class actions, disabled rights, copyright, attorneys general, online speech, law schools, obesity, New York, mortgages, legal blogs, safety, CPSC, pharmaceuticals, patent trolls, ADA filing mills, international human rights, humor, hate speech, illegal drugs, immigration law, cellphones, international law, real estate, bar associations, Environmental Protection Agency, First Amendment, insurance fraud, slip and fall, smoking bans, emergency medicine, regulation and its reform, dramshop statutes, hotels, web accessibility, United Nations, Alien Tort Claims Act, lobbyists, pools, school discipline, Voting Rights Act, legal services programs


Collective Criminal Punishment Is Never Justified

July 29, 2009 10:48 AM

OK, this is getting interesting. From my perspective, real progress is being made. We now have agreement that corporations are not agents and that "[i]n reality a 'corporation' is a group of people who are organized in a certain way." (Although having cited legal realist Felix Cohen's brilliant attack on the legal formalism that gave rise to the reification of the "corporation" to make this point, I find it odd to be accused of being formalistic in my thinking.) We are also in agreement as to what it means to criminally punish a corporation. As Mike says, "If we decide to punish the corporation for wrongdoing, we're not punishing some ethereal being; rather, we're punishing in a collective fashion the people associated with the corporation." Thus, we are also in agreement that the essential question is whether this form of collective punishment is justified. Mike argues that it is. I will continue to argue that it is not. In fact, collective criminal punishment is never justified (unless all individuals are in fact culpable, but then it is unnecessary).

Mike's argument that collective corporate punishment is justified by its deterrent value is revealing. He begins by arguing that the financial penalties associated with civil liability and administrative sanctions provide insufficient deterrence because corporations treat them as a costs of doing business. But note that the penalties imposed on corporations convicted of criminal violations are financial penalties as well. By Mike's own hypothesis then, these must also be inadequate (especially since they are frequently considerably less than the amounts that corporations must pay out in civil judgments). As Mike's argument makes clear, the deterrent effect of collective corporate punishment is entirely due to the moral stigma that comes along with a criminal conviction. The essence of this form of deterrence is now made clear. It consists of stigmatizing a group of people to prevent individuals within that group from engaging in wrongdoing.

Mike wants to cite the statistics on DPA's support his claim that this form of punishment is an effective deterrent. There is no need to do so. There is no doubt that it is an effective deterrent. It's just not a morally legitimate form of deterrence.

Mike claims that in the absence of this form of collective punishment corrupt upper managers will try to create situations in which they encourage criminal activity in subordinates while insulating themselves from personal liability. I'm sure that this is true. Of course, this is not limited to corporate criminals. Criminals always try to accomplish their objectives in a way that makes it least likely that they will go to jail. No one said that prosecutors have easy jobs. It is very difficult to effectively enforce the law within the confines of a system that is designed to be highly protective of the innocent. You know, it's that presumption of innocence, proof beyond reasonable doubt, unanimous jury, right against self-incrimination, attorney-client privilege, Blackstonian "it is better that ten guilty persons escape than that one innocent suffer" thing.

But the difficulty for prosecutors is intentionally built into the system. We want it to be difficult for the government to punish citizens. Our criminal law is based on the normative judgment that an unchecked government is a greater threat to liberty and individual well-being than are individual criminals. The last thing we want to do is to achieve law enforcement efficiency at the expense of the civil libertarian protections of the criminal justice system.

Collective punishment undoubtedly is an effective deterrent. But it is not the type of deterrence that justifies criminal punishment in a liberal legal regime. In a liberal legal regime, deterrence refers to inflicting punishment on a wrongdoer to discourage others from committing similar offenses. It does not refer to threatening to punish the innocent to pressure them into suppressing the criminal activity of their fellow citizens.

