Corporate Criminal Liability 2.0:
Expansion Beyond Human
Responsibility
ELI LEDERMAN
*
ABSTRACT
Is corporate criminal liability expanding beyond that of human
responsibility? Anglo-American law sought to make the scope of corporate
criminal liability (but not corporate punishment), during its development
in the 20th century, equal to that of humans in almost all infringements of
the law. Since the late 1980s, and especially in the last decade, however, in
certain areas, the scope of criminal liability that can be imposed on legal
entities has exceeded that which can be imposed on humans. The purpose
of this article is to describe these expansions and to analyze their legal-social
background.
The article is divided into two main parts. The first part examines the
two sources of the expansions. One source is the aggregation theory
developed by the US judiciary and adopted, in part, by the federal courts.
Aggregation makes possible the formation of the required mental element
of an offence by assembling components of the required guilt from the
minds of separate officers of the defendant corporation. The other source
is the result of legislative developments in the UK, the Bribery Act of 2010
(sections 7–9) and the third part of the Criminal Finance Act of 2017
(sections 44–52), both of which impose unique criminal duties on corporate
bodies, requiring them to prevent certain offences by those who are
“associated with them.” Initiatives in the UK and in other jurisdictions
appear to be following this path.
The second part follows the central modifications that constitute the
legal-social background for the expansion of corporate criminal liability. It
does not address the immediate reasons that stimulated the enactment of
each of the concerned laws, but rather focuses on the general reasons that
helped shape the expansion process. Two of the reasons examined are
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36
internal to criminal theory: the approach of criminal law to group
delinquency and the signs of withdrawal of English law from the
foundations of the theory of the organs as the sole ground of corporate
criminal law in mens rea offences. The third reason is external to criminal
theory and has to do with the changes that corporate law has undergone in
the economic and social spheres: corporate compliance, corporate good
citizenship, and their implications for the extension of corporate criminal
liability. In conclusion, the article reflects upon the possible direction in
which criminal corporate liability may be heading.
I. THE EMERGING TREND
he historical dispute between the Anglo-American and continental
legal systems on whether to subject legal bodies to criminal liability
was concluded with the capitulation of the latter. In late 1988, the
European Council recommended that member states adopt the principle of
subordinating all legal entities to the criminal system, allowing them to be
held criminally liable.
1
The recommendation focused strictly on the
principle and did not address secondary questions such as the nature of the
recommended liability (criminal or administrative), its scope, or the model
according to which it should be examined.
2
Even among countries that
*
Professor of Law (Emeritus), Buchmann Faculty of Law, Tel Aviv Uni., Israel. I wish to
thank Ariel H Slama, for dedicated research assistance. His talent and thoroughness are
reflected in this article. I would also like to thank Brooke Mowatt, Student Editor of
the Manitoba Law Journal, for her thorough and professional editing.
A lecture on this topic was delivered at the symposium on Corporate Criminal Liability
at Stetson University College of Law, in February 2016 and was later published in
“Corporate Criminal Liability: The Second Generation” (2016) 46:1 Stetson L Rev 71.
1
Council of Europe, Committee of Ministers, Liability of Enterprises Having Legal
Personality for Offences Committed in the Exercise of their Activities, Recommendation R
(88)18, adopted by the Committee of Ministers on 20 October 1988 at the 420th
meeting of the Ministers' Deputies (1988), online: <www.ius.uzh.ch/dam/jcr:566125>
[perma.cc/AC95-PSQX]. For a state-by-state survey of several European countries on
corporate criminal liability see Clifford Chance, Corporate Criminal Liability (2016),
online (pdf): Clifford Chance <www.cliffordchance.com/content/dam/cliffordchance
/briefings/2016/04/corporate-criminal-liability.pdf> [perma.cc/8KWV-7XSQ].
2
For an overview of ongoing debates about corporate liability, including the European
“search for appropriate mechanisms for holding corporations to account”, see James
Gobert & Ana-Maria Pascal, eds, European Developments in Corporate Criminal Liability,
1st ed (London & New York: Routledge, 2011) at 11–98. For a general analysis of the
four basic models concerning the analysis of corporate criminal liability see Eli
T
Corporate Criminal Liability 2.0 37
follow the Anglo-American legal system, there is no consensus on these
matters. The English theory of the organs of the corporation
3
differs in its
basics and scope from the American doctrine of respondeat superior,
4
and
both are inconsistent with the Australian corporate ethos or corporate
culture theory adopted in 1995.
5
Yet, ending one dispute on the matter of corporate criminal liability is
often a prelude to other disagreements in the area. Unsettled issues
remained in dispute even between jurisdictions that adopted the same basic
legal approach and perception, for example, regarding the disagreement on
Lederman, “Models for Imposing Corporate Criminal Liability: From Adaptation and
Imitation Toward Aggregation and the Search for Self-Identity” (2000) 4:1 Buff Crim
L Rev 641 at 642 [Lederman, “Corporate Criminal Liability”].
3
For an analysis of the theory of the organs, see Tesco Supermarkets Ltd v Nattrass, [1972]
AC 153, [1971] 2 WLR 1166 (HL) (Eng)) [Tesco]; Bolton (HL) (Engineering) Co Ltd v TJ
Graham & Sons Ltd, [1957] 1 QB 159 at 172, [1956] 3 WLR 804 (CA); Leonard H Leigh,
“The Criminal Liability of Corporations and Other Groups: A Comparative View”
(1982) 80:7 Mich L Rev 1508; UK, Law Commission, Criminal Liability of Corporations
(Working Paper No 44) (London: Her Majesty’s Stationary Office, 1972); The
American Law Institute, Model Penal Code: Official Draft and Explanatory Notes
(Philadelphia, PA: ALI, 1985) (Chair: Norris Darrell & R Ammi Cutter) § 2.07(1)(c),
online: <www.legal-tools.org/doc/08d77d/pdf> [perma.cc/GB4T-YPN8]. For an
analysis of this section, see Kathleen F Brickey, “Rethinking Corporate Liability Under
the Model Penal Code” (1987) 19:3 Rutgers LJ 593.
4
For general analysis of the respondeat superior doctrine see “Corporate Crime: Regulating
Corporate Behavior Through Criminal Sanctions” (1979) 92:6 Harv L Rev 1227; H
Lowell Brown, “Vicarious Criminal Liability of Corporations for the Acts of Their
Employees and Agents” (1995) 41:2 Loy L Rev 279; Kathleen F Brickey, “Corporate
Criminal Accountability: A Brief History and an Observation” (1982) 60:2 Wash ULQ
393 [Brickey, “Corporate Criminal Accountability”].
5
See Criminal Code Act 1995 (Austl), 1995/12, s 12.3(6) [Criminal Code, Australia] where
“corporate culture” is defined as “an attitude, policy, rule, course of conduct or practice
existing within the body corporate generally or in the part of the body corporate in
which the relevant activities take place.” According to the statute, the fault element
required by the offence may be established by proving that a corporate culture “directed,
encouraged, tolerated or led to non-compliance with the relevant provision” or by
“proving that the body corporate failed to create and maintain a corporate culture that
required compliance with the relevant provision”. See Criminal Code, Australia, supra
note 5, ss 12.3(2)(c)–(d). See generally, Jonathan Clough & Carmel Mulhern, The
Prosecution of Corporations (South Melbourne, Vic: Oxford University Press, 2002) at
138; Olivia Dixon, “Corporate Criminal Liability: The Influence of Corporate Culture”
in Justin O’Brien & George Gilligan, eds, Integrity, Risk and Accountability in Capital
Markets: Regulating Culture (London: Hart, 2013) 251; Pamela H Bucy, “Corporate
Ethos: A Standard for Imposing Corporate Criminal Liability” (1991) 75:4 Minn L Rev
1095.
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how criminal liability is imposed on a legal entity (according to which
model). This article expands on one facet of such a disagreement, which
may result in controversy regarding criminal corporate liability.
For many years, one of the themes in the development of corporate
criminal liability was achieving parity between the penal liability of a legal
entity and that of a person, unless there was something in the subject matter
or in the context that was inconsistent with such parity.
6
This was the case,
at times, with the definition of “person” in the laws of interpretation.
7
Jurists have presented rape and bigamy as examples of such exceptions,
8
although this approach is questionable.
9
In the last three decades, and in particular the last one, we have been
witnessing some deviation from this line of thought. Cumulatively, these
divergences suggest an inclination to move away from this approach.
I begin by presenting in a nutshell several situations, most of them the
result of explicit legislation, others the product of creative judicial
interpretation, in which the law finds it appropriate to deliberately impose
broader criminal liability on corporations than can be imposed on human
beings in identical circumstances. I am not referring to the relatively trivial
cases of more severe levels of punishment imposed on corporations by virtue
of explicit provision by the law
10
or to certain offences that are entirely in
the domain of corporate activity, dealing with such matters as banking
11
and
insurance.
12
These instances may be explained relatively easily by the
enormous size and business volume of some of the entities, and by the fact
that they have exclusive rights to operate in these specialized areas of activity.
6
See e.g. Emily J Barnet, “Hobby Lobby and the Dictionary Act” (2014) 124 Yale LJ
Forum 11 (“the words ‘person’ and ‘whoever’ include corporations, companies,
associations, firms, partnerships, societies, and joint stock companies, as well as
individuals.”).
7
See e.g. Interpretation Law 1981 (Isr) ss 2, 4; Interpretation Ordinance (New Version) 1967
(Isr) s 1, as repealed by Interpretation Law 1981; Interpretation Act (UK), 1978, s 19;
Interpretation Act, RSC 1985, c I-21, s 33; Interpretation Act (NZ) 1999/85 RS 1, s 29.
8
See e.g. Brickey, “Corporate Criminal Accountability”, supra note 4 at 410, 413–14; VS
Khanna, “Corporate Criminal Liability: What Purpose Does It Serve?” (1996) 109:7
Harv L Rev 1477 at 1484.
9
Sara Sun Beale & Adam G Safwat, “What Developments in Western Europe Tell Us
About American Critiques of Corporate Criminal Liability” (2004) 8:1 Buff Crim L
Rev 89 at 121.
10
See e.g. Traffic Ordinance (New Version) 1967 (Isr) s 30(c); Antitrust Law 1988 (Isr), s 47(a).
11
Banking (Licensing) Law 1981 (Isr) s 4.
12
Control of Financial Services (Insurance) Law 1981 (Isr) s 15(a).
Corporate Criminal Liability 2.0 39
Next, I examine briefly the background factors that have made possible the
expansion of the tendency of criminal law to reduce its reliance on the
traditional pursuit of parity in criminal liability between corporations and
humans.
The question remains whether this direction of development is
appropriate and desirable. This important interdisciplinary issue and its
implications exceed the scope of this work and deserve a separate in-depth
discussion.
A. The Contribution of Case Law: Piecing Together
Components
In the course of the 1980s, US federal regulations on the prevention of
money laundering expanded the requirements for banks to report to the
authorities on transactions above a certain amount. The expanded
obligation to report applied also to separate deposits and withdrawals within
a certain period if the cumulative amount reached a total that required
reporting. Informed (willful) infringement of the directive by the bank
became a criminal offence.
13
This was the case with the Bank of New England.
14
Because of a
malfunction at one of the branches of the Bank, the new instructions were
not transferred to the tellers. As a result, the tellers did not report deposits
that were made to a certain account, together with a withdrawal that was
made following the deposits, because the amount of each deposit did not
require reporting. The tellers did not consider all the deposits into the
account, or the withdrawal that followed, as a single transaction that
required reporting. When it was consequently brought to justice, the bank
argued that in the circumstances of the case, the mental element required
for the offence was not present because no employee of the bank knowingly
failed to report the transactions: the senior officials did not know that
deposits or withdrawals requiring reporting had been made and the tellers
who carried out the deposits or withdrawals did not know of the reporting
obligation in these cases.
The argument of the bank was rejected. The District Court held the
corporation criminally liable and ruled that the scope of the knowledge of
the corporation includes “the totality of what all of the employees know
13
31 USC § 5311-11 (1982); 31 CFR § 103.22 (1986).
14
United States v Bank of New England, 821 F (2d) 844 (Mass Ct App 1987) [BNE].
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
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within the scope of their employment. So, if Employee A knows one facet
of... [a legal] reporting requirement, B knows another facet of it, and C a
third facet of it, the [entity] knows them all... [t]he [entity] is also deemed to
know it if each of several employees knew a part of that requirement and
the sum of what the separate employees knew amounted to knowledge that
such a requirement existed.”
15
The Appellate Court adopted this line of
reasoning and concluded by saying: “[s]ince the bank had the
compartmentalized structure common to all large corporations, the court’s
collective knowledge instruction is not only proper but necessary.”
16
This is not the place to address such intriguing questions as whether it
was possible to examine the formation of the mental element required in
light of the willful blindness doctrine
17
or what levels of the mental element
can be established by combining components of the mens rea. Is it limited
to offences of knowledge and recklessness, requiring only a rational or
logical element of knowledge (consciousness), or does it cover also intent
offences requiring, in addition, an emotional component of desire?
18
Other
15
Ibid at 855–56 (providing the trial judge’s explanation, which the court cited and agreed
with, while indicating that “[t]he…[aggregation] of those components constitutes the
corporation’s knowledge of a particular operation”). On the pioneering aspects of the
concept of collective knowledge, see Patricia S Abril & Ann Morales Olazábal, “The
Locus of Corporate Scienter” (2006) Colum Bus L Rev 2006:1 81 at 116–20 (providing
an in-depth discussion of the landmark case establishing the collective knowledge theory
and discussing its use, particularly in cases where it is difficult to find a single defendant
whose thoughts and behaviors embody the elements of the offence).
16
BNE, supra note 14 at 856.
17
See e.g. Thomas A Hagemann & Joseph Grinstein, “The Mythology of Aggregate
Corporate Knowledge: A Deconstruction” (1997) 65:2 Geo Wash L Rev 210 at 226–
28; Justin C From, “Avoiding Not-So-Harmless Errors: The Appropriate Standards for
Appellate Review of Willful-Blindness Jury Instructions” (2011) 97:1 Iowa L Rev
275. Cf Alexander F Sarch, “Beyond Willful Ignorance” (2017) 88:1 U Colo L Rev 97
at 140–69.
18
This is why it is easier to accept the term “collective or aggregated knowledge” than to
comprehend and accept the notions “collective intent” and even “collective
recklessness”. See McGee v Sentinel Offender Servs LLC, 719 F (3d) 1236 at 1244–45 (Ga
App Ct 2013); United States v LBS Bank-New York Inc, 757 F Supp 496 at 501, n 7 (Pa
Dist Ct 1990); Commonwealth v Life Centers of America Inc, 926 NE (2d) 206 at 214–15
(Mass Sup Jud Ct 2010); Commonwealth v Springfield Terminal Railway Company, 80 Mass
App Ct 22 at 706–07 (2011) [Springfield]; Brian Lewis & Steven Woodward, “Corporate
Criminal Liability” (2014) 51:4 Am Crim L Rev 923 at 935–36; Stacey Neumann Vu,
“Corporate Criminal Liability: Patchwork Verdicts and the Problem of Locating a
Guilty Agent” (2004) 104:2 Colum L Rev 459 at 474–75. In American case law,
however, mainly in civil cases, there was also a more far-reaching view. This view holds
Corporate Criminal Liability 2.0 41
researchers and myself have addressed these questions elsewhere.
19
The
present discussion focuses only on the piecing together of the elements that
comprise the mens rea of two or more humans to form the complete
culpability of a corporate entity, which does not exist in any of these separate
persons.
20
There is no consensus about this doctrine of collective or aggregate
knowledge at the state and federal levels in the US. Some courts have
adopted the “piecing together” principle,
21
others expressed dislike for it.
22
The English Law Commission also explicitly opposed the idea in one of its
reports
23
and a similar spirit emerges from the reports of other executive
that collective intent can be combined in fraudulent securities offences: “To carry their
burden of showing that a corporate defendant acted with scienter, plaintiffs in securities
fraud cases need not prove that any one individual employee of a corporate defendant
also acted with scienter. Proof of a corporation's collective knowledge and intent is
sufficient…” (In re WorldCom Inc Sec Litig, 352 F Supp (2d) 472 at 497 (NY Dis Ct 2005)
[WorldCom]). The combination option was sometimes noted in connection with rule
10b-5 (Employment of Manipulative and Deceptive Devices, Securities) of the Exchange
Act of 1934, which requires “intent to deceive, manipulate, or defraud” (See Ernst &
Ernst v Hochfelder, 425 US 185 at 193, n 12 (1976). In this context, the combination
means the addition of a false statement regarding a material fact given by one
representative of the legal body, without the knowledge or recklessness that it is
incorrect, with the knowledge of another representative of the legal body that this
information is incorrect (In re Take-Two Interactive Sec Litig, 551 F Supp (2d) 247 at 281
(NY Dis Ct 2008). Here too, however, the caution required in the act of combination
is emphasized: “it is not enough to separately allege misstatements by some individuals
and knowledge belonging to some others where there is no strong inference that, in
fact, there was a connection between the two…” (Silvercreek Mgmt v Citigroup Inc, 248 F
Supp (3d) 428 at 440 (NY Dis Ct 2017).
