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Large multinational
corporations have come to dominate the national and global economic scene. The
scale of their operations is enormous. The largest have grown into enterprises
of astonishing magnitude that in their economic dimensions are fully comparable
to nation states. Imposing adequate controls over multinational conduct and
achieving accountability by multinationals for their conduct both at home and
abroad should be a major objective of every industrialized power.
Historically, the criminal law has been the vehicle for deterrence. Corporations
are increasingly significant actors in our economy and, to the extent their
actions can victimize society, they too should be deterred.
Two major issues which were of dominance, during the phase of evolution of the
doctrine of Corporate Criminal Liability were:
# One is the failure to identify or prove corporate intent. Traditionally, the
criminal law has been reserved for intentional violations of the law. Yet, our
prosecutions of corporations have been marked by floundering efforts to identify
the intent of intangible, fictional entities.
# A second issue is
regarding sanctions. In addition to proof of intent, a major distinguishing
characteristic of the criminal law has been the threat of imprisonment. It was
said that a corporation cannot be imprisoned; the criminal law is not an
appropriate vehicle for controlling corporate behavior.
Corporate criminal liability under environmental, antitrust, securities and
other laws has grown rapidly over the last two decades. The general belief in
the early sixteenth and seventeenth centuries was that corporations could not be
held criminally liable. In the early 1700s, corporate criminal liability faced
at least four obstacles.
# The first obstacle was attributing acts to a juristic fiction, the
corporation. Eighteenth-century courts and legal thinkers approached corporate
liability with an obsessive focus on theories of corporate personality; a more
practical approach was not developed until the twentieth century.
# The second obstacle was that legal thinkers did not believe corporations could
possess the moral blameworthiness necessary to commit crimes of intent.
# The third obstacle was the ultra vires doctrine, under which courts would not
hold corporations accountable for acts, such as crimes, that were not provided
for in their charters.
# Finally, the fourth obstacle was courts’ literal understanding of criminal
procedure; for example, judges required the accused to be brought physically
before the court .
Resistance prior to the twentieth century to extension of the doctrine of
corporate criminal liability was tied to the widely-held juridical belief that a
corporation lacked the requisite mens rea essential to sustain a criminal
conviction. It was widely prevalent and followed that:
A Corporate has
‘no soul to damn, and no body to kick.’
The corporation is
invisible, incorporeal, and immortal; it cannot be assaulted, beaten, or
imprisoned; it cannot commit treason . . .
So, one can find that history of Doctrine of Corporate Criminal Liability is
full of problems and then solutions to it. At present, different nations have
diverse notions regarding the applicability and extension of the Doctrine of
Corporate Criminal Liability.
Corporate Criminal Liability in America: A Jurisprudential Approach.
Although some earlier cases took the position that a Corporation is not
indictable, but the particular members of it are liable, the rule is now well
established that a corporation may be held criminally liable . It is immaterial
that the act constituting the offence was ultra virus. The Corporation may be
held responsible, even though its employees or agents acted contrary to express
instructions when they violated the law, so long as they were acting for the
benefit of the corporation and within the scope of their actual or apparent
authority. A corporation is accountable for its employee’s conduct if it
motivated, at least in part, by desire to serve the Corporation but this need
not be the sole motivation. And even if, the employees were acting in their own
interests when they committed a crime, the corporation may still be criminally
liable for the failure of its supervisors to detect and stop the wrongdoing,
either in intentional disregard of the law or in plain indifference to its
requirements .
#
Model Penal Code provisions:
The Model Penal Code provides that a corporation may be convicted of an offence
if:
1. the offence is a violation or defined by a statute other than the Code in
which a legislative purpose to impose liability on corporations plainly appears
and the conduct is performed by an agent of the corporation acting in behalf of
the corporation within the scope of his office or employment.
2. the offence consists of an omission to discharge a specific duty of
affirmative performance imposed on a corporation by law, or
3. the commission of the offence was authorized, requested, commanded, performed
or recklessly tolerated by the board of directors or a high managerial agent
acting in behalf of the corporation within the scope of his office or employment
.
