This collection of new essays covers a wide range of current issues in corporate crime, including compliance programs, criminal law settlement agreements, corporate and individual liability, and others. The book is not intended to be a comprehensive overview of corporate crime and its enforcement, but collectively the essays give the reader a good sense of the major debates and emerging issues in the field. Although almost all of the authors have academic positions at law schools, the chapters are accessible to readers from any field, as most provide a general overview of the topic and do not assume that the reader has significant background knowledge on the legal issues.
For readers unfamiliar with the enforcement of corporate criminal and civil law in the United States, the following provides a brief overview. A summary of the contributions of the book’s chapters are incorporated in the overview.
Corporate criminal law covers a wide range of issues, including, for example, financial fraud and the payment of bribes to foreign government officials. The types of wronging discussed in this book are not crimes that benefit the employee at the expense of the company, such as embezzlement; instead, the focus is on crimes that are intended to provide at least some benefit to the corporation, even if it is just a short-term benefit. Under US law, corporations face significant risk because they are vicariously liable for the criminal actions of employees that are within the employees’ scope of employment and intended to provide at least some benefit to the company. Prosecutors, however, may choose not to prosecute a corporation (which often results in a guilty plea by the corporation rather than a conviction after a trial). Instead, a recent (and controversial) criminal law trend is for prosecutors to enter into a settlement agreement with the corporation. Under these agreements—typically deferred prosecution agreements (DPAs)—the government promises not to prosecute the company if the company admits wrongdoing and implements certain reforms intended to help prevent future violations.
At this point, we can see that there are a few important issues to consider. First, in his chapter, Brandon Garrett raises the concern that enforcement attorneys are focusing their efforts on corporate prosecutions and settlement agreements, and are not appropriately seeking to prosecute the individuals that committed the wrongful acts. Garrett discusses the legal challenges in prosecuting individuals and provides an overview of the data on corporate prosecutions from 2001 to 2012. This analysis shows, in part, how the type of crime involved can influence the likelihood of individual prosecution. For example, violations of the Foreign Corrupt Practices Act (FCPA) are less likely to incur individual prosecutions than securities fraud cases. The difference may be due to policy preferences of the agency enforcing the law, or to the practical challenges involved (e.g., there are jurisdictional issues because the individual is a foreign employee of a foreign subsidiary).
Second, there is the question of whether corporations should even face criminal liability, as opposed to just civil liability. Samuel Buell’s chapter adds an additional consideration to this long-running debate. Buell builds on Garrett’s analysis and argues that the challenges in prosecuting individuals for corporate crime show the need for corporate criminal liability. The chapter provides a short, clear explanation of why managers, even those that are responsible for creating a toxic corporate culture, do not meet the requirements to be held criminally liable (e.g., the inability of prosecutors to show the requisite criminal intent). Even though managers may not be held liable, corporate liability, Buell argues, can incentivize those managers to work towards preventing employees from violating the law.
Michael Klausner and Jason Hegland look at the issue of corporate and individual liability in the context of the US Securities and Exchange Commission (SEC) enforcement actions for fraudulent misstatements or omissions (which are civil, not criminal, actions). They find that executives, including chief executive officers and chief financial officers, are, in fact, regularly sanctioned. Thus, unlike the situation described by Garrett and Buell in the context of criminal enforcement, the SEC can and does regularly impose sanctions on individuals, including high-ranking individuals.
A common argument in favor of corporate criminal liability is that prosecution for a violation of the criminal law sends a stronger message to market and non-market actors than civil liability. The negative reputational effects—in addition to any criminal penalties—provide a strong incentive for managers to prevent legal violations by their organizations. Cindy Alexander and Jennifer Arlen analyze whether settlement agreements (e.g., DPAs) have the same reputational impact as guilty pleas, and therefore can provide the same incentives. After a thorough review of the issues, they argue that DPAs will have the same reputational impact as guilty pleas, and provide other benefits in enforcement. Thus, they claim to disprove one potential argument against the use of DPAs.
To prevent wrongdoing by employees, corporations utilize compliance programs. The government’s enforcement policies provide corporations with a strong incentive to adopt and implement such programs. For example, if the government determines that an employee engaged in wrongdoing despite the company having an “effective” compliance program in place, then the company is eligible to receive a mitigated sentence if convicted of violating the law, or prosecutors may offer a settlement agreement or decline to prosecute altogether. To receive these benefits, corporations typically must also self-report any wrongdoing the compliance program uncovers to the government and then cooperate with the government’s investigation of that wrongdoing.