19
Lederman, “Corporate Criminal Liability”, supra note 2 at 644–47; Mihailis E
Diamantis, “Corporate Criminal Minds” (2016) 91:5 Notre Dame L Rev 2049 at 2070–
71.
20
See e.g. Celia Wells, Corporations and Criminal Responsibility (Oxford: Oxford University
Press, 2001) at 118; Abril & Olazábal, supra note 15 at 91–98, 114–21; VS Khanna, “Is
the Notion of Corporate Fault a Faulty Notion: The Case of Corporate Mens Rea”
(1999) 79:2 BUL Rev 355 at 371–75, 407–12.
21
See e.g. Miller v Holzmann, 563 F Supp (2d) 54 at 99–101 (DC Cir 2008); United States
v Philip Morris USA Inc, 449 F Supp (2d) 1 at 894 (DC Cir 2006); WorldCom, supra note
18 at 497.
22
Chaney v Dreyfus Serv Corp, 595 F (3d) 219 at 241 (5th Cir Ct App 2010); United States
v Sci Applications Int’l Corp, 626 F (3d) 1257 at 1274 (DC Cir 2010); Aetos Corp v Tyson
Foods Inc (In re Tyson Foods Inc Sec Litig), 155 F Appx 53 at 57 (3rd Cir Ct App 2005);
Southland Sec Corp v Inspire Ins Solutions Inc, 365 F (3d) 353 at 366 (5th Cir Ct App 2004).
23
UK, Law Commission, A Criminal Code for England and Wales (Law Com No 177)
(London: Her Majesty’s Stationary Office, 1989) at para 30(2).
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authorities.
24
Australia, by contrast, adopted partially the aggregation
principle with regard to the mental state of negligence. According to this
approach, if “no individual employee, agent or officer of the body corporate
has that fault element; that fault element may exist on the part of the body
corporate if the body corporate’s conduct is negligent when viewed as a
whole (that is, by aggregating the conduct of any number of its employees,
agents or officers).”
25
The Australian legal system assumes that “a series of
minor failures by relevant officers of the company might add to a gross
breach by the company of its duty of care but two innocent states of mind
cannot be added together to produce a guilty state of mind. Any such
doctrine could have no application in offenses requiring knowledge,
intention or recklessness.”
26
The idea of combining mental elements is living and breathing in the
US, and to some extent in other jurisdictions. According to this approach,
the formation of criminal intent by a legal entity, composed or assembled
of parts that each reside in a different human consciousness, deviates in its
scope and manner of design from the creation of mens rea in human beings.
B. The Contribution of Legislation: The Duty to Prevent
The cases in which the legislators find it appropriate to expand the
criminal liability that can be imposed on corporations to a higher degree
than that which can be imposed on human beings have similar
backgrounds. The degree of deviation is not necessarily identical in these
various laws, but the manner of such deviation is fairly comparable.
One of the main reasons behind legislation that expands the liability of
legal entities is the competition between them for international market
shares and their willingness to bribe foreign government officials to gain
business advantages.
27
This phenomenon is particularly common in trade
24
Israel, Ministry of Justice, Penal Law Memorandum, Amendment: Criminal Liability of
Corporations, Proposed s 23A(2)(b), Document 803-04-2010-000289 (Israel: Ministry of
Justice, 2014), online: <www.justice.gov.il/Pubilcations/Articles/Pages/Memorandu
m2910.aspx> [perma.cc/9XDX-U9YN] [Israel Ministry of Justice, Criminal Liability of
Corporations].
25
Criminal Code, Australia, supra note 5, s 12.4(2)(b).
26
Dixon, supra note 5 at 5 [footnotes omitted]; Eric Colvin, “Corporate Personality and
Criminal Liability” (1995) 6:1 Crim LF 1 at 23; JC Smith & Brian Hogan, Criminal
Law, 7th ed (London: Butterworths, 1992) at 184.
27
See generally “Helping Countries Combat Corruption: The Role of the World Bank”
(September 1997) at 8–17, 48–62, online (pdf): The World Bank <www1.worldbank.or
Corporate Criminal Liability 2.0 43
with developing countries in Africa, but also in Central and Southern
America, Asia, and elsewhere. The possibility of concealing, in several
countries, bribes under various guises and presenting them as a recognized
expense for tax purposes
28
further exacerbates the problem, legitimizes these
actions, and harms competition.
29
The US was first to prohibit bribery of foreign government officials
under the Foreign Corrupt Practices Act of 1977.
30
The prohibition was
enacted as a response to bribes paid by US corporations in foreign countries,
which were revealed as part of the Watergate affair and the chain of
investigations that followed.
31
Other countries, however, whose laws
g/publicsector/anticorrupt/corruptn/corrptn.pdf> [perma.cc/FX7L-5EYY]; Alejandro
Posadas, "Combating Corruption Under International Law" (2000) 10:2 Duke J Comp
& Intl L 345.
28
Daniel Patrick Ashe, “The Lengthening Anti-Bribery Lasso of the United States: The
Recent Extraterritorial Application of the US Foreign Corrupt Practices Act” (2005)
73:6 Fordham L Rev 2897 at 2907, n 71; H Lowell Brown, “Extraterritorial Jurisdiction
Under the 1998 Amendments to the Foreign Corrupt Practices Act: Does the
Government's Reach Now Exceed its Grasp?” (2001) 26:2 NCJ Intl L & Com Reg 239
at 260, n 61; Julie B Nesbit, "Transnational Bribery of Foreign Officials: A New Threat
to the Future of Democracy" (1998) 31:5 Vand J Transnat'l L 1273 at 1302. For a
different approach, see CrimA 6726/05 Hydrola Ltd v Income Tax Assessor Tel Aviv 1
(2008) at paras 11(5), 22 (of Justice Rubinstein decision) [Hydrola Ltd].
29
Hydrola Ltd, supra note 28 at para 15(4); Ryan J Rohlfsen, “Recent Developments in
Foreign and Domestic Criminal Commercial Bribery Laws” (2012) U Chicago Legal F
151 at 152; Franklin A Gevurtz, “Commercial Bribery and the Sherman Act: The Case
for Per Se Illegality” (1987) 42:2 U Miami L Rev 365 at 388; Jeffery Boles, “Examining
the Lax Treatment of Commercial Bribery in the United States: A Prescription for
Reform” (2014) 51:1 Am Bus LJ 119 at 154.
30
See generally Marie M Dalton, “Efficiency v Morality: The Codification of Cultural
Norms in the Foreign Corrupt Practices Act” (2006) 2 NY University JL & Bus 583; H
Lowell Brown, “The Extraterritorial Reach of the US Government's Campaign Against
International Bribery” (1999) 22:3 Hastings Intl & Comp L Rev 407; H Lowell Brown,
“Foreign Corrupt Practices Act Redux: The Anti-Bribery Provisions of the Foreign
Corrupt Practices Act” (1994) 12:2 Intl Tax & Bus Lawyer 260.
31
Posadas, supra note 27 at 348–59; Rachel Brewster, “Enforcing the FCPA: International
Resonance and Domestic Strategy” (2017) 103:8 Va L Rev 1611 at 1646; Philip M
Nichols, “The Neomercantilist Fallacy and the Contextual Reality of the Foreign
Corrupt Practices Act” (2016) 53:1 Harv J on Legis 203 at 208–09. Some scholars
argued, however, that the immorality of transnational bribery was insufficient to justify
unilateral implementation of such a law. See e.g. Peter M German, “To Bribe or Not to
Bribe: A Less Than Ethical Dilemma, Resolved?” (2002) 9:3 J Financial Crime 249 at
250; Leslie Holmes, “Good Guys, Bad Guys: Transnational Corporations, Rational
Choice Theory and Power Crime” (2009) 51:3 Crime L & Soc Change 383 at 395–96.
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prohibit such bribes, have not always enforced these laws.
32
International organizations joined the fight. In 1999, the Organization
for Economic Co-operation and Development (OECD), followed in 2005
by the United Nations, adopted treaties aimed at combating this type of
corruption.
33
The treaties, which were ratified by many countries,
34
dealt
explicitly with corporations, but did not discuss the details of liability that
they proposed to impose.
35
In 2008, for example, Israel added Section 291A
to its Penal Code, concerning the prohibition of bribing a foreign public
official.
36
Legislatures and law enforcement agencies have been paying
increasing attention to this issue, adopting administrative arrangements
into the judicial system for terminating proceedings without a formal
conviction (Deferred Prosecution Agreements — DPAs). These proceedings
32
Kari Lynn Diersen, “Foreign Corrupt Practices Act” (1999) 36:3 Am Crim L Rev 753
at 765–66, n 96. For example, the Corruption of Foreign Public Officials Act, SC 1998, c
34 is similar in considerable aspects to the American FCPA. But the CFPOA was largely
ignored by Canadian federal officials for more than a decade (Paul Blyschak, Nancy
Zagbayou & Olga Redko, “Corporate Liability for Foreign Corrupt Practices Under
Canadian Law” (2014) 59:3 McGill LJ 655 at 657). This article by Blyschak, Zagbayou
& Redko also discusses later Canadian decisions convicting corporations, like Niko
Resources (Canada) Limited and Griffith Int'l Energy Inc, for bribery offences of foreign
officials. On the implications of this situation for changes introduced into American
law in those days. See Ashe, supra note 28 at 2906.
33
OECD, Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions and Related Documents, Adopted by the Negotiating Conference on 21
November 1997 (1997), online: <www.oecd.org/daf/antibribery/ConvCombatBribery
_ENG.pdf> [perma.cc/D4XR-J73Q]; United Nations Office on Drugs and Crime,
United Nations Convention Against Corruption, GA Res 58/4, UNODCOR, 2003, 1,
online: <www.unodc.org/documents/brussels/UN_Convention_Against_Corruption
.pdf> [perma.cc/Q8RX-ZJ2R].
34
OECD, OECD Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions, Ratification Status as of May 2018 (2018), online: <www.oecd.org
/daf/anti-bribery/WGBRatificationStatus.pdf> [perma.cc/NC5S-4264]; Office on
Drugs and Crime, Signature and Ratification Status, UNODCOR, UN Doc A/58/422
(Status as of 6 February 2020), online: <www.unodc.org/unodc/en/corruption/ratific
ation-status.html> [perma.cc/QS5C-PSQN].
35
On these and other international initiatives to combat this corruption, see also Claudia
J Dumas, “Combatting Corruption in the 21st Century: Bringing the Babel of Voices
into Harmony” in Sam Muller et al, eds, The Law of the Future and the Future of Law, vol
2 (The Hague: Torkel Opsahl Academic EPublisher, 2012) 99, online: <www.toaep.org/
lotfs-pdf/1-muller-zouridis-frishman-kistemaker> [perma.cc/XJ63-WVEC].
36
Penal Law 1977 (Isr) s 291A [Penal Law]; “Anti-Bribery and Corruption” (last visited 15
April 2019), online: ASHR’A: The Israel Foreign Trade Risks Insurance Corporation Ltd
<www.ashra.gov.il/eng/?CategoryID=859> [perma.cc/8AM2-77ZT].
Corporate Criminal Liability 2.0 45
are offered more often to corporations than to individuals
37
and the rulings
and level of punishment in these arrangements are often quite severe. Fines
imposed on defendants for bribery reached a record in the case brought by
the US, Brazil, and Switzerland in December 2016 against Odebrecht, the
largest construction firm in Latin America, and its petrochemical subsidiary,
Braskem. The latter admitted to bribery of almost $800 million and agreed
to pay a record fine of at least $3.5 billion.
38
The same year, the US reached a record high, over $2.4 billion, in fines
imposed on legal entities for infringing the prohibition against bribery; in
many other cases, fines imposed on offenders reached hundreds of millions
of dollars.
39
Another means used by the enforcement authorities to prevent
bribery was the appointment of a monitor who joined the internal control
system of the corporation, as part of the DPA agreement of that entity with
the authorities.
40
Such monitors “report to and take orders from
prosecutors, and attend meetings with board members regarding the
company's outstanding compliance issues.”
41
Other countries have also
37
See generally Mike Koehler, “Measuring the Impact of Non-Prosecution and Deferred
Prosecution Agreements on Foreign Corrupt Practices Act Enforcement” (2015) 49:2
UC Davis L Rev 497; Andrea Amulic, “Humanizing the Corporation While
Dehumanizing the Individual: The Misuse of Deferred-Prosecution Agreements in the
United States” (2017) 116:1 Mich L Rev 123 at 124–27; “What Enforcement Tools are
in the Armoury of Prosecutors in the US, UK and France?” (13 April 2018), online:
Bryan, Cave, Leighton, Paisner <www.bclplaw.com/en-US/insights/what-enforcement-
tools-are-in-the-armoury-of-prosecutors-in-the-us-uk-and-france.html> [perma.cc/279G-
5SXK].
38
US, Department of Justice, Office of Public Affairs, Odebrecht and Braskem Plead Guilty
and Agree to Pay at Least $3.5 Billion in Global Penalties to Resolve Largest Foreign Bribery
Case in History (16-1515) (21 December 2016), online: <www.justice.gov/opa/pr/odebr
echt-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve> [pe
rma.cc/96FR-5HJR]; Linda Pressly, “The Largest Foreign Bribery Case in History”, BBC
News (22 April 2018), online: <www.bbc.com/news/business-43825294> [perma.cc/X6
5C-AEUM].
39
See “Foreign Corrupt Practices Act Clearinghouse: A Collaboration with Sullivan &
Cromwell LLP” (last visited 15 April 2019), online: Stanford Law School
<fcpa.stanford.edu/statistics-top-ten.html> [perma.cc/2HRC-ZF53].
40
US, Department of Justice, Criminal Division, Securities and Exchange Commission,
Enforcement Division, A Resource Guide to the U.S. Foreign Corrupt Practices Act (14
November 2012), online: <www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf> [perm
a.cc/8J8Q-QDN7].
41
Miriam Hechler Baer, “Governing Corporate Compliance” (2009) 50:4 Boston College
L Rev 949 at 991 [footnotes omitted]. See also Vikramaditya Khanna & Timothy L
Dickinson, “The Corporate Monitor: The New Corporate Czar?” (2007) 105:8 Mich L
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
46
adopted aggressive enforcement policies when bribing of foreign public
officials was revealed.
42
England was the first to break away from the conventional framework
of the fight against bribery, with respect to corporations, by setting new
boundaries and further expanding criminal liability.
43
The comprehensive
Bribery Act of 2010 criminalizes both active and passive bribes (the paying or
promising of bribes), and embraces also commercial (private sector)
bribery.
44
The Act imposed a duty to prevent bribery only on corporations,
Rev 1713 at 1718, 1724–25; Veronica Root, “The Monitor-'Client' Relationship”
(2014) 100:3 Va L Rev 523 at 531–32 [Root, “Monitor-‘Client’ Relationship”]. See
generally s 3(a) of this article.
42
In Israel, for example, there have been allegations concerning senior Teva officials
bribing government officials in Eastern European countries and rumors suggesting that
IAI (Israel Aircraft Industries) personnel are bribing Indian government officials. See
“Suspicion of bribery: The police have launched an investigation against Teva”, Israel
Today (last visited 8 February 2017), online <www.israelhayom.co.il/article/450493>
[perma.cc/Q6SE-C253] (Hebrew); “This is how the Israeli bribery industry works in
India”, Mako (27 October 2009), online: <www.mako.co.il/tv-ilana> [perma.cc/MQS2-
75Q6] (Hebrew). There are also suspicions that Housing and Development (the largest
construction company in Israel) is involved in bribing government officials in seven
countries throughout Africa and Latin America to win infrastructure projects. See
“Bribery in Housing and Development: A senior businesswomen has been
interrogated”, Walla News (12 August 2018), online: <news.walla.co.il/item/3180298>
[perma.cc/428T-PT7U] (Hebrew). From the opposite direction, there has been
suspicion of Tysenkrup bribing senior Israeli officials in the submarines order for the
Israeli navy. See “Did officers get bribed by Tysenkrup?”, Globes (30 January 2017),
online: <www.globes.co.il/news/article.aspx?did=1001174452> [perma.cc/672Q-J96K]
(Hebrew). See also Siemens' bribery of IEC (Israel Electric Corporation) executives:
“Siemens admitted bribes of some $ 2.5 million to IEC executives”, Yedioth Ahronoth (2
May 2016), online: <www.ynet.co.il/articles/0,7340,L-4798230,00.html> [perma.cc/L
3B6-4AV9] (Hebrew).
