In The Master’s Defense

As we’ve said, nothing magnifies the impact of the Foreign Corrupt Practices Act on corporations more than respondeat superior. Latin for “let the master answer,” it’s the legal doctrine holding companies vicariously liable for crimes committed by employees acting within the scope of their employment. Under it, once an employee admits to an offense or is found guilty, the company is automatically guilty too. Case closed. That gives prosecutors enormous unchecked leverage over corporate defendants.

And that’s why we don’t know of anything more important to the FCPA these days than the pending case challenging respondeat superior. United States v. Ionia Management, S.A. was argued Friday in the U.S. Court of Appeals for the Second Circuit. But as the Wall Street Journal reports, the three-judge panel (Calabresi, Livingston, McLaughlin) didn’t seem too impressed with the appellant’s arguments.

Andrew Weissmann, the former Enron prosecutor and current Jenner & Block partner who co-wrote the excellent amicus brief, told the panel that a misreading of a 99-year old Supreme Court case, New York Central v. U.S., has made it too easy to impute criminal liability to corporations. The Journal reported this exchange:

Judge Guido Calabresi called Weissmann’s argument an “interesting” one, saying it appealed to the judges as academics. “Whether we should do something about this as judges is a different matter,” the judge said.

Other than the Justice Department, who benefits from respondeat superior? As the amicus brief puts it, the law imposes vicarious criminal liability on organizations for nearly all criminal acts of employees — even low-level personnel “acting against explicit instructions and in the face of the most robust corporate compliance program.” That sort of hair-trigger liability probably has no added deterrent effect on companies. And the catastrophic consequences of any potential conviction forces them to resolve threatened criminal litigation, without even the possibility of mounting a defense.

That’s not how our criminal justice system is supposed to work. Sure, corporate wrongdoers deserve to be punished. Rogue companies bent on breaking the law have to be stopped. But an accused corporation should always have the chance to show a judge or jury that it acted in good faith — that its overall intention was to comply with the law and not to break it.

Allowing corporations to defend themselves would bring a needed measure of justice. It would also give organizations the strongest possible incentive to maintain an effective compliance program.

It’s time to fix respondeat superior — either in court or in Congress.
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