Your employees may be your company’s greatest asset, but they can also present your greatest danger. Governmental scrutiny of business activity has never been more intense, and prosecutors are increasingly holding corporations criminally responsible for the acts of their employees. Corporations in highly regulated industries, like health care and banking, stand the highest risk, but all companies should be aware of when the corporation or its officers could be held liable.
The extent to which a corporation can be held criminally liable for the actions of employees and agents varies depending on the jurisdiction.
Under federal law, a corporation can be held liable if the employee’s actions are of the kind the employee is authorized to perform, done on the corporation’s behalf, and done at least in part to benefit the corporation. It is not a defense that the actions were against company policy or corporate management took efforts to prevent criminal misconduct. However, steps taken to prevent criminal conduct by management may affect a prosecutor’s decision whether to prosecute.
Title 9 of the United States Attorneys’ Manual encourages prosecutors to consider bringing charges against corporations. (Article available here.) The Manual notes that there are public benefits to charging corporations, including strong deterrent effects (“an indictment can provide a unique opportunity for deterrence on a broad scale”). Prosecutors are instructed to consider such factors as the company’s cooperation, compliance programs, and remedial actions. The Manual stresses that charging a corporation does not mean individuals should not be charged.
Many state legislatures, including Kentucky and Ohio, have passed laws that do not follow the federal rule, but instead follow the approach from the Model Penal Code. Under Kentucky and Ohio law, the government must prove that a high managerial agent authorized or approved the conduct. In contrast, Indiana generally follows the federal rule. In Indiana, however, if an employee takes an unauthorized act that has a sufficient association with an authorized act within the scope of employment, a corporation may also be held criminally liable for that employee’s unauthorized criminal act.
Responsible Corporate Officer Doctrine
Although a corporation may be held culpable for the acts of its employees, an employee will generally not be held personally liable for crimes committed by the corporation. Usually, an individual may be held criminally responsible only for his own actions. Under the responsible corporate officer doctrine, however, some statutes permit individual criminal sanctions for actions committed by an corporate employee if the employee’s position within the company would put the violation under his control and he had the ability to prevent the violation. Thus, a corporation can be held liable for the acts of its agents without regard to the individual’s status in the corporate hierarchy, and liability attaches to the corporate officer without a showing of managerial complicity. These statutes are generally related to food and drug regulation or environmental crimes because of the public dangers involved.
Lesson for Corporations and Their Counsel
Like an individual employee, a corporation and its officers can be held criminally liable for violations of federal and state criminal laws. Therefore, corporate counsel should keep these rules in mind when assessing the risks faced by a corporation, its officers, and its employees.
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