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... Employees Unless Those Actions are Designed Benefit the Corporation C. To Hold a Corporation Liable for the Acts of its Employees, a Court Must Impute the Intent of the Individuals to the Corporation 1. Conspiracies 2. Mergers, Dissolutions, and Liability 3. Misprision of Felony 4. The Willful Blindness Doctrine 5. The Collective Knowledge Doctrine III. ORGANIZATIONAL SENTENCING GUIDELINES A. Introduction: Purpose and Scope of the Organizational Guidelines 1. Controls on Prosecutorial Discretion 2. General Principles 3. Organizations Covered by Chapter 8 of the Guidelines 4. Purpose and Effect of the Organizational Guidelines B. Guidelines Provisions: Offenses Covered and Sanctions Permitted 1. Remedies 2. Probation 3. Imposition of Fines a. Base Offense Level b. Base Fine c. Culpability Score i. Calculation: Increasing Factors ii. Calculation: Decreasing Factors (1) Effective Corporate Compliance Programs (2) Cooperation d. Multipliers e. Disgorgement f. Implementation g. Departures
I. INTRODUCTION
Corporate criminal liability developed as courts struggled to overcome the problem of assigning criminal blame to fictional entities in a legal system based on the moral accountability of individuals. (1) Courts began with the civil law-based doctrine of respondeat superior (2) and gradually injected aspects of the criminal law, such as hearings and sentencing, into cases with corporate defendants. (3) This practice, however, raises theoretical questions because corporations can only act through individuals and not independently. (4) Although criminal prosecution of corporations is guided by recognized principles, many prosecutors still proceed against corporations with great discretion, persuaded by the argument that punishing a corporation in effect punishes innocent stockholders. (5)
However, recent corporate scandals have led to increased public outrage and culminated in the passage of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). (6) Although Sarbanes-Oxley exposes corporations to increased criminal liability, most investigations and prosecutions have targeted the wrongdoing of individual officers instead of prosecuting corporations. (7) While recognizing that corporations will be subjected to criminal liability in a small percentage of cases, the Department of Justice insists that prosecutors seek indictments against companies guilty of corporate wrongdoing. (8) The government will be especially likely to prosecute when a corporation impedes or obstructs a federal investigation. (9)
A broad range of principles guides the law of corporate criminal liability. These principles are outlined in the remainder of this Article. Section II of this Article describes the three elements required to incur corporate criminal liability. Section III of this Article addresses the United States Sentencing Guidelines' mechanism for sentencing organizations, including the requirements of Sarbanes-Oxley and the effect of the recent Supreme Court decision, United States v. Booker. (10)
II. THE LAW OF CORPORATE CRIMINAL LIABILITY
A corporation has no physical existence but may vicariously be held criminally liable for the acts, omissions, or failures of employees acting as agents. (11) The nature of incorporeal legal entities requires courts look to employees of the corporation as a means of imputing intent, or mens rea, (12) as well as the guilty act, or actus reus, (13) to the corporation. Courts hold a corporation vicariously liable for the acts of its employees if the individual: (i) acted within the scope and nature of his employment; (14) (ii) acted, at least in part, to benefit the corporation; (15) and (iii) the act and intent can be imputed to the corporation. (16)
A. Corporations are Only Liable for the Acts of Employees if the Employees are Acting Within the Scope and Nature of Their Employment
For a corporation to be liable for the illicit behavior of an employee, that employee must be acting within the scope of his or her employment. (17) This requirement is met if the employee has actual or apparent authority to engage in the act in question. (18) Actual authority attaches when a corporation knowingly and intentionally authorizes an employee to act on its behalf. (19) An employee is acting with apparent authority if a third party reasonably believes that the agent has the authority to perform the act in question. (20) The government bears the burden of demonstrating the existence of any agency relationship. (21)
Beyond this general framework, the question of whether an employee acted within the scope of his or her authority depends on the jurisdiction. In federal courts, a corporation may be liable for the actions of its agents regardless of the agent's position within the corporation. (22) The decision to impute liability is based on a fact-specific inquiry. (23) Federal courts have found that an employee's act can bind the corporation even where the corporation has implemented policies explicitly prohibiting the behavior. (24) However, corporations that prove they established corporate policies in an effort to reduce crime may qualify for a reduced penalty. (25)
The Model Penal Code ("Code") provides two standards for imputing corporate liability for employee behavior, depending on the source of liability. (26) First, the actions of any agent of the corporation may be imputed to the corporation if liability is imposed by statute and if "a legislative purpose to impose liability on corporations plainly appears" in the statute. (27) Second, in the absence of such a statutory provision, liability is imposed only if, "the commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting on behalf of the corporation within the scope of his or her office or employment." (28) Thus, the assignment of liability depends on the classification of the actors as agents (29) versus as high managerial agents. (30)