43
For the recent history and background of the Bribery Act 2010, see generally Peter
Alldridge, “The U.K. Bribery Act: ‘The Caffeinated Younger Sibling of the FCPA’”
(2012) 73:5 Ohio St LJ 1181; Roman Tomasic, “The Financial Crisis and the
Haphazard Pursuit of Financial Crime” (2011) 18:1 J Financial Crime 7. See also the
House of Lords decision regarding the investigation of the sales of arms by BAE Systems
to Saudi Arabia, R (On the Application of Corner House Research) v Director of the Serious
Fraud Office (BAE Systems plc, interested party), [2008] UKHL 60.
44
Bribery Act (UK), 2010, ss 1–3, [Bribery Act]; Rahul Kohli, “Foreign Corrupt Practices
Act” (2018) 55:4 Am Crim L Rev 1269 at 1307–08; Lee G Dunst, Michael S Diamant
& Teresa R Kung, “Hot off the Press: Resetting the Global Anti-Corruption Thermostat
to the UK Bribery Act’ (2011) 12:3 Bus L Intl 257. For a comparison of the
anti-Bribery
Legislation in the US and UK, see e.g. Sulaiman Balogun LLM, “A Comparison of the
U.K. Bribery Act and the U.S. Foreign Corrupt Practices Act” (2 July 2013), online:
Corporate Criminal Liability 2.0 47
by enacting an independent criminal offence for a failure to prevent it.
45
In
September 2017, the third part of the Criminal Finances Act was enacted in
the UK. Many believe that it is at least partly the result of public pressure
following the Swiss Leaks,
46
the Panama Papers,
47
and the expected
Scribd <www.scribd.com> [perma.cc/GU8F-BNX9]; Isaac A Binkovitz, “Recent
Changes in U.S. and U.K. Overseas Anti-Corruption Enforcement Under the FCPA
and the U.K. Bribery Law: Private Equity Compliance” (2013) 3:1 Mich Bus &
Entrepreneurial L Rev 75. For an analysis of private (or commercial) and public official
bribery, see generally
Jeffrey R Boles, “The Two Faces of Bribery: International
Corruption Pathways Meet Conflicting Legislative Regimes” (2014) 35:4 Mich J Intl L
673 at 673, 711–12.
45
Bribery Act, supra note 44, s 7.
46
Banking information was leaked from over 100,000 customers’ accounts with the Hong-
Kong Shanghai Banking Corporation (HSBC), individuals and companies from more
than 200 countries. The HSBC also held about $102 billion in accounts for the Geneva
branch of the Bank. The International Consortium of Investigative Journalists revealed
that between 2005 and 2007, the Swiss arm of HSBC helped these customers carry out
tax fraud scams amounting to about $120 billion. The Bank branch allowed its
customers to regularly withdraw from their accounts cash in foreign currencies that were
not used in Switzerland. It also aggressively marketed programs that enabled its
customers to avoid paying taxes, collaborated with some customers to hide undeclared
accounts in their countries of origin, and even provided services to international
criminals, businesspersons, and other high-risk individuals. Following the leak and an
arrangement with the US enforcement authorities, the Bank changed some of its global
procedures. See Justin O’Brien, “HSBC: Will the Sword of Damocles Fall?” (2015) 9:1
L & Financial Markets Rev 63; “The HSBC Files: What we Know so Far” The Guardian
(11 February 2015), online: <www.theguardian.com/news/2015/feb/11/the-hsbc-files-
what-we-know-so-far> [perma.cc/GZW5-F3BX].
47
A collection of some 12 million documents relating to over 200,000 corporations from
around the world, including nearly 40 years of activity by the Mossack Fonseca law firm,
leaked in early 2016, containing information and clues about suspicious financial
activities by many financiers and some politicians from around the world. The firm
specialized in creating companies in countries that serve as tax havens, where laws made
it possible to hide their shareholders, that is, the owners of the properties. The firm
cooperated with large banks around the world. Activity was not reported in the
countries where the corporations operated. It was also argued that the haven countries
did not examine whether the money sources were legal or the result of tax evasion,
money laundering, illicit connections (e.g. trade that violates sanctions imposed on
countries), and even corruption such (e.g. bribery). The law firm stopped its activity. See
Jake Bernstein, Secrecy World: Inside the Panama Papers Investigation of Illicit Money
Networks and the Global Elite (New York: Henry Holt and Company, 2017). For a series
of articles published by the Süddeutsche Zeitung on the Panama Papers see “Panama
Papers: The Secrets of Dirty Money” (last visited 21 April 2019), online: Süddeutsche
Zeitung <panamapapers.sueddeutsche.de/en/> [perma.cc/6KQ4-WZFF].
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
48
international tax reporting agreements.
48
The new law imposes criminal
liability on a legal entity, as its legal predecessor, strictly on the grounds of
non-prevention, for failing to prevent tax evasion facilitation.
49
This is the
case when a person or a corporation associated with the legal entity (e.g. its
service provider) enabled or assisted the evasion of tax by a third party,
consciously or by turning a blind eye, in the course of acting for or on behalf
of that entity.
50
In both laws, the duty to prevent refers to “a person associated with [the
corporation]” which is defined as “(a) an employee… (b) an agent… or (c)
any person who performs services for or on behalf of [the corporation]…”
51
if such a person acted in his capacity at the time of committing the offence.
This definition is quite broad. In addition to employees of the corporation,
the definition encompasses independent contractors who committed the
offences as agents, distributors, service providers, or suppliers of the
corporation.
52
The degree of control of the legal entity over such persons is
not always clear, even if the person acted as a service provider for the
corporation. Borderline cases may arise when the court needs to determine
whether someone is associated with the corporation by taking into account
the nature of the relationship, as well as all of the relevant circumstances of
the conduct.
53
It is also clear that the offence under consideration exceeds
the limits of the criminal vicarious liability doctrine in English law for mens
rea offences because it does not relate to questions of delegation, where such
liability is at times recognized.
54
48
Multilateral agreements between over 100 revenue authorities worldwide, creating an
infrastructure and network for the automatic exchange of information regarding the
offshore income and assets of their taxpayers. See OECD, Multilateral Competent
Authority Agreement on the Exchange of Country-by-Country Reports (last visited 22 April
2019), online: <www.oecd.org/tax/automatic-exchange/about-automatic-exchange/cbc
-mcaa.pdf> [perma.cc/Z9EF-VB9L].
49
Peter Alldridge, Taxation and Criminal Justice (Oxford, Oxford University Press, 2017) at
25–41.
50
Criminal Finances Act (UK), 2017, ss 44–46 [CF Act].
51
Ibid, ss 44(4)(a)–(c), 46(1)(a); Bribery Act, supra note 44, s 8(1).
52
UK, Ministry of Justice, The Bribery Act 2010: Guidance About Procedures Which Relevant
Commercial Organizations Can Put into Place to Prevent Persons Associated with them from
Bribing (Guide) (London, UK: Ministry of Justice, 2011) at nos 37–43, online: <www.jus
tice.gov.uk.pdf> [perma.cc/24AV-ATPJ] [Ministry of Justice, The Bribery Act].
53
See generally Karl Laird, “The Criminal Finances Act 2017: An Introduction” (2017)
Crim L Rev 915 at 932–33 [Laird, “Criminal Finances Act”].
54
For vicarious criminal liability in general, see Francis Bowes Sayre, “Criminal
Responsibility for the Acts of Another” (1930) 43:5 Harv L Rev 689 at 709–12; Leonard
Corporate Criminal Liability 2.0 49
Like bribery, facilitating tax evasion can occur anywhere in the world
and can refer to local or foreign tax, as long as the accused entity has a UK
nexus.
55
Therefore, English law formulated two complementary offences
that are unique to legal entities: (a) the facilitation of internal tax evasion
and (b) the facilitation of tax evasion outside the UK. The foreign offence
is contingent on the fact that the evasion is a tax violation both in the
location where the offence was committed and in the UK (dual
criminality).
56
The liability imposed on the corporation for its omissions of
non-prevention is strict (i.e., there is no need to prove criminal intent on its
part).
57
Furthermore, it seems that the scope of corporate liability in relation
to these offences is even broader than that of corporations in the US, within
the limits of the respondeat superior doctrine, which is limited to the conduct
of the employees of the legal entity or of its agents acting in the course of
H Leigh, Strict and Vicarious Liability: A Study in Administrative Criminal Law (London:
Sweet & Maxwell, 1982); JLI J Edwards, “Vicarious Liability in Criminal Law” (1951)
14:3 Modern L Rev 334. For the delegation principle, see JLI J Edwards, Mens Rea in
Statutory Offences (London: Macmillan, 1955) at 238–40; Glanville Williams, “4 Mens
Rea and Vicarious Responsibility” (1959) 9:1 Current Leg Probs 57.
55
CF Act, supra note 50, ss 46(2), 48(1); Bribery Act, supra note 44, s 7(3)(b).
56
CF Act, supra note 50, ss 45–46.
57
The London Law Commission recommended to make this offence a negligent offence.
See UK, Law Commission, Reforming Bribery (Law Com No 313) (London, UK: The
Stationary Office, 2008), online: <s3-eu-west-2.amazonaws.com/lawcom-prod-storage-
11jsxou24uy7q/uploads/2015/04/lc313.pdf> [perma.cc/J7WG-FTAT]).
The recommendation was not adopted. See UK, HL, HC, Joint Committee on the
Draft Bribery Bill, Draft Bribery Bill: First Report of Session 2008-09 (Cm 115-1/430-1,
2009) at 35, online: <publications.parliament.uk/pa/jt200809/jtselect/jtbribe/115/11
5i.pdf> [perma.cc/3SWC-CYWV]).
The absence of a requirement from the corporation for awareness of the assistance by
anyone associated with the legal body, primarily its employees, caused discontent among
those who objected to the bill during the enactment process. English legislators did not
change their position on this matter because they feared that the adoption of such a
requirement would encourage the corporate administration to turn a blind eye to the
acts of those associated with it. They also assumed that the absence of the requirement
for awareness would, in any case, be mitigated by the requirement for a reasonable
defence mechanism that would be available to the corporation. For reservations about
the issue of awareness. See UK, HM Revenue and Customs, Tackling Offshore Tax
Evasion: A New Corporate Criminal Offence of Failure to Prevent the Facilitation of Tax
Evasion (Summary of Responses) (London, UK: HM Revenue and Customs, 2015), nos
3.74–3.77, online: <www.gov.uk/government/organisations/hm-revenue-customs>
[perma.cc/2WTU-5E9L] [HM Revenue & Customs, Offshore Tax Evasion].
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
50
their employment.
58
The defence provided by the laws encourages corporations to correctly
assess the risks of bribing or facilitating tax evasion by those associated with
them
59
while developing and promoting internal control mechanisms to
prevent improper activities.
60
The defence against bribery requires that the
legal entity prove, on the balance of probabilities, that it has taken adequate
or reasonable measures to prevent associated persons from carrying out the
offence in question or alternatively, with respect to tax evasion, that under
the circumstances, it was unreasonable to expect the corporation “to have
any prevention procedures in place.”
61
The terminology suggests an
intention to grant discretion and leeway to the courts and the enforcement
authorities in examining the facts and circumstances of the case.
62
The different terminology used by the legislator to describe the
precautionary measures required to exercise the defence in each of the two
laws (adequate procedures in the Bribery Act and reasonable procedures in
the Criminal Finances Act) raises a certain difficulty. Some consider the
wording difference as merely a difference in terminology and a minor
distinction.
63
Others argue that an in-depth analysis is needed for the nature
58
For the principles of the respondeat superior theory, see the references cited in footnote
4.
59
For an assessment of the risk of being asked for a bribe see UK, Ministry of Justice and
Department for Business, Innovation & Skills, Insight into Awareness and Impact of the
Bribery Act 2010 Among Small and Medium Sized Enterprises (SMEs) by IFF Research Ltd
(London, UK: Ministry of Justice and Department for Business, Innovation & Skills,
2015) at 3, 5–7, 24, online: <www.gov.uk/government/uploads/system/uploads/attac
hment_data/file/440661/insight-into-awareness-and-impact-of-the-bribery-act-2010.pd
f> [perma.cc/D2RB-NZXP].
60
Cf with the encouragement and reward, by the US Department of Justice, of
corporations that adopt effective compliance programs, within the framework of the
New Organizational Sentencing Guidelines: Brandon L Garrett, “Structural Reform
Prosecution” (2007) 93:4 Va L Rev 853 at 897, nn 145, 157; Anna P Donovan,
“Systems and Controls in Anti-Bribery and Corruption” in Iris Hse-Yu Chiu & Michael
McKee, eds, The Law on Corporate Governance in Banks (Cheltenham, UK: Edward Edgar,
2015) 236 at 239.
61
CF Act, supra note 50, ss 45(2)(b), 46(3)(b). See also Bribery Act, supra note 44, s 7(2).
62
Gideon Sanitt, “Failure to Prevent Tax Evasion: The Corporate Offence” (last visited
21 April 2019), online: MacFarlanes <www.macfarlanes.com/insights/2017/failure-to-
prevent-tax-evasion-the-corporate-offence/> [perma.cc/9MXU-56QB].
63
“Criminal Finances Act: A Guide for the Financial Services Sector” (6 November 2017),
online: Allen & Overy <www.allenovery.com/en-gb/global/news-and-insights/publicati
ons/the-criminal-finances-act-a-guide-for-the-financial-services-sector> [perma.cc/TP65-
XKCR].
Corporate Criminal Liability 2.0 51
of the measures required for the defence in each of the two laws because the
changes in the text are not random and the legislator was fully aware of
them. These jurists rank the levels of precaution required by the terms being
used. Assuming that “reasonable” is softer and less decisive in its objective
requirements than “adequate”, they conclude that the Criminal Finances Act
provides a more flexible protection depending on the circumstances.
64
The Ministry of Justice has issued guidelines concerning the procedures
that corporations are expected to follow to secure the protection of the law
from prosecution for failure to prevent these offences.
65
Such procedures
have a functional aspect and, as a rule, they revolve around the need of legal
bodies: (a) to assess the risks of involvement by associated persons in the
payment of bribes and the facilitation of tax evasion, and to prioritize such
risks after proper examination, without relying exclusively on past
examinations carried out by the businesses in the concerned sector;
66
(b) to
establish a clear and unequivocal policy on these issues; (c) to foster an
atmosphere that emphasizes the commitment of employees and of
management at all levels to avoid the payment of bribes or the facilitation
of tax evasion; and (d) to inform those involved in labour and commercial
relations with the legal body on the subject matter.
These steps, together with the establishment of a permanent
mechanism that supervises the routine implementation of appropriate
preventive actions, meet the requirement of adequate or reasonable
procedures. But even if the legal body took these steps, the court must still
determine whether or not, under the circumstances of the case, these are
64
See Adam Blakemore & Joseph Moreno, “UK Criminal Finances Act 2017
Commences with New Tax Evasion Offences, Anti-Money Laundering Rules, and Asset
Forfeiture Provisions” (17 October 2017), online: mondaq <www.mondaq.com/uk/Cri
minal-Law/637888/UK-Criminal-Finances-Act-2017-Commences-With-New-Tax-Evasi
on-Offences-Anti-Money-Laundering-Rules-And-Asset-Forfeiture-Provisions> [perma.cc
/9AME-7UA8]: “Although modelled on the Bribery Act, this defence does not go as far
as the 'adequate procedures' defence, requiring only that organisations have 'reasonable'
procedures in place, notwithstanding that these may not prevent every instance of non-
compliance by an organisation's associated persons”.
65
Ministry of Justice, The Bribery Act, supra note 52; HM Revenue & Customs, Offshore
Tax Evasion, supra note 57.
66
HM Revenue & Customs, Offshore Tax Evasion, supra note 57 at 27 states, in this regard,
that “merely applying old procedures tailored to a different type of risk… will not
necessarily be an adequate response to tackle the risk”.
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
52
reasonable and adequate procedures.
67
The Ministry of Justice has listed
financial services, tax consultants, and accounting services among the
sectors that are at the forefront of the battle to prevent the payment of bribes
and the facilitation to tax evasion.
68
To date, the two offences have been
rarely litigated in court.
69
The notion of imposing an obligation on the corporation to prevent the
commission of offences by those involved in its business is gaining further
traction these days. In Australia, a bill equivalent to the UK Bribery Act is on
the verge of being passed. But, because the law in Australia does not address
commercial bribery directly, the Australian bill is more limited in scope than
its UK counterpart.
70
The bill proposes to impose absolute criminal liability
on a legal body for its failure to prevent its associates from bribing foreign
government officials.
71
At the same time, the corporation is granted
protection against conviction for the offence if it can prove that it had
67
Cat Barker & Karen Elphick, Commonwealth (Austl), Crimes Legislation Amendment
(Combatting Corporate Crime) Bill 2019, No 99/19-20 (28 May 2020) [Barker & Elphick,
Crimes Legislation].
68
HM Revenue & Customs, Offshore Tax Evasion, supra note 57 at 16.
