Reconsidering Corporate Criminal Prosecution

For more than a decade, the Justice Department morphed its approach to corporate crime, eschewing criminal prosecutions in favor of deferred prosecution and non-prosecution agreements that allowed large corporations to avoid the ignominy of criminal convictions. The trend began during the Bush administration and became so dominant during the Obama administration that the Criminal Division of the Justice Department entered deferred prosecution and non-prosecution agreements in more than two-thirds of the corporate cases it resolved.

There seemingly were no crimes that did not qualify for corporate absolution. The Justice Department entered a non-prosecution agreement in the Upper Big Branch mine disaster that killed 29 miners, even though the Labor Department found that the mine owner had committed over 300 egregious violations of federal mine safety laws. The Justice Department agreed to a deferred prosecution with HSBC, even though the bank was involved in billions of dollars of money laundering, much of it from drug trafficking. There were no prosecutions at all against large banks for the worst financial crisis since the Great Depression, even though financial institutions and officials within those companies took risks and engaged in conduct that imperiled the global economy.

Then, with public alarm increasing over the lack of criminal prosecutions for the financial crisis, the pendulum swung, and criminal prosecutions were back in vogue. In 2014, the Justice Department brought record-setting criminal prosecutions against the European banks Credit Suisse and BNP Paribas for currency manipulation. Similar prosecutions followed during 2015 against JP Morgan Chase and Citibank—apparently no longer “too big to fail”—as well as Barclays, Royal Bank of Scotland, and UBS. General Motors reportedly is facing criminal charges for its failure to reveal safety issues, even though a far-less cooperative Toyota Motor Company received a deferred prosecution for similar violations during 2014.

What explains the conflicted approach to criminal prosecution of corporations—and what does it reveal about the role of corporate criminal liability? A cynical response would be that the revolving door between Criminal Division leadership and white collar law firms leads to a lack of resolve about the need to prosecute corporations. Perhaps there is greater willingness among career prosecutors to prosecute corporations, but my sense is that the political leadership of the Justice Department is faithful to its law enforcement mission and wants to bring high-profile cases when the law and the facts allow. A more nuanced view is that the Justice Department’s erratic approach reflects a lack of agreement among practitioners about what is accomplished by the criminal prosecution of corporations, a disagreement that also exists in scholarly accounts of corporate criminal liability focusing on retributive and utilitarian purposes of punishment.

Critics of corporate prosecution argue that there is no retributive purpose served by criminal punishment of corporations. They assert that criminal prosecution should be reserved for individuals, since corporate entities have no moral capacity. From a utilitarian perspective, the critique focuses on the fact that the sanctions for corporate misconduct—monetary penalties and structural reforms—are the same regardless of whether the punishment occurs as the result of criminal or civil enforcement. Supporters of corporate prosecution insist that there is a retributive role for corporate punishment, since wrongdoing in the corporate context deserves censure just as much as it does where individual misconduct is involved. From a utilitarian perspective, advocates of corporate prosecution assert that the deterrent effect of criminal punishment is greater than civil punishment, because of the reputational harm and collateral consequences that may result from a criminal conviction.

In my article, The Pendulum Swings: Reconsidering Corporate Criminal Prosecution, I argue that both corporations and individuals should be held accountable when misconduct occurs in the corporate setting. From a practical standpoint, corporate wrongdoing has a pernicious effect that warrants the use of all available tools to address it. The notion that criminal and civil sanctions are indistinguishable is belied by my experience as a federal prosecutor, including seven years as the Chief of the Justice Department’s Environmental Crimes Section, when corporate officials and their attorneys uniformly insisted that they would prefer civil enforcement to criminal prosecution. From a theoretical perspective, there are both retributive and utilitarian justifications for corporate criminal punishment. I suggest that corporations are moral actors, with the capacity to do good or evil, despite the fact that they do not have the conscience or free will that individuals possess. I also identify additional deterrent value in criminal charges against corporations. Companies do not want to be labelled corporate criminals and therefore may have more incentives to avoid criminal sanctions than comparable civil or administrative sanctions.

