White Collar Crime
Profs. Corngold & Sack-Spring 2012
a. White collar crime offenses are nonviolent offenses that lead either to economic harm (mail/wire fraud, securities fraud and financial crimes) or to harm the government’s ability to function effectively and without conflicts of interests (bribery, extortion, perjury, obstruction of justice etc.) WCC is generally motived by illegal monetary or influential gain.
i. Corporate Crime: economic in nature and can be considered a subset of white collar criminal activity, beneficial to corporation or to individuals running it
ii. Blurry line between criminal and civil law:
1. WCC D testifying in his defense at a civil trial waives his 5th amendment right in a subsequent criminal proceeding
2. Criminal trial is a fruitful discovery opportunity for the civil P suing the criminal D
b. Recurring issues
i. Criminalization: What should society subject a defendant to the full force of criminal penalties rather than to civil and/or administrative remedies?
1. Arguments against punishing WCC:
a. Activities are morally ambiguous and may not deserve the full condemnation of the criminal law
b. Criminal statutes are designed to cover such matters are often flawed, in large part because economic crimes are difficult to define.
2. Civil v Criminal Liability
a. The blurring of the border between tort and crime will result in justice and ultimately weaken the efficacy of the criminal law as an instrument of social control
b. Criminal law is obeyed not simply because there is a legal threat underlying it, but because the public perceives its norms to be legitimate and deserving of compliance. Criminal law is a system for public values
c. Tort law seeks to balance private benefits and public costs
i. Tort law prices, criminal law prohibits
3. Over criminalization:
a. Statutes do not always distinguish criminal conduct from the gray zone of socially acceptable and economically justifiable business conduct
ii. Due Process
1. Seems white collar crime is judge made law now, with courts deciding on a case by case basis whether conduct whether conduct falls within the often vaguely defined legislative prohibitions.
a. Such statutes run the risk of criminalizing conduct that Congress did not intent to criminalize
b. Failure to provide fair notice to potential D’s
c. Failure to provide guidance for prosecutors
iii. Prosecutorial Discretion
1. Prosecutors have the discretion to decide
a. Whether the facts merit criminal charges
b. Whether to seek criminal penalties when civil and/or administrative proceedings be brought
c. What criminal statutes to use in bringing a case
d. What theories to charge when using those statutes
e. Whom to charge in the case
2. Many times the activity fits the elements of more than one offense
3. Since many white collar criminal statutes are so broad-reaching, prosecutors have to exercise discretion when applying the statutes to new situations and particular defendants
iv. Federalism & Jurisdiction
1. Federal duplication of state criminal law can unduly burden the federal system & diminish power of local law
2. Police power should belong to the states
3. Most WCC cases, jurisdiction falls under the Commerce Clause
a. Mail fraud falls under the postal powers
b. Tax fraud falls under the taxing power
c. White Collar Crime and General Criminal Law
i. In street crime, the generally issue is one of identity-have the police caught the right person?
1. In white collar crime the issue is usually whether the D’s admitted conduct even constitutes a crime. There are not many factual disputes between government and the D; rather the issue is if the conduct was even a crime
a. Also, the D’s mens rea is at issue
i. In a business fraud case, the government must prove that the D had the purpose to defraud, as opposed to intent merely to engage in aggressive but legal business practice
ii. Corporations don’t form mental states; their people do!
White Collar Crime
What Conduct Occurred?
Can be impossible to reconstruct what occurred
not difficult to determine; witnesses are located to determine what occurred
Was conduct a crime?
Difficult to determine whether the identified conduct was a crime at all
Evidence of physical injury makes it easy to determine whether conduct is a crime.
