Early common law rejected the concepts of ****imprisonment and guilt by association, which were so prevalent in medieval law, and criminalized only natural persons who committed harmful acts in a state of criminal mind - often referred to by common law researchers as a "malignant intent". This rule excludes the possibility of corporate guilt. As the Lord Chief Justice of England declared in 1701, a legal person could not be charged with a crime. This is also evident in Brixton's famous treatise, published in 1765, when he succinctly states that "a legal person is not guilty of treason, or violence, or any other crime, within its power," a matter he considered so obvious that it did not need to be elaborated upon. How could anyone else think differently?
But by the middle of the 19th century, differences began to emerge in the common law rules, although the tendency was not yet obvious. For example, some courts held that legal persons who had a duty to maintain public *** bridges and highways under the relevant regulations should be prosecuted for failure to exercise due diligence. In support of the doctrine of criminal liability in this context, courts have emphasized the strict liability nature of the offense, the difference between a failure to perform a duty and a wrongful act, and the public character of the duty that the accused legal person failed to perform. In short, these cases do not differ significantly from cases of breach of contract in which the legal person fails to fulfill a promise to perform a duty.
In 1909, a small disagreement in the common law rule tended to become a major rift. In that year, the U.S. Supreme Court handed down its decision in State v. New York Central and Hudson River Railroad. This precedent contained an extremely distasteful provision of the Elkins Act, under which it was held illegal for railroads and their employees to give rebates to shippers at prices duly published and approved by the Interstate Commerce Commission. In other words, this statute considers it a crime for a railroad to commit fraud with respect to a pricing agreement to which it is a party and which the government has forced to be enforced. Competition, however, is a powerful inducement, and, in fact, fred pomeroy, assistant transportation manager of New York Central, committed fraud by offering rebates to shippers using certain lines. It was because of this price competition that pomeroy and New York Central were charged with the offense.
Prior to the Supreme Court's decision, the constitutionality of a provision constituting the Elkins Act had been disputed: "The activities, whether negligent or unsuccessful, of managers, employees, or other persons employed by any common carrier within the scope of its authority shall be deemed to be the acts of the carrier to which it belongs." The railroad's constitutional rebuttal of this provision is simple: the statute is imperfect because Congress has no power to find a corporation guilty, especially with respect to innocent stockholders of the corporation. Punishing innocent stockholders in such cases deprives them of the right to be presumed innocent and to be heard, and deprives them of their property without due process of law. In short, this statute is imperfect because it punishes the innocent with respect to guilty behavior.
The Supreme Court completely ignored this argument and upheld the judgment based on considerations of "public **** policy". Although corporations are already liable in tort under the doctrine of respondeat superior, the Court held that they should also be criminally prosecuted: "We have taken only a small step forward in the application of the civil liability provisions, and the members of the corporation should be limited in the exercise of their delegated powers of agency, and it is in the public interest to hold the employer of an employee liable for the acts of the employee and to impose a criminal penalty on the employer. impose penalties on the employer."
What then of the Brixton and common law rules holding that legal persons are incapable of committing crimes? The court rejected these authorities as "antiquated and debatable doctrines" that allow large, powerful corporations to escape the penalties for certain behaviors.
The court's rationale for the "respondeat superior" theory of tort law may be understandable, but it is a misguided transplant. "Superior responsibility" liability is a form of vicarious liability - the legal person is responsible for the consequences of the actions of its employees. But it is not separate liability. For example, a plaintiff who has been tortured may not seek full compensation from the legal person after having sought full compensation from the employee, because the liability of the legal person is vicarious, and it should not be held liable when the outcome of the allegations made against the employee is to the satisfaction of the plaintiff. In contrast, the criminal liability of legal persons is direct. The law treats the legal person as a separate criminal "person", and charging and punishing the criminal members of the legal person (e.g., the pomeroy in the New York Central case) in no way prevents the subsequent institution of related criminal proceedings against the legal person.
The court's invocation of "public policy" and its concern not to grant "immunity" to powerful legal persons is also somewhat ironic. For the opposite is true. Without the Elkins Act, the railroads would have had some difficulty in forming their price-fixing cartel. And in support of the Act, the Court gave the "mighty" railroads a powerful weapon to sanction violations of the cartel. Ironically or not, the New York Central case seems to mark a complete break with the common law rule that a legal person cannot be the subject of a crime.
