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Corporate Crime Assignment Essay

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Corporate Crime refers to crimes committed by corporations, or individuals acting on behalf of companies (Tomasic, 1993). As corporate crime also involves top managers and employees of the company, it sometimes overlaps with white-collar crime (Grabosky & Braithwaite, 1987). There is no doubt that corporate crime has taken a heavy toll on Australian society, as proven by the Treasury’s 1985 Draft White Paper, which estimated that the revenue losses arising from tax fraud by corporations amounted to $ 3 billion per year (Grabosky & Braithwaite, 1987).

Also illegal price fixing in the building industry added estimated costs of $30 million during the late 1970s, not to mention the hundred of deaths and tens of thousands of serious injuries occuring in Australian workplaces each year, which may have arisen as a result of violations of occupational health laws (Grabosky & Braithwaite, 1987). The prevention and detection of corporate crime are both difficult as much of it is hidden from the public eye.

However, there is considerable debate regarding the basis of imposng criminal liability on a corporation that breaks the law. The main issue is whether the law should impose criminal sanctions on individuals rather than on corporations. Central to this discussion on criminal liability of corporations versus the liability of individuals within the corporation is the concept of corporate criminal liability. The paper will firstly introduce and discuss the concept of corporate criminal liability.

This paper further attempts to discuss the different views held by scholars regarding the imposition of criminal liability on a corporation, specifically whether the corporation as an artificial person should be vicariously liable for its actions, or whether individuals within the company acting in the interests of the corporation should be held liable for the company’s wrongdoings. It does this by dividing the two different views of scholars into two different camps, the advantages of corporate criminal liability and criticisms of corporate criminal liability.

It will ultimately be argued that the law should directly impose sanctions on the corporation, as it is a separate legal entity and thus its own person under the law, under the concept of corporate criminal liability. However, where an individual director or manager is accessorially liable for the commitment of an offence by the corporation, the law should punish those individuals accordingly. The Concept of Corporate Criminal Liability

Under the doctrine of separate legal entity, a corporation is a legal person that is separate from its employees and shareholders, thus having the capability to own property, enter into contracts and sue and be sued under its own name (Ferguson, 1998). It is this doctrine that forms the concept of corporate criminal liability. The concept of Corporate Criminal liability is important in determining whether laws should impose sanctions on corporations or individuals for any illegal wrongdoing that may arise.

In criminal law, corporate liability refers to the length at which a corporation as a legal person is responsible for the actions of the individuals acting on its behalf (Pop, 2006). Accordingly, the main goals of corporate criminal liability are characteristic of criminal law in general, in that it hopes to achieve deterrence, retribution and rehabilitation of corporate offenders, as well as to achieve consistency and predictabiliy similar to criminal law (Pop, 2006).

Unsurprisingly, corporate criminal liaiblity has come under fire from critics, partly due to the fact that companies are arificial persons under the law and not natural persons. Criticisms of Corporate Criminal Liability Some critics of corporate criminal liability argue that corporations are artificial entities, which have no existence apart from the various individuals who act on behalf of the entity, and thus are not deserving of punishments (Beale, 2009). Accordingly, corporations are made up of groups of people and are thus fictitious persons only under the law.

In determining whether the law should punish corporations, scholars like John Hasnas argue that moral responsibility is a necessary factor in imposing sanctions on corporations (Hasnas, 2009). Therefore, it must be proven that corporate entities are capable of being morally responsible for their actions, even though they are run by individuals. Some scholars like French emphasise that a corporation’s internal management structure by which policy is determined nfluences the company’s output, thus arguing that these internal structures allow the corporation to act intentionally (French, 1979). Based on this argument, corporations are capable of bearing’ moral responsiblities’. However, critics of corporate liability such as Valasquez are quick to dismiss French’s argument by emphasising that moral responsiblities cannot be completely attributed to corporations (Valasquez, 2003). As such, a single director or manager as in the case of smaller corporations might solely influence the corporation’s internal decision-making structure.

Valasquez further argues that moral responsibility can never be attributed to corporations due to the fact that corporations are not responsible for the actions of their employees, corporations cannot act intentionally and corporations are not agents (Valasquez). In relation to the notion that corporations are not responsible to the actions of their employees, Valaquez emphasises that the individuals comprising the corporation affects the way the company acts.

