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Introduction
Much of our lives and daily routines are affected by corporate activities. To a
great extent, companies provide the food we eat, the water we drink, the
necessities and luxuries of everyday living. Increasingly, particularly with
growing privatisation, it is not the State that provides these amenities - but
companies. Such companies generate wealth for the economy and their shareholders
and provide employment for much of the population. Short of a revolutionary
restructuring of the economy and the political institutions of the country, it
is certain that the power and influence of companies will grow and not diminish
in the foreseeable future.
But, with great power
comes great responsibility. Just as individuals owe a duty not to harm or injure
others in society without justification, so do companies owe a duty not to
poison our water and food, not to pollute our rivers, beaches and air, not to
allow their workplaces to endanger the lives and safety of their employees and
the public, and not to sell commodities, or provide transport, that will kill or
injure people.
Corporate crimes
One was again reminded of the corporate crimes when on 19th July, the Supreme
Court of India ordered the government to pay a remaining $325.5 million (15.03
billion rupees) due to Bhopal gas tragedy victims. The U.S. based Union Carbide
Company, now owned by Dow Chemical Co., paid $470 million in compensation to
victims in 1989. But distribution of most of that money was held up by
bureaucratic disputes over the categorization of victims. At last on 19th July
the victims or their representatives got justice 20 years after the tragedy took
place.
The story goes back to
the 1984 Union Carbide accident in Bhopal, India, which released a cloud of
methyl isocyanate (MIC), hydrogen cyanide, and other toxins. Somewhere between
4000 and 8000 people died at the time, and victims' advocates estimate that in
total over 20,000 have died as a result of this largest industrial accident
ever, with 1,50,000 suffering continuing injuries and medical problems.
The cause was extreme
corporate malfeasance. The plant was not up to minimal Union Carbide safety
standards - large quantities of MIC were unwisely stored in a heavily populated
area, the refrigeration unit for the MIC (which is supposed to kept at
temperatures below 32 F) was deliberately kept turned off to save $40 per day in
costs, the safety systems were dismantled, and the alarm system was turned off.
This was in spite of the fact that the same plant had earlier suffered
potentially lethal accidental releases of gases like the deadly nerve agent
phosgene.
There are a number of
corporate crimes that have come into light now days. One of the major havoc that
is created in present times is because of mysterious disappearance of
corporations. Of the 5,651 companies listed on Bombay Stock exchange, 2750 have
vanished. It means that one out of two companies that come to the stock exchange
to raise crores of rupees from investors, loot and run away. Even big names like
‘Home Trade’ (remember Sachin, Sharukh, Hrithik saying Life means more) came up
with huge publicity stunts but after raising money, vanished into the thin air.
About 11 million investors have invested Rs. 10,000 crore in these 2750
companies. We have Securities Exchange Board of India, Reserve Bank of India and
Department of Companies Affairs to monitor the stock exchange transactions but
none has documented the whereabouts of these 2750 odd companies suspended from
the stock exchange. Many of the promoters and merchant bankers who are
responsible for these are roaming scot-free. The market regulators and stock
exchanges are unable to penalize them or recover their funds. The regulators
have been able to identify only 229 of 2750 vanishing companies so far.
Corporations also
commit a number of crimes against their own workforce. With increasing
globalization workers find themselves being pushed against the wall and
shrinking revenues for redressal. Now days the debates and rage over corporate
scams talks only of the interest of shareholders. Nowhere is there a mention of
the employee who suffers the most. Take the case of public sector undertakings
where many irregularities can be seen in. Factories were opened in some areas
where the raw material was not available and where the location was correct,
imported machinery was defective. Lavishness on the part of management was one
of the factors, which led to these institutions becoming sick. No doubt that the
labourers suffers the most in such cases. The plight of Mumbai’s textile workers
is even worse. Legal dues have not been paid to 2 lakhs jobless mill workers.
Trade unions are fighting with the reality of worker suicides and growing
unemployment and the worker’s families are struggling to get over their misery,
leave alone fight for dues from faceless management.
The government across
the world have given a free hand to corporations to exploit the natural and
community resources, while depriving the common people of their right on these
resources. For instance, in India, Corporations at Eloor, Kodaikanal and Gujarat
have not only destroyed the water and land resources in these areas, but also
impoverished communities by degrading their livelihood resources and health. All
these communities suffer from disasters similar to Bhopal. Inaccessible to clean
and safe drinking water was found to be a major problem in all these areas. The
companies either pollute the water resources to an extent where it is no more
portable or over exploit it till the water table goes down or dry up the wells.
A befitting example could be of Coco Cola bottling plant in Kerala where the
company extract excess amount of water from the ground due to which the water
level has gone very low and the near by villages are suffering from scarcity of
water.
Much has been talked about the
pollution created by corporations. A train ride
from Mumbai to Ahmedabad would be sufficient to realize the seriousness of
industrial pollution the companies cause in this Golden corridor. It is
important to note that most of the damages caused to the environment is
irreversible.