Consider Mike's own example of the advantages of corporate criminal liability for effective deterrence. Retain each step in his argument and description of how the punishment would work, but change its setting from the corporate business environment to, let's say, the threat posed by potential Japanese saboteurs during World War II, communist infiltration of the government during the 1950's, or Islamic terrorism today. There are many situations in which we can more effectively deter criminal activity by punishing entire groups or threatening group punishment to pressure innocent group members into suppressing the activities of others within the group. We just should not. I'm sure we could greatly deter teenage crime by threatening to punish the parents of all teenage offenders, who after all have more control over their children's behavior than shareholders have over corporate employees.

Threatening to employ the moral stigma of criminal conviction to damage the reputation of corporations, the job security of managers, and the financial well-being of investors, many if not most of whom may be innocent (think Arthur Andersen here), in order to more effectively deter individual criminal activity within the corporation is no different than threatening to employ the moral stigma of criminal conviction to damage the reputation, job security, and financial well-being of members of the communist party in order to more effectively deter subversive activity by individual communists. This form of deterrence is effective. It's just not justified.

What about rehabilitation? I have encountered arguments like the one Mike produces before. I have personally appeared on several panels with current or former prosecutors who argued that corporate criminal liability can be justified on rehabilitative grounds because fear of corporate prosecution can make business people behave better. And Mike is entirely correct that fear of prosecution can influence corporations to change their corporate culture and institute (government approved) compliance programs (which by the way are not "ethics" programs, see my book, Trapped: When Acting Ethically is Against the Law). The threat of collective corporate punishment can indeed cause corporate management to become deputy prosecutorial agents and to attempt to have a corporate culture that discourages individual criminal activity.

But this is not rehabilitation. Rehabilitation refers to imposing treatment on a wrongdoer designed to reform his or her character to ensure better behavior in the future. One cannot rehabilitate the innocent. Threatening those who have not engaged in wrongful conduct with punishment in order to make them "behave better" is not rehabilitation. It is coercing them to act in the way the coercive agent believes they should. "Rehabilitating" the innocent is simply depriving them of their liberty. This form of rehabilitation was familiar in the Soviet Union and Mao's China in which those whose conduct was unacceptable to the government were sent to psychiatric hospitals and "re-education" camps. Threatening collective punishment to cause corporate executives create what the government considers to be a positive corporate culture is not a form of rehabilitation that can be countenanced in a liberal system of justice.

In my opinion, restitution is a non sequitur. Restitution is not a purpose of punishment. Restitution is what the civil liability system is for. Corporate criminal liability merely interferes with this. For example, Arthur Andersen had negotiated a $750 million settlement with Enron's shareholders which fell through when the firm was destroyed by the federal criminal indictment.

Finally, retribution. On this point, there is nothing to answer. Mike states, and I agree, that "When crime is committed by a set of individuals within the corporate structure, some members of each constituency are deserving of the 'hurt' that corporate criminal liability imposes on them - and, admittedly, some are not." Mike continues by identifying situations in which shareholders may be personally implicated in criminal activity-"the major shareholders in a corporation are also its officers, who may very well have participated in the crime." The purpose of retribution is indeed served by imposing individual punishment on all such shareholders and any other individual associated with the corporation who is personally culpable.

But the rest of what Mike has to say is that to the extent that corporate criminal liability punishes those who are not personally culpable, the punishment will not be too severe; will consist only in financial losses, not prison time; may involve a fair redistribution of wealth; and may even be economically efficient. This is all very interesting, but it has nothing to do with retribution. Retribution refers to the process of requiting evil with evil in which harm is imposed on a wrongdoer in recompense for or in dissipation of the harm that he or she has done. Explaining why imposing punishment on those who have not done wrong is not so bad cannot justify the punishment on retributivist grounds.

Mike ends by admitting that in holding corporations criminally liable, some innocent people are harmed. He argues that the benefits to be gained are worth this cost. I disagree, and I have Blackstone on my side. It is never a good bargain to purchase law enforcement efficiency at the cost of empowering law enforcement agents to take shortcuts around the civil libertarian aspects built into our system of criminal law. As supporting evidence, I offer Department of Justice policy governing the indictment of corporations contained in the Holder/Thompson/McNulty/Filip Memorandum.




Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.