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Corporate and White Collar Crime
South Texas College of Law Houston
Wheeler, Michael E.

Corporate White Collar Crime Outline

Professor Wheeler Spring 2013

(1) CORPORATE CRIMINAL LIABILITY

(2 Theories)

Respondeat Superior – typically used by the federal government

Model Penal Code Approach – typically used by the states

Case: United States v. Hilton Hotels Corp.

1) A corporation is liable under the Sherman Act for the acts and statements of its agents “within the scope of their employment.” The court also added: “A corp is responsible for acts and statements of its agents, done or made within the scope of their employment, even though their conduct may be contrary to their actual instructions or contrary to the corporations’ stated policies.

2) Reasoning: Identification of the particular agents responsible for a Sherman Act violation is especially difficult, and their conviction and punishment is peculiarly ineffective as a deterrent. Also, conviction and punishment of the business entity itself is likely to be both appropriate and effective. A general policy statement is not enough. The corporation must be sure that people are following the policy.

3) If you can demonstrate that you have a compliance program and you use it properly, the case suggests that you might be able to mitigate some of the sanctions or damages against you if you use “due diligence”

Criminal Intent

Case: United States v. Bank of New England, N.A.

1) To act willfully under the Act the defendant must have knowledge (of the reporting requirements) and specific intent to commit the crime. To show willfulness the government has to prove that the Bank had knowledge and had specific intent to commit the crime.

2) There are two ways for the Corp to have knowledge and two ways for the Corp to have specific intent.

2 KNOWLEDGE

(1) knowledge of one of the Bank’s individual employees: if any employee knew that multiple checks would require the filing of reports, the Bank knew it, provided the employee knew it within the scope of his employment. (

2) collective knowledge: the bank’s knowledge is the totality of what all the employees knew w/in the scope of their employment.

2 SPECIFIC INTENT

Must look at the conduct of all employees and officers, and at what the bank did or did not do as an institution.

Gov’t must prove w/ respect to any transaction either:

(1) an ee within the scope of his employment willfully failed to file a required report or

(2) that the corporation was flagrantly (organizational) indifferent to its obligations then the jury may find that the corporation had willfully failed to file required reports.

Collective Knowledge: acts of the corporation are simply the acts of all its employees operating w/in the scope of their employment.

Specific Intent: willfulness entails a voluntary, intentional, and bad purpose to disobey the law. We do not convict for accidental, mistaken or inadvertent acts or omissions.

The Model Penal Code Rule

§ 2.07. Liability of Corporations, Unincorporated Associations and Persons Acting, or Under a Duty to Act, in Their Behalf.

(1) A corporation may be convicted of the commission of an offense if:

(a) the offense is a violation (a felony cannot qualify as a violation because it will result in jail time) OR the offense is defined by a statute other than the Code (i.e. the state’s penal code) in which a legislative purpose to impose liability on corporations plainly appears (for the most part you can overlook this phrase b/c usually “person” includes a “corporation”) AND the conduct is performed by an agent of the corporation acting in behalf of the corporation within the scope of his office or employment (so there are two prongs for the violation and then the act prong), EXCEPT that if the law defining the offense designates the agents for whose conduct the corporation is accountable OR the circumstances under which it is accountable, such provisions shall apply; OR

(b) the offense consists of an omission to discharge a specific duty of affirmative performance imposed on corporations by law (ie- this only applies to specific corporate responsibilities such as failing to file a charter or a tax return etc.); OR

(c) the commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent (must be able to point to particular person) acting in behalf of the corporation within the scope of his office or employment. (this is the difference between the RS rule and MPC)

(2) When absolute liability is imposed for the commission of an offense, a legislative purpose to impose liability on a corporation shall be assumed, unless the contrary plainly appears. (so if it’s a strict liability statute then it is assumed that strict liability should be imposed on the corporation)

(5) In any prosecution of a corporation or an unincorporated association for the commission of an offense included within the terms of Subsection (1)(a)… of this Section, other than an offense for which absolute liability has been imposed, it shall be a defense if the defendant proves by a preponderance of evidence that the high managerial agent having supervisory responsibility over the subject matter of the offense employed due diligence to prevent its commission. (so have to prove that the HMA with supervisory responsibility over the subject matter did all they could to prevent the crime) This paragraph shall not apply if it is plainly inconsistent with the legislative purpose in defining the particular offense.

