions when they violated the law, so long as they were acting for the benefit of the corporation and within the scope of their actual or apparent authority. A corporation is accountable for its employee’s conduct if it motivated, at least in part, by desire to serve the Corporation but this need not be the sole motivation. And even if, the employees were acting in their own interests when they committed a crime, the corporation may still be criminally liable for the failure of its supervisors to detect and stop the wrongdoing, either in intentional disregard of the law or in plain indifference to its requirements.
Model Penal Code provisions:
The Model Penal Code provides that a corporation may be convicted of an offence if:
1. the offence is a violation or defined by a statute other than the Code in which a legislative purpose to impose liability on corporations plainly appears and the conduct is performed by an agent of the corporation acting in behalf of the corporation within the scope of his office or employment.
2. the offence consists of an omission to discharge a specific duty of affirmative performance imposed on a corporation by law, or
3. the commission of the offence was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or a high managerial agent acting in behalf of the corporation within the scope of his office or employment.
A corporation duly dissolved under the laws of the state of its incorporation may thereafter be subjected to criminal prosecution under a dissolution provision of the state authorizing “any action, suit or proceeding” against the corporation within a specified period after the dissolution and the words “action” and “proceeding” as used in a statute continuing corporate existence include criminal proceedings.
Corporations can be held criminally responsible for a wide variety of crimes:
• Contempt in disobeying decrees and other court orders, directed to it.
• Bribery or conspiracy to bribe public officials.
• The illegal practice of medicine.
• Maintaining public nuisance.
• Violations of licensing and regulatory statutes.
• Violations of consumer protection laws.
• Antitrust law violations.
• Liquor law violations.
• Larceny, if corporate officers authorized or acquiesced in criminal act.
• Extortion, assuming that it was authorized, requested or commanded by a managerial agent having supervisory responsibility.
• Obtaining money by false pretenses.
• Selling or exhibiting obscene matter.
• Statutory federal crimes and such as violations of the Occupational Safety and Health Act.
Most of the above crimes are economically motivated and it has been note that corporate liability for criminal offences is often found where the offence is commercial and motivated by a desire to enhance profits. A corporation may not receive direct economic benefits from a crime against the person, it may still receive a direct economic benefit obtained by not taking expensive safety precautions, and if a corporation takes such risks, the corporation becomes a proper criminal defendant.
A corporation may be punishment by fine, indeed the only punishment that can be inflicted on a corporation for a criminal offence, is a fine or seizure of its property, which can be levied by an execution issued by the court. A corporation cannot be imprisoned and is not amenable to prosecution for a criminal offence, which is only punishable by death or imprisonment. However, the fact that the penalty provided for the violation of a statute is a fine or imprisonment, or both in the discretion of the court, does not render it inapplicable to a corporation, and the same rule applies where the statute creating the offence provides for imprisonment if the fine imposed not paid. Sometimes, a statute providing that the penalty for a particular crime is imprisonment may be read in conjunction with a general statute allowing the imposition of a fine, and the fine may be imposed on the corporation in lieu of imprisonment.
Corporal Criminal Liability in Europe
While the preceding philosophical and policy debate has been occurring in the United States, a debate of a different kind has been occurring in Western European countries. Western European legal systems fundamentally resisted the imposition of criminal liability on legal entities throughout most of the last century. This opposition was expressed in the principle societas delinquere non potest, which means, ‘a legal entity cannot be blameworthy’.
The modern trend in Western Europe of imposing criminal responsibility on corporations began in 1970 and continues to the present time.
# The Netherlands
In 1976, the Netherlands became one of the first Western European countries to adopt legislation enacting comprehensive corporate criminal liability. The legislation made corporations liable for all offenses, expanding on criminal liability that had previously been limited to economic crimes. The 1976 legislation also dispensed with the requirement that liability be predicated on the actions of natural persons acting on the corporation’s behalf, which was a requirement of the previous 1951 law. Liability may be predicated on deficient decision-making structures within the corporation or on the aggregate knowledge of multiple individuals.
In 1926, with the passage of the Butter Act, Denmark introduced corporate criminal liability for some offenses. By the end of the century, Denmark had greatly expanded the list of enterprise offenses.
In late 2003, Switzerland imposed criminal liability on corporations, having previously rejected such liability for doctrinal reasons. Swiss criminal liability is based on the concept of ‘subsidiary liability’: a corporation can be held liable for offenses committed on its behalf only if fault cannot be attributed to a specific individual ‘because of a lack of organization within the enterprise.’ The offense must be ‘in furtherance of a business activity consistent with the purpose of the enterprise,’ a requirement which undoubtedly will need to be defined by the courts. Criminal fines can range up to 5 million Swiss francs.
Such liability is predicated on management’s failure to properly organize and manage the corporation’s affairs.
The basis for corporate criminal liability in French law is codified in Article 121-2 of the new French penal code, which states: “Juridicial persons, with the exception of the State, are criminally liable for the offenses committed on their account by their organs or representatives . . . in the cases provided for by statute or regulations.” Article 121-2 further provides the “criminal liability of legal persons does not exclude that of the natural persons who are perpetrators or accomplices to the same act.”
There are three basic requirements for liability to be imposed under Article 121-2.
o First, the French legislature must have enacted a substantive criminal offense which the corporation contravened.
o Second, actual criminal responsibility for the offense must lie in the conduct of a corporation’s representatives or its organs.
o Third, the acts on which criminal liability is predicated must have been committed for the benefit of the corporation.
An important feature of the new French law is that it provides an expansive list of statutory criminal penalties. In most cases, these will be monetary penalties five times the rate for natural persons committing the same offense, with greater monetary penalties for recidivist conduct.
