Fall 2011- Chapter 3- Corporate Crime- Parts 1 and 2

Fall 2011- Chapter 3- Corporate Crime- Parts 1 and 2 -...

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Unformatted text preview: Corporate Crime Corporate Crime White Collar Crime CRJU E491W­ Fall 2011 William C. Smith Corporations Corporations A corporation is an artificially created legal entity, or person, that may be classified as “for profit” or “non­ profit.” Although corporations may employ thousands and have millions of shareholders, and have their affairs directed by dozens of officials, the law treats the corporation as if it were a single individual. It is able to own property, enter into contracts, and sue and be sued in its own name. A “for profit” corporation generally exhibits five important characteristics: (1) artificial legal personality, (2) centralized management, (3) perpetual life, (4) free transferability of ownership, and (5) limited liability of the owners for the corporation’s debts. Corporations in Modern America Corporations in Modern America Corporations are a major factor in the high standard of living enjoyed by many; however, they also exploit and harm workers, the public, and others in pursuit of maximum profit. Corporate ownership and wealth has traditionally been concentrated in the hands of an elite few who, because of their wealth, have great influence over the political and legislative process. Corporate Crime Generally Corporate Crime Generally The history of corporate criminal liability evolved from regulatory strict liability crimes based on omissions, to crimes requiring acts of misfeasance, to finally include crimes with an intentional element. Corporate crime can be generally divided into two broad categories: (1) Corporate violence and (2) Corporate abuse of power, fraud, and economic exploitation. Corporate Violence Corporate Violence Corporate violence differs from conventional interpersonal violence in several ways. It is indirect (resulting from corporate policies and actions), Its effects are typically removed in time from the implementation of policies. It results from a large number of individuals acting collectively, motivated by the desire to maximize profits or minimize losses, and has traditionally inspired a far more limited legal and justice system response. Corporate Violence Distinctions Corporate Violence Distinctions Distinctions can be made between corporate violence against the public (e.g., unsafe environmental practices, toxic waste and air pollution), against consumers (unsafe products such as food, pharmaceutical items, and vehicles), and against workers (unsafe working conditions). The issue of corporate violence is often complicated, as can be seen, for example, in the debate as to whether or not the sale of tobacco products should be considered corporate violence. The Ford­Firestone Scandal The Ford­Firestone Scandal In May 2000, the National Highway Traffic Safety Administration (NHTSA) contacted Ford and Firestone about the high incidence of tire failure on certain Ford vehicles fitted with 15" Firestone tires, primarily Ford Explorers. The tires had very high failure rates. The failures all involved tread separation (the tread peeling off followed by tire disintegration). Tread separation posed a great potential for a vehicle leaving the road and rolling over. Many rollovers caused serious injury and even death. It was estimated that over 250 deaths and more than 3,000 serious injuries resulted from the tread separations. Ford internal documents showed that company engineers recommended changes to the vehicle design after it rolled over in company tests prior to introduction, but other than a few minor changes, the suspension and track width were not changed. Instead, Ford, which sets the specifications for the manufacture of its tires, decided to remove air from the tires, lowering the recommended psi to 26. Firestone claimed that they found no faults in design nor manufacture, and that failures were caused by Ford's recommended tire pressure being too low and the Explorer's design. The Process The Process The official verdict blamed the tires. The National Highway Traffic Safety Administration (NHTSA) denied a request from Bridgestone/Firestone for a defect investigation of the Explorer, saying crash data did not distinguish it from other SUVs. In August 2000, the companies began replacing millions of tires on Explorers and their clones: Mercury Mountaineers and Mazda Navajos. In September, 2000, Congress called upon the CEOs of each company to testify on the growing crisis. The Outcome The Outcome On September 22, 2000, NHTSA announced that the Firestone tires that were at the center of the recalled tires campaign passed all U. S. government­required tests, causing NHTSA head Sue Bailey to say, “Our testing is clearly outdated.” The furor subsided, and politicians, regulators and the news media moved on. No criminal charges were ever filed by the U.S. Department of Justice, as had been intimated, and both Ford and Firestone­Bridgestone have subsequently paid millions of dollars in civil damages. Corporate Abuse Corporate Abuse Corporate abuse of power, fraud, and economic exploitation, crimes may be committed against citizens and taxpayers (defrauding the government or corporate tax evasion), against consumers (price fixing, price gouging, false advertising, misrepresentation of products), against employees (economic exploitation, corporate theft, unfair labor practices, and surveillance of employees), against franchisees and suppliers (discount and chargeback frauds), against competitors (monopolistic practices and theft of trade secrets), and against owners and creditors (managerial accounting fraud, self­dealing, and strategic bankruptcy). 1996- Archer Daniels Midland (ADM), one of the nation's largest agricultural producers pleaded guilty to price fixing, and agreed to pay $100 million in fines, the largest criminal antitrust penalty ever at that time. ADM, a $13 billion grain company which produces corn syrup, cornbased fuel, and food and animal feed supplements used in thousands of products, has more processing capacity than any other company in the world. As part of the plea agreement, ADM admitted to price fixing in two of its major products, Lysine used in livestock feed, and citric acid found in soft drinks and detergents. Three of ADM's top officials, including vice chairman Michael Andreas (right) were also eventually sentenced to federal prison in 1999. Colleges and Universities Colleges and Universities The question of what constitutes abuse of power is often controversial, as is illustrated in the case of some universities and colleges with respect to their athletics programs (e.g. violations of NCAA rules) as well as other activities. Particularly of concern are so­called “for profit” institutions and colleges, most recently investigated by the U.S. Government Accountability Office in August 2010. Corporate Crime­ Part 2 Corporate Crime­ Part 2 White