International Law of Corporate Crime - Coursework Example

International Law of Corporate Crime Introduction The existing laws on corporate criminal liability are ambiguous and unequal to the task of addressing the issue of corporate crime. The following discussion and case law proves this contention. In DPP v Kent and Sussex Contractors Ltd,1 the court ruled that the accused company was criminally liable, under the provisions of the Defence Regulations. The court determined that this company had furnished, for the purposes of the Motor Fuel Rationing Order 1941, 2 false documents and false information.3 The criminal responsibility of a corporation or company has to be determined by the principles of the common law. This hold good when the terms of the applicable statute do not explicitly provide to the contrary, and in contrast to that of its officers or employees.4 Discrete individuals in groups commit corporate crime. Moreover, a corporate crime is deemed to have been committed, when the official of a corporation, who is acting on its behalf, infringes the law. When the corporate official derives a personal benefit consequent to the commission of a crime against the corporation, then an instance of occupational crime is said to have transpired. 5 Significantly, corporations are rendered victims of crime upon undergoing a loss, consequent to the commission of an offence by a third party, which could include its managers and employees. 6 The commission of financial crime by the managers or employees, within the context of a legal organisation, renders a corporation the perpetrator of crime. In comparison to individuals, corporations are much more capable of corrupting and manipulating enforcers, judges and regulators. 7 Moreover, corporations enjoy better organisation and wealth, and they derive advantage from economies of scale in corruption. Furthermore, corporations have far superior strategies for influencing the media and politicians. Their innate capacity to bestow large grants, make substantial contributions to political campaigns and to induce the influential lobbying organisations enables them to attempt changes to the law that would prove beneficial to their illegal activities. 8 The common law, in its original version, had always stated that there be no criminal conviction of a company. This was the opinion of the common law as applicable to crime. It also propounded that vicarious liability could not be attached to crimes.9 Nevertheless, during the 19th century, exceptions in the statute, with respect to the principle against the criminal liability of corporations, emerged from the general statutory exceptions to the principle of vicarious responsibility. This resulted in common law exceptions to situations, wherein corporations had not discharged a statutory duty, thereby causing a nuisance under the common law. 10 Evolution of Corporate Criminal Liability As a matter of fact, there has been a veritable plethora of regulatory legislation that has concentrated upon rendering corporations criminally liable, with regard to all their activities. A large number of these statutes inflict liability that is strict or absolute, and which frequently admits a due diligence defence. On the other hand, there are some statutes that entirely circumvent criminal liability and concentrate upon civil penalties. This latter approach makes it possible to impose substantial sanctions. Moreover, such sanctions are devoid of the stigma or procedural difficulties that accompany criminal prosecution.11 In the aftermath of the 19th century’s rapid industrialisation and the advent of the company whose liability was limited, the regulation of corporations was rendered a pressing issue. The chief difficulty envisaged was with respect to the manner in which artificial entities were to be included in the predominantly distinctive criminal law structures. The early prosecutions circumvented this issue by prosecuting corporations for omissions that had resulted in a nuisance. 12 It was soon recognised that in order to render corporations criminally liable for positive behaviour, it would be essential to introduce a rule of attribution that would make a corporation criminally liable for the acts of others. With regard to offences involving strict liability, it was perceived that the imposition of vicarious liability was justified. Subsequently, this principle was employed against offences requiring a mens rea proof.13 However, the courts refused to extend vicarious liability to offences against the person and other such traditional criminal offences. The English courts instituted a basis of liability, whereby the conduct of some of the officers of a corporation would be attributed to it. This identification doctrine was applied in several cases during the 1940s. However, there was a failure to articulate it in precise terms, till their Lordships ruling in Tesco Supermarkets Ltd v Nattrass. 14 In this decision, the Law Lords emphasised that a living individual possessed hands and a mind that enabled him to have intent or knowledge, or to be negligent. Moreover, his hands enabled him to carry out his intentions. These aspects were absent in a corporation, which had to act through living persons. In such cases, the person who acted, no longer did so for the company. In fact, this person acted as the company; and his mind, which directed his acts was that of the company. 15 This precludes vicarious liability on the part of the company. Such an individual does not act as an agent, delegate, representative or servant of the company. He constitutes a personification of the company, and his mind is that of the company. Whenever, this mind is guilty, such guilt becomes that of the company.16 Identification Doctrine Under the common law, the doctrine of identification has constituted the principal scheme for attributing criminal liability to a corporation. This doctrine was formulated in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd.17 During the 1940s, the practice of applying the identification doctrine to criminal cases was commenced. 