69
In March 2018, for the first time, an interior design corporation in the UK was
convicted for failing to prevent bribery under section 7 of the Act in question, not on
the basis of an admission of guilt. The jury rejected the defendant's claim, according to
which he is entitled to the protections specified in the law, arguing that the measures
taken to prevent the bribe were not “adequate” under the provisions of the law for the
exercise of the defence. See Jo Rickards & Tom Murray, “Failing to Prevent Bribery: A
Legal Update for Commercial Organisations and the ‘Adequate Procedures’ Defence”
(15 March 2018), online: mondaq <www.mondaq.com/uk/white-collar-crime-anti-
corruption-fraud/683082/failing-to-prevent-bribery-a-legal-update-for-commercial-orga
nisations-and-the-39adequate-procedures39-defence> [perma.cc/8AYU-LB6B]; Omar
Qureshi, Amy Wilkinson & Iskander Fernandez, “UK’s First Considerations of the
Bribery Act’s Adequate Procedures Defence” (19 March 2018), online (blog): FCPA
Professor <fcpaprofessor.com/> [perma.cc/DQ68-F6HH]. In the first trial of this charge
in the UK, Sweett Group Plc (unpublished), the corporation, was convicted, in 2016, of
failing to prevent bribery, based on its confession. See UK, Serious Fraud Office, Sweett
Group PLC Sentenced and Ordered to Pay £2.25 Million after Bribery Act Conviction (New
Release) (London, UK: SFO, 19 February 2016), online: <www.sfo.gov.uk/2016/02/19
/sweett-group-plc-sentenced-and-ordered-to-pay-2-3-million-after-bribery-act-conviction>
[perma.cc/T6ML-2CSU].
70
Matt Fehon & Caroline Mackinnon, “Implications of the Proposed Amendments to
Australia's Foreign Bribery Laws” (2017), online (pdf): Governance in Practice
<www.mcgrathnicol.com/app/uploads/2017-06-30_Implications-of-the-proposed-
amendments-to-Australias-foreign-bribery-laws.pdf> [perma.cc/2LPM-T7T4].
71
Barker & Elphick, Crimes Legislation, supra note 67 at 22. For the definition of a foreign
public official see Criminal Code, Australia, supra note 5, s 70.1.
Corporate Criminal Liability 2.0 53
adequate procedures in place to prevent its commission.
72
In a memorandum of the Penal Code (Amendment - Criminal Liability
of Corporations), circulated at the end of 2014, the Israeli Ministry of
Justice proposed to further expand the scope of the obligation that legal
bodies are subject to. The memorandum proposes that, in addition to
preventing bribery (which does not include commercial bribery in its
language), the legal body must also prevent offences within the realm of its
activity and business conduct. Explicitly included in the range are offences
of money laundering, as well as securities law and antitrust offences.
73
The Israeli memorandum also imposes the duty of prevention with
regard to individuals associated with the legal body, as is the case in UK law,
providing a defence to the legal body against the charge of omission if the
legal body can prove that it took reasonable measures to carry out this duty.
74
But the memorandum does not establish a separate, explicit protection
clause. Instead, it creates an explicit and unique presumption of guilt, which
transfers the burden of proof onto the defendant corporation, such that the
corporation violated its duty unless it proves that it has taken all reasonable
steps to fulfill it.
75
The mere fact that the corporation was not able to prove
that it used all reasonable means to prevent the offence establishes the
counter-presumption that the corporation is liable, by default, for the failure
in question. In the UK, the result is apparently identical, despite the lack of
a legal presumption in the law: the fault of the corporation is determined,
prima facie, with proof of the elements of the offence by the prosecution,
unless the corporation proves, according to the balance of evidence, that it
took reasonable measures to prevent it.
Another law of similar nature, intended to impose criminal liability on
corporations for failing to prevent economic crime, is going through the
stages of UK legislation.
76
The Law, which was linked to the anti-corruption
program,
77
was designed to deal with the phenomenon of corruption and
72
Barker & Elphick, Crimes Legislation, supra note 67 at 23–25.
73
Israel Ministry of Justice, Criminal Liability of Corporations, supra note 24.
74
Ibid.
75
Ibid.
76
UK, Ministry of Justice, Corporate Liability for Economic Crime (Cm 9370, 2017), online:
<consult.justice.gov.uk/> [perma.cc/N5LB-MYVD] [Ministry of Justice, Corporate
Liability].
77
UK, HM Government, UK Anti-Corruption Plan (London, UK: 2014), online:
<assets.publishing.service.gov.uk/government/uploads> [perma.cc/N64U-RRFH].
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
54
economic crimes such as money laundering, fraud,
78
and other offences.
79
A central argument of those who support this legislation is that a unified
standard of corporate behaviour and a single measuring stick for
enforcement should be created for all economic offences.
80
Although there
are arguments in support of such an expansion,
81
those who oppose it claim
that its imposition will weigh disproportionately on the business sector,
when compared to the added efficiency inherent in it, by transferring to this
sector the burden of evidence that it took reasonable measures to prevent
such economic crimes.
82
The public debate on the issue continues. The legal
advisor to the Conservative government in the UK expressed his opinion
that the legislative process should continue expanding corporate criminal
liability, arguing that “there is a strong case for the creation of a new
corporate criminal offence of ‘failing to prevent economic crime’ and that
it was time to set it in statute.”
83
78
Ministry of Justice, Corporate Liability, supra note 76.
79
For an opinion that the suggested law should impose a duty on corporations to prevent
unauthorized access to their computerized systems and their use, or the use of the data
stored on them for fraud, see Mark Fenhalls, “The Development and Future for ‘Failure
to Prevent’ Offences” (2018), online: Financier Worldwide <www.financierworldwide.co
m/the-development-and-future-for-failure-to-prevent-offences/#.XHRdzIgzZaT> [perm
a.cc/3E8V-KK8F].
80
“CORE Submission to the Treasury Select Committee Economic Crime Inquiry” (last
visited 22 April 2019), ss 2–3, online (pdf): CORE <corporate-responsibility.org/wp-
content/uploads/2018/05/CORE-TSC-Submission-on-Economic-Crime.pdf> [perma.
cc/8JUF-QCK4].
81
“Corporate Liability for Economic Crime: Submission from Transparency
International UK” (2017), online: Transparency International UK <www.transparency.or
g.uk/publications/ti-uk-submission-to-corporate-liability-for-economic-crxkia> [perma.c
c/6HNM-K4DX].
82
“FSB Response to Corporate Liability for Economic Crime: Call for Evidence” (2017),
online: FSB <yeti.fsb.org.uk/docs/default-source/fsb-org-uk/fsb-submission---corporate-
liability-for-economic-crime---march-2017.pdf?sfvrsn=287ebc20_0> [perma.cc/7WVR-A
6P5]; Celia Wells, “Corporate Failure to Prevent Economic Crime: A Proposal” (2017)
Crim L Rev 6:1 426 at 427; Sirajo Yakubu, A Critical Appraisal of the Law and Practice
Relating to Money Laundering in the USA and UK (Doctoral Thesis, School of Advanced
Study, University of London, 2017) [unpublished], online: <sas-space.sas.ac.uk/6697/>
[perma.cc/NE49-DUPJ].
83
Joe Watts, “Minister Says Time has Come for New Corporate Offence of ‘Failing to
Prevent Economic Crime’”, Independent (18 March 2018), online: <www.independento
.uk> [perma.cc/7V2B-WCBA]. See also David Green, Address (Speech delivered at the
Pinsent Masons Regulatory Conference, 2014), London, UK: Serious Fraud Office,
online: <www.sfo.gov.uk/2014/10/23/david-green-cb-qc-speech-pinsent-masons-regula
tory-conference/> [perma.cc/QEC9-HX3E].
Corporate Criminal Liability 2.0 55
This proposal does not mark the end of the road. The first steps toward
expanding the trend and imposing similar prevention duties on
corporations, in areas that deviate from economic delinquency and are
related to social spheres, are currently taking shape. These steps were
reflected in the recommendation of the Joint Human Rights Committee of
the British Parliament, which, in 2017, proposed to consider imposing
additional legal obligations on legal entities, including parent entities.
84
The
goal of this proposal was to prevent violations of human rights in
employment, such as child labour, in foreign countries.
85
But no such
extension is currently being examined by the legislative authorities.
86
In light
of this recommendation, in Australia, it was suggested to consider enacting
an additional obligation for legal entities, regarding institutional failure, to
prevent child sexual abuse.
87
A certain formal similarity can be found in the structure of the duty and
in the content of the defences that are available to the defendant, between
the clauses of the duty of prevention discussed here and the obligations
imposed in several legal systems by a group of offences in the areas of
taxation, labour rights, environmental protection, etc. These clauses
stipulate, in relatively similar terms, that when an offence was committed by
a corporation, the senior management or the executive echelons of the
management chain (manager, finance manager, other management entities)
must also be charged, unless they prove that the offence was committed
without their knowledge or that they took reasonable measures to prevent
84
UK, HL, HC, Joint Committee on Human Rights, Human Rights and Business 2017:
Promoting Responsibility and Ensuring Accountability (Cm 153/443, 2017), online: <public
cations.parliament.uk/pa/jt201617.pdf> [perma.cc/8TBJ-EANM].
85
Ibid at no 194: “The current criminal law regime makes prosecuting a company for
criminal offences, especially those with operations across the world, very difficult, as
the focus is on the identification of the directing mind of one individual, which is
highly unlikely in many large companies. We welcome the Ministry of Justice’s current
consultation on a new ‘failure to prevent’ offence for economic crimes. We regret that
a range of other corporate crimes, for example use of child labour, were excluded from
the consultation, and we urge the Ministry of Justice to consider a further consultation
with a wider remit.”
86
UK, HL, HC, Joint Committee on Human Rights, Human Rights and Business 2017:
Promoting Responsibility and Ensuring Accountability: Government Response to the Committee’s
Sixth Report of Session 2016-17 (Cm 686, 2018) at 15–16, online: <publications.parliame
nt.uk/pa/jt201719/jtselect/jtrights/686/686.pdf> [perma.cc/EH68-4NGJ].
87
Penny Crofts, “Criminalising Institutional Failures to Prevent, Identify or React to
Child Sexual Abuse” (2017) 6:3 Intl J for Crime, Justice & Soc Democracy 104 at 116.
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its commission.
88
Note that these offences, some of which are public welfare
offences, deal primarily with the duties of the managerial staff. Such duties
are not unique to corporations and are usually imposed on all employers.
They correspond to the obligations imposed on individual employers, but
in the case of corporations, the personal liability of the managers is added
to the liability of the legal entity as yet another deterrent.
89
Control of
meeting these obligations is entrusted to the employer (person or
corporation) who is able, with relative ease, to order and supervise it
through appropriate instructions. The offence of omission, however, which
imposes on corporations a duty to prevent offences by associated persons,
is not limited to such malfunctions alone.
The presumption is therefore that, in the areas of economic
delinquency, there is a tendency by lawmakers to extend the criminal
liability of corporations to cases and situations in which there is no parallel
liability for human defendants. Indeed, there have been proposals to extend
this duty to also include such areas as maintaining the rights of employees
and their conditions of employment. The Ministry of Justice in Israel has
gone farther, seeking to impose a general obligation on legal entities to
prevent criminal conduct on the part of their associates in all areas of their
activity.
A question arises whether others may be accused, as accomplices to the
offence of non-prevention of crimes that are unique to corporations, based
on the laws of complicity. Theoretically, this appears possible,
90
albeit
problematic; in practice, this proposition loses meaning and raises some
interpretive issues. First, the laws in question indicate the intention of the
legislator to apply them explicitly to legal entities. The prosecution of
another person for the offence derived from these laws is inconsistent with
this intention. Moreover, in practice, the duty to prevent offences is
88
In Israel see e.g. Youth Labour Law 1953 (Isr) s 38; Employment of Women Law 1954 (Isr)
s 15; Dangerous Drugs Ordinance (New Version) 1973 (Isr) s 34; Banking (Service to Customer)
Law 1981 (Isr) s 11; Income Tax Ordinance (New Version) 1961 (Isr) s 224(a).
89
Eli Lederman, “Criminal Liability of Corporate Organs and Senior Officers of the
Corporation” (1996) 5 Plilim (Israel J Crim Justice) 101 at 137. Lim Wen Ts'ai,
“Corporations and the Devil's Dictionary: The Problem of Individual Responsibility for
Corporate Crimes” (1990) 12:2/3 Sydney L Rev 311 at 344–45 noted that, with regard
to the responsibility of senior management for corporate crimes, “there are areas in
which it is felt that, because of the harm to society which may otherwise occur, higher
levels of responsibility are imposed on individuals by the law than by morality.”
90
Laird, “Criminal Finances Act”, supra note 53 at 938–39.
Corporate Criminal Liability 2.0 57
inherently intended to deal with situations in which the legal entity cannot
be held liable for the offences of bribery or tax evasion under the laws of
complicity.
These preventive duties also serve as an additional and complementary
means of combatting the said corruption offences. If, in the circumstances
of the case, there is an inciter or aider and abettor who acted intentionally
or recklessly,
91
facilitating the commission of bribery or tax evasion offences,
the need for such complementary means becomes superfluous; if, on one
hand, the inciter or aider and abettor is an external person who is not part
of the corporate organization, he may be directly accused of inciting or
aiding and abetting in the granting of bribes or the evasion of taxes. On the
other hand, if that person is an officer of the corporation, his behavior and
state of mind may be attributed to the legal entity itself by virtue of the
theory of the organs or by the respondeat superior theory. In this case, the legal
entity itself becomes, in addition to that person, an inciter or aider and
abettor of the commission of the offence of bribery or tax evasion. Even
under these circumstances of direct involvement of the corporation in the
offence committed by the principal offender, the means that the legal system
grants by the duty to prevent the commission of the offences become
equivalent to the duty prescribed by the laws of complicity and obviate the
need for it. The uniqueness of these duties, imposed exclusively on
corporations, is necessary in cases where a corporate officer assisted the
illegal act of bribery or tax evasion without having the required mens rea. In
these situations, it is impossible to resort to the law of complicity and the
complementary duty to prevent these actions becomes apparent.
II. JUSTIFICATIONS AND BACKGROUND FOR THE EXPANSION
A. General
Three environmental factors, among others, serve as the basis and
background for the expansion of corporate criminal liability: (a) norms of
91
For the judicial and academic analysis of, as well as debates on the precise elements of
the accomplice's mens rea see e.g. Sherif Girgis, “The Mens Rea of Accomplice Liability:
Supporting Intentions” (2013) 123:2 Yale LJ 460 at 468–43; John F Decker, “The
Mental State Requirement for Accomplice Liability in American Criminal Law” (2008)
60:2 SCLR 237; Grace E Mueller, “The Mens Rea of Accomplice Liability” (1988) 61:6
S Cal L Rev 2169.
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group responsibility, (b) signs of retreat from the requirements of the theory
of organs, and (c) the development of theories of corporate governance and
compliance. These factors belong to two different domains, although they
overlap and intertwine to some degree. The first two are internal to the
criminal domain; the third belongs to the broader social-legal circle. These
three factors join other social-economic factors that provide special and
immediate reasons for the enactment of the laws under discussion. These
additional factors, like the fight against economic delinquency, the
protection of fair commercial competition, and the struggle against black
money, are not discussed in the present article.
As noted, the two factors belonging to the internal criminal domain
that make possible the expansion of corporate criminal liability are (a) the
very nature of penal law that provides an adequate ground for expanding
group responsibility and (b) the practical difficulties of proving criminal
intent based on the strict requirements of the theory of organs (which is one
of the main methods of imposing liability on legal entities). To these two
factors, it is possible to add a third that is not discussed in this article
because it is a general phenomenon in penal law and not unique to legal
bodies: the significant increase in the last decades of the category of criminal
omissions,
92
which has traditionally been circumscribed and narrow.
93
Naturally, there has also been an increase in the active duties of
corporations and together with them, the prevention obligations discussed
above, which are unique to legal entities.
The factor belonging to the broader socio-legal domain concerns legal
policy in general, in the wake of the development of legal-social-economic
ideas that tend to expand corporate duties. This trend is rooted in the
notion of corporate governance and its derivative, corporate compliance.
Emerging attitudes and public expectations from corporations are affecting
92
Among those are issues like the duty to rescue, parental responsibility for minors’
behaviour, failure to report, and other topics. See generally Melody J Stewart, “How
Making the Failure to Assist Illegal Fails to Assist: An Observation of Expanding
Criminal Omissions Liability” (1998) 25:2 Am J Crim L 385; Ken Levy, “Killing,
Letting Die, and the Case for Mildly Punishing Bad Samaritanism” (2010) 44:3 Ga L
Rev 607; Jeremy Waldron, “On the Road: Good Samaritans and Compelling
Duties” (2000) 40:4 Santa Clara L Rev 1053; James Herbie DiFonzo, “Parental
Responsibility for Juvenile Crime” (2001) 80:1 Or L Rev 1.
93
See generally Graham Hughes, “Criminal Omissions” (1958) 67:4 Yale LJ 590; Otto
Kirchheimer, “Criminal Omissions” (1942) 55:4 Harv L Rev 615; Andrew Ashworth,
“The Scope of Criminal Liability for Omissions” (1989) 105 Law Q Rev 424; Arthur
Leavens, “A Causation Approach to Criminal Omissions” (1988) 76:3 Cal L Rev 547.