This case can be interpreted narrowly. The focal point in this case was a clear and specific rule of law - that no kickbacks may be given by railroads and their employees - that can only be enforced by the government. There is little possibility of duplicative liability in tort compensation. In this sense, this case is remarkably similar to the nineteenth-century cases of public * * * bridges and highways. Indeed, the opinion of the court indicates that the judge did not attempt to abandon the common law rule in its entirety. In its discussion of why New York Central could be criminally prosecuted, the court also noted, as if it were irrelevant to the case, that "[t]here are indeed such crimes as, by their very nature, cannot be committed by a legal person." However, the court did not give any further clarification as to what these crimes are and why they cannot be committed by a legal person.
Not surprisingly, the court's opinion sparked a heated debate about the scope of criminal liability of legal persons. henry edgerton, in a famous article published in the Yale Law Journal in 1927, posed the question directly: if a driver employed by a dairy company sells adulterated milk in violation of the law, the act is based on personal motives, or perhaps at the manager's or stockholder's behest, then it would not be possible for a legal person to sell adulterated milk without the authorization of the board of directors or the stockholders, board of directors or shareholders, can the corporation be criminalized? If the manager of a coal company, either from personal motives or at the behest of the board of directors or shareholders, participates with others in an unlawful monopoly trade, may the corporation be guilty of the offense? If a security guard employed by a mining company, either for his own motives or because of an authorization by the manager, the board of directors or the shareholders, in order to stop a strike, opens fire on a village inhabited by striking workers, can the juridical person be charged with murder?
Next, edgerton argues that in each of these cases, the legal person should be held criminally liable. edgerton argues that the reasons for holding a legal person criminally liable are the same as the reasons for holding a natural person who commits the same crime liable, and that "the same social ends that are sought to be accomplished by punishing, or threatening to punish, a natural person who has committed a certain crime, may be achieved by punishing or threatening to punish his legal person. can also be achieved by punishing or threatening to punish a legal person", edgerton also refutes the view that legal persons are subjects of legal fiction and therefore cannot be the subject of a criminal offense. Because the primary purpose of criminal law is defense, he argues, "the question is not whose mind produces the intent to commit the offense, but who bears the criminal liability that will achieve the purpose of deterrence. It is clear that this purpose will be more fully realized if the penalty is imposed on the legal person in addition to the criminal liability of the members of the legal person".
Even if one recognizes edgerton's premise that the primary purpose of criminal law is deterrence, his account of the criminal liability of legal persons is incorrect. At common law, it was held that only a natural person could have criminal intent or "malice", i.e., "mens rea" in criminal law, and that only a natural person could commit a crime. This rule actually implies a certain economic logic: only a natural person with criminal intent will invest in the commission of socially harmful acts. Strictly speaking, this is a behavior without economic value. If a natural person commits the same act without mens rea, it cannot be called a crime. Thus, the presence or absence of mens rea becomes the determining factor in
the exact response of the law. Returning to the murder case cited by edgerton, there is a fundamental difference between murderers with mens rea and other engaged mining operators without mens rea. The law may impose unconditional deterrence on murderers, but it is not right to apply the same deterrence to those who fail to prevent a murder from occurring, and there should be no incentive to compel those who do not participate in a murder to invest unlimited sums of money in preventing others from committing harmful acts.
It is clear that one of edgerton's predictions is still correct, namely, that in any area of the law, legal persons are being confronted with the fact that their potential criminal liability is expanding, even to the extent that it includes becoming murderers, and that just as we show below, the rule of common law doctrine that legal persons are incapable of committing crimes now appears to be a thing of the past. The questioning of the common law rule did not immediately bring about a dramatic increase in the criminal liability of legal persons. Historically criminal statutes have been drafted with the natural person as the ex officio subject, so that imprisonment has become the primary penalty, and the typical criminal statute either has no provision for fines or provides for small fines, which are undoubtedly based on the fact that the vast majority of natural persons who commit crimes do not have the money to do so, but, because legal persons cannot be booked into prison, and those small fines (often as little as $1,000) are the heaviest penalties they face the heaviest penalties, such a small payout is hardly worth the time and effort of prosecutors to pursue criminal charges against legal persons.
There are still some exceptions, most notably the 1978 criminal prosecution of Ford Motor Co. Ford was charged with manslaughter in the deaths of three minors in an automobile accident. The teens were traveling in a 1973 Ford pinto that caught fire after the rear end was struck by another vehicle whose driver was drunk and speeding when he hit the pinto. The three teenage victims were also responsible for the accident - they reportedly stopped in the middle of the highway to retrieve a missing gas cap. For this reason, this tragic accident is not a basis for assessing Ford's criminal liability.