18 The exact nature of the identification doctrine was described in Tesco Supermarkets v Nattrass,19 by the House of Lords. In this case, their Lordships scrutinised the identity of a shop manager, in order to determine whether that individual could be identified with the company. 20 While delivering his judgement, Lord Reid affirmed the ruling in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd and adopted the theory of the directing mind and will. This theory had stated that a person acting or speaking for a company, did so as the company and that his mind, which determined his actions was that of the company. 21 Thereafter, the Law Lords ruled that the branch manager, in question, could not be regarded as a controlling mind of the company. Inter alia, the House of Lords furnished a list of personnel who possessed the standing required for being identified as the company. Some of the members of this class of personnel were the directors and other controlling officers.22 The English Judiciary, with a view to holding corporations criminally accountable for their officers’ conduct, ranked the employees of corporations. Whilst doing so they classified as superior, the employees whom they regarded as being the very embodiment of the organisation and not its mere agents. These superordinate employees were members of the top echelon of the management. 23 Such higher management personnel were responsible for initiating the policies of the organisation, and their conduct was such that it was inseparable from that of the organisation. The culpability or liability inherent in the comportment of such officers was ascribed to their company, which served to provide the mens rea necessary for conviction for a crime. 24 There is a substantial resemblance between the human body and a company. The latter enjoys a brain and nerve centre that controls its activities. In addition, it has arms that embrace the various devices and conduct themselves, as per the instructions provided to them by the centre. Several categories are present, with regard to those who work in a company. Thus, some of these individuals are mere agents and servants who merely function as the hands of the company. 25 By no stretch of the imagination, can a cerebral activity be attributed to such people. On the other hand, the managers and directors of the company think and decide on behalf of the company, and it is the practice, with the law, to regard the state of mind of this latter class as the state of mind of the company, itself. 26 As stated by their Lordships in Tesco Supermarkets Ltd v Nattress (Tesco), a corporation could be criminally liable, if the fault originated from the individuals who could be deemed to be its directing mind. In this case, the House of Lords accepted the appeal of the company, which in essence stated that the branch manager of the company was not of such significance that his fault could be attributed to it. 27 The branch manager, in question, was under the control of the board, which provided him with the necessary directions. Moreover, he had not been delegated with any of the powers of the board. As such, he was not the will of the company or its directing mind. 28 This judicial perspective was of great significance. Companies, wherein statutory offences involving a directing mind that was defrauding them, were not provided with defences. In Moore v Bresler Ltd (Moore),29 a corporation had been charged with intentionally submitting a deceitful return that was required by a statute relating to taxation. This corporation argued that it should not be held liable, as the director who had filed the return had acted in fraud of it. 30 The court rejected this argument. It was of the opinion that the sale of the goods of the corporation had been conducted by persons who had acted as its agents and who had been duly authorised by the respondents. The fact that these officers had indulged in a crime against their company had no bearing upon the liability of the company for deceiving the tax authorities. 31 Specifically, the presiding Law Lord declared that those officers constituted the human element of the corporation and that their actions had to perforce be attributed to the corporation. The persons involved were undoubtedly, responsible and important officials of the corporation. Their actions of submitting returns and statements were unequivocally performed in their capacity of officers of the corporation. 32 Consequently, their acts were those of the corporation. Around three decades have transpired, since their Lordships’ decision in Tesco Supermarkets Ltd v Nattrass, which brought into existence the doctrine of identification for establishing corporate criminal liability. This ruling has been consistently attracting criticism, as being inapt Vis – á – Vis the contemporary decentralised corporate structures. 33 A measure of flexibility has been introduced by the courts, with respect to this doctrine. However, the judiciary has not discarded derivative liability as the basis for corporate fault. Corporations tend to be deeply pervasive in the commercial realm; consequently, it could be presumed that legislatures would have rectified this shortcoming in an expeditious manner. 