Although he recognises that companies have organisational cultures which influence how individuals in the company behave, Valasquez postulates this as a result of the beliefs of the individuals themselves (Valasquez, 2003). Valasquez further argues that corporations are only said to act intentionally in an abstract sense, as its internal decision-making structure is influenced by the beliefs and purposes of individuals in the company (Valasquez 2003). Lastly, Valasquez argues that corporations cannot be agents as it is not a separate entity which acts distinctly from its members (Valasquez, 2003).

Valasquez’s arguments seems to provide a more solid view of corporations being unpunishable due to a lack of moral responsibility, compared to French’s arguments. Critics of criminal liability also argue that it is unnecessary, because civil liability is sufficent and more efficient. Additonally, the only form of sanctions that can be imposed on corporations relate to monetary sanctions, since corporations cannot be sent to jail; similar to monetary damages awarded for civil liability. According to Khanna (1996), there are four main differences between corporate criminal liability and civil liabiliy.

These include corporate criminal liability acting as a severe social sanction by affecting the reputation of the company, having stronger enforcement instruments, and greater message-sending role compared to civil liability (Khanna, 1996). Accordingly, a criminal charge is much more significant and severe compared to civil liability, hence a criminal sanction imposed on a corporation will tarnish the corporation’s image and might lead to a decrease in business, damaging the company’s future profits (Khanna 1996).

It therefore acts as a severe social sanction and plays a greater message-sending role. One of the main similarities between corporate criminal liability and civil liability is that the main form of sanction is monetary. It is because of the fact criminal sanctions tend to be monetary, that some commentators such as Khanna have suggested that criminal sanctions are inappropriate in the corporate context given that corporations are immune to monetary fines, despite how severe they are compared to civil sanctions (Khanna, 1996).

This is especially the case for corporations whose formidable wealth renders the sanction as inconsequential. Furthermore, if the defendant corporation undergoes bankruptcy and liquidation, the monetary sanction will be ineffectual (Khanna, 1996). Therefore, in such cases, individual liability is more consequential and has a greater effect in promoting deterrence. It can be argued that since the corporation is an entity that comprises groups of people, corporate criminal liability causes everyone involved with the company to be punished.

Therefore, it is the innocent shareholders who are forced to bear the direct burden of criminal sanctions, as well as innocent employees, creditors and customers (Beale, 2009). Imposing sanctions on a corporation for the acts of it directors or managers would reduce the corporation’s networth and income. It is assumed that Shareholders, who are adversely affected by such a reduction, will have an incentive to encourage managers not to commit undesirable acts (Khanna, 1996).

Shareholders can influence the behavior of corporation managers and employees by modifying employment contracts to provide incentives not to engage in certain types of activities (Khanna, 1996). The influence of shareholders on managers’ or employees’ incentives, then, can be similar to the influence of direct liability. However, the ability of shareholders to set up effective incentives is prevented by the difficulty of monitoring the activities of the corporation’s managers and employees (Khanna, 1996).

If shareholders can observe employee behavior cheaply, then monitoring activities would be less costly and employees would have greater accountability for their actions (Khanna, 1996). However, observing managers is often extremely costly, and managers’ activities are sometimes unobservable (Khanna, 1996). Therefore, based on this view, sanctions placed on the corporation will adversely affect innocent employees and shareholder, whereas individuals who are personally liable for the company’s crimes are not directly liable for the company’s actions.

Despite the many criticisms of corporate criminal liability, commentators such as Beale and Friedman argue that imposing criminal liability on corporations help express public censure, reinforces societal values, enhances potential for publicity thus leading to company accountability, and imposes severe penalties on corporate criminals. Advantages of Corporate Criminal Liability Corporations are powerful societal actors whose conduct can cause significant harm to both society and individuals as a whole, therefore the concept of corporate criminal liability will help keep those corporations in check.

To illustrate the potential harm caused by corporations, the Corporate Affairs Commissions throughout Australia have been deluged with cases involving companies in liquidation that are unable to pay 50 cents in the dollar to creditors; the principal of many of these companies incurred debts which they do not intend to pay (1987). The financial loss of creditors as a result of these corporations’ refusal to pay is potentially detrimental to the financial sector.

Another example of the power of corporations in inflicting significant harm include the 1981 meat substitution scandal which threatened an export market worth $1 billion per year (Grabosky & Braithwaite, 1987). Given that corporations have the potential to inflict significant financial and societal harm, criminal liability for corporate wrongdoings has the ability to express public disapproval of the convicted party (Coffee, 1992). As such, criminal liability, as codified by criminal law and arising out of a background of social norms expressively conveys condemnation towards the corporation’s illegal acts (Friedman, 2000).