Adulteration and
contamination of food items also have a prominent place in the list of corporate
crimes. Last year a PIL was filed by a Delhi based NGO, Srishti, which focused
on food safety and quality. It pointed out the incidence of contamination
through out the food chain, from the production, marketing to the consumption
end. The writ said that consumers are ill aware of the consequences of such
contamination or about remedial measures. According to an ICMR bulletin reports,
residue data on pesticides on samples of fruits, vegetables, cereals, pulses,
grains, oils, eggs, meat, butter and cheese in India indicates their presence in
sizeable amount, this in turn affects the health of consumers. Various studies
conducted have shown that very high level of extremely toxic pesticides has been
found in human blood, fat and milk samples in India. Last year, to one’s utter
surprise, it was found that many brands of so called ‘pure’ and ‘safe’ bottled
drinking water and also cold drinks contain deadly pesticides beyond acceptable
limits.
Also, have any one
noticed that how much the convicted corporations are involved into dirty game of
politics. Corporate Crime Reporter, a U.S. based legal newsletter published a
report in July 2003 titled as ‘Dirty Money: Corporate Criminal Donations to the
Two Major Parties.’ This report grew out of the question that how much money are
common criminal corporations dumping into the Republican and Democratic parties
in U.S.?
The report found that 31 corporate criminals gave more than $9 million to the
Democratic and Republican parties during the 2002 election cycle, which runs
from January 1, 2001 to December 31, 2002. These corporate criminals gave $7.2
million to Republicans and $2.1 million to Democrats. Many of these corporate
criminals are large, multinational corporations, with billions of dollars in
assets.
To get a sense of this,
let's look at the top two corporate criminal donors to the Republican and
Democratic parties. Archer Daniels Midland (ADM) tops the list. ADM pled guilty
in 1996 to one of the largest antitrust crimes ever. The company paid a $100
million criminal fine -- at the time, the largest criminal antitrust fine ever.
Same is the case in India. These corporate criminals give huge sums of money to
the political parties in return of favours from these parties. Who suffers the
most is the common man including the shareholders and workers.
Holding Corporations responsible for their criminal acts
In India and internationally, laws to hold corporations accountable are
systematically being dismantled, even as corporations and other agents of
globalisation dictate policies of nations. The corporate sector enjoys far more
rights than the common people. With the onset of the new trade regime, national
laws are being changed to empower corporations with the right to hire and fire
at will, to get the first right over natural and community resources.
Now it’s high time to
put a control over these crimes. There has been a debate as to whether a
Corporation can be held criminally liable. There are two theories regarding
this- ‘Nominalist’ and ‘Realistic’. Nominalist theory of corporate personality
view corporations as nothing more than collectives of individuals. In this an
individual first commits the offence; the responsibility of that individual is
then imputed to the corporation. According to Realist approach corporations have
an existence, which is to some extent independent of the existence of its
members. Here, the responsibility of corporation is primarily. The ‘Realist’
theory looks more convincing and practically applicable.
The argument in favour
of corporate being criminally liable is that in many cases it is the corporation
itself, through its policies or practices, that has done wrong and prosecution
and punishment should be directed at the real wrongdoer. In many cases there is
no individual who, alone, has committed a crime. It is the conjunction of the
practices of several individuals, all acting in compliance with a company's
sloppy or non-existent procedures, that has caused the harm. Alternatively, in
many cases companies have complex structures with responsibility buried at many
different layers within the corporate hierarchy making it difficult, if not
impossible, to determine where the true fault lies.
The common law
jurisdictions have adopted the approach and recognize that corporations may be
held criminally liable. However, they do highlight the conceptual difficulty in
applying a theory of criminal liability based on a view of fault centered on the
psychological processes of humans to what is simply a fictional person. There is
an apparent need, now, to adapt the notion of fault to the structure and
particular modus operandi of corporations. The existing mechanisms used to
attribute criminal liability to corporations are but a partial solution, and
should be improved.
In so far as negligence
as a fault element is concerned, it might be necessary to provide that criminal
negligence refers to a significant departure from the standard of conduct of a
prudent and diligent corporation. Corporate negligence is established by proof
of negligence of its employees, agents or officers or, if no one individually is
negligent, that the body corporate’s conduct, viewed as a whole, is negligent.
This collective negligence may be established by proof that the prohibited
conduct was substantially attributable to inadequate management control or
supervision, or failure to provide adequate systems for conveying information
within the body corporate.
The Doctrine of direct
Liability (Theory of corporate organs): This doctrine, which was specifically
developed for the purpose of imposing liability on corporations, seeks, in fact,
to imitate the imposition of criminal liability on human beings. The direct
doctrine relies on the notion of personification of the legal body. It
identifies actions and thought patterns of certain individuals within the
corporation called corporate organs who act within the scope of their authority
and on behalf of the corporate body, as the behaviour of the legal body itself.
Hence, the name of the doctrine: the theory of corporate organs or the
alter ego
doctrine referring to these individuals as the embodiment of the legal body. In
its wake corporation can be rendered criminally liable for the very perpetration
of the offences, resembling the liability imposed on a human perpetrator,
subject to the natural limitations that follow from the character of the
corporations as a legal personality.