A corporation duly dissolved
under the laws of the state of its incorporation may thereafter be subjected to
criminal prosecution under a dissolution provision of the state authorizing
any action, suit or
proceeding against
the corporation within a specified period after the dissolution and the words
action
and
proceeding
as used in a statute continuing corporate existence include criminal
proceedings.
Corporations can be held criminally responsible for a wide variety of crimes:
# Contempt in disobeying decrees and other court orders, directed to it.
# Conspiracy.
# Bribery or conspiracy to bribe public officials.
# The illegal practice of medicine.
# Maintaining public nuisance.
# Violations of licensing and regulatory statutes.
# Violations of consumer protection laws.
# Antitrust law violations.
# Liquor law violations.
# Larceny, if corporate officers authorized or acquiesced in criminal act.
# Extortion, assuming that it was authorized, requested or commanded by a
managerial agent having supervisory responsibility.
# Obtaining money by false pretenses.
#
Selling or exhibiting obscene matter.
# Statutory federal crimes and such as violations of the Occupational Safety and
Health Act.
Most of the above crimes are economically motivated and it has been note that
corporate liability for criminal offences is often found where the offence is
commercial and motivated by a desire to enhance profits. A corporation may not
receive direct economic benefits from a crime against the person, it may still
receive a direct economic benefit obtained by not taking expensive safety
precautions, and if a corporation takes such risks, the corporation becomes a
proper criminal defendant.
Punishments.
A corporation may be punishment by fine, indeed the only punishment that can be
inflicted on a corporation for a criminal offence, is a fine or seizure of its
property which can be levied by an execution issued by the court . A corporation
cannot be imprisoned and is not amenable to prosecution for a criminal offence
which is only punishable by death or imprisonment. However, the fact that the
penalty provided for the violation of a statute is a fine or imprisonment, or
both in the discretion of the court, does not render it inapplicable to a
corporation, and the same rule applies where the statute creating the offence
provides for imprisonment if the fine imposed not paid. Sometimes, a statute
providing that the penalty for a particular crime is imprisonment may be read in
conjunction with a general statute allowing the imposition of a fine, and the
fine may be imposed on the corporation in lieu of imprisonment.
Corporal Criminal Liability in Europe.
While the preceding philosophical and policy debate has been occurring in the
United States, a debate of a different kind has been occurring in Western
European countries. Western European legal systems fundamentally resisted the
imposition of criminal liability on legal entities throughout most of the last
century. This opposition was expressed in the principle
societas delinquere non
potest, which means,
‘a legal entity
cannot be blameworthy
’.
The modern trend in Western Europe of imposing criminal responsibility on
corporations began in 1970 and continues to the present time.
The Netherlands
In 1976, the Netherlands became one of the first Western European countries to
adopt legislation enacting comprehensive corporate criminal liability. The
legislation made corporations liable for all offenses, expanding on criminal
liability that had previously been limited to economic crimes. The 1976
legislation also dispensed with the requirement that liability be predicated on
the actions of natural persons acting on the corporation’s behalf, which was a
requirement of the previous 1951 law . Liability may be predicated on deficient
decision-making structures within the corporation or on the aggregate knowledge
of multiple individuals.
Denmark
In 1926, with the passage of the Butter Act, Denmark introduced corporate
criminal liability for some offenses. By the end of the century, Denmark had
greatly expanded the list of enterprise offenses.
Switzerland
In late 2003, Switzerland imposed criminal liability on corporations, having
previously rejected such liability for doctrinal reasons. Swiss criminal
liability is based on the concept of ‘subsidiary liability’: a corporation can
be held liable for offenses committed on its behalf only if fault cannot be
attributed to a specific individual ‘because of a lack of organization within
the enterprise.’ The offense must be ‘in furtherance of a business activity
consistent with the purpose of the enterprise,’ a requirement which undoubtedly
will need to be defined by the courts. Criminal fines can range up to 5 million
Swiss francs.
