The virtues of the due diligence defense for corporations in criminal cases: solving the problems of a corporation's vicarious liability for the crimes of its agents and employees

Author:Roni A. Elias
Pages:1-21
 
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THE VIRTUES OF THE DUE DILIGENCE DEFENSE FOR
CORPORATIONS IN CRIMINAL CASES: SOLVING THE PROBLEMS
OF A CORPORATIONS VICARIOUS LIABILITY FOR THE CRIMES
OF ITS AGENTS AND EMPLOYEES
RONI A. ELIAS
I. Introduction ....................................................................................................................................... 1
II. The Purposes of Criminal Law .................................................................................................... 2
III. The Nature of Corporate Personhood ........................................................................................ 3
IV. The Problem of Applying the Criminal Law to Corporate Persons ...................................5
V. Vicarious Liability Principles and Corporate Criminal Liability ...................................... 6
VI. The Diminishing Prosecution of Corporations: Is Vicarious Liability the
Problem? ............................................................................................................................................ 12
VII. Critiques of the Application of Vicarious Liability Principles to Corporate
Criminal Liability ........................................................................................................................... 13
VIII. Conclusion ..................................................................................................................................... 20
I. INTRODUCTION
Recent events, especially those surrounding the financial crisis of 2008,
have provided diverse examples of serious misconduct by large and powerful
corporations. Entities as diverse as Enron, J.P. Morgan Chase, and Bank of
America, among others, have been accused of violating both civil and criminal
rules governing the conduct of business activities. But, on the federal level, many
of these same entities have not been subject to formal criminal prosecutions.
Instead, they have reached settlements with federal prosecutors that have
precluded formal criminal prosecutions. Rather than face fo rmal criminal
judgments in these settlements, the corporations have paid fines and provided
other remedies to the victims of their wrongful conduct.
This trend in prosecution strategy coincides with an increasing criticism
of the legal structure of criminal law as it applies to corporations. That structure
was first established more than a century ago when the Supreme Court held that
corporations could be vicariously liable for crimes committed by their agents and
employees.
1
That fundamental principle for establishing corporate criminal
liability was developed to solve a particular problem in the legal context at the
turn of the twentieth century; nonetheless, it has persevered ever since, even
1
New York Cent. & Hudson River R.R. Co. v. United States, 212 U.S. 481 (1909) [hereinafter, New
York Cent.].
2 University of Puerto Rico Business Law Journal Vol. 7
though the scope and purposes of the criminal statutes applicable to corporations
have greatly expanded.
This paper addresses the question of whether principles of vicarious
liability should still be at the center of corporate criminal law. To do this, it
begins by considering the purposes of criminal law, and the nature of corporate
personhood to help identify the fundamental objectives that should be
accomplished when corporations are subject to criminal prosecution. Then, the
paper will examine how the principles of vicarious liability were injected into the
criminal law, as applied to corporations to show what purposes those principles
were designed to serve. Next, it reviews various approaches to modify the
principles of corporate criminal law and determine which of them are consistent
with the fundamental objectives that corporate criminal law should serve.
Finally, it concludes that those objectives are best served if principles of vicarious
liability are preserved while corporations are permitted to deny vicarious liability
with an affirmative defense of due diligence, in which they can show that they
took affirmative steps to prevent the criminal conduct of their agents and
employees.
Such a modification of the current standards for corporate criminal
liability would prevent corporations from being held responsible for the truly
independent wrongdoing of their agents and employees. If prosecutors have
declined to pursue formal criminal proceedings against corporations because they
feared the principles of vicarious liability would lead to unjust results, this
modification would remove a barrier to such proceedings. And if that barrier is
removed, there will be more opportunities to use the instrumentalities of the
criminal justice system as a formal expression of moral judgment about the
conduct of some of the most powerful and influential people in the United States.
II. THE PURPOSES OF CRIMINAL LAW
Any understanding of how corporations should be regulated by the
criminal law must begin with an understanding of the purposes that criminal law
serves. In general, criminal law has the purpose of protecting society from
wrongful conduct by establishing a moral standard for conduct that is,
distinguishing between right and wrong and by punishing those who fail to
meet that standard.
2
This broad objective is often described more specifically i n
terms of the concepts of retribution and deterrence.
3
Criminal law seeks to express
society’s moral judgments by taking retribution against wrongdoers, and it seeks
to deter wrongful conduct as a means of protecting the community.
4
Prosecution and punishment through the criminal justice system is a
means of effecting retribution against those who violate the moral principles
expressed through criminal statutes. “What actions are deemed to be criminal is a
judgment by society as to what is out of bounds of acceptable societal behavior.
2
Henry M. Hart, Jr., The Aims of the Criminal Law, 23 LAW & CONTEMP. PROBS. 401, 40111 (1958).
3
Id.; see also Andrew Weismann, A New Approach to Corporate Criminal Liability, 44 AM. CRIM. L. REV.
1319, 132526 (2007).
4
Hart, supra note 3; Weismann, supra note 3.

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