Many states have adopted specific statutory language limiting liability to criminal acts committed by "high managerial agents." (31) Some states have developed similar requirements through common law doctrine rather than through statutory enactments. (32) In some states, the corporation may be liable for employee actions even if the corporation's directors, officers, or other high managerial agents did not specifically approve of the employee's behavior. (33)
Barring any statutory modification, the Code allows a corporation to avoid liability only if it demonstrates that supervisory agents with power over the area in which the offense took place acted with due diligence to prevent the commission of a crime. (34)
B. A Corporation Will Not be Liable for the Acts of its Employees Unless Those Actions are Designed to Benefit the Corporation
The second element of corporate criminal liability requires that the employee acted to benefit the corporation. (35) The corporation need not have actually received a benefit; the employee's mere intention to bestow such benefit suffices. (36) Courts may find this intent manifested whenever the employee's actions are favorable to the interests of the corporation. (37) In addition, it is not necessary that the employee be primarily concerned with benefiting the corporation, as courts recognize that many employees act primarily for their own personal gain. (38)
Liability may be imputed to a corporation even when the agent violated a company policy. (39) However, acts committed by an employee that are expressly contrary to the interests of the corporation and for which the corporation derives no benefit cannot subject the corporation to criminal liability. (40) In addition, a corporation may avoid liability when an employee's actions constitute a breach of fiduciary duty to the corporation. (41)
C. To Hold a Corporation Liable for the Acts of its Employees, a Court Must Impute the Intent of the Individuals to the Corporation
The final element necessary to hold a corporation liable is that the act and intent of the agent must be imputed to the corporation. This Section addresses a number of ways in which courts have traditionally imputed intent. In particular, this Section will describe: (i) conspiracy; (ii) liability after mergers or dissolutions; (iii) the misprision of felony doctrine; (iv) the willful blindness doctrine; and (v) the collective knowledge doctrine.
1. Conspiracies
A corporation may be liable for a conspiracy to commit a criminal act involving its employees, or for conspiracies involving one employee and others not employed by the corporation. (42) Conspiracies have traditionally been defined as conduct by two or more persons who agree to commit an offense, with one or more of those persons taking affirmative action to further the goals of the conspiracy. (43)
Disagreement exists among Circuit Courts over whether a corporation may conspire with its own employee(s). (44) Because a conspiracy requires an agreement between two or more distinct persons, the "intracorporate conspiracy doctrine" declares that a corporation, a single entity made up of employees, may not be convicted of conspiring with its own employees; otherwise, the corporation would be guilty of conspiring with itself. (45) Most courts have declined to extend the "intracorporate conspiracy doctrine" to criminal cases, stating that to do so would shield corporations from liability. (46) However, the rule is not universal, and there is no definitive Supreme Court ruling on the matter. (47)
2. Mergers, Dissolutions, and Liability
Corporations can be criminally liable for the prior wrongdoing of a target corporation after a merger or consolidation. (48) To determine whether a corporation can be liable for the acts of its predecessor, federal courts will apply state corporation law governing successor liability. (49) Although corporations have some times avoided liability through dissolution at common law, (50) other cases have imputed liability, even if the dissolution occurs before the indictment. (51) In addition, many states provide statutorily imposed periods of time after dissolution during which the dissolved corporation can be held liable. (52)
3. Misprision of Felony
A corporation may be held liable for misprision of felony, the offense of concealing and failing to report a felony. (53) Misprision of felony requires proof that: (i) a principal committed a felony; and the defendant (ii) knew of the felony; (iii) failed to notify authorities as soon as possible; and (iv) took affirmative steps to conceal the crime. (54) Merely failing to notify authorities is insufficient to sustain a charge of misprision; an active part in concealing the crime is required. (55) Similarly, mere intent to conceal is inadequate if the intended act is not completed. (56) The government's knowledge of the crime does not dissipate the misprision of felony. (57)
Although the doctrine of misprision of felony is firmly established for individual defendants, its availability for use against defendant corporations has not been conclusively resolved. (58)
4. The Willful Blindness Doctrine
