As Salomé Lemasson’s excellent post earlier this week reported, a new level of corporate accountability for overseas bribery and ESG is breaking out across Europe. That’s welcome news, especially to those of us who once wondered if corporations there would ever face the music.
It seems obvious now that corporations should be held responsible for their overseas graft. Remarkably, though, many European and Latin American countries resisted the concept.
France, for example, only introduced corporate criminal liability for overseas bribery in 2000. Germany is still struggling with it. A proposed law drafted in 2019 called the Corporate Sanctions Act would codify corporate criminal liability. But for now, German authorities still rely on a 1968 administrative law to punish transgressing corporations.
In Latin America, late comers include Costa Rica, which established corporate criminal liability for overseas corruption in 2019, and Argentina and Peru in 2018.
Why did it take so long? Jurisprudential purists argued (logically) that criminal acts require criminal intent. A crime only occurs, they said, if one party makes a conscious decision to injure or deprive another. Because corporations are artificial persons, they can’t form any intent. Therefore, they can’t be guilty of crimes. In fact, in many countries, especially in Latin America, corporations have traditionally been viewed as bribery victims, not perpetrators.
The United States jumped the hurdle of corporate criminal intent in 1909 with the Supreme Court’s decision in New York Central & Hudson River Railroad Company v. U.S. The case enshrined the doctrine of respondeat superior, whereby corporations are held liable for crimes employees commit during the scope of their employment. In effect, the employee’s mens rea is vicariously and automatically attributed to the employer.
Another argument against corporate criminal liability is that it punishes far more innocent people than guilty ones. Shareholders are hurt when corporations are penalized financially. Yet shareholders have no direct say in a company’s everyday affairs. Similarly, corporate prosecutions put innocent employees at risk, along with lenders, suppliers, customers, and other stakeholders. Understandably, lawmakers and justice officials in some countries viewed so much collateral damage as repulsive and unfair.
And yet, without nearly universal corporate criminal liability, fighting overseas bribery is a lost cause. An internal 2016 OECD stocktaking report on the group’s anti-bribery convention said, “The liability of legal persons is a key feature of the emerging legal infrastructure for the global economy. Without it, governments face a losing battle in the fight against foreign bribery and other complex economic crimes.”
What makes corporate criminal liability so important? It’s because prosecutors often face insurmountable jurisdictional barriers to putting bribe-paying individuals on trial. Consider an Italian citizen, working in the Luxembourg office of a Panama-based company, who travels to Brunei and, while there, bribes visiting Indonesian government officials. That’s a made-up case but not far off typical scenarios.
Another reason for corporate criminal liability is to expose a company’s corrupt culture and reform it. Top leaders are usually culpable to some degree when there’s been systematic graft. Did they wink at compliance protocols? Did they knowingly hire or promote bad apples? Did they blind themselves and others to red flags? If so, they deserve the fallout that comes from corporate prosecution: public shaming, shareholder approbation, and professional disgrace.
Cynics might say recalcitrant countries finally adopted corporate criminal liability to avoid losing America as a trading partner, or to keep the OECD off their back, or as a way to grab a piece of the rich anti-bribery enforcement pie. All that might be true. Huge FCPA settlements involving UK-based companies may have influenced Her Majesty’s Government to adopt the potent 2010 Bribery Act. But whatever any country’s motives, the results are good. Corporations engaged in overseas bribery should know by now they can’t escape today’s global web of well-armed prosecutors.
A final thought: Ten years ago, corporate criminal liability was routinely questioned and criticized, even among so-called “rich” OECD countries. Today, corporate accountability is breaking out all over. Let’s celebrate the sudden and encouraging acceptance of the idea that corporations can be guilty too.