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From
the last decade, the legal doctrines governing imposition of corporate criminal
liability and punishment have undergone marked transformation.  While the Courts are now an accepted feature
of criminal law, the development of a legal framework permitting such
prosecutions is a relatively recent phenomenon. 
In the early 19th century, corporations were viewed as legal
fictions that lacked capacity to form the requisite mens rea to violate the criminal law, and punishment of
corporations for the misconduct of their employees was virtually non-existent.

As
the corporation came to play an increasingly important role in the Indian
commercial life, however, pressure mounted to hold corporations accountable for
the wrongful conduct of their employees. 
The law, in turn, evolved more an outgrowth of perceived social
necessity than a product of informed jurisprudential principles.  It is observed that the development of
corporate criminal liability in the Indian system is like the growth of weeds –
“Nobody bred it, nobody cultivated it, nobody planted it.  It just grew”1.  This unexpected growth spawned a doctrine of
vicarious corporate criminal liability that is not only unearthed from many of
the traditional restraints that limited the doctrine in the civil context, but
also diversified from the core principle of criminal jurisprudence that guilt
requires moral culpability. The developments in the law governing corporate
criminal liability, trends have ushered in the modern era of aggressive
corporate criminal prosecutions and extraordinarily harsh – at times draconian
– punishment of the corporate entity for misconduct by corporate employees.  

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While the twin doctrines of corporate
criminal liability and punishment have been evolving without apparent
limitation or constraint, little attention appears to have been given to the
effect of the confluence of these two developments in the law on settled
notions of crime and punishment and accepted standards for dispute resolution
to ensure fair and just determinations of contested matters.  There is a danger, in the current climate of
zero tolerance for corporate wrongdoing and unprecedented harsh penalties, that
important principles in our constitutional and criminal jurisprudence will be
undermined and, as a corollary, that credibility in the criminal justice system
will be diminished.  

 

This article traces in short compass the
parallel expansion of the law governing corporate criminal liability and the
legal framework for imposition of corporate punishment, and examines the impact
of the interplay of criminal jurisprudence. 
The strong and legitimate interests may be in holding corporations
accountable for the misconduct of their employees and in imposing stern
punishment for corporate criminal misconduct, the current legal framework for
determining issues of crime and punishment in the corporate sphere warrants
examination to address apparent departures from standard norms, lack of accord
with the basic goals of the criminal law, and the anomalies that have, in
practice, arisen from the existing framework.  

Growth of the Law Governing
Corporate Criminal Liability

 

Among the most firmly rooted principles in criminal law
is the maxim that no one should be punished as a criminal unless he or she acts
with “mens rea”.  It is this state-of-mind element in
jurisprudence that has distinguished throughout history between criminal
misconduct worthy of condemnation and punishment and civil misconduct that
warrants only compensation for injuries sustained.  The concept of mens rea is, in turn, intertwined with the equally well-rooted
principle of deterrence, which addresses the threat of legal sanction to a
guilty mind2.

 

When corporations first came into
existence in the 17th and 18th centuries, the requirement
of mens rea operated as a bar to the
imposition of criminal liability on corporations and gave rise to early common
law notions of corporate criminal immunity. 
Thus, Blackstone in his Commentaries
noted that, “… a corporation cannot commit treason, or felony, or other crime,
in its corporate capacity; though its members may in their distinct individual
capacities”3.  The corporation was viewed to be a legal
fiction that lacked physical, mental and moral capacity to engage in wrongful
conduct or to suffer punishment.  It
could neither commit criminal acts nor entertain criminal intent or suffer
imprisonment and it had no soul, and so could not be blamed.  Thus, the doctrine of corporate criminal
liability developed from the practical notion that organizations should not be
able to profit from wrongdoing by their employees with corporate immunity from
criminal sanction, and that the corporation should be held accountable for what
ultimately amounts to organizational behavior4.  Such expanded corporate accountability was
the civil law doctrine of vicarious liability.

 

Originally a tort law concept designed
to provide courts with a means by which to ensure compensation to innocent
victims and to encourage accident prevention, the doctrine of vicarious
liability was imported into the criminal law as a means of achieving enhanced
corporate accountability.  In New York Central & Hudson River R.R. Co.
v. United States5,
the American Supreme Court for the first time employed traditional respondeat superior principles in the
criminal law context to hold corporations accountable for the conduct of their
employees.  The Court stated:   “applying the principle governing civil
liability, we go only a step farther in holding that the act of the agent,
while exercising the authority delegated to him to make rates for
transportation, may be controlled, in the interest of public policy, by
imputing his act to his employer and imposing penalties upon the corporation
for which he is acting in the premises”6.   This
theory of corporate criminal liability for crimes requiring general intent, an
easy transition was made to imputing the requisite specific intent of corporate
agents to corporations and thereby holding corporations accountable for crimes
such as contempt, conspiracy and the like. 
Courts thereafter summarily rejected the notion that a corporation could
not be held criminally liable because it lacked capacity to form the requisite
“evil intent,” and the modern doctrine of corporate criminal liability was
born. 