Generally preceded by long period of grand jury investigations
Little to no grand jury investigation prior to filing of formal charges
ii. Strict liability: absent clear intent to impose strict liability, the court held criminal intent must be proven in any case.
iii. Willfulness: some WC statutes require proof that D acted willfully. Willfulness required the government to prove that the law imposed a duty on the D, D knew of this duty and that he voluntarily and intentionally violated that duty.
d. Three Categories of WCC
1. Trick and deceive identifiable victims. May be difficult to identify victims where there are multiple victims
a. Mail fraud
b. Insider trading
ii. Regulatory Offenses
1. Violate statutory and regulatory schemes. Usually no indefinable victim.
a. Reporting statutes
iii. Combination of Fraud and Regulatory Offenses
1. Tax fraud
2. Mail fraud
3. Securities Fraud
i. Corporations cannot go to prison
1. Their officers can
ii. State can issue mandate where the corporation no longer exists
iv. Asset forfeiture: make company give up whatever it was they illegally acquired
vii. Sanctions: gov’t won’t engage in business with them
viii. Structural reforms: restrictions on what the company can do. i.e. a court appointed monitor, or company can’t use certain chemicals for a certain period of time
II. Corporate & Individual Liability
a. Should corporations be held criminally liable?
i. 2 Standards for Determining Corporate Criminal Liability
1. Both standards impose vicarious liability on the corp. by imputing the criminal acts and intents of the corp’s agents onto the corp.
Prof’s take on R.S.
1-Did employee commit a crime?
2-Within the scope of employment
3-With the intent to benefit the corporation
Respondeat Superior (3 Prong Test)-Feds Test
i. The corp. is criminally liable for the acts of its agents who act:
1. On behalf of the corporation
2. To benefit the corporation
a. Can also have other benefits i.e. themselves
3. Within the scope of the agent’s authority (often easily proved under actual or apparent authority)
ii. Respondeat Superior forms the basis of corporate criminal liability throughout the entire federal system whether or not the statute expressly imposes criminal liability on corporations
1. Exception→ Only exception is clear congressional intent not to apply statute to corporations
iii. Respondeat Superior imposes liability for the acts of all corporate agents, including employees and independent contractors, even when those agents operated at the lowest levels of responsibilities.
iv. Purpose of finding a corp. criminally liable even though the executives had NO knowledge of the crimes committed by lower level age
nt of high managerial approval would also prompt large organizations to attempt to avoid potential liability (by delegating decision making to lower level employees) or turning a blind eye. Court doesn’t fully adopt the Restatement either; instead it changes the “within scope of employment” element to “the corp has placed the agent in a position where he has enough authority and responsibility to act for and in behalf of the corp in handling the particular corporate business, operation or project in which he was engage at the time he committed the criminal act.
1. Broader standard than MPC, but differently defined than restatement’s respondeat superior
2. Court’s problem with MPC approach
a. One, the MPC elevates form over substance, allowing formal title of actor to dictate criminal liability of corp;
i. this makes no sense in modern corp
b. Two, the MPC will perversely encourage execs to turn a blind eye toward corp activity
i. If standard is “active involvement” or “active ignoring” of illegal activity, you’ll incentivize a world where people stare at their own desks
c. Three, proof argument – MPC is too difficult to prove corporate liability under this standard
i. Too difficult to penetrate corp to prove who authorized it; if you’re really interested in deterrence, to create structures of management to be sure criminality does not occur, then you don’t’ want to make it too difficult to impose criminal liability
iv. Commonwealth v. Angelo Todesca: employee truck driver for company struck and killed a police officer while backing up without a functioning back-up alarm. Company guilty of vehicular homicide. Conduct need not be performed , authorized, tolerated, ratified or adopted by corporate officials or managers. All that was required was that individual committed a crime; at the time the individual was engaged in some particular corporate business and that the individuals has been vested by the corporation with the authority to act for it
f. Individual Liability within the Corporate Setting
i. Generally in criminal law, punishment should match D’s culpability. Culpability is measured by the level of D’s criminal intent. In some limited contexts, an individual may be convicted absent any showing of mens rea.
ii. Corporate executives may be held criminally liable, just like any other criminal defendant, for their own criminal behavior, however, corporate executives may sometimes be held criminally liable for actions by other corporate employees, even when the executive did NOT know of the employee’s conduct – vicarious liability!
1. There are no basic elements. (Seems to depend on the statute you bring the case under.)
2. Just have to show that the D was responsible for the matter.
iii. D was a corporate officer; With responsibility and authority to supervise the allegedly illegal activities or to deal with the situation ; permits conviction for responsible corporate officials who have power to prevent or correct violations; note, per Watson, this DOES NOT APPLY OR SUFFICE FOR WHEN KNOWINGLY IS AN ELEMENT OF ALLEGED CRIME; only when no scienter requirement (as in Parks/FDA)