In criminal law

Criminal law

Criminal law, is the body of law that relates to crime. It might be defined as the body of rules that defines conduct that is not allowed because it is held to threaten, harm or endanger the safety and welfare of people, and that sets out the punishment to be imposed on people who do not obey...

, corporate liability determines the extent to which a corporation

Corporation

A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 as a legal person can be liable for the acts and omissions of the natural person

Natural person

Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...

s it employs. It is sometimes regarded as an aspect of criminal vicarious liability

Vicarious liability (criminal)

The legal principle of vicarious liability applies to hold one person liable for the actions of another when engaged in some form of joint or collective activity.-History:...

, as distinct from the situation in which the wording of a statutory offence specifically attaches liability to the corporation as the principal or joint principal with a human agent.

The concepts

The imposition of criminal liability is only one means of regulating corporations. There are also civil law

Civil law (common law)

Civil law, as opposed to criminal law, is the branch of law dealing with disputes between individuals or organizations, in which compensation may be awarded to the victim...

 remedies such as injunction

Injunction

An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...

 and the award of damages

Damages

In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 which may include a penal element. Generally, criminal sanctions include imprisonment

Imprisonment

Imprisonment is a legal term.The book Termes de la Ley contains the following definition:This passage was approved by Atkin and Duke LJJ in Meering v Grahame White Aviation Co....

, fines and community service orders. A company has no physical existence, so it can only act vicariously through the agency of the human beings it employs. While it is relatively uncontroversial that human beings may commit crimes for which punishment

Punishment

Punishment is the authoritative imposition of something negative or unpleasant on a person or animal in response to behavior deemed wrong by an individual or group....

 is a just desert, the extent to which the corporation should incur liability is less clear. Obviously, a company cannot be sent to jail

Prison

A prison is a place in which people are physically confined and, usually, deprived of a range of personal freedoms. Imprisonment or incarceration is a legal penalty that may be imposed by the state for the commission of a crime...

, and if a fine is to be paid, this diminishes both the money available to pay the wage

Wage

A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...

s and salaries

Salary

A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis....

 of all the remaining employees, and the profits

Profit (accounting)

In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

 available to pay all the existing shareholder

Shareholder

A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....

s. Thus, the effect of the only available punishment is deflected from the wrongdoer personally and distributed among all the innocent parties who supply the labour and the capital

Capital (economics)

In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...

 that keep the corporation solvent

Solvency

Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term...

.

Because, at a public policy

Public policy (law)

In private international law, the public policy doctrine or ordre public concerns the body of principles that underpin the operation of legal systems in each state. This addresses the social, moral and economic values that tie a society together: values that vary in different cultures and change...

 level, the growth and prosperity of society

Society

A society, or a human society, is a group of people related to each other through persistent relations, or a large social grouping sharing the same geographical or virtual territory, subject to the same political authority and dominant cultural expectations...

 depends on the business community

Community

The term community has two distinct meanings:*a group of interacting people, possibly living in close proximity, and often refers to a group that shares some common values, and is attributed with social cohesion within a shared geographical location, generally in social units larger than a household...

, government

Government

Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

s recognise limits on the extent to which each permitted form of business entity can be held liable (including general

General partnership

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:...

 and limited partnership

Limited partnership

A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...

s which may also have separate legal personalities).

Using the criminal law

• Represents formal public disapproval and condemnation because of the failure to abide by the generally accepted social norms, codified into the criminal law. Police
  Police
  The police is a personification of the state designated to put in practice the enforced law, protect property and reduce civil disorder in civilian matters. Their powers include the legitimized use of force...
  
   powers to investigate can be more effective, but the availability of relevant expertise may be limited. If successful, prosecution reinforces social values and shows the state's willingness to uphold those values in a trial
  Trial (law)
  In law, a trial is when parties to a dispute come together to present information in a tribunal, a formal setting with the authority to adjudicate claims or disputes. One form of tribunal is a court...
  
   likely to attract more publicity when previously respected business leaders are called to account. The judgment may also cause a loss of corporate reputation and, in turn, a loss of profitability.
• Justifies more severe penalties because it is necessary to overcome the higher burden of proof to establish criminal liability. But the high burden means that it is more difficult to secure a judgment than in the civil courts, and many corporations are cash-rich and so can pay apparently immense fines without difficulty. Further, if the corporation knows that the fine is going to be severe, it may seek bankruptcy protection before sentencing
  Sentence (law)
  In law, a sentence forms the final explicit act of a judge-ruled process, and also the symbolic principal act connected to his function. The sentence can generally involve a decree of imprisonment, a fine and/or other punishments against a defendant convicted of a crime...
  