34 Difficulties Associated with the Identification Doctrine The identification doctrine constitutes the cardinal exemplar of attribution under the common law. All the same, this model of attribution admits of several basic disadvantages. These failings have been discussed in the sequel. Evidential Issues In order to determine liability, it is indispensable to isolate a person, who can be regarded as representing the company, with the necessary degree of fault. It has been clearly discerned that the identification doctrine is especially well suited on being applied to companies that are small and managed by their owner. In small companies, the task of establishing whether a senior individual possesses the necessary degree of fault, tends to be a simple matter. 35 For example, in R v OLL Ltd and Kite,36 four persons met their death, while undertaking a trip by canoe, in the Lyme Bay. The managing director of OLL Ltd and the company itself, were declared to be guilty of manslaughter and accordingly convicted. While pronouncing his judgement, Ognall J, stated that the company and its managing director were so correlated that they would stand or fall as one. 37 With regard to the larger companies, several evidential issues come to the fore. In such cases, it proves to be onerous to establish whether the necessary degree of fault can be attributed to a senior individual, with whom the company can be identified. It has been rightly pointed out that the effectiveness of the identification doctrine is inversely proportional to the size of the company. 38 This feature of the larger companies was demonstrated explicitly in R v P&O European Ferries (Dover) Ltd.39 This case pertained to the capsizing and sinking of the vessel Herald of Free Enterprise. An open bow door was determined to be the cause of this accident, which claimed the life of 192 people. During the inquiry, it was clearly established that the P&O European Ferries (Dover) Ltd was a company that was slipshod throughout its hierarchy, without exception. 40 However, it was not possible to prosecute this company, as it proved impossible to establish that the dangers inherent in open bow door sailing were known to its senior managers. Therefore, it proved impossible to attribute mens rea to the company. 41 Consideration of the Corporate Reality The chief criticism levelled against the identification doctrine is that it is not in touch with the reality of contemporary corporate decision making. Corporate policies and procedures play a major role in the decisions made by the contemporary corporate sector. These decisions are not the consequence of individual decisions. The identification doctrines tends to reduce the personality of a company to the features of a single senior official. 42 However, the truth is that a company, with regard to its intricacy, longevity and size is much more than the collection of its human elements. The identification doctrine, per se, via its method of attribution, concentrates on just one part of the corporation. As a result, the identification doctrine disregards the true convolution of corporate crime. 43 Therefore, it proves unequal to the task of deciding whether the corporation, in question, is really at fault. Excessively Inclusive Nature of the Identification Doctrine There is apparently an anomaly, as this doctrine has been repeatedly criticised for its inability to bring about the conviction of large corporations; whereas this aspect of this doctrine states that it is overinclusive in its application. There have been several instances, wherein corporation have been deemed to be liable, albeit the concerned senior officer has acted independently and has flouted the policy of the corporation. 44 A clear illustration of this feature was provided by the case of Moore v L Bresler Ltd.45 The court ruled that the sales manager and company secretary of the company constituted its embodiment. Accordingly, that company was convicted of employing fabricated documents, in order to deceive, which was a violation of the Finance (No 2) Act 1940.46 Those senior officers had not informed the board of directors of the company, about their actions. In fact, those documents had been concocted with the express intent of concealing the fraud perpetrated by those officers upon the company. Nevertheless, the court displayed not even the slightest hesitation in pronouncing that the acts of those officers were tantamount to that of the company. 47 In order to attribute fault to commercial organisation, which are essentially devoid of physical features, the approach adopted in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd has been utilised.48 The ruling in this case, construed the principle of the directing mind, which declares that a company director’s fault connotes that of the company. 49 A narrow approach towards the directing mind principle has been adopted by the judiciary of the UK. This was illustrated in the decision of the House of Lords in Tesco Supermarkets v Nattrass. In this case, it was held that a lower level functionary of the company was not its directing mind. This perspective of the UK courts, which attributes the higher levels of management with a directing mind, has been criticised as being unsuitable, with respect to the contemporary corporate systems. These structures, in general, admit of operational procedures that are scattered across many people, geographically, as well as functionally. 50 The present approach of the UK courts is to isolate a person in the organisation who can be deemed to be its directing mind. This precludes the combining of the mental states of more than one individual, within the organisation. 51 Business concerns in the UK continue to be held directly liable under the directing mind principle, on account of the provisions of the Bribery Act 2010.52 Consequently, liability could be attached to a holding company for the bribery engaged in by the board of its subsidiary company. Under the provision of the Bribery Act 2010, the fructification of consent or connivance liability necessitates the establishment of the intention of the directing mind of the company.53 In other words, the senior manager or member of the company’s board has to be involved in bribery. This renders the company, as well as the concerned senior manager or board member liable. 