As applied in the context of corporate
criminal liability, however, the doctrine has transcended its civil law roots7.  Rather than looking to principles of “actual”
or “apparent” authority as in the context of traditional agency law, in the
criminal sphere liability may attach to conduct “within the scope of
employment” even though the employee was not authorized to engage in the
misconduct in question, even though corporate management was unaware of the
employee’s conduct, and despite good faith efforts by corporate management to
prevent commission of the wrongful act. 
Moreover, if the intent to benefit the corporation is present, the corporation
may be held criminally liable even though the wrongful conduct conferred no
actual benefit on the corporation.    

 

In short, as a result of this evolution,
under the modern doctrine of corporate criminal liability, corporations may be
held criminally liable:  for conduct by
their employees that was neither authorized nor approved nor even known to
corporate management; for conduct that was specifically forbidden by corporate
policy, even in circumstances where the corporation undertook good-faith
efforts to prevent the prohibited activity; and for conduct that was carried
out primarily in furtherance of the employee’s own personal interests or for
the benefit of independent third parties and that did not in fact confer any
benefit on the corporation.  Moreover, the corporation may be held liable
for the wrongful conduct of its employee whether the employee who engages in
the misconduct is a senior manager or a low-level employee. The doctrine of
vicarious criminal liability, as it has developed in our jurisprudence, draws
no distinction. 

 

As a result of these collective
developments, criminal liability may attach to corporations in circumstances
where the corporation cannot be said in any meaningful sense to have knowingly and intentionally engaged in misconduct or to be morally culpable in
connection with the commission of the wrongful act.  The modern doctrine of corporate criminal
liability has thus evolved well beyond traditional civil law limitations and
without the core, intent-based protections of the criminal law.

 

Rise
of Corporate Criminal Punishment

 

In the early 19th century,
when the doctrine of corporate criminal liability was still in its infancy,
punishment of corporations for misconduct engaged in by their employees was
virtually nonexistent.  Even as the law
governing corporate criminal liability began to expand, however, the framework
for imposition of corporate criminal punishment remained essentially
unchanged.  Minimal fines and patterns of
lenient sentencing in turn provided little prosecutorial incentive to bring
complex criminal prosecutions.  As a
result, throughout the early 20th century, corporate criminal
prosecutions were exceptionally rare8.
Historically, criminal statutes typically provided for substantial terms of
imprisonment for individuals, but only modest fines9.

More recently, the
legal framework for imposition of corporate criminal punishment has changed
dramatically, and has all but overtaken, in terms of expansiveness, the
parallel development in the law governing corporate criminal liability10.
 The fines increased to as much as
millions per offense and, for certain specific offenses, to even higher levels.
The penalty framework also expanded beyond traditional fines through a
proliferation of corporate criminal statutes that included enhanced penalty
provisions.  These statutes
included:  provisions for alternative
fines based on gain or loss caused by the criminal conduct; criminal and civil
forfeiture; injunctions against fraud; restitution; and organizational
probation11. These
developments in turn set the stage for the adoption in 2013 of the Companies
Act.  In particular, the Companies Act,
2013 guidelines called for awards of restitution, imposition of enhanced fines,
application of various “multipliers,” and expanded use of the corporate sanctions.
 

 

            Meanwhile,
on a separate track but also during the latter half of the 20th
century, the current system of administrative suspension, debarment and
exclusion began to emerge as perhaps the most potent weapon in the government’s
arsenal for pursuing corporations for the criminal misconduct of their
employees. For corporations in highly regulated industries such as government
contractors or health care providers – these remedies, although putatively
administrative in nature, can operate to exclude the corporation from continued
participation in programs or contracts and thereby effectively not only
penalize for the company. 