But there are good political reasons to go after Ford. In an unrelated tort lawsuit, an internal Ford document came to light that made the Ford pinto known nationwide. The document disclosed an internal Ford study that compared the profit and loss of reducing the likelihood of automobile fuel tank fires. The report estimated that a particular safety device would save 180 lives and prevent 180 cases of malignant burns. What is controversial, however, is the economic cost of these benefits: if one life is worth $200,000, avoiding one severe burn is worth $67,000 - a total of $49.5 million. When this is compared to the $137 million (12.5 million vehicles) it would cost to install the device, the benefits of installing the device pale into insignificance. At the very least, if the value-of-life estimates in this report are correct, Ford would not have decided to install the device under any circumstances.
The reaction to the publication of the report was predictable. Ford was accused in a series of public statements of ruthlessly sacrificing human life for profit. ralph nader and others expressed the same view in various statements. It was in this emotional climate that a district attorney in Indiana decided to prosecute Ford for manslaughter. Ford was ultimately acquitted. Perhaps it was the trial judge who decided that the controversial report's estimation of human life could not be recognized as evidence.
What did Ford do wrong when it defended its alleged guilt in this case of three deaths? It cannot be argued that the conscious decision to refuse to install safety devices because they cost too much - a decision that the prosecution in this case blames on the pursuit of profits at the cost of lives - constitutes a crime in itself. Taken to its logical extreme, this argument would lead to the absurd conclusion that making cars for profit is itself a crime, because traffic accidents and crashes are inevitable. Of course, it's also possible that Ford used the wrong numbers in its profit-and-loss calculations-$200,000 for life is too low. The $11 per vehicle cost of installing the safety device seems insignificant; many people would not hesitate to shell out $11 to reduce the likelihood of death after this crash. At the same time, however, the dangers of driving a miniature Beetle were already well known, and the pinto, like any other miniature car, was certainly no match for a larger, more expensive automobile in the event of a vehicular collision. In fact, the pinto was no more dangerous than any other car of its type at the time, and it was designed to meet the requirements of later-implemented safety rules. Also, causation is questionable. In the event of a crash, death could have occurred with or without the safety device, and finally, it is significant that the Indiana prosecutor never charged the Ford employee with murder or manslaughter, and there is no reason to think that the person who wrote Ford's internal memo did anything other than make an honest mistake, even if the $200,000 estimate was too low. pinto case gives us the message that large, for-profit corporations can be the subject of a crime even when their employees have committed no crime.
The pinto case fueled widespread public criticism of U.S. corporations in the wake of the Watergate scandal in the 1970s. Critics emphasized that corporations lacked credibility with their investors and with society. Illegal behavior - including price-fixing, illegal political contributions to domestic and foreign governments, environmental damage, and threats to health and safety - has become not uncommon but widespread. One commentator puts it this way: "Rather than committing crimes aimlessly and accidentally, the major corporations in this country are showing a tendency to engage in repetitive and systematic destructive criminal behavior, and crime has become a standard operating procedure. In order to ensure profits with minimal expenditure, these companies knowingly violate the law. As legal entities, these companies, and the decision-makers within them, have been reduced to criminals."
Congress responded to the concern over corporate crime by dramatically increasing criminal fines, especially for corporate defendants (e.g., the Sherman Antitrust Act's fines rose to $10 million for corporations, but just $350,000 for natural persons). In addition to significantly increasing the maximum criminal fines for many offenses, Congress passed legislation providing for an "optional fine" for guilty defendants equal to twice the amount of the proceeds of the offense or the damages caused. At the same time, Congress passed a series of statutes expanding the application of criminal law in the areas of securities, environmental protection, arms procurement, health insurance and others. The courts have done their own work in corresponding parts, further interpreting these acts and the more general postal and wire fraud statutes.
Not surprisingly, there has been a rapid increase in criminal prosecutions of legal persons. Many of these cases are high profile and involve large sums of money. The government's criminal prosecution of the drexel burnham investment bank and the guilty verdicts against drexel burnham ultimately led to the company's bankruptcy. after the valdez crude oil spill, exxon petroleum was found guilty on several charges of environmental crimes. In addition to spending billions of dollars to clean up the contamination caused by the spilled crude and related civil damages, the company also paid $120 million in criminal fines to the government. Recently, Exxon also appealed an Alaska jury verdict finding it liable for $6 billion in damages to a group of fishermen. There are many other cases regarding new developments in the criminal prosecution of legal persons. For example, the government's investigation into arms procurement fraud, code-named "Operation Three Winds," ended with each of the major arms dealers paying fines totaling hundreds of millions of dollars to the government. In recent years, many of the major health insurers that have sought reimbursement from the government under the Medicare and Medicaid laws have invariably found themselves defendants in criminal proceedings.