Corporate Criminal Liability 2.0 59
their social status and creating new norms of conduct and functioning for
legal entities.
B. The Internal Arena: General Criminal Law Policy
1.
Norms of Group Responsibility
On the theoretical level, the issue of corporate criminal liability has
always been part of collective criminal liability, probably because a
corporation is by nature a type of collective. The scope of liability of
individual group members has consistently been exceptional and
groundbreaking in the criminal sphere. For example, accomplice liability
makes it possible to regard an individual as having committed a certain
offence, even if he has not committed any of its actus reus elements.
94
The
liability imposed by penal law on all the parties to an offence, following the
commission of an additional offence by one of them, also extends the scope
of the original offence and such persons may be liable for the commission
of the additional offence, even if they did not foresee it.
95
The limits of
liability under the law against organized crime in Israel are also exceptional
in this regard. They include the liability of service providers to the
organization, increasing the maximum punishment for the commission of
offences within the framework of the organization, and involve the wide-
scale forfeiture mechanism of the fruits of the crime.
96
Similarly, the law
imposes liability on any conspirator for the criminal conduct of another
conspirator, even if it was carried out without knowledge of the former, as
long as that conduct was committed in the course of the criminal conspiracy
and for the purpose of promoting it.
97
This liability was cancelled in Israeli
94
CrimA 2247/10 Yemini v State of Israel, 64(2) PD 666 at 697–98 (2011); CrimA 5206/98
Abud v State of Israel, 52(4) PD 185 at 189 (1998); CrimA 2796/95 Plunim v State of
Israel, 51(3) PD 388 at 403 (1997).
95
In Israel, see e.g. the analysis of s 34A to the Penal Law, its aspects, and the liability that
is prescribed under it in CrimA35/89 Lugasi v The State of Israel, 46(1) PD 235 (1991);
CrimA 4478/03 Portnoy v State of Israel, 59(1) PD 97 at 109–10 (2004); CrimA 4424/98
Silgado v State of Israel, 56(5) PD 529 (2002).
96
Combating Criminal Organizations Law 2003 (Isr) ss 2–20.
97
In Israel, see e.g. CrimA 196/75 Ben-Shoshan v State of Israel, 30(3) PD 215 (1976);
CrimA 196/75 Zekzer v State of Israel, 32(1) PD 701 (1978). See also SZ Feller, “Criminal
Liability Without Action, on the Basis of What?” (1974) 29 The Attorney 19 (Hebrew).
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law,
98
but it is still alive in Anglo-American law.
99
These expansions are related to the development of crime and its
ramifications today. But their roots appear to lie in the primal fear of the
criminal potential of the group, compared to the more limited capabilities
of individual perpetrators. In a dark, isolated alley, we would rather find
ourselves facing a single large threatening individual than a group of them.
The encounters of individuals with legal entities are at times associated
with similar feelings of discomfort, apprehension, and a sense of being
treated with disrespect. The cases discussed above dealt with the liability of
members of the group, whereas this article deals with the liability of the
group itself. But this is an inevitable built-in difference. The absence of a
separate identity of the group, in the cases mentioned above, leaves
individual members as the only possible objects of liability and punishment
for the conduct. By contrast, the personification of the entity, which made
it entitled to rights and obligations in the first place, makes it a direct target
of the public's feelings and the systemic response of criminal law to group
liability, in addition to the individuals who committed the illegal conduct.
As noted, this response is consistently exceptional and groundbreaking in
its scope.
Feelings of uneasiness towards corporations are particularly prominent
in the US.
100
In most cases, a legal body is perceived as having greater power,
means, interests, and sway than a single human being.
101
This is apparently
why the Penal Code is willing to impose excessive liability (including
restrictions, duties, and restraints) on corporations as well as on individuals
in groups involved in criminal activity. Since the beginning of the 21st
century, these basic feelings have been reinforced by various factors,
98
Penal Law, supra note 36, s 499(b).
99
Rollin M Perkins, “The Act of One Conspirator” (1974) 26:2 Hastings LJ 337; Matthew
A Pauley, “The Pinkerton Doctrine and Murder” (2005) 4:1 Pierce L Rev 1; Damon
Porter, “Federal Criminal Conspiracy” (2017) 54:4 Am Crim L Rev 1307 at 1327–28.
100
See generally Bourree Lam, “Quantifying Americans' Distrust of Corporations”, The
Atlantic (25 September 2014), online: <www.theatlantic.com/business/archive/> [perm
a.cc/7B4N-TMDZ]; Jason E Adams, Scott Highhouse & Michael J Zickar,
“Understanding General Distrust of Corporations” (2010) 13:1 Corporate Reputation
Rev 38 at 38; “Incorporating the Republic: The Corporation in Antebellum Political
Culture” (1989) 102:8 Harv L Rev 1883 at 1889–92; Paul J Larkin Jr, “Funding Favored
Sons and Daughters: Nonprosecution Agreements and ‘Extraordinary Restitution’ in
Environmental Criminal Cases” (2013) 47:1 Loy LA L Rev 1 at 5–6, n 6.
101
Ross B Grantham, “The Legitimacy of the Company as a Source of (Private) Power”
in Kit Barker et al, eds, Private Law and Power (Oxford: Hart Publishing, 2016) at 239.
Corporate Criminal Liability 2.0 61
including scandals of enormous economic scale involving giant legal
organizations such as Enron, Worldcom, Tyco, Healthsouth, Freddie Mac,
and American International Group (AIG).
102
The scandals were
compounded by the financial crisis of 2008
103
and by the legal response of
law enforcement agencies toward large corporations, which was relatively
lenient.
104
Such a response often goes hand in hand with controversial
insinuations that caution must be exercised when bringing criminal charges
against these corporations because of possible negative effects on the
American economy and perhaps the economies of other countries.
105
102
For details of these scandals, see e.g. “The 10 Worst Corporate Accounting Scandals of
All Time” (last visited 22 April 2019), online: Accounting Degree Review <www.accountin
g-degree.org/scandals/> [perma.cc/4YUH-YYL7]; William W Bratton & Adam J
Levitin, “A Transactional Genealogy of Scandal: From Michael Milken to Enron to
Goldman Sachs” (2013) 86:4 S Cal L Rev 783; Arthur E Wilmarth Jr, “Turning a Blind
Eye: Why Washington Keeps Giving in to Wall Street” (2013) 81:4 U Cin L Rev U
1283.
103
US, United States Senate Permanent Subcommittee on Investigations, Wall Street and
the Financial Crisis: Anatomy of a Financial Collapse: Majority and Minority Staff Report
(Washington, DC: The Commission, 2011), online: <www.hsgac.senate.gov/imo/medi
a/doc/PSI REPORT - Wall Street & the Financial Crisis-Anatomy of a Financial
Collapse (FINAL 5-10-11).pdf> [perma.cc/WV82-2YBS]; Jeff Madrick, Age of Greed: The
Triumph of Finance and the Decline of America, 1970 to the Present (New York: Knopf
Doubleday Publishing Group, 2011); Michael Lewis, The Big Short: Inside the Doomsday
Machine (New York, NY: WW Norton & Co, 2010).
104
E.g., the use of Voluntary Deferred Prosecution Agreements (DPA) between the
prosecution and the defence, which serves as an alternative to adjudication, in which
the government agrees to stop criminal action in exchange for the defendant agreeing
to meet certain conditions and requirements. See the references cited in nn 148–53;
Candace Zierdt & Ellen S Podgor, “Corporate Deferred Prosecutions Through the
Looking Glass of Contract Policing” (2007) 96:1 Ky LJ 1.
105
For an examination of the relations between corporations and enforcement agencies,
the matter of “too big to be jailed”, and the criticism of such attitudes, see generally
Sarah Childress, “Holder: Big Banks' Clout 'Has an Inhibiting Impact' on Prosecutions”
(6 March 2013), online: PBS <www.pbs.org/wgbh/frontline/article/holder-big-banks-
clout-has-an-inhibiting-impact-on-prosecutions> [perma.cc/69BG-A597]. Cf US S 2544,
Ending Too Big to Jail Act, 115th Cong, 2018, s 4 (introduced 14 March 2018 but was
not passed), online: <www.govtrack.us/congress/bills/115/s2544> [perma.cc/L9UJ-
XD82]; Brandon L Garrett, Too Big to Jail: How Prosecutors Compromise With Corporations
(Cambridge, USA: Harvard University Press, 2014); Nick Werle, “Prosecuting
Corporate Crime When Firms Are Too Big to Jail: Investigation, Deterrence, and
Judicial Review” (2019) 128:5 Yale LJ 1366; Nicholas Ryder, “‘Too Scared to Prosecute
and Too Scared to Jail?’ A Critical and Comparative Analysis of Enforcement of
Financial Crime Legislation Against Corporations in the USA and the UK” (2018) 82:3
J Crim L 245.
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From a somewhat different perspective, the expansion of group
criminal liability, including corporate liability, may be considered not as an
outcome of the concerns and apprehensions of society, but as a result of the
full absorption of the corporations into the social fabric. The imposition of
increased liability, in this respect, stems from the shattering of the imaginary
barrier in the attitude of policy makers and of the public towards legal
entities. Nowadays, we come across corporations in every area and aspect of
our lives, and they have become embedded in our everyday experience. They
no longer appear as entities that must be separated by legal boundaries and
the liability that can be imposed on human beings no longer sets a ceiling
for the liability that can be imposed on corporations.
Because society recognizes the enormous strength and capabilities of
corporations in the economic and social spheres, demands and expectations
of them have also risen. Certain social institutions in the criminal sphere,
such as the probation service, have adapted to the nature and character of
corporations.
106
With the development of the notion of corporate social
responsibility (CSR),
107
the expectations and demands of corporations in
the area of criminal liability have come to occasionally exceed that which is
required of human beings. In this sense, societal expectations and demands
can be regarded as a desire on the part of society to harness corporations to
the array of structures that contribute to maintaining the public security and
welfare: that is, to turn corporations into assistants of law enforcement
agencies.
108
2.
Retreat from the Strict Requirements of the Theory of Organs
Another factor operating at the internal criminal level, which advocates
for expanding the basis of corporate liability, concerns the apparent retreat
from the traditional basis for the theory of organs. This theory is the
foundation for imposing corporate criminal liability in the English legal
106
See generally Christopher A Wray, “Corporate Probation Under the New
Organizational Sentencing Guidelines” (1992) 101:8 Yale LJ 2017; Marjorie H Levin,
“Corporate Probation Conditions: Judicial Creativity or Abuse of Discretion?” (1984)
52:4 Fordham L Rev 637; David Bergman, “Corporate Sanctions and Corporate
Probation” (1992) 142 New LJ 1312.
107
See generally Gerlinde Berger-Walliser & Inara Scott, “Redefining Corporate Social
Responsibility in an Era of Globalization and Regulatory Hardening” (2018) 55:1 Am
Bus LJ 167; Eric C Chaffee, “The Origins of Corporate Social Responsibility” (2017)
85:2 U Cin L Rev 347.
108
See the closing paragraph of this work.
Corporate Criminal Liability 2.0 63
system and other systems that have adopted it.
The theory of organs stipulates the imposition of criminal liability on
corporations for mens rea offences by proving the awareness of one of its
senior executive officers, who is responsible for formulating policy, of the
possibility of committing the offence.
109
Because of their status, these
executives are considered to be the directing mind and will of the
corporation, and are regarded as its organs or alter ego. By a process of
identification or attribution, their mens rea is examined as the mental state
of the corporation itself.
110
The theory faces a clear built-in hurdle: “it is
impossible to find a company guilty unless its alter ego is identified.”
111
This
difficulty increases as the corporation becomes larger and management gets
more complex or decentralized.
112
Legislation regarding the imposition of special obligations on
corporations, to prevent the commission of offences by others (discussed
above), as well as additional laws and rulings on the subject matter of
corporate liability (mentioned below), may be the result of an inclination to
allow a deviation and retreat from the theory of organs and the
identification principle as the basis for imposing criminal liability on legal
entities in mens rea offences. This approach holds that “[t]he identification
principle is an inadequate model for attribution to a corporate of criminal
liability. It is unfair in its application, unhelpful in its impact and it
underpins a law of corporate liability that is unprincipled in scope.”
113
The
109
Brent Fisse & John Braithwaite, Corporations, Crime, and Accountability (Cambridge, UK:
Cambridge University Press, 1993) at 47 et seq; Amanda Pinto & Martin Evans,
Corporate Criminal Liability, 3rd ed (London, UK: Sweet & Maxwell, 2013) 35–61.
110
For the basis of the theory in the UK, see generally Lennard’s Carrying Co Ltd v Asiatic
Petroleum Ltd, [1915] AC 705 at 713, 113 LT 195 (HL (Eng)); Tesco, supra note 3 at 170–
71, 187–88, 190–91, 200–01; R v Andrews Weatherfoil Ltd, [1972] 1 WLR 118, [1972] 1
All ER 65 (CA CrimD). For acceptance of the basic characteristics of the theory by the
Canadian Supreme Court, with certain expansions of the term “directing mind” of a
corporation, see e.g. R v Canadian Dredge & Dock Co, [1985] 1 SCR 662 at 693, 19 DLR
(4th) 314 [Dredge]. See also Rhône v Peter AB Widener, [1993] 1 SCR 497 at 520–26, 101
DLR (4th) 188 [Rhône].
111
Attorney General’s Reference (No 2 of 1999), [2000] 3 All ER 182 at 190, [2000] 3 WLR
195 (CA CrimD) [Attorney General’s Reference].
112
Robert Buckland, Address (Speech delivered at the 35th Cambridge Symposium on
Economic Crime, 2017), Cambridge, UK: Attorney General’s Office, online:
<www.gov.uk/government/speeches/solicitor-generals-speech-at-cambridge-symposium
-on-economic-crime> [perma.cc/V337-VR5S].
113
Alun Milford, “Control Liability: Is It a Good Idea and Does It Work in Practice?”
(Speech delivered at the Cambridge Symposium on Economic Crime, 2016), London,
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connection between the retreat from the requirements and the widening of
the scope of liability is quite clear, but the will to expand the liability is the
cause of the retreat from the strict demands of the theory of organs, not the
result of it. This is contrary to the situation previously discussed regarding
criminal law policy, in which the general criminal perception of group
liability enabled and caused the expansion of corporate liability.
In the last two decades, it is possible to find support, in both legislation
and case law, for a line of reasoning that justifies imposing criminal liability
on corporations on a wider basis than the theory of organs does. The new
approach advocates the softening of the definitions that undergird the
traditional theory, by expanding the group of characters whose behavior and
state of mind may be identified as that of the legal body.
The Corporate Manslaughter and Corporate Homicide Act of 2007
114
imposes criminal liability on a corporation if the way in which its activities
are organized result in the death of a person and amount to a gross breach
of a duty of care owed by the legal entity to the deceased.
Not limiting the imposition of liability on the legal body to cases related
to an act or omission of a directing mind and will is not coincidental.
115
Expanding the base of liability is one of the purposes of the law: “The new
offense allows an organization's liability to be assessed on a wider basis,
providing a more effective means of accountability for very serious
management failings across the organisation.”
116
A somewhat similar basic
UK: Serious Fraud Office, online: <www.sfo.gov.uk/2016/09/06/control-liability-
good-idea-work-practice/> [perma.cc/5WKM-EWZD]. For a similar approach see also
Camilla de Silva, “Corporate Criminal Liability, AI and DPAs” (Speech delivered at the
Hebert Smith Freehills Corporate Crime Conference, 2018), London, UK: Serious
Fraud Office, online: <www.sfo.gov.uk/2018/06/21/corporate-criminal-liability-ai-and-
dpas/> [perma.cc/KZT4-3TXK]; Jenny Barker, “Casting the Net Wider: The Ongoing
Expansion of Corporate Criminal Liability Carries New Risks for Legal Advisors”, The
Law Society Gazette (6 March 2017), online: <www.lawgazette.co.uk/practice-points/ca
sting-the-net-wider/5060050.article.> [perma.cc/MTB4-8KZJ].
114
Paul Almond, Corporate Manslaughter and Regulatory Reform (London, UK: Palgrave
Macmillan, 2013) at 30.
115
Yet, the Law stipulates that an organization is guilty of an offence under this section
only if the way in which its activities are managed or organized by its senior management
is a substantial element in the breach of the relevant duty of care owed by the
organization to the deceased. See Corporate Manslaughter and Corporate Homicide Act
(UK), 2007, s 1(3).