Jurisprudence of Corporate Criminal Liability in India
Criminal Liability is attached only those acts in which there is violation of Criminal Law i.e. to say there cannot be liability without a criminal law which prohibits certain acts or omissions. The basic rule of criminal liability revolves around the basic Latin Maxim actus non facit reum, nisi mens sit reat. It means that ‘to make one liable, it must be shown that act or omission has been done which was forbidden by law and has been done with guilty mind.’
As far as the current status of the Doctrine of Corporal Legal Liability in India, is concerned, the recent landmark judgment of Apex Court in Standard Chartered Bank and Ors. etc. v. Directorate of Enforcement and Ors. etc. had made the scenario crystal clear. It overruled the previous views regarding the Corporate Criminal Liability and had given a new touch to the said doctrine.
The question that arises for consideration was “whether a company or a corporate body could be prosecuted for offences for which the sentence of imprisonment is a mandatory punishment?” In Velliappa Textiles’ case, by a majority decision it was held that the company cannot be prosecuted for offences which require imposition of a mandatory term of imprisonment coupled with fine. It was further held that where punishment provided is imprisonment and fine, the court cannot impose only a fine. The majority was of the view that the legislative mandate is to prohibit the courts from deviating from the minimum mandatory punishment prescribed by the Statute and that while interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favour of the construction which exempts a citizen from penalty than the one which imposes the penalty.
In State of Maharasthra v. Syndicate Transport it was held that the company cannot be prosecuted for offences which necessarily entail consequences of a corporal punishment or imprisonment and prosecuting a company for such offences would only result in the court stultifying itself by embarking on a trial in which the verdict of guilty is returned and no effective order by way of sentence can be made. A similar view was taken by Calcutta High Court in Kusum Products Limited v. S.K. Sinha, ITO, Central Circle-X, Calcutta were it was clearly stated that:
“………..a company being a juristic person cannot possibly be sent to prison and it is not open to court to impose a sentence of fine or allow to award any punishment if the court finds the company guilty, and if the court does it, it would be altering the very scheme of the Act and usurping the legislative function.”
The legal difficulty arising out of the above situation was noticed by the Law Commission and in its 41st Report, the Law Commission suggested amendment to Section 62 of the Indian Penal Code by adding the following lines:
“In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a company or other body corporate or an association of individuals, it shall be competent to the court to sentence such offender to fine only.”
This recommendation got no response from the Parliament and again in its 47th Report, the Law Commission in paragraph 8(3) made the following recommendation:
“In many of the Acts relating to economic offences, imprisonment is mandatory. Where the convicted person is a corporation, this provision becomes unworkable, and it is desirable to provide that in such cases, it shall be competent to the court to impose a fine. This difficulty can arise under the Penal Code also, but it is likely to arise more frequently in the case of economic laws. We, therefore, recommend that the following provision should be inserted in the Penal Code as, say, Section 62:
1. In every case in which the offence is punishable with imprisonment only or with imprisonment and fine, and the offender is a corporation, it shall be competent to the court to sentence such offender to fine only.
2. In every case in which the offence is punishable with imprisonment and any other punishment not being fine and the offender is a corporation, it shall be competent to the court to sentence such offender to fine.
3. In this section, “corporation” means an incorporated company or other body corporate, and includes a firm and other association of individuals.”
But the Bill prepared on the basis of the recommendations of the Law Commission lapsed and it did not become law. However few of these recommendations were accepted by the Parliament and by suitable amendment some of the provisions in the taxation statutes were amended.
A similar approach was taken by the Allahbad High Court in 1993, in case of Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh where an entirely distinctive observation was given by the judges.
But, after the 2005 judgment of Apex Court, i.e., Standard Chartered Bank and Ors. etc. v. Directorate of Enforcement and Ors. etc. the law has taken a settled position and it is basically much more logical and good judgment. It was expressly stated in this case that the company is liable to be prosecuted even if the offence is punishable both with a term of imprisonment and fine. In case the company is found guilty, the sentence of imprisonment cannot be imposed on the company and then the sentence of fine is to be imposed and the court has got the judicial discretion to do so. This course is open only in the case where the company is found guilty but if a natural person is so found guilty, both sentence of imprisonment and fine are to be imposed on such person. There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents.
If a corporate body is found guilty of the offence committed, the court, though bound to impose the sentence prescribed under law, has the discretion to impose the sentence of imprisonment or fine as in the case of a company or corporate body the sentence of imprisonment cannot be imposed on it and as the law never compels to do anything which is impossible, the court has to follow the alternative and impose the sentence of fine. This discretion could be exercised only in respect of juristic persons and not in respect of natural persons. There is no blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake series of activities that affect the life, liberty and property of the citizens. Large scale financial irregularities are done by various corporations. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society with stable.
Absent the possibility of criminal liability, corporations would escape moral conviction for wrongdoing, and the retributive import of criminal liability to the community would be lost. For under a civil liability regime for the corporation qua corporation, there would be no moral condemnation equivalent to a criminal conviction: if found civilly liable, a corporation might be deemed negligent, or perhaps reckless, but no statement, in the form of a conviction, would attest to the proper valuation of the persons or goods at issue. In the end, the financial liability imposed would come to be viewed, by both the corporation and the community, merely as a cost of doing business. In effect, then, a corporate civil liability regime that paralleled ordinary criminal liability for individuals charged with the same wrongdoing would allow the corporation qua corporation to purchase exemption from moral condemnation. Such exemption would affect the expressive significance of criminal liability, as the vindication of the proper valuations of persons and goods would vary not with the conduct alleged--a distinction that rightly could affect the evaluative standard employed--but, rather, with the identity of the offender.