  .
• The theoretical value of punishment is that the offender feels shame, guilt or remorse, emotional responses to a conviction that a fictitious person cannot feel.
• If a state turns too often to the criminal law, it discourages self-regulation and may cause friction between any regulatory agencies and businesses that they are to regulate.

Using the civil law

• With the lower burden of proof and better case management tools, civil liability is easier to prove than criminal liability, and offers more flexible remedies which can be preventative as well as punitive.
• But there is little moral
  Morality
  Morality is the differentiation among intentions, decisions, and actions between those that are good and bad . A moral code is a system of morality and a moral is any one practice or teaching within a moral code...
  
   condemnation and no real deterrent effect so the general management response may be to see civil actions as a routine cost of business which is tax deductible.

Criminal laws

Most jurisdictions use criminal and civil systems in parallel, making the political judgment on how infrequently to use the criminal law to maximise the publicity of those cases that are prosecuted. While others enact specific legislation

Legislation

Legislation is law which has been promulgated by a legislature or other governing body, or the process of making it...

 covering health and safety, and product safety issues which lay down general protections for the public and for the employees. The difficulty of proving a mens rea is avoided in the less serious offences by imposing absolute, strict liability

Strict liability

In law, strict liability is a standard for liability which may exist in either a criminal or civil context. A rule specifying strict liability makes a person legally responsible for the damage and loss caused by his or her acts and omissions regardless of culpability...

, or vicarious liability which does not require proof that the accused knew or could reasonably have known that its act was wrong, and which does not recognise any excuse

Excuse

In jurisprudence, an excuse or justification is a defense to criminal charges that is distinct from an exculpation. In this context, "to excuse" means to grant or obtain an exemption for a group of persons sharing a common characteristic from a potential liability. "To justify" as in justifiable...

 of honest and reasonable mistake

Mistake (criminal law)

A mistake of fact may sometimes offer exculpation by allowing a criminal defendant some relief from liability for having broken the law...

. But, most legislature

Legislature

A legislature is a kind of deliberative assembly with the power to pass, amend, and repeal laws. The law created by a legislature is called legislation or statutory law. In addition to enacting laws, legislatures usually have exclusive authority to raise or lower taxes and adopt the budget and...

s require some element of fault

Culpability

Culpability descends from the Latin concept of fault . The concept of culpability is intimately tied up with notions of agency, freedom and free will...

, either by way of an intention to commit the offence or recklessness resulting in the offence, or some knowledge

Knowledge

Knowledge is a familiarity with someone or something unknown, which can include information, facts, descriptions, or skills acquired through experience or education. It can refer to the theoretical or practical understanding of a subject...

 of the relevant circumstances. Thus, companies are held liable when the acts and omissions, and the knowledge of the employees can be attributed

Imputation (law)

In law, the principle of imputation or attribution underpins the concept that ignorantia juris non excusat—ignorance of the law does not excuse. All laws are published and available for study in all developed states...

 to the corporation. This is usually filtered through an identification, directing mind or alter ego test which proves that the employee has sufficient status to be considered the company when acting.

Identification test in English law

In Tesco Supermarkets Ltd v Nattrass

Tesco Supermarkets Ltd v Nattrass

Tesco Supermarkets v. Nattrass [1972] AC 153 is a leading decision of the House of Lords on the "directing mind" theory of corporate liability....

[1972] AC 153, Lord Reid said:

The person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company.

This approach has been criticised because it restricts corporate liability to the acts of directors and a few high-level managers. This unfairly favours larger corporations because they will escape criminal liability for the acts of all the employees who manage the day-to-day activities of the corporations. This has proved problematic as in the cases involving corporate manslaughter

Corporate manslaughter

Corporate manslaughter is a criminal offence in English law, being an act of homicide committed by a company or organisation. In general, in English criminal law, a juristic person is in the same position as a natural person, and may be convicted for committing many offences...

.

Aggregation test in the United States

By “aggregating” the acts and omissions of two or more natural persons acting as the corporation, the actus reus and mens rea can be constructed out of the conduct and knowledge of several individuals. This is termed the Doctrine of Collective Knowledge. In United States v Bank of New England (1987) 821 F2d 844 the charge of wilfully failing to file reports relating to currency transactions was proved because the bank’s knowledge was the totality of what all of the employees knew within the scope of their authority. The Court of Appeals’ confirmed a collective knowledge is appropriate because corporations would compartmentalise knowledge and subdivide duties and avoid liability. Aggregation has been applied in Australian courts, but is rejected in England.

A blameworthiness test

Gobert argues that if a corporation fails to take precautions or to show due diligence to avoid committing a criminal offence, this will arise from its culture where attitudes and beliefs are demonstrated through its structures, policies, practices, and procedures. This rejects the notion that corporations should be treated in the same way as natural persons (i.e. looking for a "guilty" mind), and advocates that different legal concepts should underpin the liability of fictitious persons. This reflects the structures of modern corporations which are more often decentralised and where crime is less to do with the misconduct by or incompetence of individuals, and more to do with systems that fail to address problems of monitoring and controlling risk.

Benefit test

A benefit test has been applied in the Federal Court of Australia, the House of Lords (now the Supreme Court of England) and the Supreme Court of Canada. Put simply, the test proposes that where a company gains the benefit of an act, it is considered to be attributed with that act. The test is applied differently when an act is performed by a "mind and will", which usually prompts the use of the organic theory, as opposed to an agent which usually prompts the use of the agency theory.

Fraud

In some instances of fraud

Fraud

In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...

, the court

Court

A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...

 may pierce the veil of incorporation

Piercing the corporate veil

Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it...

. Most fraud is also a breach of the criminal law and any evidence

Evidence (law)

The law of evidence encompasses the rules and legal principles that govern the proof of facts in a legal proceeding. These rules determine what evidence can be considered by the trier of fact in reaching its decision and, sometimes, the weight that may be given to that evidence...

 obtained for the purposes of a criminal trial

Trial (law)

In law, a trial is when parties to a dispute come together to present information in a tribunal, a formal setting with the authority to adjudicate claims or disputes. One form of tribunal is a court...

 is usually admissible in civil proceedings. But criminal prosecutions take priority, so if civil proceedings uncover evidence of criminality, the civil action may be stayed pending the outcome of any criminal investigation.

Secondary liability

Some crimes are considered inchoate

Inchoate offense

An inchoate offense, inchoate offence, or inchoate crime is the crime of preparing for or seeking to commit another crime. The most common example of an inchoate offense is conspiracy...

 because, like a conspiracy or attempt

Attempt

Attempt was originally an offence under the common law of England.Attempt crimes are crimes where the defendant's actions have the form of the actual enaction of the crime itself: the actions must go beyond mere preparation....

, they anticipate the commission of the actus reus

Actus reus

Actus reus, sometimes called the external element or the objective element of a crime, is the Latin term for the "guilty act" which, when proved beyond a reasonable doubt in combination with the mens rea, "guilty mind", produces criminal liability in the common law-based criminal law jurisdictions...

(the Latin

Latin

Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

 for "guilty act") of the full offence. One option for prosecution would be to treat a corporation as an accomplice

Accomplice

At law, an accomplice is a person who actively participates in the commission of a crime, even though they take no part in the actual criminal offense. For example, in a bank robbery, the person who points the gun at the teller and asks for the money is guilty of armed robbery...

or co-conspirator with the employees. In general terms, most states permit companies to incur liability for such offences in the same way as natural persons so long as there are at least two natural persons involved in the conspiracy and one other accomplice to aid the commission of the offence by a principal.