116
UK, Ministry of Justice, A Guide to the Corporate Manslaughter and Corporate Homicide Act
2007 (London, UK: Ministry of Justice, 2007) at 3, online: <www.gkstill.com/Support/
Corporate Criminal Liability 2.0 65
attitude follows from section 21 of the Criminal Justice and Courts Act
2015, which imposes criminal liability on a care provider (a body
corporate or unincorporated association that provides or arranges
healthcare for adults or children, or social care for adults) if a person is ill-
treated or willfully neglected while under the care of another “by virtue
of being part of the care provider’s arrangements”, and if “the care
provider’s activities are managed or organized in a way which amounts to a
gross breach of a relevant duty of care owed by the care provider to the
individual who is ill-treated.”
117
This approach shifts the focus away from individualistic aspects, in the
process of attributing corporate liability through a focused identification
process, toward a more comprehensive and holistic examination that
emphasizes the general mechanisms of supervision and control over the
actions of the legal body. The Criminal Justice and Courts Act goes even
further. Unlike the corporate manslaughter offence, the Criminal Justice
and Courts Act does not require “senior management” to be directly
involved in managing or organizing the care provider’s activities in a way
that amounts to a gross breach of a duty of care owed by the care provider
to the ill-treated individual.
118
The requirements of the corporate manslaughter offence are higher and
more restrictive that those of the Criminal Justice and Courts Act from
another perspective as well. Under the former, in the case of death
(manslaughter), the legal entity is charged with the result of the defect in
supervision rather than with a separate and independent offence of a fault
in the control mechanism, as in cases of ill-treatment or willful neglect
under the latter. The former requires proof of a causal link between the
negligent or reckless corporate act or omission and the fatal outcome. The
second does not ask for such a “but for” causation and it is content with
proof of some causal connection between the corporate breach of duty and
the ill-treatment or willful neglect of the person in their care. In the wording
of the law, it must be proven that “in the absence of the breach, the ill-
treatment or willful neglect would not have occurred or would have been
Links/Documents/2007-justice.pdf> [perma.cc/CKS9-M36S]. For a general analysis of
the law see Almond, supra note 114.
117
Criminal Justice and Courts Act (UK) 2015, s 21(1)(a)–(b) [Criminal Justice].
118
Andrew Smith, “The Changing Face of Corporate Criminal Liability” (14 December
2015), online (blog): Corkerbinning <www.corkerbinning.com/the-changing-face-of-
corporate-criminal-liability/> [perma.cc/U5WN-8FQ2].
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less likely to occur.”
119
The waiver of the demand for involvement of senior
management in the misconduct and the lowering of the demands
regarding the causation linkage expand even more than the scope of
corporate criminal liability under the Criminal Justice and Courts Act.
In case law as well, there is mention of a broad approach that does not
adhere to the fundamental elements of the theory of organs in its traditional
scope and interpretation. In a civil case, the Privy Council (the highest
Court of Appeal for several British independent Commonwealth nations,
the Crown Dependencies, and the British Overseas Territories) addressed
the liability of an investment management company for breaches of the New
Zealand Securities Amendment Act of 1988, following a failure of two of its
investment officers to disclose to the Securities Commission that the entity
has become a “substantial security holder” of another corporation.
120
In its
decision, the Privy Council took a similar expansive approach to that of the
court of appeal which relaxed the strict demand for the identification
doctrine, in addition to the established assumption that “different persons
may for different purposes satisfy the requirements of being the company's
directing mind and will.”
121
Therefore, Lord Hoffmann, who heard both
cases, emphasized in the Privy Council's decision that in cases “in which the
court considers that the law was intended to apply to companies and that…
insistence on the primary rules of attribution would in practice defeat that
intention… the court must fashion a special rule of attribution for the
particular substantive rule.”
122
Thus, the court must hold that the thoughts
and actions of relatively low-level employees are capable of being attributed
to the entity.
123
This process of attribution, which stretches the
identification doctrine to include a wider range of corporate officers, is
conducted “by applying the usual canons of interpretation, taking into
account the language of the rule (if it is a statute) and its content and
119
Criminal Justice, supra note 117, s 21(1)(c). See also Karl Laird, “Filling a Lacuna: The
Care Worker and Care Provider Offences in the Criminal Justice and Courts Act 2015”
(2016) 37:1 Stat L Rev 1.
120
Meridian Global Funds Management Asia Ltd v Securities Commission, [1995] 2 AC 500,
[1995] 3 All ER 918 (PC) [Meridian].
121
El Ajou v Dollar Land Holding Plc (1993), [1994] 2 All ER 685 at 706, [1994] 1 BLLC 464
(Ct App CivD).
122
Meridian, supra note 120 at 924.
123
Jock Gardiner, “Arendt and Corporate Culture: Instilling Thoughtfulness into the
Commonwealth Criminal Code” (2018) Austl J Corp L (Lexis) 3 at 7.
Corporate Criminal Liability 2.0 67
policy.”
124
The policy-based approach should be handled with caution and
each case should be examined on its merits. Lord Hoffmann added a clear
warning to the decision, stating “their Lordships would wish to guard
themselves against being understood to mean that whenever a servant of a
company has authority to do an act on its behalf, knowledge of that act will
for all purposes be attributed to the company.”
125
In the Meridian case, the starting point of the Court was that, if a law
permits the imposition of liability on a legal entity but the primary rules on
the subject do not allow this in the circumstances of the case, there is room
for action to achieve the purpose of the enactment.
126
The judicial tool for
achieving this goal is an expansive interpretation and addition to the
existing rules. The ruling of the court, however, did not receive much
support in subsequent judicial decisions.
127
This later ruling reiterates that
the structure proposed in the Meridian case bears a residual and
complementary character, restricted to special cases in which the usual
principles cannot be applied. In other words, it is not possible to identify
the factors that are the directing mind and will of the entity, and attribute
their conduct and state of mind to the legal entity.
128
This issue is discussed
in the legal literature,
129
at times in a critical way, because its
implementation implies a possibly significant expansion of corporate
criminal liability.
130
Note, however, that the Meridian case, like the Corporate
Manslaughter Act, deflects the examination from an analytical-pragmatic
analysis, in which the minds that direct the corporation are examined as its
alter ego, with a view toward a more flexible and context-specific analysis of
the attribution process.
131
124
Meridian, supra note 120 at 924.
125
Ibid at 928. See Duygu Damar, “Breaking the Liability Limits in Multimodal Transport”
(2012) 36:2 Tul Mar LJ 659 at 682.
126
Meridian, supra note 120 at 924, 927.
127
See, however, in this context, Bilta (UK) Ltd (in liq) v Nazir, [2015] UKSC 23.
128
Attorney General’s Reference, supra note 111 at 192. See also R v St Regis Paper Co Ltd,
[2011] EWCA Crim 2527.
129
Gardiner, supra note 123 at 21–22.
130
Eilis Ferran, “Corporate Attribution and Directing Mind and Will” (2011) 127:1 Law
Q Rev 239 at 245.
131
Jennifer Hill, “Corporate Criminal Liability in Australia: An Evolving Corporate
Governance Technique?” (2003) Vanderbilt University Law School: Law and
Economics Working Paper No 03-10 at 13; Jennifer Payne, “Corporate Attribution and
the Lessons of Meridian” in Paul S Davies & Justine Pila, eds, The Jurisprudence of Lord
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68
A similar trajectory, and in some respects, an even sharper and more
decisive one, has been followed by Canadian law in recent decades. As
noted, the Supreme Court of Canada adopted the main tenets of the
identification theory, while exercising and expanding the corporate organ
group.
132
This was merely the first step in the process, however. In 2004, the
legislature redefined the concept of senior officers, whose behavior is
identified as that of a legal body.
133
The first part of the definition addresses
the traditional organs of the legal body: “a representative who plays an
important role in the establishment of an organization's policies.” The
second part extends the scope of the definition to include also a ranking in
the body hierarchy, which “is responsible for managing an important aspect
of the organization's activities.”
134
This lower threshold, which does not
stipulate any affiliation with the corporate organ group in establishing
corporate policy, greatly increases the group
135
and allows embedding an
intermediate level in the corporate hierarchy as well.
136
Contrary to the emerging approach in the UK, the Canadian provision
is not limited to special events and exceptional circumstances that require
its activation. Instead, it is general legislation that applies in all situations.
Expanding the limits of corporate criminal liability according to the
Canadian statutory approach, beyond that which takes shape in the UK,
brings it significantly closer to the approach of the respondeat superior
doctrine of American law, which derives from the vicarious liability theory.
The Supreme Court of Canada and scholars regard this approach as a fair
Hoffmann: A Festschrift in Honour of Lord Leonard Hoffmann (Oxford: Hart Publishing,
2015) at 357.
132
See Dredge, supra note 110; Rhône, supra note 110.
133
See Criminal Code, RSC 1985, c C-46, s 2 [Criminal Code, Canada]: “senior officer means
a representative who plays an important role in the establishment of an organization’s
policies or is responsible for managing an important aspect of the organization’s
activities.”
134
Ibid.
135
Todd Archibald, Kenneth Jull & Kent Roach, “The Changed Face of Corporate
Criminal Liability” (2004) 48:3 Crim LQ 367 at 371.
136
Darcy L. MacPherson, “Reforming the Doctrine of Attribution: A Canadian Solution
to British Concerns?” in Stephen Tully, ed, Research Handbook on Corporate Legal
Responsibility (Cheltenham, UK: Edward Elgar, 2005) 194 at 202; Darcy L. MacPherson,
“The Civil and Criminal Applications of the Identification Doctrine: Arguments for
Harmonization” (2015) 45:1 Alta L Rev 171 at 191; Todd Archibald, Ken Jull & Ken
Roach, “Corporate Criminal Liability: Myriad Complexity in the Scope of Senior
Officer” (2014) 60:3 Crim LQ 386 at 391, 403 [Archibald, Jull & Roach, “Myriad
Complexity”].
Corporate Criminal Liability 2.0 69
and efficient model, which is a middle ground between 'directing mind' and
vicarious liability.
137
From this perspective, the approach also includes a
movement towards the theory that imposes an obligation on the legal body
to prevent the commission of offences by its associates and even takes it a
step closer to a comprehensive perspective that imposes a general duty of
action on a legal entity, within the limits of its inclusive activities and
potential capabilities.
One might underestimate the root of the change resulting from both
the expansion of the imposition of a duty on the legal entity to prevent the
commission of offences and the approach that reduces the need for the
theory of organs in its strict, traditional form: by indicating that the core of
the prohibitions (bribery, tax evasion, money laundering, etc.) has not
altered because of these changes (assuming that the spirit of the Meridian
ruling will be adopted by case law). The prohibitions remained as they had
been before and it is only the list of those who are bound by it that has
grown.
138
This argument, however, minimizes the implications of the
change, especially in the public context. The identification of those who are
obligated and the nature of the obligation have a significant influence on
corporate conduct and the formulation of business culture, bearing
considerable weight in determining the status and image of corporations in
society.
C. The External Arena: Corporate Compliance, Corporate
Social Responsibility, and their Implications for Corporate
Criminal Liability
1.
Corporate Compliance and Corporate Social Responsibility
The second basis for the expansion of corporate criminal liability lies
outside the criminal system, in the spirit and growing influence that
corporate compliance and CSR are exerting on the corporate world.
Corporate compliance is an internal mechanism of policies, rules, practices,
and processes that corporations design to monitor the level of compliance
137
Dredge, supra note 110 at 701: Archibald, Jull & Roach, “Myriad Complexity”, supra
note 136 at 388.
138
Anna Gaudoin, “Failure to Prevent: The Future of Corporate Criminal Liability” (29
January 2018), online: WilmerHale <www.wilmerhale.com/en/insights/blogs> [perma.c
c/86PL-VJ9B].
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70
with the law in real time.
139
There is no complete agreement among
researchers about the primary causes for the development of corporate
compliance programs since the second half of the 20th century. Many have
traced it back to the prosecution of a group of heavy electric equipment
companies for antitrust violations at the beginning of the 1960s
140
and the
requirement, in the late 1970s, of the Foreign Corrupt Practices Act that
corporations develop internal controls to prevent corruption.
141
“The contemporary compliance function serves a core governance
function”
142
that includes all the rules and constraints applying to corporate
decision making,
143
namely, the cultural-organizational infrastructure upon
which corporate conduct is based. Corporate compliance is also a vehicle
for the development of the unique obligation of corporate criminal liability.
The demand to promptly report misconduct and violations of the law to
appropriate enforcement authorities, not merely to prevent and detect such
events, has resulted in the revision of corporate compliance programs. The
great contribution of compliance programs to law enforcement, both
139
Baer, supra note 41 at 958. See also Memorandum from Larry D Thompson, Deputy
Attorney General to United States Attorneys, Heads of Department Component (20
January 2003) Principles of Federal Prosecution of Business Organizations, online:
<www.americanbar.org> [perma.cc/5STT-GB8G]; Andrew Weissmann, “A New
Approach to Corporate Criminal Liability” (2007) 44:4 Am Crim L Rev1319 at 1338–
39.
140
Cristie Ford & David Hess, “Can Corporate Monitorships Improve Corporate
Compliance?” (2009) 34:3 J Corp L 679 at 689; Charles J Walsh & Alissa Pyrich,
“Corporate Compliance Programs as a Defense to Criminal Liability: Can a
Corporation Save Its Soul?” (1995) 47:2 Rutgers L Rev 605 at 650; Harvey L Pitt & Karl
A Groskaufmanis, “Minimizing Corporate Civil and Criminal Liability: A Second Look
at Corporate Codes of Conduct” (1990) 78:5 Geo LJ 1559 at 1578; Joan TA Gabel,
Nancy R Mansfield & Susan M Houghton, “Letter vs Spirit: The Evolution of
Compliance into Ethics” (2009) 46:3 Am Bus LJ 453 at 457–58.
141
15 USC § 78m(b)(2)(A) (1988); Pitt & Groskaufmanis, supra note 140 at 1580–82;
Baer, supra note 41 at 962; Walsh & Pyrich, supra note 140 at 653. For another
approach as to the origins of corporate compliance see Ashoke S Talukdar, “The Voice
of Reason: The Corporate Compliance Officer and the Regulated Corporate
Environment” (2005) 6:3 UC Davis Bus LJ 45 at 47–49.
142
Sean J Griffith, “Corporate Governance in an Era of Compliance” (2016) 57:6 Wm &
Mary L Rev 2075 at 2078.
143
Harwell Wells, “The Birth of Corporate Governance” (2010) 33:4 Seattle UL Rev 1247
at 1252; Tom Baker & Sean J Griffith, “Predicting Corporate Governance Risk:
Evidence from the Directors’ and Officers’ Liability Insurance Market” (2007) 74:2 U
Chicago L Rev 487 at 516.
Corporate Criminal Liability 2.0 71
preventively and, if necessary, investigatively,
144
explains the sweeping
support of enforcement agencies for the adoption of effective compliance
mechanisms. Government authorities are not satisfied, however, to leave
the matter of compliance at the discretion of the legal entities, but exert
pressure on them to create such programs, at least in some areas.
145
At times, in certain areas, corporate compliance becomes a legal
obligation. In Israel, for example, since 2011, the law has required trust
fund and investment portfolio management corporations to establish
corporate compliance programs and imposes financial sanctions for
avoiding adoption or confirmation of the provision by the directorate,
within a certain time limit.
146
In other instances, the pressure is more
moderate. In the US, following the practices of the Department of Defense,
the authorities demanded government contractors to have a business and
ethical code as a condition for establishing commercial relations with
them.
147
Government agencies exert pressure on corporations to adopt effective
compliance programs by offering them special incentives. In the US, the law
allows reducing the penalty on a convicted corporation if it can prove that
it has established an effective corporate compliance program, in an effort to
reduce criminal activity.
148
In Israel, the existence of an effective corporate
144
Richard S Gruner, “Preventive Fault and Corporate Criminal Liability: Transforming
Corporate Organizations into Private Policing Entities” in Henry N Pontell &
Gilbert Geis, eds, International Handbook of White-Collar and Corporate Crime (New York,
NY: Springer, 2007) 279 at 279.
145
See e.g. Christopher S Decker, “Corporate Environmentalism and Environmental
Statutory Permitting” (2003) 46:1 JL & Econ 103 at 113–14, 126; Ethan H Jessup,
“Environmental Crimes and Corporate Liability: The Evolution of the Prosecution of
‘Green’ Crimes by Corporate Entities” (1999) 33:3 New Eng L Rev 721 at 729–30.
146
The Minister of Finance is authorized to determine regulations for ensuring the proper
and efficient operation of this legal internal machinery. See “Israel: Detailed Assessment
of IOSCO Objectives and Principles of Securities Regulation” (2012) at 133, online
(pdf): <www.elibrary.imf.org/doc/IMF002/12747-9781475503180/12747-978147550
3180/Other_formats/Source_PDF.pdf> [perma.cc/R2KW-E9S5].
147
Larry D Thompson, “In-Sourcing Corporate Responsibility for Enforcement of the
Foreign Corrupt Practices Act” (2014) 51:1 Am Crim L Rev 199 at 220–21; 48 CFR §§
3.1003, 52.203–213 (2018).
