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What's Wrong With Corporate Criminal Liability?

Fiat's recent Foreign Corrupt Practices Act settlement brought this strong comment from Ellen Podgor at the White Collar Crime Prof Blog:

The deferred prosecution agreement is yet another instance of the company selling out individuals within the company. Now clearly if these individuals are going against company policy, and acting illegally - it is deserved. But having the larger entity being able to negotiate these agreements while individuals take the fall, raises issues as to whether power is being used against the less powerful.

Prof Podgor is among those who have argued for a good-faith defense for corporations. Instead of imposing on them what now amounts to strict liability for their employees' criminal acts, let companies show evidence that they tried to prevent the criminal activity. That way, organizations threatened with criminal prosecution might feel less compelled to rush into settlements with the DOJ that "sell out individuals within the company."

That's one way to redress the current imbalance of power between the government and corporate employees. But does it go far enough? How about ending the application of criminal laws against corporations entirely?

John Hasnas, an associate professor of business at the McDonough School of Business at Georgetown University, argues that it's unjust to punish companies for their employees' criminal misconduct. Corporations, he says, cannot be put in prison, so they're punished only with fines that are ultimately paid by the shareholders. That, he believes, makes no sense.

The defining characteristic of the modern publicly traded corporation, however, is the separation of ownership and control. In the publicly traded corporations that are often the targets of federal prosecutors, the shareholders who are the owners of the corporation do not control the actions of corporate employees. Thus, imposing criminal punishment on a corporation for the actions of its employees, rather than exclusively on the employees themselves, is actually punishing shareholders who are innocent of wrongdoing.

And beyond Prof Hasnas' concern about misplaced financial punishment, does corporate criminal liability actually shield some individuals from accountability? Do powerful people within corporations try to buy peace with prosecutors by having the company pay large fines and, worse still, deliver the scalps of their subordinates?

A good-faith defense, or even the end of corporate criminal liability, wouldn't prevent or impede the prosecution of white-collar criminals. The government would still have ample weapons to bring the crooks to justice. It just wouldn't have the overwhelming advantage handed to it when corporations sell out their employees.

It's not about giving anyone a free pass. It's about protecting the fragile rights of individuals against the massive combined firepower of corporations and the government. It's about stopping companies from waiving the attorney?client privilege, handing over other people's private documents and data, cutting off support to employees for their legal defense, and firing those who don't cooperate with government investigations.
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Full post as published by The FCPA Blog on January 07, 2009 (boomark / email).