But, the procedure to
prove corporations criminally liable is, prima facie, rather complex. If
intention, knowledge or recklessness is an essential ingredient of the offence,
these fault elements must be attributed to the body corporate if it expressly,
tacitly or impliedly authorized or permitted the commission of the offence.
First, the corporation's fault will be established (vicarious liability) if the
body corporate's board of directors intentionally, knowingly or recklessly
carried out the wrongful conduct, or expressly or by necessary implication
authorized or permitted the commission of the offence. Second, the corporation's
fault may be established by evidence that a high managerial agent of the company
intentionally, knowingly or recklessly engaged in the relevant conduct or
expressly, tacitly or impliedly authorized or permitted the commission of the
offence. In this second case, however, the corporation will not be liable if it
proves that it exercised due diligence to prevent the conduct. Third, the
corporation's fault may be established by proof that a corporate culture existed
within the body corporate that encouraged, tolerated or led to non- compliance
with the relevant provision. Fourth, the corporation's fault may be established
by proving that it failed to create and maintain a corporate culture that
required compliance with the relevant provision.
The notion of
corporate culture as a foundation for corporate criminal liability
Generally speaking, it can be said that corporate culture refers to a "pattern
of shared beliefs and values that give the members of an institution meaning and
provide them with the rules for behavior in their organization". This rather
broad notion can be used for many purposes, and is helpful in analyzing a
corporation's personality in many respects. For the purposes of attributing
criminal liability, corporate culture refers primarily to the chain of command,
the decision-making structure and the general atmosphere concerning obedience to
the law. The following indicators are often singled out as pointing to facets of
corporate culture that are relevant in the context of criminal liability.
First, the development
within the corporation of clearly defined responsibilities concerning the
creation, evaluation and application of standards and procedures designed to
ensure compliance with the law by employees would be a significant indicator of
a corporate culture that is heedful of compliance with the law. If, for example,
the corporate structure is so organized as to deprive senior managers of the
information they need to exercise such powers, this would indicate a corporate
culture that is designed to elude law enforcement. Generally, deficient
structures for the dissemination of information within the firm would also be
suspect. Indeed, providing that a deficient corporate culture can be the basis
for a charge of intentionally committing a crime transforms into an intention
what in my opinion is simply negligence but it must be proved that the corporate
culture instigated, encouraged or led to the commission of the offence or that
the failure to maintain a law-abiding atmosphere was deliberate.
Corporate Mens Rea
Doctrine
It is often asserted that companies themselves cannot commit crimes; they cannot
think or have intentions. Only the people within a company can commit a crime
(Sullivan 1995). However, once one accepts that the entire notion of corporate
personality is a fiction - but a well-established and highly useful one - there
seems no reason why the law should not develop a concomitant corporate mens rea
fiction. Most of the other doctrines - identification, aggregation etc. -
involve fictitious imputations of responsibility. The real question is not
whether the notion of a corporate mens rea involves a fiction, but whether, of
all the fictions, it is the one that most closely approximates modern-day
corporate reality and perceptions. While this inevitably will raise problems of
how to assess policies and procedures to ascertain whether they reflect the
requisite culpability, such a task is not impossible. The answers might not be
easy, but at least this approach involves asking the right questions.
It is often argued in opposition to corporate criminal liability that the
imposition of fines provides no guarantee that delinquent conduct will be
deterred. The fines imposed on corporations are often minimal in comparison with
the devastating effects of their wrongful acts, and virtually amount to a cost
of doing business. But there is also a concern that excessive fines can have
perverse effects that may have to be borne by innocent shareholders, creditors,
employees or consumers.
But, it should be remembered that the punishment of companies decreases their
overall wealth. Accordingly, shareholders and employees have an incentive to
encourage and monitor better corporate practices. Costs can only be passed on
the public to the extent that the company remains competitive. Arguments that
shareholders and employees need protection must be outweighed by the greater
societal interest in ensuring the safety of employees, the public and the
environment.
Conclusion
In my opinion, there should be a distinct part of the Indian Penal Code
expressly covering corporations. Criminal sanctions, in my view, are appropriate
only if it is in fact the organization, its modes of operation and its deficient
structures that are singled out where they produce unacceptable consequences
that could have been avoided given the resources and information at the
corporation's disposal.
One of the main objects
of corporate criminal liability is to ensure that companies improve their work
practices. If no individual who has committed a crime can be identified and no
mechanism for corporate prosecution was to exist, the harmful practices would
continue unabated. Companies should be prosecuted and convicted for the same
general offences as individuals and subject to the same general rules for the
construction of criminal liability. The law should recognise and give effect to
the widely held public perceptions that companies have an existence of their own
and can commit crimes as entities distinct from the personnel comprising the
company. Prosecution of companies, particularly when accompanied by media
attention, can provide a significant impetus to companies to improve their
practices or can prompt law reform to improve safety standards.
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The author can be reached at :
kunal_nlu@legalserviceindia.com
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