54 Extraterritorial Jurisdiction The US courts have been exhibiting a gradual disinterest in implementing extraterritorial jurisdiction over multinationals. This is diametrically opposed to the European courts, which have increased the use of such jurisdiction. An important example is that of the case Mario Alberto Tabra Guerrero & Others v Monterrico Metals PLC,55 wherein the English High Court took a review. In this case, 32 indigenous Peruvians, claimed that an English corporation, which was part of a Chinese consortium with headquarters in Hong Kong, had supported and sponsored their torture by the police of Peru. 56 In the month of January 2013, the district court in The Hague held that the Shell Petroleum Development Company of Nigeria Ltd, a subsidiary of Royal Dutch Shell was squarely responsible for causing oil pollution in the Niger Delta. This court directed this oil company to pay damages.57 However, the district court dismissed the claims made against the Royal Dutch Shell. Subsequent to the oil spill, four Nigerians and the organisation, Friends of the Earth initiated legal action in The Hague, the location of the global headquarters of Shell. This lawsuit was aimed at obtaining compensation for the contamination of the Niger Delta region. This case was regarded as a test for making the multinational companies responsible for the actions of their foreign subsidiaries. 58 This decision has been hailed for having made a subsidiary company responsible for its offences. In this context, it is to be noted that as of the year 2012, there have been 198 oil spills in the Niger Delta, and all of these have been at the facilities of Shell. The amount of oil released during these has been of the order of 26,000 barrels. The Shell company has made this information available. It has declared 161 of these spills to be the outcome of sabotage or theft, and 37 oil spills the result of operational failure. 59 The local communities discounted these statistics and accused Shell of drastically reducing the number of such incidents. The populace of the Niger Delta had stated that their fisheries, land and water were grievously damaged by the oil companies. These people demanded that the norms extant in the rest of the world, with respect to the oil companies, were to be implemented in Nigeria. At the same time, Shell was subjected to legal action in the UK. This was in a case involving 11,000 individuals from the Niger Delta Bodo community.60 Significantly, in this context in the year 2011, a United Nations report had censured the Nigerian government and multinationals, including Shell, for a half – century of oil pollution. The Member States of the European Union (EU) have increased their activity in extraterritorial adjudication. It has been the practice with the US to provide substantial protection to foreign plaintiffs. Nevertheless, a volte face has become apparent in the contemporary attitude of the US courts. 61 For instance, these courts have ruled that corporations cannot be sued under the provisions of the Trafficking Victims Protection Reauthorization Act 2013. Moreover, these courts have also held that the federal securities laws’ chief antifraud provision was inapplicable to foreign transactions occurring extraterritorially. 62 Individual units are governed by the national corporate law structures. These systems have been devised prior to the propagation of the multinational corporations. The attraction of multinational corporations to a country is chiefly due to the introduction of foreign capital, and the provision of access to international markets, training and new technologies. However, these attractions have the undesired outcome of making it very difficult to make these entities responsible under the domestic corporate laws. 63 The multinational corporations have regularly violated the corporate form. These organisations incorporate delegated decision making, partitioning of assets and other features of the corporate sector. The consequence is that there is every possibility of abuse by those who ignore the standards of human rights. 64 One of the several of such unsavoury instances is that of the fatal methyl isocyanate emissions of 1984 in Bhopal involving Union Carbide.65 Several of the multinational corporations conduct their business operations in regions embroiled in conflict. In such locations, these corporations tend to structure their ventures fraught with risk, in order to circumvent liability. 66 Protection against losses that are in excess of their initial investment, is provided to shareholders by the limited liability and separate legal personality doctrines. With regard to corporations, these doctrines protect the parent corporations from liability for violation of human rights by their foreign subsidiaries. 67 Thus, the multinational corporations deliberately segregate dangerous activities, by rendering them the specific activity of separate entities. Consequently, these foreign subsidiaries exist as distinct legal entities, despite their economic interdependence. 68 Moreover, limited liability safeguards the parent organisation against responsibility. In this manner, a mockery is made of the national corporate law structures, by the multinational corporations. It is in this context that realisation has dawned that the regulation of the multinational corporations requires legal liability that is unfettered by national borders and which holds sway across corporate groupings. Consequently, extraterritoriality has emerged as a legal dogma that enables judicial systems to implement authority beyond the archetypal jurisdiction. 