Several points can be made to summarize recent developments. First, legal persons and their members face increased criminal liability for their actions, where there is no requirement of intent on the part of the member to commit the offense, as in common law doctrine. The principles of strict liability and negligence have been adopted for many environmental crimes. Criminal statutes prohibiting false statements to the government have been interpreted by courts as requiring no intent to find fraud against the government. Similarly, the Medicaid Anti-Kickback Statute broadly defines the scope of the offense, holding that any payment, including routine expenditures like scientific research incentives, that is used to encourage the referral of new enrollees to an insurance company so that the company can claim reimbursement from the government under the Medicare program is criminal. As exposure to crimes committed by members of legal persons has increased, exposure to crimes committed by legal persons has also
increased accordingly. Criminalizing members of legal persons who lack the intent to commit a crime creates another problem of over-deterrence-members of legal persons will over-invest in defensive measures and forgo profitable behavior. This overdeterrence problem is distinct from the incentive to overmonitor when a legal person is subjected to a penalty higher than the socially optimal level.
Second, there are still provisions for severe criminal penalties for behavior that does not result in any harm. The Arms Procurement and Medicare Fraud Acts, for example, do not require that the government has been genuinely defrauded. In fact, these statutes criminalize these acts even if the government benefits from them. Imagine a case in which an outpatient medical device saves office space and thus charges the doctor less rent than would otherwise be required for the patient's hospitalization. Such a case would be a clear violation of the Anti-Kickback Statute, although the government is a beneficiary here.
As the sensational corporate case - the criminal prosecution of drexel burnham lambert and his star employee michael milken - revealed, the imposition of criminal penalties in securities cases is also not conditional on the existence of damages (in the case of drexel burnham and michael milken). The criminal prosecution of drexel burnham and michael milken is extensively discussed and analyzed in the book "payback: the plot to destroy michael milken and his economic revolution" by daniel r. Fisher), the case focuses on the purported "stock depository agreement" between milken and ivan boesky. The government argued that the agreement was signed to conceal the identity of the true stockholders, that it was designed to allow drexel and boesky to avoid the obligation to disclose their true stock ownership, and that even assuming that the agreement existed (of which there was substantial doubt), there was no apparent victim. Under tort law, drexel and milken are not liable.
But criminal law is very different. After being threatened with criminal prosecution under the Rico Act, drexel pleaded guilty to numerous felony charges and agreed to pay $600-500 million in fines. The government then turned around and prosecuted Milken under the RICO Act for the same conduct that Drexel had pleaded guilty to, and Milken was eventually convicted and sentenced to 10 years in prison and a $600 million fine. Still unsatisfied, the government proceeded to sue Milken under civil law, charging him with causing Drexel's bankruptcy through his unlawful conduct in other matters. This action ultimately resulted in Milken paying $1 billion in civil penalties. milken and drexel paid a total of $2 billion in penalties for what was nothing more than a victimless violation. Of course, the $2 billion figure does not include the lost revenue that Milken and other key business people suffered as a result of their termination. The magnitude of the penalties is quite staggering for behavior that did not cause any damage.
Third, the doctrine of corporate criminal liability fails to serve any purpose even in cases where there is clear harm. For example, Exxon's valdez oil spill had enormous damaging consequences, but criminal prosecution of Exxon did not achieve anything. Civil penalties against Exxon through the tort system would have been sufficient to achieve the best deterrent effect, because there was no leakage problem, so punitive damages would not have found a basis. A major oil spill would certainly be investigated. Imposing additional penalties on top of punitive damages would only serve as an excessive deterrent and would discourage companies from engaging in the transportation of oil at a socially optimal level. In 1991, the U.S. Sentencing Commission finally published its principles for sentencing organized defendants. The sentencing principles, which were adopted in response to the urgent need to prevent legal persons from profiting from criminal conduct, embodied the notion that the crimes of legal persons should be reduced to zero. In other words, the purpose of the Commission is unconditional deterrence - to completely eradicate corporate crime.