148
US, United States Sentencing Commission: Guidelines Manual 2016 (§ 3E1.1)
(Washington, DC: USSC, 2016), § 8C2.5(f), online: <www.ussc.gov/sites/default/files
/pdf/> [perma.cc/YKT2-L56X]; Blake Weiner et al, “Corporate Criminal Liability”
(2018) 55:4 Am Crim L Rev 961 at 966; Claire A Hill, “Caremark as Soft Law” (2018)
90:4 Temp L Rev 681 at 687.
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72
compliance program and a culture of cooperation with the enforcement
authority can serve as a consideration in the recommendations, of the
securities authority, to the prosecution of whether to initiate administrative
or criminal proceedings for certain corporate securities violations.
149
The most concrete expression of pressure from the authorities is the
application of tools and concepts from the plea-bargaining world to
compliance programs. Entities that have failed to uphold the law and have
been prosecuted, or those under suspicion and investigation, are highly
vulnerable. The authorities often take advantage of this situation to increase
the pressure on corporations and demand improved internal control and
supervision mechanisms. Pretrial Diversion Agreements (PDAs) are
compromises that soften or nullify, in full or in part, the measures the
authorities take against such corporations in exchange for, among others,
the establishment or consolidation of an effective compliance mechanism.
In the UK, a law enacted in 2013 allows certain enforcement authorities
to sign PDAs concerning charges of bribery and fraud.
150
The public has an
interest in the formation of such agreements and in their substantive terms,
and they are subject to judicial approval. PDAs can postpone the hearing in
the indictment of a corporate entity in exchange for its agreement to several
terms; primarily accepting a financial penalty, paying compensation, and
committing to full cooperation with the authorities. Such cooperation
includes the maintenance of an internal compliance mechanism designed
to prevent, locate, and report to the enforcement agency any legal violations
in the activities of the corporation.
151
If the corporate entity meets its
obligations during the period of postponement and pays the fines and
compensations, if any have been imposed, the charges are not brought
before the court.
American law has gone even further in its incentives and actions.
152
149
Zvi Gaggbay, Administrative Enforcement in Israeli Securities Laws (Tel Aviv, Israel: Borsi,
2012) at 512. See, in this connection, Securities Law 1968 (Isr), s 52(65).
150
Crime and Courts Act (UK), 2013, s 45.
151
UK, Serious Fraud Office, Deferred Prosecution Agreements (Guide) (London, UK: SFO,
last visited 14 April 2019), online: <www.sfo.gov.uk> [perma.cc/UJ9J-TTT7]. Regarding
the level of cooperation expected from an entity in a DPA agreement, see de Silva, supra
note 113.
152
For an empirical analytical review of the American approach to pretrial agreements, see
generally Cindy R Alexander & Mark A Cohen, “The Evolution of Corporate Criminal
Settlements: An Empirical Perspective on Non-Prosecution, Deferred Prosecution, and
Plea Agreements” (2015) 52:3 Am Crim L Rev 537.
Corporate Criminal Liability 2.0 73
First, under appropriate circumstances, it also makes use of Non-
Prosecution Agreements (NPAs), refraining from filing charges if the legal
entity admits to the wrongdoing, waives a limitation claim against such
charges, pays a fine or compensation, and obligates itself to comply with the
program and cooperate with the authority. NPAs are similar to DPAs, but
they are not reviewed by a court because of the early stage in which they are
agreed upon. If the corporate entity breaches the agreement, the prosecutors
can restart the case and use the admissions that are part of the NPA in the
proceedings.
153
In the US, the use of non-prosecutions and deferred prosecutions has
increasingly resulted in the appointment of corporate monitors, at the
expense of the corporation. Monitors are individuals of public stature, with
knowledge and experience in the field in which the corporation is active,
appointed for a defined period, and agreed upon by the investigating
authority and the corporation involved in the improper conduct.
154
The
corporate monitor plays a dual role: (a) ensures, supervises, and reports to
the enforcement authority on the degree of compliance and fulfillment of
the terms and obligations assumed by the corporation as part of the non-
prosecution or deferred prosecution,
155
and (b) serves as a supervisor,
responsible for initiating changes and improvements in the internal control
system of the legal entity, to prevent conflicts with the law during his
tenure.
156
Recently, Canada has also adopted the main aspects of the US
approach.
157
In the words of Justice Rakoff, the corporate monitor plays the
153
Jennifer Arlen & Marcel Kahan, “Corporate Governance Regulation Through Non-
Prosecution” (2017) 84 U Chicago L Rev 323 at 336, n 42. For the admission by the
corporation to wrongdoing, see e.g. Brandon L Garrett, “Corporate Confessions”
(2008) 30:3 Cardozo L Rev 917 at 922.
154
See generally, Khanna & Dickinson, supra note 41.
155
Thomas F O’Neil III & Brendan T Kennedy, “Answering to A Higher Authority:
Sovereign-Mandated Oversight in the Board Room and the C-Suite” (2012) 17
Fordham J Corp & Fin L 299 at 310; Ford & Hess, supra note 140 at 683, 692.
156
SEC v WorldCom Inc, 273 F Supp (2d) 431 at 432 (NY Dist Ct 2003) [SEC]; Khanna &
Dickinson, supra note 41 at 1720; Peter Spivack & Sujit Raman, “Regulating the ‘New
Regulators’: Current Trends in Deferred Prosecution Agreements” (2008) 45:2 Am
Crim L Rev 159.
157
The Canadian version of these agreements, referred to in the Criminal Code as a
“Remediation Agreement Regime”, came into force in 2018. See Canada, Department
of Justice, Remediation Agreements and Orders to Address Corporate Crime (Backgrounder)
(last modified 11 September 2018), online: <www.canada.ca/en/department-justice/ne
ws/2018/03/remediation-agreements-to-address-corporate-crime.html> [perma.cc/GZ
MANITOBA LAW JOURNAL| VOLUME 43 ISSUE 4
74
2P-8AAT]. The purpose of the agreements is, among others, to create “incentives for
corporations to self-report and encourage stronger corporate compliance”. See Public
Services and Procurement Canada, Canada to Enhance its Toolkit to Address Corporate
Wrongdoing (News Release) (27 March 2018), online: <www.canada.ca/en/public-
services-procurement/news> [perma.cc/5JPT-NAF8]. See Criminal Code, Canada, supra
note 133, s 715.34(3)(c) (the Canadian regime may also include the nomination of an
independent monitor, whose duty is “to verify and report to the prosecutor on the
organization's compliance with the obligation referred to in paragraph (a), or any other
obligation in the agreement identified by the prosecutor…”). See also Glen
Jennings & Matthew Doak, “Canada Moves Forward with a Remediation Agreement
Regime” (21 September 2018), online: mondaq <www.mondaq.com/canada/white-
collar-crime-anti-corruption-fraud/738578/canada-moves-forward-with-a-remediation-a
greement-regime> [perma.cc/VV2N-X7LW]. Indeed, the use of DPAs conceals certain
deficiencies and the potential to exert inappropriate pressure, political by nature,
interfering with prosecutorial independence in the matter. A prime example is the
unfolding scandal concerning the Canadian Prime Minister, Justin Trudeau.
(i)
It has
been argued that Trudeau attempted to entice former Attorney General, Jody Wilson-
Raybould, to enter into a DPA with the construction and engineering giant, SNC-
Lavalin,
(ii)
and even forgo the prosecution of that corporation, which is based in an area
considered to be his political stronghold.
(iii)
The Federal Ethics Commissioner of
Canada, Mario Dion, found that, with respect to the Prime Minister’s conduct, partisan
political interests were improperly put to the Attorney General for consideration in the
matter,” and thus amounted to an infringement under section 9 of the Conflict of
Interest act.
(iv)
(i) For a detailed description of the affair see e.g. Mark Gollom, “What you Need
to Know About the SNC-Lavalin Affair”, CBC News (13 February 2019),
online: <www.cbc.ca/news> [perma.cc/WCR3-Q66W].
(ii) Sukanya Pillay, “SNC-Lavalin: Deferred Prosecution Deals Aren’t Get-Out-
of-Jail Free Cards”, The Conversation (18 March 2019), online: <theconversati
on.com/snc-lavalin-deferred-prosecution-deals-arent-get-out-of-jail-free-cards-
113095> [perma.cc/9NJH-NN5W].
(iii) Adrian Wyld, “PMO Pressed Wilson-Raybould to Abandon Prosecution of
SNC-Lavalin; Trudeau Denies His Office ‘Directed’ Her” The Globe and Mail
(7 February 2019), online: <www.theglobeandmail.com/politics/article-pmo-
pressed-justice-minister-to-abandon-prosecution-of-snc-lavalin/> [perma.cc/9
N9E-2JM8] (last visited 22 November 2019). For a transcript of the opening
remarks by former Attorney General, Jody Wilson-Raybould, before the
House of Commons Justice Committee see “Jody Wilson-Raybould’s
Testimony: Read the Full Transcript of Her Opening Remarks”, Global News
(28 February 2019), online: <globalnews.ca/news/5006450/jody-wilson-
raybould-testimony-transcript/> [perma.cc/U82Z-74E2].
(iv) Canada, Office of the Conflict of Interest and Ethics Commissioner, Trudeau
II Report (last modified 13 August 2019), online: <ciecccie.parl.gc.ca/en/inves
tigations-enquetes/Pages/TrudeauIIReport-RapportTrudeauII.aspx [perma.c
c/AF9J-YJUX].
Corporate Criminal Liability 2.0 75
role of a watchdog,
158
watching, supervising, and reporting to the
enforcement authority as its representative, despite being paid by the
corporation.
159
From a different perspective, the appointment represents
the outsourcing or delegation of a supervisory function from the
enforcement authorities to an entity that, strictly speaking, is not part of the
internal corporate hierarchy, to assist in achieving the objectives of
correction, enforcement, and compliance with the law on the part of the
corporation. Even if the corporate monitor is not directly involved in
determining corporate policy, as the representative of the enforcing
authority, he has an influence, however slight and indirect, over the manner
in which the corporation operates. The presence of the monitor imposes
more conservative conduct in the way the corporation manages its chain of
supervision and execution. It results in more cautious management, with
wider margins of security and fewer risks. The ensuing prudent management
has some weaknesses, together with its advantages. To some extent, it deters
the legal entity from a more assertive and imaginative mode of operation,
which could lead to greater innovation.
Such similar considerations, coupled with the pro-business atmosphere
currently prevailing in the US administration and economic considerations
relating to the high cost of monitors, may have led the authorities to
reconsider their strong support for the corporate monitoring institution.
160
Although the enforcement authorities have not yet announced a change in
their approach, they have recently shown greater willingness to forgo the
demand to nominate corporate monitors in non-prosecution or deferred
prosecution agreements, in favour of self-evaluation and reporting
requirements. This is evident from an analysis of the cases processed in the
past year.
161
The Gibson Dunn 2018 Mid-Year Update on Corporate Non-
Prosecution Agreements and Deferred Prosecution Agreements report
158
SEC, supra note 156 at 432.
159
On the active role of the corporate monitors’ activity, see e.g. Root, “Monitor-‘Client’
Relationship”, supra note 41 at 526–27, 540: “A portion of a monitor's role is as a
partner to the corporation in its efforts to ensure long-term compliance”.
160
For additional doubts on the functioning of corporate monitors, see e.g. Lawrence A
Cunningham, “Deferred Prosecutions and Corporate Governance: An Integrated
Approach to Investigation and Reform” (2014) 66:1 Fla L Rev 1 at 68–69.
161
“2018 Mid-Year Update on Corporate Non-Prosecution Agreements and Deferred
Prosecution Agreements” (10 July 2018), online (pdf): Gibson Dunn <gibsondunn.com
/wp-content/uploads/2018/07/2018-mid-year-npa-dpa-update.pdf> [perma.cc/HYA7-
C6W5].
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suggested that “these agreements support a view that the stronger and more
robust an existing compliance program, and the swifter and more dramatic
a company's remediation of identified compliance gaps and misconduct, the
more likely DOJ will look favorably upon self-reporting, rather than a
corporate monitor.”
162
Concurrently with the tendency to curtail direct involvement in the
regulation and supervision of the activity of the corporation in points where
it meets the law, the long-standing incentives given to corporations are being
increased to strengthen their cooperation with the enforcement authorities
on their own initiative. The goal of achieving compliance with the law and
cooperation with its enforcers remains the same. The way to achieve it,
however, does not necessarily require the direct involvement of a
representative within the corporate hierarchy, but rather relies on
preserving control over compliance with the law at the executive levels and
providing management with the right incentives for doing so.
More than two decades ago, discussing the alleviations granted by the
Sentencing Guidelines for Organizations in calculating the penalties
imposed on corporations that establish an effective compliance program,
163
Chancellor Allen noted that the guidelines constitute “powerful incentives
for corporations… to have in place compliance programs to detect violations
of law, promptly to report violations to appropriate public officials when
discovered, and to make prompt, voluntary remedial efforts.”
164
A similar
spirit of encouragement to formulate effective corporate compliance
programs, with familiar incentives to facilitate the stages of investigation,
prosecution, and punishment, is also evident in statements by senior law
enforcement officials who propose that corporations adopt such programs
as a condition for future negotiations and plea bargaining.
165
As part of
these incentives, scholars have also suggested granting some form of
162
Ibid at 10.
163
Kevin B Huff, “The Role of Corporate Compliance Programs in Determining
Corporate Criminal Liability: A Suggested Approach” (1996) 96:5 Colum L Rev 1252.
164
Re Caremark Int’l, 698 A (2d) 959 at 969 (Del Ct Ch 1996).
165
In the US, see US, Department of Justice, Criminal Division, The Fraud Section’s Foreign
Corrupt Practices Act Enforcement Plan and Guidance (20530) (Washington, DC: DOJ,
2016), online: <www.justice.gov.com//> [perma.cc/GS28-BHR6]; Veronica Root,
“Coordinating Compliance Incentives” (2017) 102:4 Cornell L Rev 1003 at 1014;
Geoffrey P Miller, “The Compliance Function: An Overview” (2014) New York
University School of Law Research Paper No 14-36, online: <papers.ssrn.com/sol3/pap
ers.cfm?abstract_id=2527621> [perma.cc/TE9H-6YDA]. In the UK see de Silva, supra
note 113.
Corporate Criminal Liability 2.0 77
protection, in whole or in part, to prosecuted corporations that adopt such
programs.
166
Compliance mechanisms will not eradicate the phenomenon
of delinquency by corporations,
167
but it is reasonable to assume that these
mechanisms can reduce, to some degree, the scope of illegal activity by these
entities.
168
Corporate compliance, initially conceived as part of the corporate
governance environment, is now firmly attached to “the concurrent
intensification of organizational criminal liability.”
169
As such, corporate
compliance serves, at times, as the basis for enforcing wider obligations on
legal entities than those that can be imposed on individuals under similar
circumstances and can be regarded as a form of probation, so that both
mechanisms can be used against corporations.
170
The goals of corporate
compliance and probation are similar, as both are applied mostly ex ante to
prevent future misconduct and their focus on past misconduct is much
reduced.
Corporate compliance seeks to achieve its objectives by using two basic
and partially overlapping actions: (a) internally supervising and self-policing
the activities of the entity and its constituents and (b) reporting illegal
findings to the enforcement authorities.
171
The aims, and the means to
achieve them, are identical with those of probation, but the intensity of the
efforts invested in achieving these aims is not. As part of corporate structure,
the corporate compliance mechanism is more integrated with the corporate
management and operation and involved in functions such as internal
control and audits. Consequently, its inspection is continuous, tighter, and
more extensive than that of probation. Since the enactment of the Sarbanes-
166
See generally Ellen S Podgor, “A New Corporate World Mandates a ‘Good Faith’
Affirmative Defense” (2007) 44:4 Am Crim L Rev 1537; Peter J Henning, “Be Careful
What You Wish For: Thoughts on a Compliance Defense Under the Foreign Corrupt
Practices Act” (2012) 73:5 Ohio St LJ 883; Andrew Weissman & David
Newman, “Rethinking Corporate Criminal Liability” (2007) 82 Ind LJ 411 at 450–51.
Cf Walsh & Pyrich, supra note 140 at 661–62.
167
Lauren Verseman, “Corporate Social Responsibility: Are Franchises off the Hook, or
Can a Treaty Catch Them?” (2017) 16:1 Wash U Global Study L Rev 221 at 235, n 83.
168
Walsh & Pyrich, supra note 140 at 661.
169
Cunningham, supra note 160 at 14.
170
See the sources cited, n 106. On court-ordered corporate probation see also, Root,
“Monitor-‘Client’ Relationship”, supra note 41 at 538–41.
171
See US, Securities and Exchange Commission, Division of Enforcement, Enforcement
Manual (Washington DC: Securities and Exchange Commission, 2017), online:
<www.sec.gov/divisions/enforce/enforcementmanual.pdf> [perma.cc/92UE-8S2D].
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78
Oxley Act in 2002, corporate compliance has intensified.