Definitions in this Section:

a. MPC definition of “violation”: an offense defined by this Code or by any other statute of this State constitutes a violation is it is so designated in this Code or in the law defining the offense (so if the law says it’s a violation) OR if no other sentence than a fine, or fine and forfeiture or other civil penalty is authorized upon conviction OR if it is defined by statute other than this Code which now provides that the offense shall not constitute a crime. A violation does not constitute a crime and conviction of a violation shall not give rise to any disability or legal disadvantage based on conviction of a criminal offense. (So basically talking about a violation of the law in which you cannot go to jail and will not be listed on your record as a criminal offense)

b. MPC definition of “recklessly tolerated”: A person acts recklessly w/ respect to a material element of an offense when he consciously disregards (you know about it and despite that knowledge you disregard) a substantial and unjustifiable risk that the material element exists or will result from his conduct. The risk must be of such a nature and degree that, considering the nature and purpose of the actor’s conduct and the circumstances known to him, its disregard involves a gross deviation from the standard of conduct that a law-abiding person would observe in the actor’s situation

c. MPC definition of “high managerial agent”: an officer of a corporation or an unincorporated association, or, in the case of a partnership, a partner, or any other agent of a corporation or association having duties of such responsibility that his conduct may fairly be assumed to represent the policy of the corporation or association

State v. Chapman Dodge Center, Inc.

Issue: Whether a corporation should be criminally liable in the absence of a specific statute which defines and describes the corporation’s act, prohibits the act and establishes a specific punishment therefore

Holding: Evidence couldn’t find corp or Swindle liable. Swindle had little contact w/ corp.

-You can hold a corporation liable for criminal activity through the respondeat superior approach (agent) or the MPC approach (high-managerial agent)

(2) PERSONAL LIABILITY IN AN ORGANIZATIONAL SETTING

3 TYPES OF LIABILITY

Case: United States. v. Jorgensen

1) Corporate officer in a responsible relationship with the corporation can be held personally liable even though that individual did not personally engage in the illegal activity

2) Difference between Park case and this one: here we do not just look for whether they were in a responsible position or whether they had a responsible relationship to the issue, in this case, we have to look for a mental state as well- we have to find that they had intent to defraud. So this is a mix of direct participant and responsible relationship theories.

3) Why did we just have to show in the Park case that there was a responsible relationship? B/c in Park the statute did not have a intent element (it was strict liability). If the underlying offense requires a showing of mental state then must have responsible relationship and the mental state. So, only if the underlying offense is a strict liability offense is the responsible relationship theory the only theory used.

4) We do not want to use a strict liability doctrine for crimes that have jail time as a possible punishment. For crimes with possible jail time, we want to show intent.

8) Responsible corp. officer instruction wasn’t really even necessary b/c we want to show intent

-Intent to defraud is harder to prove than responsible corp. officer (strict liability)

Case: United States v. Iverson

-Extended responsible corporate officer doctrine to apply to the clean water act and clean air act also.

-Under the CWA, a person is a “responsible corporate officer” if the person has authority to exercise control over the corporations activity that is causing the discharges. No requirement that the officer in fact exercise such authority or that the corporation expressly vest a duty in the officer to oversee the activity.

Touchstones of “Responsible Corporate Officer”

1) Actual Power

2) Responsibility

-Indemnification of corporate officers: takes away personal liability of the officers; does the company pay?

Argument for indemnification: unless you provide this type of incentive then good people won’t serve in these positions to see that things run well and smoothly

Argument against: too much protection; leaves officers unchecked

definition of indemnify: to guarantee against any loss which another might suffer

-seems like many organizations frown on indemnification

(3) MAIL FRAUD

*Section 1343 – looking at use of mail or courier

No mens rea (intent) requirement for the jurisdictional provisions.

Ex. If you are in Kansas and you have somebody who calls from Kansas, but the wire runs through Missouri. You can still be on the hook! No mens rea needed on the jurisdiction aspect. Meaning D need not know that he was crossing state lines.

-Also, if you induce the D to place an interstate call, even if they didn’t want to do it they have still met the juris req.

-Want to use jurisdiction to hook the person into the mail/wire fraud

-Any use of federal mails provides gov., who has postal power, to interject its jurisdiction through the commerce clause.