Such liability is predicated on management’s failure to properly organize and
manage the corporation’s affairs.
France
The basis for corporate criminal liability in French law is codified in Article
121-2 of the new French penal code, which states:
Juridicial persons, with the
exception of the State, are criminally liable for the offenses committed on
their account by their organs or representatives . . . in the cases provided for
by statute or regulations.
Article 121-2 further
provides the “criminal liability of legal persons does not exclude that of the
natural persons who are perpetrators or accomplices to the same act.”
There are three basic requirements for liability to be imposed under Article
121-2.
o First, the French legislature must have enacted a substantive criminal offense
which the corporation contravened.
o Second, actual criminal responsibility for the offense must lie in the conduct
of a corporation’s representatives or its organs.
o Third, the acts on which criminal liability is predicated must have been
committed for the benefit of the corporation.
An important feature of the new French law is that it provides an expansive list
of statutory criminal penalties. In most cases, these will be monetary penalties
five times the rate for natural persons committing the same offense, with
greater monetary penalties for recidivist conduct.
Jurisprudence of Corporate Criminal Liability in India.
Criminal Liability is attached only those acts in which there is violation of
Criminal Law i.e. to say there cannot be liability without a criminal law which
prohibits certain acts or omissions. The basic rule of criminal liability
revolves around the basic Latin Maxim
actus non facit reum, nisi mens sit reat.
It means that
‘to make one liable, it must
be shown that act or omission has been done which was forbidden by law and has
been done with guilty mind.’
As far as the current status of the Doctrine of Corporal Legal Liability in
India, is concerned, the recent landmark judgment of Apex Court in Standard
Chartered Bank and Ors. etc. v. Directorate of Enforcement and Ors. etc. had
made the scenario crystal clear. It overruled the previous views regarding the
Corporate Criminal Liability and had given a new touch to the said doctrine.
The question that arises for consideration was
whether a company or a corporate body could be prosecuted for offences for which
the sentence of imprisonment is a mandatory punishment? In Velliappa Textiles’ case , by a majority decision it
was held that the company cannot be prosecuted for offences which require
imposition of a mandatory term of imprisonment coupled with fine. It was further
held that where punishment provided is imprisonment and fine, the court cannot
impose only a fine. The majority was of the view that the legislative mandate is
to prohibit the courts from deviating from the minimum mandatory punishment
prescribed by the Statute and that while interpreting a penal statute, if more
than one view is possible, the court is obliged to lean in favour of the
construction which exempts a citizen from penalty than the one which imposes the
penalty.
In
State of Maharasthra v. Syndicate Transport
it was held that the company
cannot be prosecuted for offences which necessarily entail consequences of a
corporal punishment or imprisonment and prosecuting a company for such offences
would only result in the court stultifying itself by embarking on a trial in
which the verdict of guilty is returned and no effective order by way of
sentence can be made. A similar view was taken by Calcutta High Court in
Kusum
Products Limited v. S.K. Sinha, ITO, Central Circle-X, Calcutta were it was
clearly stated that:
....a
company being a juristic person cannot possibly be sent to prison and it is not
open to court to impose a sentence of fine or allow to award any punishment if
the court finds the company guilty, and if the court does it, it would be
altering the very scheme of the Act and usurping the legislative function.
The legal difficulty arising out of the above situation was noticed by the Law
Commission and in its 41st Report, the Law Commission suggested amendment to
Section 62 of the Indian Penal Code by adding the following lines:
In every case in which the
offence is only punishable with imprisonment or with imprisonment and fine and
the offender is a company or other body corporate or an association of
individuals, it shall be competent to the court to sentence such offender to
fine only.