The change in the guiding principle reflects this aim. Overall, the penalties for legal persons under this principle contain three main elements:
Firstly, the guiding principle requires legal persons to pay compensation for any damage caused to the victim as a result of their conduct. This damage is not reduced or offset by the payment of any fine.
Secondly, the guiding principles require the court to go through a two-step process in determining the appropriate fine. First, the court establishes a base fine amount based on the maximum of (a) the amount shown on the sentencing table (up to $72.5 million), (b) the pecuniary gain resulting from the offense, including increased income and decreased expenses, or (c) the economic loss resulting from the offense. This base fine is then adjusted upwards or downwards depending on the liability of the legal person. The increase in the fine is based on the involvement of management, whether the same fault has been committed before and the extent of the legal person's involvement in the case. Other things being equal, the larger the size of the legal person, the higher the fine imposed. The reduction of the fine is based on the adoption of effective measures to prevent the violation of the law, the initiative of the legal person to report the act to the competent authorities, and its full cooperation with the Government's investigative activities. Once the final amount has been calculated, it must also be revised on the basis of the surrender of illegal profits when there are residual illegal proceeds. The Guidelines also provide that any remaining balance of damages or other remedies paid by the legal person must be paid as a fine. In addition, in private actions and other civil and criminal penalties, the fines paid by a corporation do not offset the fines payable by its agents.
Third, the probation system. The Guiding Principles recognize that the sentencing of convicted legal persons should also include a "probation system". In sentencing a legal person, probation means that the sentencing court may order the legal person to take measures such as disclosing the offense, submitting to and paying for the inspection of its own accounts by a professional retained by the court, and establishing and practicing a system of compliance agreed to by the court.
In many ways this guiding principle should be criticized:
1. The rule of unconditional deterrence. The guiding principle ignores the distinction between intentional crime and failure to invest sufficient funds to prevent others from committing crimes. Unconditional deterrence is at best appropriate in the first case, but not in the latter. As we noted earlier, once the costs of litigation and enforcement are taken into account, unconditional deterrence may not be appropriate at all times. So the optimal level of corporate crime is not zero. Unconditional deterrence is also inappropriate in the area of corporate crime because many crimes are not intended to cause harm. Offenses that do not have intent and do not bring about harmful consequences cannot be unconditionally deterred.
2. Lack of harmonization of penalties. Since the guiding principle is based on the theory of unconditional deterrence, it is not intended to coordinate the imposition of different penalties for the same criminal act, and the principle itself only provides a bunch of confusing and disorganized penalties, including damages, disgorgement of ill-gotten gains, fines, doubling of damages, and probation system. These penalties are not independent of each other. Similarly, the Guiding Principles deprive legal persons of the possibility of incurring civil penalties through the tort law system or civil actions brought by the government, and do not allow for the amendment of penalties against a legal person because its members have already been subject to civil or criminal penalties. The lack of harmonization of penalties will be exacerbated by the fact that the legal person charged with a crime will also have to deal with the fact that the penalties are attached to it. Depending on the type of offense, these legal persons may also face significant reputational damage or even the inability to continue their business in a given jurisdiction.
3. Profitability as a focus of attention. The guiding principle is that the base amount of the fine (before adjusting for the elements of culpability) should be the amount gained through the criminal conduct, if it is greater than the damage caused by the crime or the amount set out in the schedule of offenses. Why? When an employee commits a fraud or other intentional crime and the proceeds are shared by the company, sometimes disgorgement of the ill-gotten gains is sufficient. Assuming that other non-participants in the company have the ability to monitor the fraudulent employee, the company can be required to pay the sum of the ill-gotten gains and their social costs.
But this basic principle does not explain the Guiding Principles' focus on ill-gotten gains. First, the guidelines do not distinguish between unprofitable behavior by employees and socially beneficial behavior. For the latter, mandatory disgorgement would lead to the problem of over-deterrence. Secondly, the economic loss resulting from criminal conduct, as identified in the Guiding Principles, is not necessarily the same as its social cost but may significantly exceed it. If the private economic loss exceeds the sum of the social cost and the illicit gain, the illicit gain is disregarded. Finally, illicit gains within the meaning of the Guiding Principles include both additional income and reduced expenditures. As we have repeatedly emphasized, non-participants should not have to incur significant monitoring costs to prevent perpetrators from committing crimes. However, the Guiding Principles characterize illicit gains as including reduced expenditures, i.e., penalizing non-participants for limiting monitoring expenditures when expenditures exceed revenues. This is absurd and, once again, leads to the problem of over-deterrence.