172
Probation is initiated only following legal proceedings, whereas
corporate compliance can be voluntarily activated, which enforcement
authorities strongly encourage. There are also indications that the efficiency
of corporate compliance is much appreciated by law enforcement agencies.
Senior law enforcement agents expressed the view that they may renounce
the demand, in legal proceedings, to impose probation on legal entities
“that can demonstrate [that] they have adopted or strengthened existing
compliance programs.”
173
The importance of corporate compliance is also apparent in the shift of
emphasis from external to internal supervision and control. This is
especially significant “[g]iven the complex, far-reaching, and often
decentralized nature of the modern publicly held firm[s],”
174
on one hand,
and the difficulties revealed in the capacities of the enforcement authorities
to supervise them, on the other. Under these circumstances, the assistance
of the legal entities themselves is vital for achieving compliance.
175
Such
assistance is provided by insiders who have close knowledge and contact
with the supervised area. The necessity for such assistance intensifies in
investigations of fraud and other white-collar crimes, typical of corporate
172
On the impact, significance, and analysis of this Act, see generally, Wilma H Fletcher
& Theodore N Plette, The Sarbanes-Oxley Act, Implementation, Significance and Impact
(New York, NY: Nova Publishers, 2008); Edward F Greene, Leslie N Silverman & David
M Becker, The Sarbanes-Oxley Act: Analysis and Practice (New York, NY: Aspen Publishers,
2003).
173
Brent Snyder, Compliance is a Culture, Not Just a Policy (Remarks as Prepared for the
International Chamber of Commerce/United States Council of International Business
Joint Antitrust Workshop, 9 September 2014), Washington, DC: US Department of
Justice, online: <www.justice.gov/atr/file/517796/download> [perma.cc/7LT6-2BVE].
See also Mark L Krotoski, “DOJ Warning About Corporate Compliance Programs,
Probation, and External Compliance Monitors” (7 November 2014), online: JD Supra
<www.jdsupra.com/legalnews/doj-warning-about-corporate-compliance-p-66501/> [pe
rma.cc/5G26-YK5B].
174
Jennifer Arlen, “Removing Prosecutors from the Boardroom: Limiting Prosecutorial
Discretion to Impose Structural Reforms” in Anthony S Barkow & Rachel E Barkow,
eds, Prosecutors in the Boardroom: Using Criminal Law to Regulate Corporate Conduct (New
York & London: New York University Press, 2011) 62 at 70.
175
Ibid at 70–71. See also “Summary: Developments in White Collar Criminal Law and
the Culture of Waiver” (2009) 14 Berkeley J Crim L 199 at 201 [“White Collar Criminal
Law”].
Corporate Criminal Liability 2.0 79
crime, which often pose severe tracing problems.
176
The social-legal movement of CSR or good corporate citizenship has
been evolving in parallel with the emerging structures of corporate
compliance.
177
Some define CSR generally as “the responsibility of
enterprises for their impacts on society.”
178
Others prefer to regard it as the
“continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce
and their families as well as of the local community and society at large.”
179
Some regard CSR and good corporate citizenship as alternative terms for
the same subject matter,
180
whereas others distinguish between the two,
emphasizing that corporate citizenship is having “more connotations of
privileges… rather than duties, as connoted by the term ‘corporate social
responsibility’”.
181
Both terms refer to activities within the corporate “inner community”
and for it (e.g. on behalf of the workforce), as well as activities exceeding
that range. Each term also may apply to mandatory activities or include also
voluntary contributions. For the purpose of this article, it is sufficient to
determine that, according to a common view, voluntary activity of the
176
See “White Collar Criminal Law”, supra note 175; Samuel W Buell, “Criminal
Procedure Within the Firm” (2007) 59:6 Stan L Rev 1613 at 1627.
177
Firuza S Madrakhimova, “Evolution of the Concept and Definition of Corporate Social
Responsibility” (2013) 8:2 Global Conference on Bus & Fin Proceedings 113 at 113–
14, online: <www.academia.edu/5366859/Evolution_of_The_Concept_and_Definiti
on_of_Corporate_Social_Responsibility> [perma.cc/5QL8-M5LQ].
178
EC, Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions: A Renewed EU
Strategy 2011-14 for Corporate Social Responsibility, [2011] OJ, Com 681/1 at 6, online:
<www.europarl.europa.eu/meetdocs/2009_2014/documents/com/com_com(2011)0
681_/com_com(2011)0681_en.pdf> [perma.cc/5669-8K53].
179
Richard Holme & Philip Watts, Corporate Social Responsibility: Making Good Business
Sense (Conches-Geneva, Switzerland: World Business Council for Sustainable
Development, 2000) at 8, online: <www.ceads.org.ar/downloads/Making%20good%2
0business%20sense.pdf> [perma.cc/4DFB-XM3T].
180
William L Thomas, “Rio's Unfinished Business: American Enterprise and the Journey
Toward Environmentally Sustainable Globalization” (2002) 32:8 Environmental L
Reporter 10873 at 10879. See also Stacy L Hawkins, “A Deliberative Defense of
Diversity: Moving Beyond the Affirmative Action Debate to Embrace a 21st Century
View of Equality” (2012) 2:1 Columbia J Race & L 75 at 79; Catherine Lee & John D
Skrentny, “Race Categorization and the Regulation of Business and Science” (2010)
44:3/4 Law & Soc'y Rev 617 at 622.
181
See e.g. Cynthia A Williams, “A Tale of Two Trajectories” (2006) 75:3 Fordham L Rev
1629 at 1633, n 18.
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corporate entity, especially for society at large, is a key area common to both
concepts.
182
The social concerns for corporate business operations and
interactions are, at times, referred to as “beyond compliance.”
183
Often,
these actions focus on the relations of the corporation with the community,
its ethical behavior, and its philanthropic contribution to society, in
consideration for the permission to operate within it.
184
The idea of promoting social goals through commercial corporations is
also an answer to the purely capitalist approach, focused on maximizing
profit. Assigning commercial legal entities an additional task in the social
arena means giving a supplementary dimension of social sensitivity to their
essence and redefining their purpose.
185
Their goal may be defined as
achieving financial profit, in addition to advancing social ends. At times,
these objectives can be integrated.
186
It is evident that the development of the CSR doctrine, like that of
corporate governance, is pointing to a growing intensification of the social
presence of corporate bodies in modern life and it grows out of the same
legal-social ground that produces the inclination to impose expanded
criminal liability on them, exceeding human responsibility.
182
Including the mandatory element part of the description of the terms blurs the
boundary between them and corporate compliance. For the inclusion of the element of
duty in the traditional approach of corporate social responsibility, see Berger-Walliser
& Scott, supra note 107 at 202–06; Dirk Matten & Andrew Crane, “Corporate
Citizenship: Toward an Extended Theoretical Conceptualization” (2005) 30:1 Academy
Management Rev 166 at 167.
183
For the use of this and similar terms in this sense, see e.g. Paul R Portney, “The (Not
So) New Corporate Social Responsibility: An Empirical Perspective” (2008) 2:2 Rev
Environmental Economics & Policy 261 at 261–65, 273, online: <academic.oup.com>
[perma.cc/V7CS-4FUH]; Cynthia Estlund, “Just the Facts: The Case for Workplace
Transparency” (2011) 63:2 Stan L Rev 351 at 360; Larry E Ribstein, “Delawyering the
Corporation” 2012:2 Wis L Rev 305 at 326–27.
184
For possible utilitarian reasons for such activities, see Portney, supra note 183 at 273;
Carol Liao, “A Canadian Model of Corporate Governance” (2014) 37:2 Dalhousie LJ
559 at 575.
185
See on this topic Michael E Porter & Mark R Kramer, “Creating Shared Value: How
to Reinvent Capitalism and Unleash a Wave of Innovation and Growth” (2011) 89:1/2
Harvard Bus Rev 62. Porter & Kramer believed that “the concept of shared value —
which focuses on the connections between societal and economic progress — has the
power to unleash the next wave of global growth”.
186
For example, in such areas as professional training or the employment of disabled
people.
Corporate Criminal Liability 2.0 81
2.
Implications for Corporate Criminal Liability
Together, corporate compliance and CSR (or good corporate
citizenship) form a continuum of corporate commitments, partly mandatory
and partly voluntary. This structure may support the approach that imagines
corporations, especially the most powerful among them, as personalities
that, in some respects, act as private governments.
187
The description of
some aspects of globalization as a process in which large corporations
accumulate significant strength at the expense of the state perhaps reaches
too far.
188
But there seems to be no doubt that the enforcement authorities
are gradually transferring certain policing powers to corporations. The
transfer process and the continuum of commitments are closely
intertwined, and, at times, it is unclear which one is the cause of the other.
The two apparently nurture one another. The process involves three
gradually evolving stages and serves as the background that enables and, to
some extent, encourages the extension of criminal corporate liability. The
three stages are corporate compliance, administrative orders, and criminal
liability.
i. Corporate Compliance
At first, the delegation of powers from the enforcement authorities was
similar to a focused process, limited and narrow in scope, which could be
described as a continuation of the development of corporate compliance.
The enforcement authorities recognize that the complex enforcement work
often requires assistance from agents, ordinarily not engaged in
enforcement, including collaborators and assistants. Such assistance is
especially effective where agents enjoy the advantage of familiarity and
contact with the supervised area and, where possible, the ability to influence
its operation. This is the reason why enforcement authorities encourage the
establishment of corporate compliance monitoring mechanisms, while
providing incentives and benefits to legal entities that do so.
189
ii. Administrative Orders
In time, the enforcement authorities started to coerce corporations, to
187
Roman Tomasic, “Corporations as Private Governments in the Shadow of the State:
The Boundaries of Autonomy” (2014) 29:3 Austl J Corp L 275. See also Arthur Selwyn
Miller, The Modern Corporate State: Private Governments and the American Constitution
(Connecticut, US: Greenwood Press, 1976) at 127.
188
For an analysis of such a theory, see generally Tomasic, supra note 187.
189
See the references cited in nn 156–64, 167–71.
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some degree, to cooperate in monitoring their own compliance. The duty
imposed in Israel on firms operating in the capital market, by means of
administrative orders, to assist the authorities in preventing money
laundering and financing terrorism is an example of this stage of
administrative enforcement, which is semi-criminal in nature. This financial
regulation requires those authorized to engage in the capital market to verify
the identity of their customers and examine the sources of the funds in
transactions.
190
Almost all actors in the financial industry (banks, financial
services, insurers, provident funds, stock exchange members) are licensed
businesses and most of them are legal entities.
191
In addition to these
obligations, these entities also bear a special obligation to report to the
competent enforcement authority on any deposit, receipt, withdrawal,
payment, conversion, or transfer of funds above a certain amount and any
action that deviates from customary patterns.
192
The sanction for violations
of the orders is administrative: the imposition of financial sanctions by a
committee whose decisions can be appealed to the courts.
193
iii. Criminal Liability
In a further expansion of the policing duties imposed on corporations,
ordinary criminal liability was imposed on legal entities to prevent the
offences discussed above.
194
Liability for omission has been called indirect
liability.
195
The “lack of directness” is expressed not only in the distance of
active involvement from the activity, which is characteristic of all omissions,
but also in the low level of guilt required to impose liability on corporations
190
For some aspects of the Know Your Customer (KYC) rules see e.g. JC Sharman, The
Money Laundry: Regulating Criminal Finance in The Global Economy (Ithaca, US: Cornell
University Press, 2011) at 11–12, 17–28, 70–71, 176–77; Dan Ryan, “FinCEN: Know
Your Customer Requirements” (7 February 2016), online: Harvard Law School Forum on
Corporate Governance <corpgov.law.harvard.edu> [perma.cc/D4CQ-LWQZ].
191
See the references cited in nn 11–12; Control of Financial Services (Regulated Financial
Services) Law 2016 (Isr) ss 16, 25(b); Control of Financial Services (Provident Funds) Law
2005 (Isr) s 4.
192
See e.g. Prohibition on Money Laundering Law 2000 (Isr) s 7(b); Prohibition on Money
Laundering (The Banking Corporations’ Requirement Regarding Identification, Reporting, and
Record-Keeping for the Prevention of Money Laundering and the Financing of Terrorism) Order
2001 (Isr) ss 10(b)–13.
193
Prohibition on Money Laundering Law 2000 (Isr) ss 12–20; Prohibition on Money Laundering
(Financial Sanction) 2001 (Isr).
194
See s A of this article.
195
Liz Campbell, “Corporate Liability and the Criminalisation of Failure” (2018) 12:2 L
& Financial Markets Rev 57.
Corporate Criminal Liability 2.0 83
for the said omissions.
196
Thus, the expansion of corporate compliance, which is becoming the
favourite tool of law enforcement agencies, complements the good
corporate citizenship idea and establishes a trend that views corporations as
an effective tool for enforcing the law. The contributions that corporations
make to law-enforcement agencies are the cause for the tendency to extend
this range of assistance to additional areas.
III. THINKING ALOUD
There is apparently no single, general cause for expanding the criminal
liability of legal entities beyond the personal responsibility of human beings.
This phenomenon is apparently the result of several background factors
discussed in this paper and a series of individual factors that are outside of
our scope. Their cumulative influence contributed to the creation of an
appropriate legal-social environment that enabled its development.
It is possible to examine the process that motivates the expansion of
criminal liability of legal entities beyond that of human liability from two
different angles. One way to approach this examination is to view the
expansion as an additional, gradual burden imposed by governments on
corporations, by coercing them through threats and incentives, to assist the
authorities in enforcing the law. This is the stick and carrot concept
197
that
results in cooperation through criminalization.
198
This line of reasoning
preserves the former, independent and separate status of the enforcement
authorities and legal entities. Taking this reasoning to the extreme, an
196
See the references cited in nn 57–58 and accompanying text.
197
US, United States Sentencing Commission, Corporate Crime in America: Strengthening the
‘Good Citizen’ Corporation: Proceedings of the Second Symposium on Crime and Punishment
(Washington, DC: USSC, 1995), online: <www.ussc.gov/sites/default/files/pdf/traini
ng/organizational-guidelinesspecial-reports> [perma.cc/65YY-AQ4Q]; Michelle M
Harner, “Corporate Control and the Need for Meaningful Board Accountability”
(2010) 94:3 Minn L Rev 541 at 545, 598. See also “The Federal Sentencing Guidelines
for Organizations at Twenty Years: A Call to Action for More Effective Promotion and
Recognition of Effective Compliance and Ethics Programs” (2012), online (pdf): Ethics
Resource Center <www.theagc.org/docs/f12.10.pdf> [perma.cc/589N-388Y].
198
Campbell, supra note 195 at 39, n 151. Campbell cites Garry Gray, “The Regulation of
Corporate Violations: Punishment, Compliance, and the Blurring of Responsibility”
(2006) 46 Br J Crim 875 for a similar trend in the area of workplace health and safety,
where the regulation of corporate violations has moved to “regulation through
individual responsibility”.
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inspector, on behalf of the enforcement authority, is integrated in the
corporate hierarchy, with the function to promote compliance with the law,
within the framework of self-policing by the legal entity, and report
violations to the enforcement authorities. This strategy, taken to the
extreme, has given the enforcement authorities a permanent and active
representation in the management of the corporation (corporate
monitor).
199
Another angle of observation reflects a different line of reasoning and
strategy. From this point of view as well, the objective remains to increase
criminal enforcement among legal entities. But, in contrast with the
previous reasoning, this approach seeks to bring the corporations closer to
the government and enforcement agencies, slightly blurring the lines of
separation between them. According to this approach, which presupposes
the caring or responsible attitude of legal entities (“responsibilization”
strategy)
200
and the goodwill that underlies the ideas of CSR or good
corporate citizenship,
201
the government authority grants (or delegates)
enforcement powers, in certain areas, also to corporations,
202
without
forfeiting the possibility of exercising them itself, and requires corporations
to carry out this task by means of a criminal threat. Thus, the volunteering
aspect is losing ground in favor of a more compulsory approach, perhaps
because of the fear that the scope of voluntary assistance is not sufficient.
Under the threat of prosecution, the corporation, in certain areas, turns
into a messenger or agent and, to some extent, into an executive arm of the
government enforcement authority.
199
On the issues of corporate monitoring and self-evaluation and reporting, see the
references cited in nn 154–64 accompanying text.
200
See e.g. David Garland, “The Limits of the Sovereign State: Strategies of Crime Control
in Contemporary Society” (1996) 36:4 Brit J Crim 445 at 452, 454 (discussing the
emergence of a new mechanism of crime control with the assistance of various non-state
agencies. The “primary concern [of this strategy] is to devolve responsibility for crime
prevention on to agencies, organizations and individuals which are quite outside the
state and to persuade them to act appropriately.” This strategy makes the law
enforcement agencies more powerful, “with an extended capacity for action and
influence.”
201
See the references cited in nn 177–86 and accompanying text.
202
See Kenneth A Bamberger, “Regulation as Delegation: Private Firms, Decisionmaking,
and Accountability in the Administrative State” (2006) 56:2 Duke LJ 377 at 381.