This recommendation got no response from the Parliament and again in its 47th
Report, the Law Commission in paragraph 8(3) made the following recommendation:
In many of the Acts relating
to economic offences, imprisonment is mandatory. Where the convicted person is a
corporation, this provision becomes unworkable, and it is desirable to provide
that in such cases, it shall be competent to the court to impose a fine. This
difficulty can arise under the Penal Code also, but it is likely to arise more
frequently in the case of economic laws. We, therefore, recommend that the
following provision should be inserted in the Penal Code as, say, Section 62:
1. In every case in which the offence is punishable with imprisonment only or
with imprisonment and fine, and the offender is a corporation, it shall be
competent to the court to sentence such offender to fine only.
2. In every case in which the offence is punishable with imprisonment and any
other punishment not being fine and the offender is a corporation, it shall be
competent to the court to sentence such offender to fine.
3. In this section,
corporation
means an incorporated
company or other body corporate, and includes a firm and other association of
individuals.
But the Bill prepared on the basis of the recommendations of the Law Commission
lapsed and it did not become law. However few of these recommendations were
accepted by the Parliament and by suitable amendment some of the provisions in
the taxation statutes were amended.
A similar approach was taken by the Allahbad High Court in 1993, in case of
Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh
where an entirely
distinctive observation was given by the judges.
But, after the 2005 judgment
of Apex Court, i.e.,
Standard Chartered Bank and Ors. etc. v. Directorate of Enforcement and Ors. etc.
the law has taken a settled position and it is basically much more logical and
good judgment. It was expressly stated in this case that the company is liable
to be prosecuted even if the offence is punishable both with a term of
imprisonment and fine. In case the company is found guilty, the sentence of
imprisonment cannot be imposed on the company and then the sentence of fine is
to be imposed and the court has got the judicial discretion to do so. This
course is open only in the case where the company is found guilty but if a
natural person is so found guilty, both sentence of imprisonment and fine are to
be imposed on such person. There is no dispute that a company is liable to be
prosecuted and punished for criminal offences. Although there are earlier
authorities to the effect that corporations cannot commit a crime, the generally
accepted modern rule is that except for such crimes as a corporation is held
incapable of committing by reason of the fact that they involve personal
malicious intent, a corporation may be subject to indictment or other criminal
process, although the criminal act is committed through its agents.
If a corporate body is found guilty of the offence committed, the court, though
bound to impose the sentence prescribed under law, has the discretion to impose
the sentence of imprisonment or fine as in the case of a company or corporate
body the sentence of imprisonment cannot be imposed on it and as the law never
compels to do anything which is impossible, the court has to follow the
alternative and impose the sentence of fine. This discretion could be exercised
only in respect of juristic persons and not in respect of natural persons. There
is no blanket immunity for any company from any prosecution for serious offences
merely because the prosecution would ultimately entail a sentence of mandatory
imprisonment. The corporate bodies, such as a firm or company undertake series
of activities that affect the life, liberty and property of the citizens. Large
scale financial irregularities are done by various corporations. The corporate
vehicle now occupies such a large portion of the industrial, commercial and
sociological sectors that amenability of the corporation to a criminal law is
essential to have a peaceful society with stable.
Conclusion
Absent the possibility of criminal liability, corporations would escape moral
conviction for wrongdoing, and the retributive import of criminal liability to
the community would be lost. For under a civil liability regime for the
corporation qua corporation, there would be no moral condemnation equivalent to
a criminal conviction: if found civilly liable, a corporation might be deemed
negligent, or perhaps reckless, but no statement, in the form of a conviction,
would attest to the proper valuation of the persons or goods at issue. In the
end, the financial liability imposed would come to be viewed, by both the
corporation and the community, merely as a cost of doing business. In effect,
then, a corporate civil liability regime that paralleled ordinary criminal
liability for individuals charged with the same wrongdoing would allow the
corporation qua corporation to purchase exemption from moral condemnation. Such
exemption would affect the expressive significance of criminal liability, as the
vindication of the proper valuations of persons and goods would vary not with
the conduct alleged--a distinction that rightly could affect the evaluative
standard employed--but, rather, with the identity of the offender.
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The author can be reached at :dharmveer.nlu@legalserviceindia.com
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Corporate
Criminal Liability:
