…the labyrinth of laws and regulations corporate officers, managers, and their employees and agents must navigate has only gotten more complex. The Criminalization of Responsibility:
Making Corporate Officers Guilty for the Acts of Their Employees

"[T]o constitute a crime against human laws, there must be, first, a vicious will; and, secondly, an unlawful act consequent upon such vicious will."

—Sir Wm. Blackstone, Commentaries on the Laws of England.

For centuries, the law in Western nations was guided by the fundamental principle that an individual could only be prosecuted and convicted of a crime if he willfully or knowingly committed an unlawful act. Classic Anglo-American legal theory reflected this core belief in its requirement that the state prove beyond a reasonable doubt that the accused consummated the criminal offense with both an actus reus (a criminal act) and a mens rea (a criminal intent). Thus, criminal sanctions were never intended to punish bad thoughts remaining unmanifested by action nor bad acts occurring unwittingly or by accident. The former category was to be resolved by a higher spiritual authority and the latter could properly be resolved by the civil tort liability system.

Today, after more than 200 years of the American experience, both federal and state criminal law has devolved to a point where an individual can be charged, prosecuted, convicted, fined and, many times, sentenced to a lengthy term of imprisonment even if he neither performed or aided an unlawful act himself nor did so with any intent or knowledge of the crime committed. This is most often manifested in the corporate world, where under the "responsible corporate officer" doctrine, as it is called, even the most "responsible" corporate officers and managers face strict criminal liability for the "irresponsible" (including even mistaken and accidental) acts of their employees and agents.

Specifically, with increasing frequency and vigor, prosecutors are pressing criminal charges and getting convictions against corporate officials for the transgressions of "public welfare" statutes by their workers. These laws — designed to ensure clean air and water, unadulterated food and drugs, safe working conditions and the integrity of the financial system, among others — impose a myriad of duties upon corporations to act in accordance with arbitrary standards set forth by legislatures and regulatory agencies at the federal and state levels, and, in general, make it a strict liability crime when a corporation fails to live up to the benchmarks imposed. Thus, when charged with a "public welfare offense," the defendant's mens rea — intent or knowledge — is irrelevant because the government faces no burden to prove the accused either intended or knew of the crime committed. In other words, "public welfare offenses" eviscerate the typical criminal intent requirement by making the defendant strictly liable for his acts.

"Public welfare offenses" also make corporate officers and managers vicariously liable for the transgressions of their employees and agents when the state can prove that the higher-up had "a responsible share in the furtherance of the transaction which the statute outlaws." Thus, a corporate official can be held criminally liable for all of the illegal acts of his or her employees and agents simply by virtue of his or her managerial or supervisory position. Moreover, the manager cannot absolve himself of criminal liability by properly instructing and delegating lower-rung workers to comply with the law. Instead, the "responsible" corporate officer remains on the criminal hook because of his failure not only "to seek out and remedy violations when they occur" but also to "insure that violations will not occur" at all, a standard beyond human ability.

According to this far reaching corporate criminal liability regime, corporate officers and managers now can be punished for violating any one of what, by best estimates, have been counted to be more than 3,000 separate federal criminal offenses — to mention nothing of the incalculable criminal restrictions imposed by the 50 different states. For example, at the federal level alone, corporations and their officers and managers now face criminal repercussions based on simple worker mistakes ranging from clerical errors on regulatory forms to the accidental mislabeling of food and drugs to exceeding pollution limits by as little as one part per billion. This onerous burden holds every individual in the chain of command responsible for the "irresponsible" actions of each and every worker under them and opens even mid-level managers to criminal investigation, prosecution, conviction, fines and, yes, even incarceration.

To constantly guard against such undesirable consequences, corporations and their officers and managers have hired armies of attorneys who must keep their watchful eyes on every statute and regulation, and every employee and transaction to ensure no one slips up. But today, when the Congressional Research Service cannot even count the current number of federal crimes, even these corporate lawyers are admitting that complete compliance is impossible. According to a National Law Journal survey of corporate attorneys taken a decade ago, a full 70 percent said they "didn't believe total compliance" with environmental laws alone "was achievable."

The intervening 10 years have only exacerbated the corporate criminal liability crisis. In the wake of corporate scandals touching on virtually every area of government regulation, including high finance, health care and the environment, the decisive trend has been toward more frequent prosecution and stiffer sentencing for corporate officers and managers charged with the responsibilities of their businesses. Thus, while it was originally true that "the cases that first defined the concept of the public welfare offense almost uniformly involved statutes that provided for only light sentences such as fines …, not imprisonment," according to the U.S. Supreme Court, that is no longer true. In fact, legislators and regulators — spurred on by public approval for the criminalization of each and every social ill — have imposed new draconian penalties for infractions against the "public welfare" by upping the sentences and providing greater resources for prosecutions. All the while, traditional procedural and substantive criminal protections have been marginalized for such "white-collar offenders."

At the same time, the labyrinth of laws and regulations corporate officers, managers, and their employees and agents must navigate has only gotten more complex. According to the American Bar Association Task Force on the Federalization of Criminal Law, more than 50 percent of the statutory sections in the U.S. Code were enacted in just the past 40 or so years of American history. And, such a number does not take into account the thousands, if not hundred of thousands, of implementing regulations promulgated by various agencies, not to mention the laws and regulations on the books and enforced by each of the fifty states.

Nevertheless, Congress and the states only continue to add to the legal hurdles corporations and their executives must traverse to remain "crime-free." As an example, after the recent accounting scandals, Congress enacted the Corporate Auditing and Accountability Act of 2002, also known as Sarbanes-Oxley. Under this law, the CEOs and CFOs of every publicly traded company in the United States are required to personally certify the truth of their companies' quarterly and/or annual reports filed with the Securities and Exchange Commission — not a small task considering the volume and complexity of the reports and the amount of information needed to be gathered and examined in order to comply. Moreover, given the increasing frequency with which corporations and their officers are prosecuted, there can be little question but that Sarbanes-Oxley's personal certification requirement will be yet another vehicle to make corporate officials criminally liable for inadvertent mistakes and clerical errors. Thus, if the vast majority of corporate counsel believed full compliance with the criminal regulatory state was impossible a decade ago, surely that view must be nearly unanimous today.

In justifying the tremendous criminal burden placed upon corporate officers and managers by "public welfare" laws, the U.S. Supreme Court noted almost thirty years ago that "[t]he duty imposed … on responsible corporate agents is … one that requires the highest standard of foresight and vigilance, but in its criminal aspect[s], does not require that which is objectively impossible." But empirical evidence makes it clear that complete compliance with the criminal regulatory universe is literally impossible because of the overwhelming number of laws and regulations and the inevitability of human error and mistake. Such a state of affairs surely suggests that criminalization of corporations and their officers has gone too far.

In addition, the criminal justice system is simply ill-equipped to resolve issues of corporate accountability, and the mere appearance or accusation of criminal wrongdoing can significantly add to increased costs with no resulting increase in shareholder or public confidence. In the wake of the Enron scandal, for example, criminal investigations were launched against Arthur Andersen. While no criminal intent was ever discovered, the perception that criminality was afoot ended up ruining the Big 5 accounting firm and its employees.

It's time to put an end to the criminal convictions of corporate officers and managers for doing and intending no wrong, while maintaining strict punishments for those in the corporate structure who intentionally transgress legal boundaries.

May 30, 2003
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