Such condemnation will adversely affects the reputation of the corporation, which may in turn reduce the financial income of the corporation, thus proving to be an effective sanction (Khanna, 2006). As corporate executives are pressured to maintain the company’s good reputation, they will attempt to avoid such negative publicity, thus causing them to be reactive of the sanctions imposed. Therefore, sanctions imposed on corporations are arguably effective in deterring the company to commit simila offences in the future.

A corporation’s criminal conviction will lead to severe penalties and collateral consequences such as prevention from entering government contracts. Accordingly, criminal penalties tend to be more severe compared to civil penalties, even though both penaltes are similar and may involve monetary sanctions. This is because criminal penalties aim to punish and deter the offender. As criminal liability may lead to reputational losses for the corporation and deprivation of liberty for corporate management, criminal sentences are widely perceived as harsher than civil penalties.

Fines imposed for criminal conduct are typically higher than those in the civil regime. Regarding the earlier argument that it is improper to impose criminal fines that effectively punish innocent employees, these arguments apply equally to punitive damages, and indeed to any money judgment against a corporation, since such a judgment also reduces the shareholders’ equity. It is not conceivable that the protection of shareholders means that they benefit from the corporation’s successes, whereas they never suffer losses as a result of their failure to monitor the company’s actions.

This is similar to a civil liable which may affect shareholder prices of a company, such as the oil spill caused by Exxon Valdez which led to significant civil damages, causing shareholders to lose money. The corporation itself might have a poor corporate culture such that it promotes impoper corporate values and practices. For example, the setting of unrealistic performance goals, and employee selection and retention policies (NSW Law Reform Commission, 2003). In such cases, it is appropriate for the law to punish the corporation as a whole.

Accordingly, workplace values may have obscured the harsh sanctions imposed by the law, such that employees may have been encouraged by their workplace culture to commit conduct that may be in conflict with the law (Moohr). Moohr further notes the prevalence of the phenomenon of ‘group think’ in institutional settings such as the workplace which cause individuals to support and not to question the decisions of the group (Moohr). The obligation of loyalty expected from employees, based on firm expectations may lead the individual to place the interests o the firm over customers and investors. Moohr). Moohr also suggests that the ‘self-conception’ of normally law-abiding executives provides a barrier that prevents individuals from considering any ethical dilemma, thus causing their failure to perceive any conduct to be criminal. For example, a manager might purposely cover up the fraudulent actions of his subordinates in order to prevent them from getting into trouble (Moohr). This phenomenon of ‘group think’ and self-conception at the workplace is systemic of the organisation’s culture, where there is no single individual to point the finger to.

Therefore, the law should punish the corporation as a whole rather than individuals. Conclusion Therefore based on the facts, it is found that the law should impose criminal sanctions on corporations rather than individuals in order to effectively deter and punish corporate crime. One of the most common criticsms of corporate criminal liability is that corporations are artifical entities which do not exist separately from its members and hence do not have any moral responsibilities.

The commentator Vaslaquez, in particular emphasised that since corporations are not responsible for the actions of its employees, it does not have a moral responsibility and hence no criminal sanctions can be applied to it. However, the phenomenon of groupthink in institutional settings, suggested by Moohr lays doubt to this argument, as it is the corporate culture of the entity that can indirectly influence the actions of individuals within the corporation. Hence it can be argued that the law should punish the corporation as a whole since the corporate culture of the entitiy is systemic and is not directly attributed to any one person.

There are also critics who argue that the sanctions imposed as a result of both corporate criminal liability and civil liability are similar in that both involve monetary sanctions. However, criminal sanctions carry a social stigma and might result in adverse publicity for the company, affecting its networth. Another criticism is that the imposition of criminal sanctions on a corporation might provide an unnecessarily burden on innocent shareholders and employees, however the notion of collateral damage makes it inconceivable that shareholders be protected from any losses while they gain profits from the company’s success.

The imposition of criminal sanctions on individuals is difficult due to the complexity of the corporation’s decision-making process, as well as the company’s organisational culture which might influence the individual actions at the workplace. The law should impose criminal sanctions on individuals only where it can be established that the individual had accessorial liability for the crime ,or that the individual is an accessory to the corporate ofence.