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Corporate Ciminal Liability Is About Coercing Corporate Cooperation

July 31, 2009 9:38 AM

Just when I thought our positions were moving closer together, Mike's last posting greatly widens the gulf. As the week comes to an end, it appears our conversation is more likely to end in discord than harmony.

Mike begins by getting down to fundamental philosophical starting points. He declares himself to be a pragmatist, with the right answer (or the "right" answer, as he expresses it) emerging out of slowing forming and ever changing consensus of opinion. I confess that I am not a pragmatist, either of the traditional James/Deweyian variety or the post-modern Rorty type. In the current idiom, I am not one who believes that it is turtles all the way down.

If I have to assign myself a philosophical label, I would call myself a legal realist of the Felix Cohen stripe. Like Cohen, I eschew the formalism of transcendental nonsense that reifies abstract legal concepts and attempts to deduce legal conclusions from such concepts rather than the actual effects that the decisions have on the world. And like Cohen, I am not an ethical relativist. Cohen wanted to peel away the legal word play and identify the empirical effects of our laws and legal decisions in order to make a proper ethical assessment of it. Like Cohen, I believe that if we allow ourselves to see what we are really doing, we have a better chance of doing the right thing, where there are no quote marks around the word 'right.'

Mike declares that legal decisions are based on policy considerations and empirical determinations. I do not agree. Law is a normative pursuit. It is a prescriptive enterprise. And legal argument, like all normative arguments, must have both a normative and an empirical premise. Getting the empirical or descriptive premise correct is crucially important. That's why it is essential to eliminate the legal transcendental nonsense. But it is not enough. There must be some normative value at work as well to reach a normative conclusion. This is basic Hume.

These philosophical differences may mean that Mike and I are unlikely to agree on fundamental issues. But they do not mean that there cannot be agreement on intermediary points. So let's consider some of the points Mike makes in his last posting.

To begin with, Mike somewhat overstates the position with which I began our dialog. I did begin with the contention that criminal liability is different in kind from civil liability. I did not assert that "a liberal government can under no circumstances impose corporate criminal liability because of the collateral harm it causes to innocent people, which is categorically immoral." I did assert that a liberal government should not employ a form of criminal liability that is intended to threaten the innocent with punishment to force them to help suppress the criminal activities of the their fellow citizens. I assert this because this form of criminal liability is utterly incompatible with the inherent liberal bias built into our criminal law that is designed to protect us against an over-reaching government-something that is always a greater threat than any number of individual criminals.

Mike seems a bit put out by my use of the Soviet, Maoist, and Nazi regimes in my examples. I apologize for this. But I cite those examples not because there is any equivalence between the evil of these regimes and our employment of corporate criminal liability, but because those are the regimes that employed the same principles of collective punishment and "rehabilitation" that are inherent in corporate criminal liability. I'd be glad to use the Inquisition in my examples more frequently, but the church did not employ such principles. The Inquisitors simply used torture. I use the examples to point out what makes a liberal regime different from a totalitarian one. In a liberal regime, citizens accept a less efficient police apparatus in return for a larger sphere for their personal liberty.

Mike accuses me of formalism again for insisting on the distinction between criminal and administrative sanctions. He then makes an odd argument claiming that there is no essential difference between them because "administrative and criminal penalties are different only by degree. If administrative penalties are high enough, they will produce the same result as a criminal conviction: a loss by the company of a considerable amount of money." The reason why I call this argument odd is because earlier in our exchange, Mike was at pains to distinguish criminal from civil and administrative penalties on the ground that only criminal penalties carry sufficient moral stigma to effectively deter criminal conduct. Remember his point about businesses simply regarding non-criminal sanctions as a cost of doing business? Now, either criminal penalties are or are not different in kind from administrative sanctions. If they are different because of the moral stigma associated with them, then we have something to talk about. If they are not different, then criminal sanctions are unnecessary and Mike has conceded the point about corporate criminal liability.

Having said this, let me concede that I believe Mike has a good substantive point is showing that administrative and corporate criminal sanctions are similar in effect. In opening our discussion on Monday, I distinguished between criminal liability on the one hand and civil liability and administrative sanction on the other. I did this because our assigned topic was the extent to which corporate criminal liability was justified and I wanted to keep the focus on that. However, if asked to address the more general topic, I would be willing to argue that market forces and civil liability are sufficient deterrents to fraudulent business practices, and hence, that administrative sanctions can be dispensed with along with corporate criminal liability. Further, I would argue that this would be a good thing for precisely the reason Mike points out-absent the moral stigma, such sanctions still function as a form of collective punishment. However, for those readers who do not accept this, and believe that administrative sanctions are necessary, Mike's last posting provides an argument demonstrating that corporate criminal liability is unnecessary.

Finally, Mike passes on to a more fundamental moral question, "is it ever moral to harm innocents to achieve a great public good?" Mike's answer is sometimes. I agree with him. He provides examples of cases such as war and the need to avert a nuclear disaster which illustrate this. Notice, however, how extreme these examples are. The question we are examining is whether the need to combat business crime is similar enough to these cases to justify harming the innocent. I am tempted to say that he answer must be: obviously not. Mike asks: "Can we justify harming some innocents for the greater good of protecting the public from the havoc that would be wreaked by unchecked criminal behavior in the powerful corporate sector?" But this is a non sequitur. For there is no threat of havoc being wreaked by unchecked criminal behavior in the powerful corporate sector. If we eliminate corporate criminal liability, business crime will not run wild. Prosecutors can still go after the culpable individuals directly. Corporations as collective entities will still be subject to the financial sanctions of both the market and civil liability judgments, and if you favor that sort of thing, administrative sanctions. If we eliminate corporate criminal liability we lose only one tool in the fight against business criminality, the illegitimate tool of collective punishment.

In stating that "In fighting white collar crime, the stakes are less significant, but so is the harm to the innocents," Mike greatly underestimates the harm of corporate criminal liability. And here I am not referring merely to examples like the losses suffered by the innocent partners at Arthur Andersen. As I think we previously established, obtaining convictions against corporations is not what corporate criminal liability is really about. It is about coercing corporate cooperation with law enforcement efforts. And the harm this does is great. It is too late in our exchange for me to go into detail about the untoward effects of placing employers and employees in adversarial roles. But if you want an inkling of what it is like, consider the lives that were ruined (and the Constitutional rights that were violated) by KPMG's behavior in attempting to "cooperate" with federal prosecutors sufficiently to be granted a DPA. Government-approved compliance programs are not ethics programs, and what the government considers cooperation is not consistent with what is called organizational procedural justice. There is presently over thirty years of organizational behavior research that demonstrates systems of command and control sanctions such as those DOJ mandates to avoid corporate indictment are less effective at reducing wrongdoing within business organizations than the trust-enhancing systems of procedural justice that DOJ considers evidence of an uncooperative corporation. And the reason for this is that the command and control systems tend to destroy the trust and alignment of interests and values between employee and firm that not only make businesses more successful financially, but also tend to produce ethical "corporate cultures."

Mike wants to discuss the circumstances under which an alleged corporate criminal should be pursued. The Holder/Thompson/McNulty/Filip Memorandum identifies the tactics DOJ will use in such a pursuit. That is enough for me to identify those circumstances with the null set.




Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.