Yet the focus on retributive and utilitarian justifications—both in practice and in academia—obscures the expressive function of the criminal law and the societal need for condemnation, accountability, and justice when crime occurs. An essential role of the criminal law is to make clear what conduct is outside the bounds of acceptable behavior and to express societal condemnation of unlawful conduct. The criminal law imposes blame and provides accountability for illegal behavior. The criminal law also validates the choices made by those who comply with the law by imposing punishment upon those who break the law. When criminal violations occur but are ignored or addressed by non-criminal alternatives, we obscure the line that the criminal law draws between acceptable and unacceptable behavior. When we do not condemn criminal behavior in the strongest possible terms, we risk minimizing or, worse, condoning lawlessness.

The expressive function of the criminal law plays an even more essential role in the corporate context. First, we confer significant benefits on corporations with the expectation—indeed, the mandate—that corporations exist for legal purposes alone. When a corporation exploits those benefits and violates the public trust by engaging in illegal conduct, we must make clear that its behavior is unacceptable and condemn its conduct as criminal. Second, corporations have outsized power and influence in our society. When a corporation abuses that power and influence by committing crimes, we must impose blame, require accountability, and insist upon acceptance of responsibility. Third, corporations can neither be jailed nor have their individual liberties restricted. The distinctive feature of corporate criminal prosecution is its ability to label corporate lawlessness as criminal, which is qualitatively different than labeling misconduct as a civil or administrative violation and critical to assuring society that corporate criminals are brought to justice.

Our faith in the criminal justice system depends on the belief that none of us are above the law, and that we all are accountable for our actions. Nothing breeds cynicism or erodes public confidence more than the sense that there is a different justice system for the rich and powerful. If corporations are persons for purposes of our constitutional liberties, they should be persons for purposes of complying with the dictates of the criminal law. Most companies take their legal obligations seriously and contribute in positive ways to their communities. When corporations engage in criminal activity, however, their misconduct should be criminally prosecuted. By doing so, we enhance trust in the legal system, provide the opportunity for societal catharsis that allows affected communities to heal, and ensure that justice is done for corporate criminals.

The preceding post comes to us from David M. Uhlmann, the Jeffrey F. Liss Professor from Practice and Director, Environmental Law and Policy Program at the University of Michigan Law School. The post is based on his recent article, which is entitled “The Pendulum Swings: Reconsidering Corporate Criminal Prosecution” and is available here.

2 Comments

  1. Professor Bruce W. Bean

    Corporate management and organizations are such that corporate tenure at the top is often too short for incumbent management to be concerned about a legal entity’s “reputation” five years into the future. That will be the CEO’s successor’s problem.

    Whatever one concludes about a legal entity’s “personality,” there is no possibility that the entity as such can be deterred, even if we adopt Professor Uhlmann’s novel conclusion that “corporations are moral actors.” We, of course, have the power to end a legal entity’s right to exist. As we have seen, however, even labeling a company “criminal” punishes its potentially thousands of innocent employees and shareholders.

    Assigning responsibility to those with the power and responsibility to prevent criminal violations would deal with the perception that the rich and powerful are beyond the reach of the law. The public does not object to “too big,” but rather to the failure to prosecute responsible individuals.

    I, too, am a Professor from Practice, and from my 30 years of experience I have concluded that the only way to change corporate behavior is to prosecute responsible top management.

    Find a way. Bring the cases. Risk losing to armies of Wall Street White Collar Crime lawyers. But bring to trial those with the responsibility to comply with the law. The trial itself is a meaningful, all-consuming punishment.

  2. Brian Donovan

    Ultimately, it is individuals that carry out corporate policies. Upper corporate management should know all laws relating to their business. If they don’t, they should still be held accountable. Individuals represent corporations. The corporate charter does not carry out policies. In these cases, the corporate entity is not an individual. Individuals are corporate officers carrying out policies. The Justice Department’s policy of deferred prosecution is another example of the weakness of the Obama administration.

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