Under proposed amendments to the federal sentencing guidelines, corporations could get a break on fines and other penalties for white collar crimes committed by top executives. To benefit, the companies would have to show that their compliance officer had direct access to the board of directors, their compliance program detected the criminal activity, and the company quickly self-disclosed it to the feds.
Will fine-tuning the sentencing guidelines help companies? Not likely. Writing in the Wall Street Journal’s law blog, Amir Efrati said: “Given that judges don’t often oversee prosecutions of major companies, we’re not exactly sure how many big cases the change would effect in the future. Still, many smaller companies face prosecution all the time.” (Not a single corporate defendant, big or small, has fought Foreign Corrupt Practices Act charges in court for the past two decades.)
The problem isn’t the sentence a company might receive. It’s the conviction itself — best illustrated by Arthur Andersen’s demise after a 2002 conviction (later overturned) and the loss of 85,000 jobs. Not only are the consequences disastrous, the risk of conviction at trial is nearly one hundred percent. The legal doctrine of respondeat superior makes corporations vicariously liable for crimes committed by employees at any level acting within the scope of their employment, even for actions in direct violation of company policy. With respondeat superior as a legal weapon, prosecutors can’t lose.
The U.S. Sentencing Commission itself said so 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.
Because respondeat superior leaves companies defenseless, their only choice when threatened with prosecution is to cop a plea. That gives the DOJ and other enforcement agencies enormous power to force settlements on their corporate targets.
Using the sentencing guidelines to encourage corporate compliance is important. But it doesn’t help targeted companies that are forced to choose between settlement and death. What’s the fix? As many have suggested, instead of imposing strict liability, let companies at (or before) trial show they tried to prevent the criminal activity. If they can prove they had an effective compliance program, drop the prosecution and chase culpable employees instead.
The U.S. Sentencing Commission will hold a public hearing on March 18 and will vote on the proposed amendments in April.
Download a copy of the 76-page Proposed Amendments to the Sentencing Guidelines (January 21, 2010) here.