Collar Crime CRJU E491W­ Fall 2011 William C. Smith The Evolution of Corporate Crimes The Evolution of Corporate Crimes Traditionally, corporate offenses consisted of regulatory infractions and violations punishable by a fine and a strict liability approach was the common and preferred method of imposing liability on corporations. Strict liability is a theory of liability under which the wrongdoer need not “intend,” or be “at fault for,” the harm that has been caused. In other words, the conduct of the wrongdoer need not be “morally wrong.” The theory is most often seen in civil cases, although it is used frequently in criminal cases involving hazardous or inherently dangerous activities which carry great potential for public injury, such as environmental pollution cases. Strict Liability and Public Welfare Strict Liability and Public Welfare Strict liability statutes often address so­called “public welfare” offenses. Public welfare statutes are directed at conduct that, although not morally wrong, has the potential to gravely affect the health, safety, or welfare of a significant portion of the public. Examples include statutes that prohibit the manufacture or sale of impure food or drugs to the public and anti­pollution environmental laws and regulations. The Waning of Strict Liability The Waning of Strict Liability Strict liability offenses were historically seen as particularly appropriate for corporate wrongdoing because a) corporations lacked the capacity to form a mens rea, b) although legally “persons,” corporations lacked the capacity to commit the requisite actus reus and c) the sanctioned punishment was a fine, which could easily be imposed on a corporate entity. Eventually, however, an “intent” requirement became part of the general approach to corporate criminal liability as fines began to appear inadequate and the U.S. Supreme Court held that strict liability offenses have a "generally disfavored status.” (United States v. United States Gypsum Company; 1978) Prosecution of Corporations Prosecution of Corporations The very nature of a corporation makes for difficult criminal prosecution in a traditional sense. Typically, before a crime can be proven against a defendant, the defendant must both a) commit an act that is deemed criminal under the law (the actus reus requirement) and b) have had the requisite level of criminal responsibility, or intent, when committing the act (the mens rea requirement) Without any physical attributes, however, a corporation cannot act in the traditional sense (actus reus) and because a corporation does not possess a singular “mind,” it cannot think in the traditional sense and form criminal “intent” (mens rea). Even if convicted, a corporation cannot be imprisoned because there is no body to imprison. Actus Reus Actus Reus Actus reus refers to the operational, often physical, aspect of a criminal activity. The actus reus of an offense generally includes: a voluntary act that causes social harm. Before criminal liability can be established, the accused must be shown to have committed actus reus. Mens Rea Mens Rea At common law there was no requirement other than that a prosecutor prove the occurrence of the actus reus, the prohibited act. State of mind was not relevant. Now, in most criminal cases, except those based on strict liability, the prosecutor must also prove, in addition to actus reus, the actor’s mens rea. Vicarious Liability Vicarious Liability Proving that a corporation has the requisite mens rea and that it has committed the actusreus can not be accomplished by focusing on the corporation as an organizational entity. Although a number of different theories exist to hold a corporation criminally liable for its wrongful acts, one of the most common is that of “vicarious liability.” The term “vicarious” means “experienced through another,” and vicarious liability refers to liability that is experienced not because of one’s own actions but because of the actions of another with whom one has a certain type of relationship. Vicarious liability represents the absolute liability of one party, known as the “principal,” for the misconduct of another party, known as the “agent,” whose activities are subject to direction by the principal. As such, vicarious liability is a form of strict secondary liability. At common law, the legal doctrine of respondeat superior (literally, “let the master answer”) was the primary theory used for holding principals liable for the torts of their agents. Under the doctrine, the principal is liable for the torts committed within the “scope of employment” by agents whose behavior the principal has the legal right to control. The general rule in the criminal law, however, is that there is no vicarious liability. This reflects the general requirement that both actus reus and mens rea be present before criminal liability may attach. Vicarious liability for criminal acts, however, did not exist at common law and can now only be imposed based upon the existence of statute. Thus, the practice of holding one person liable for the actions of another is the exception and not the rule in criminal law. Efforts to impose vicarious criminal liability are now generally only applied to those crimes that do not require criminal intent (i.e. public welfare offenses) and which generally only carry a minor sentence; generally with no term of incarceration. The thought in cases is that the public interest is more important than private interest, and so vicarious liability is imposed to deter or to create incentives for an organization to impose stricter rules and supervise more closely. Enterprise Liability Enterprise Liability Enterprise liability is a form of vicarious liability that has application to criminal activities. The early common law view was that a corporation, as an artificial entity, could not be guilty of a crime: it had no mind, and thus was incapable of criminal intent; it had no body, and thus could not act except through its agents. A corporation may now, however, be held criminally liable for conduct committed by certain of its agents acting within the scope of employment. In an enterprise liability case, the corporation itself has, literally, committed the criminal act through its agent who has performed the actus reus with the requisite mens rea. Criticisms of Criminal Liability Criticisms of Criminal Liability Some commentators have come to question the value of imposing criminal liability on corporate principals instead of imposing vicarious civil liability for the criminal acts of corporate agents. ­ the criminal law objective of incapacitating criminals by incarceration does not work in the context of corporate criminal liability ­ criminal penalties imposed on the corporate level lack any deterrent effect because they are “corporate” penalties ­ corporate crimes typically involve actions committed by some corporate agents without the knowledge and approval of others ...
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