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A Hair Trigger For Corporate Liability

All the briefs in United States v. Ionia Management, S.A. are now available on the White Collar Crime Prof Blog. The Second Circuit case challenges respondeat superior — the legal doctrine by which companies are vicariously liable for crimes committed by employees acting within the scope of their employment.

How important is respondeat superior to the Foreign Corrupt Practices Act? Well, think of it as the government’s Magic Bullet. With respondeat superior, prosecutors can’t lose. But don’t take our word for it. Here’s what the United States Sentencing Commission said about respondeat superior in its May 2004 release:

Criminal liability can attach to an organization whenever an employee of the organization commits an act within the apparent scope of his or her employment, even if the employee acted directly contrary to company policy and instructions. An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions.

No wonder corporations settle FCPA enforcement actions instead of fighting them in court. But does the law make sense? Should corporations at least be able to present evidence of their compliance efforts in their own defense? Under current law, that evidence may be entirely irrelevant. That’s why Ionia — which is about a ship that released pollutants — is so important to the FCPA.

We’ve already posted some excerpts from the excellent amicus brief in support of the defendant-appellant in Ionia. Here’s one worth repeating:

A criminal indictment can be a life-or-death matter for a company. Yet, the vast sweep of the district court’s standard for the imposition of vicarious criminal liability makes corporations accountable for almost all criminal acts of any low level employees—even those acting against explicit instructions and in the face of the most robust corporate compliance program. This has caused a tremendous imbalance between the power of a prosecutor and a corporate defendant. Given the hair-trigger for corporate liability even for the most responsible corporate citizen, many corporations forego any defenses in order to resolve threatened prosecution.

And one more:

The potential for inappropriate prosecutorial pressure is particularly heightened in the area of corporate criminal investigations that end in Draconian non-prosecution and deferred prosecution agreements, where no court has oversight authority. There, the prosecutor effectively serves as both judge and jury. Because of the disastrous consequences of a corporate indictment and the ease with which corporations may be liable under the doctrine of respondeat superior, corporations are under immense pressure to agree to almost any terms. The vast majority of these negotiations go on behind closed doors, with little public scrutiny and no judicial review.


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