Using a basic economic analysis, Geoffrey Miller considers government agencies’ challenges in requiring corporations to adopt “effective” compliance programs. Among the challenges are avoiding causing firms to under- or overinvest in compliance, and determining what credit corporations should receive for their compliance programs if an employee commits a violation (e.g., a mitigated penalty or an absolute defense). Donald Langevoort reviews the behavioral ethics literature as it applies to compliance programs, which he refers to as “behavioral compliance.” This review focuses on the situational and individual dispositional factors that are likely to influence cheating by employees. The chapter then explores lessons one can draw for the implementation of compliance programs.
Vikramaditya Khanna considers the role of the general counsel in a corporation’s compliance efforts. In the chapter, Khanna provides an overview of the literature on the factors both external and internal to the organization that influence the incidence of fraud, and discusses the ongoing question of whether there should be a chief compliance officer role separate from the general counsel. Khanna raises the concern that separating the two roles may hinder the flow of information on potential wrongdoing within the organization, as employees may be more likely to discuss wrongdoing with the general counsel than a chief compliance officer.
Miriam Baer explores issues related to internal investigations. As stated above, due to government leniency policies, corporations have strong incentives to police themselves and disclose wrongdoing to the relevant government agency. Those conducting internal investigations of wrongdoing, however, face the challenge of standing between government enforcement attorneys and the company’s employees, and needing to develop the trust of both parties. Baer explores the ways that government practices can undermine its relationship with internal investigators, and the ways that law (privacy law and threats of individual liability) impacts the investigators’ relationships with employees.
David Freeman Engstrom examines the use, and appropriate design, of government bounty payments to encourage whistleblowing. Freeman Engstrom identifies potential problems related to incentivizing the appropriate quality of information, and how a bounty program may impact the corporation’s own compliance efforts, including the organization’s internal whistleblowing efforts.
Additional chapters in the book cover enforcement practices and related issues. Tom Tyler challenges the assumption that the risk of sanctions (a coercive model) should be the foundation of our regulatory approach. He reviews the evidence showing that a consent-based model—where individuals voluntarily comply with legal authority that has legitimacy—is equally if not more effective than a sanctions-based model. Despite the evidence in favor of consent-based models, our regulatory systems continue to be based on the coercive model. Tyler reviews possible explanations from psychology for why authority figures fail to adopt a consent-based model, such as the ease in seeing the short-term benefits of sanctions as compared to the long-term approach required for the consent model. Stephen Choi and A.C. Pritchard also look at enforcement, focusing on how the incentives of individual enforcement attorneys, such as where they are on their career path, may influence their enforcement of securities laws.
The remaining chapters in the book focus on anti-corruption efforts. For many years, only the United States had criminal laws that prohibited corporations from bribing government officials in foreign countries. Today, more countries are passing such laws. Kevin Davis considers how multinational corporations will respond now that they are simultaneously subject to the anti-corruption laws of multiple different countries. Using an economic analysis that treats this situation as a dynamic, multiplayer game, Davis reviews the players (e.g., firms, individuals, enforcement agencies) and their objectives, as well as the challenges involved in empirically testing a model and taking normative guidance from the model.
The next chapter, by Matthew Stephenson, considers unintended consequences that could result from the various proposals offered by legal scholars to strengthen the FCPA. The current trend in FCPA enforcement is to use DPAs, as described above. Stephenson raises the concern that the reform proposals could lead to more corporations rejecting these settlement agreement offers and challenging the charges against them under the government’s broad interpretation of the FCPA. This could result in litigation that ultimately narrows the FCPA’s substantive provisions and weakens anti-corruption enforcement.
Finally, Tina Søreide and Susan Rose-Ackerman consider the government officials that are demanding the bribe payments. In part, their chapter considers the mechanisms used to control corporate crime described above, such as incentivizing self-reporting and self-monitoring, and considers whether those mechanisms would apply to state agencies.
Overall, this book will be of greatest interest to business ethics scholars studying issues related to corporate compliance and ethics programs. In addition to chapters that provide an overview of the issues concerning the criminal enforcement environment in which compliance programs exist, additional chapters directly relate to the interplay between enforcement practices and the responses of actors within organizations (e.g., potential whistleblowers and internal investigators). Any business ethics scholar conducting research that relates to criminal enforcement, however, will find information that provides both an informative background and a sense of the issues of concern to legal scholars. Although not all chapters may be of interest, each chapter stands alone and can be appreciated separately from the others.