There
can be little doubt, moreover, that the range of potential sanctions available
today creates substantially increased incentives for law enforcement
authorities to prosecute organizations for the criminal misconduct of their
employees.  In short, the legal framework
for imposition of punishment on corporations in the legal system has experienced
a sea change over the past ten years. 
From a period of virtually no corporate criminal punishment as late as
the early 20th century, there emerged a period of modest fines and
lenient sentencing, followed in the late 20th century by the rise of
punitive fines, intrusive probationary conditions and the ultimate penalty of
suspension, debarment and exclusion of the corporate entity for misconduct
engaged in by one or more of its corporate employees.  Together with the parallel expansion in the
law governing corporate criminal liability, these developments ushered in the
modern era of aggressive corporate criminal prosecutions.

Anomalies in Practice

The modern structure for imposition of
corporate criminal liability and punishment, with its departures from
traditional criminal law principles, has produced some notably anomalous
results.  Whether these departures from
traditional jurisprudence are theoretically sound or not as a means for
ensuring corporate accountability, the results in practice suggest that a
reexamination is warranted to maintain confidence in the criminal justice
system, as applied to corporations, and in the fairness and credibility of the
results it achieves.  

Based upon the rash of recent
high-profile corporate scandals and the prevalent accounts of white collar crime
in the executive suite, there is little sympathy today for the corporation
whose officers, directors or employees are alleged to have engaged in criminal
misconduct.  Indeed, in the current
climate of perceived pervasive corporate criminal wrongdoing, there appears to
be a competition of sorts among government officials each to best the other and
win favor in the public eye through aggressive corporate criminal prosecutions
and imposition of harsh punishment.90  In this rush to prosecute and punish – made
so easy by the twin expansions in the law governing corporate criminal
liability and punishment – there has been a tendency to overlook the means by
which the ends have been achieved and to ignore the effect of the interplay
between these two developments in the law on the manner in which serious
disputes between corporations and the government are now resolved where
allegations of criminal misconduct are in play.  

However unpopular corporations may be in
the current climate of white collar crime and executive scandal, and however
strong the interests may be in holding corporations accountable for the
wrongful conduct of their employees and in imposing stern punishment for
corporate misconduct, these considerations should not be allowed to undermine the
fundamental constitutional interests that exist in ensuring that serious
criminal disputes with the government, whether involving individuals or
corporations, be resolved in accordance with the rule of law and minimum
standards of due process.  Indeed, the
primary source of uneasiness with corporate criminal prosecutions in the modern
era arises from the suppression of these latter interests; for the current
framework encourages – arguably even compels in certain cases – a process for
resolution of serious criminal disputes between corporations and the government
that lacks any of the fundamental attributes upon which the American legal
system has come to rely for the achievement of fair, just and credible results.  This approach begins with a return to the
basic questions of whose actions and intent – those of which officers,
directors and employees – should provide a sufficient predicate for imposition
of criminal liability on the corporation, and whether a showing of good faith
compliance efforts by the corporation should absolve the corporate entity of
criminal liability for the wrongful acts of its employees in contravention of
corporate policy.

These
approaches offers a clear pathway to a sustainable jurisprudence of corporate
criminal prosecutions, together they illuminate the sources of disquietude and
draw into focus the central issues that warrant attention.  As a review of the evolution of the law
governing corporate criminal liability and punishment demonstrates, the answer
lies not in tinkering with or modifying the mode of dispute resolution – for
the criminal trial, with all of its attendant safeguards, affords maximum
assurance that a fair and just result will in fact be achieved – but rather in
ensuring its availability, where appropriate and necessary, to test the
government’s proof and legal theories and to uphold the constitutional promise
of government accountability pursuant to the rule of law.

Conclusion

            As a result of the confluence between
the expansions in the law governing corporate criminal liability and
punishment, the modern corporation has seen its access to an effective mode of
criminal dispute resolution all but disappear as a practical matter over the
last several decades.  With the corresponding
rise in investigative incentives to pursue corporate criminal prosecutions and
to impose harsh corporate criminal punishment, there is a fundamental danger
that serious corporate criminal disputes are now being resolved pursuant to a
process that is devoid of any of the attributes upon which the Indian legal
system, have come to rely for the achievement of fair, just and credible
results.  

The
goal of restoring to the Indian corporation a meaningful form of adjudicative
process for the resolution of its criminal disputes with the government will
require nothing less than a wholesale re-examination of the corporate criminal
liability doctrine and the legal framework for imposition of corporate criminal
punishment.  At a minimum, this process,
if it is to achieve the goal of restoring principled corporate criminal dispute
resolution, will require, consistent with the basic principles and goals of the
criminal law, a retreat from the extreme outer boundaries of the law governing
corporate criminal liability and punishment, as those doctrines have developed
un-tended and unrestrained over the course of the past decade.

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