69 In fact, extraterritoriality constitutes an efficient device for addressing the accountability lacuna ensuing from globalisation. As such, responsibility can be imposed by resorting to this legal doctrine, in situations, wherein no system, by itself, proves to be competent to establish the culpability of the multinational corporations.70 International Law on Corporate Criminal Responsibility The situation obtaining in international law regarding the criminal responsibility of corporations is paradoxical, to say the least. For instance, a number of legal standards are in place for regulating company activities. However, none of these norms envisage criminal responsibility for their infringement. At the same time, a vast body of laws are present, with respect to the criminal responsibility of individuals regarding the violation of international law. All the same, there is an absence of provisions that explicitly address the criminal responsibility of individuals, regarding their commercial activities. 71 It is crystal clear that the international norms, in general, pertain to the multinational corporations. This allows one to surmise that the international norms of business are germane to the corporations and not the individuals. Is such a milieu, the international business norms would be irrelevant to international criminal law. 72 This is borne out by the fact that the Rome Statute of the International Criminal Court73 and the international law declare that criminal responsibility can be attached only to individuals and not to the transnational corporations or other such legal entities. During the Rome Conference, the French had proposed that companies should be made criminally liable. This was not accepted because of the evidentiary problems inherent in the prosecution of legal entities; and the fact that several of the national systems did not accommodate the criminal liability of corporations. 74 The various international criminal courts, usually do not prosecute corporations. Moreover, the contemporary international law fails to impose criminal responsibility upon corporation, in general. 75 In the past, the Nuremberg Charter76 had permitted the International Military Tribunal to classify organisations or groups as criminal entities. Nevertheless, this was permitted only during the trial of an individual. In addition, the outcome of labelling an organisation criminal was to place its members on trial for being a part of it and not for punishing the organisation. In a similar manner, the International Criminal Tribunal for the former Yugoslavia (ICTY)77 and the International Criminal Tribunal for Rwanda (ICTR)78 statutes, and the Rome Statute of the International Criminal Court (ICC) furnish jurisdiction that is limited to natural persons. Conclusion According to the above discussion it can be surmised that the law on corporate criminal liability is defective. It permits corporations to evade criminal liability, even when they cause grave and hazardous massacres like that of Bhopal. In addition, the narrow approach of the directing mind principle, adopted by the courts in cases such as Tesco, ascribe liability only to the higher levels of management. This is unsuitable in the context of the multinationals. In addition, various international regulations regarding the criminal liability of corporations, fail to address the intricacies involved in corporate crime. Evidently, it is impossible to incarcerate a corporation. As a consequence, most of the punishments aimed at deterring individual violators prove to be unavailable with respect to corporate crime and corporations. From the legal perspective, a corporation constitutes an abnormal person. The ruling in DPP v Kent and Sussex Contractors Ltd, made it very clear that a company could be rendered guilty of criminal offences, despite the fact that such acts could only be commissioned by natural persons. The court ruled that the circumstances peculiar to a specific situation determined whether the illegal acts of an agent of the company were to be imported to the company. Since the identification doctrine concentrates on just one area of a corporation, it fails to acknowledge the complexities of corporate crime. Moreover, the application of the identification doctrine to large companies proves to be futile. This is due to the fact that there is no possibility of establishing the facts that are pertinent to the satisfaction of the necessary elements of the offence. As a consequence, it can be surmised that the identification doctrine is entirely unsuited for the purpose of imposing liability. Thus, it can be concluded that the extant laws relating to corporate criminal liability are singularly unsuccessful in providing justice to the vulnerable victims. Bibliography Bribery Act 2010. Cassel, D, 'Corporate Aiding and Abetting of Human Rights Violations: Confusion in the Courts', Journal of International Human Rights, vol.6, no.2, 2008, pp.304 – 326. Cavanaugh, N, 'Corporate Criminal Liability: An Assessment of the Models of Fault', Journal of Criminal Law, vol.75, no. 5, 2011, pp.414 – 440. Charter of the International Military Tribunal – Annex to the Agreement for the prosecution and punishment of the major war criminals of the European Axis 1945. Clough, J, 'Bridging the Theoretical Gap: The Search for a Realist Model of Corporate Criminal Responsibility', Criminal Law Forum, vol.18, no. 3, 2007, pp.267 – 300. Corporate Prosecutions, The Crown Prosecution Service, retrieved 22 December 2013, . DPP v Kent and Sussex Contractors Ltd [1944] KB 146. 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