US: A long-established doctrine
In the US, the principle underlying corporate criminal liability is respondeat superior. In essence, an organisation is responsible for all its employees’ actions done in the course and scope of their employment and, at least in part, for the benefit of the corporate. Although some American states have different rules, in federal jurisprudence it is not necessary that the employee have a certain level of corporate responsibility, such as being able to speak for the corporate, being part of a control group or being a directing mind. It has long been US law that a corporate can be criminally liable based on any of its employees’ actions, despite not having a soul to damn nor body to kick, as the saying goes. And the same applies to partnerships, closely-held companies with a small group of controlling shareholders and limited liability companies.
Such corporate criminal liability is broad enough that the corporate may be criminally responsible even where the employee acts contrary to corporate policy. As long as the employee criminally acts within the course and scope of employment, even specific counter instructions will not necessarily insulate the corporate. Even a corporate with a comprehensive compliance program may be held criminally liable for criminal acts of its employees under US law. Given the above, US government prosecutors find it easy to assign criminal liability to the corporate. And, correspondingly, US corporates are therefore much more likely to work out a deal with prosecutors to avoid going to trial. We will consider the scope of such deferred and non-prosecution agreements in the US, as well as in the UK and France, in our next article in this series.
In addition to respondeat superior liability, US law makes it easier to prosecute corporates due to the “collective knowledge” doctrine. Under this doctrine, the government does not have to demonstrate that a single individual had the knowledge to satisfy the intent element of a crime. Instead, the government may aggregate the knowledge of many different employees of the corporate to form the corporate’s knowledge of the violation. This potentially expands US corporate criminal liability to cases where no single employee could be held criminally liable.
UK: Erosion of the “identification principle”
The US made corporates criminally responsible in this broad way more than 100 years ago. Similarly, it has long been the case in the UK that criminal liability for corporates could arise where criminal acts of senior employees (normally through the board of directors) could be criminally attributed to the company. The imposition of criminal liability on an organisation has never sat easily with the concept of mens rea under English criminal law. Vicarious liability does exist in a criminal context, but only in certain quasi-regulatory areas including health and safety and environmental issues. However, aside from vicarious liability, for most criminal offences that require a mental state, prosecutors have been able to hold the company liable only on the basis of the “identification principle”. This requires a prosecutor to prove criminal responsibility of the most senior officers who represent the “directing mind and will” of the entire organisation, and whose mental state may be attributed to (or identified with) the company. This has long been a bugbear of prosecutors who face evidential challenges when pursuing large corporates with opaque reporting lines and decentralised decision making. These difficulties partly explain the low levels of corporate prosecutions historically in the UK.
In recent years, the UK government decided that the identification principle was outdated and required reform. The first significant erosion of the identification principle for economic crimes came with the enactment of the 2010 Bribery Act. In particular, section 7 created a new corporate offence of “failing to prevent bribery” if any person associated with the corporate (such as an employee, no matter how junior, or an agent) paid a bribe to attract or retain business. The only defence for the corporate was if it had adequate anti-bribery procedures in place. Buoyed by the success of the Bribery Act, the UK government brought a new “failure to prevent” offence onto the statute book in 2017, relating to the criminal facilitation of the evasion of UK and foreign taxes. Again, strict liability is triggered by the acts of an associated person who criminally facilitates the tax evasion. Again the only defence for the corporate lies in its compliance programme, with it having to prove that it had “reasonable” prevention procedures.
The UK government has recently consulted on proposals to introduce further corporate offences of failing to prevent fraud and other economic crimes. The EU General Data Protection Regulation and accompanying UK legislation will also introduce (from June 2018) new criminal offences for corporates that do not rely on the identification principle. Prosecutions in this area are likely to be pursued in instances of cybercrime and manipulation / misuse of personal data. In addition, the extraterritorial reach of many of these new laws strengthens the prosecutor’s hand. UK prosecutors already have started targeting corporates as defendants, as opposed to victims.
France: Liability for actions on the corporate’s account
Although the French courts have historically proved themselves to be full of imagination, holding animals on trial during the Middle Ages, France’s assignment of criminal liability to corporates is more recent than in the US. It was first introduced in French law in 1992 in Article 121-2 of French criminal code and generalized by the “Perben 2” law of 9 March 2004 (effective 31 December 2005). This change in liability is not simply theoretical; French prosecutors have taken full advantage of it. In 2000, French criminal records show only 200 criminal convictions of companies; in 2015, they show 5000 such convictions. Criminal corporate liability in France is a reality.
When corporate criminal liability was first introduced in 1992, it was governed by the “specialty principle”: companies could be held criminally liable for specific offences only if it was specifically provided for in the law. Since 31 December 2005, however, a corporate can by liable for any criminal offence. However, corporates can only be held liable for offences committed “by their organs or representative”. Therefore, prosecutors need to specify the individual who acted on behalf of the company, as the French cour de cassation most recently reaffirmed on 17 October 2017 (n°16 87.249).
The offences that can lead to prosecution of companies must have been committed “on their account”. An action is deemed to be on the account of the company if it is “aimed at ensuring the organization, the functioning or the goals of the company”. Individuals whose actions led to the prosecution of the companies can also be prosecuted for the same offences. These provisions apply to foreign companies doing business in France, provided they have legal personality under French law, as in the recent CJIP signed on October 30, 2017 which concerned a Swiss-based subsidiary of a major financial institution that agreed to pay €300 million to French authorities, as described in the accompanying article.
In cases of tax fraud, French lawmakers are discussing the possibility of increasing fines for corporates to ten-times the amount of the proceeds of crime stemming from the relevant offence.
The UK and France have followed the course of the US in ensuring that it is easier to prosecute corporate criminal liability than ever before. These laws enable government prosecutors in all three countries to vigorously pursue corporates for crimes committed by their employees, officers and agents. The accompanying article in this series, also published today, considers the new enforcement powers available to prosecutors in the US, UK and France to demand (and indeed receive) large settlements from corporates to accompany their increased powers to hold corporates criminally liable.
Bryan Cave Leighton Paisner’s Global Investigation team is uniquely placed to advise on this complex and ever-evolving area of law. For questions in relation to this or the accompanying article, or to discuss anything in connection with this area, please contact one of the authors.