Corporations can be criminally liable for deliberately disregarding criminal activity. (59) The "willful blindness" doctrine is most often employed where a corporate agent became suspicious of a criminal violation but deliberately took no action in an attempt to mitigate or investigate potential criminal activity. (60) Under this doctrine, proof of either actual knowledge or conscious avoidance satisfies the knowledge requirement. (61)
5. The Collective Knowledge Doctrine
The "collective knowledge" doctrine imputes to a corporation the sum knowledge of all or some of its employees--aggregating individual employee's knowledge for the purpose of creating the necessary guilty intent for the corporation. (62) Thus, a corporation may be liable even if there is no single employee entirely at fault. (63) By recognizing that the acts of a corporation are "simply the acts of all of its employees operating within the scope of their employment," the collective knowledge doctrine prevents corporations from evading liability by compartmentalizing and dividing employee duties. (64) Although many commentators recognized the collective knowledge doctrine as a stand-alone doctrine after the First Circuit's decision in United States v. Bank of New England, (65) others argue that aggregation of "innocent" knowledge is not persuasive unless the corporation is also turning a blind eye to legal requirements or otherwise acting in a culpable manner. (66) Similarly, some courts have refused to recognize the collective knowledge doctrine. (67) In addition, the collective knowledge doctrine addresses only a corporation's knowledge and does not address the element of specific intent. (68) Therefore, it cannot be used, without more, in specific intent crimes. Only when an employee possesses a particular state of mind can a corporation be held to have that particular state of mind. (69)
III. ORGANIZATIONAL SENTENCING GUIDELINES
A. Introduction: Purpose and Scope of the Organizational Guidelines
Under federal law, corporations are punished pursuant to the Organizational Sentencing Guidelines. Punishment consists of a fine calculated post-conviction that is based on either the victim's loss or the defendant's gain multiplied by a factor set forth in the United States Sentencing Guidelines ("Guidelines") promulgated by the U.S. Sentencing Commission ("Commission"). (70) The Sentencing Commission addressed the problem of inconsistent sentencing of corporations in 1991 when it created Chapter Eight, Sentencing of Organizations ("Organizational Guidelines"). (71)
Prior to the development of the Guidelines, (72) the common law of corporate criminal liability gave judges broad discretion in determining sentencing, creating inconsistencies in the application of criminal laws and penalties and making it difficult for corporations to accurately assess potential liability for violations. (73) Moreover, the common law largely failed to account for a corporation's efforts to discourage potentially criminal activities. (74) Consequently, the law did not provide incentives for corporations to expend resources on compliance programs, (75) and encouraged them to ignore, and even hide, potential wrongdoing. (76)
The United States Supreme Court has held the Guidelines to be advisory only, excising two statutory provisions: (1) 18 U.S.C. [section] 3553(b)(1), which made the Guidelines mandatory; and (2) 18 U.S.C. [section] 3742(e), an appeals provision that the Court determined was inextricably linked to [section] 3553(b)(1). (77)
However, the Court explained that "[t]he district courts, while not bound to apply the Guidelines, must consult those Guidelines and take them into account when sentencing." (78) The controlling statutory provision in sentencing is 18 U.S.C. [section] 3553(a), which states that the Guidelines are one among a number of factors--including the purposes of punishment, the nature and circumstances of the offense, and the history and characteristics of the defendant--to be considered in imposing federal sentences. (79) Accordingly, the following analysis of the Guidelines remains highly relevant despite their advisory nature.
1. Controls on Prosecutorial Discretion
The government has placed limits on prosecutorial discretion in order to address continuing inconsistencies in sentencing. The DOJ directs government prosecutors to weigh nine different factors in deciding whether to seek an indictment against a corporation:
"(1) the nature and seriousness of the offense; (2) the pervasiveness of wrongdoing within the corporation; (3) the corporation's history of similar conduct; (4) the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents; (5) the existence and adequacy of the corporation's pre-existing compliance program; (6) the corporation's remedial actions; (7) collateral consequences; (8) the adequacy of the prosecution of individuals responsible for the corporation's malfeasance; and (9) the adequacy of remedies such as civil or regulatory enforcement actions." (80)
These guidelines are meant to guide prosecutorial discretion in charging corporations and their employees with crimes. (81) Many corporate officials and commentators, (82) however, argue that these guidelines result in a power disparity between corporate defendants and prosecutors, skewing effective discretion. (83)
2. General Principles
Before Booker, all organizations convicted of federal felony and Class A misdemeanor offenses were sentenced under the Organizational Guidelines. (84) Despite their advisory nature, courts are still required to consult the Guidelines, which operate under four general principles with regard to organizations....
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