Why punish corporations for their employees’ crimes?
Recent history suggests that, more often than not, the perpetrators get off scot-free, while the company that is accused of illicit behaviour bears the penalty – to the detriment of innocent shareholders. It seems this is the easier route for lawmakers. But is it better?
Under English common law from the 11th century until 1846, an inanimate object or an animal that caused a person’s death would be forfeited, becoming what was referred to as a “deodand”.
Absurd punishment
From today’s perspective, punishing inanimate objects for criminal acts that they do not have the agency to have committed seems absurd. Yet what is one to make of Goldman Sachs’ recent settlement with the US Department of Justice, whereby it will pay a $2.8-billion fine for its work – including aiding in the embezzlement of billions of dollars – with the corrupt Malaysian government fund 1Malaysia Development Bhd (1MDB). If one views criminal culpability as a matter involving individual human beings, it seems odd that an inanimate legal construct – a corporation – could be the one found guilty of committing a crime.
In the late 18th century, the British jurist Sir William Blackstone observed that: “A corporation cannot commit treason, or felony, or other crime.” Yet by the early 20th century, firms had come to be held liable for their employees’ criminal as well as civil misdeeds. Punishment would be borne mainly by stockholders and employees.
Of deodands and frankpledges
In addition to recognising that modern corporations have become a deodand for punishing malfeasance, Albert Alschuler of the University of Chicago Law School argues that corporations also can be viewed as a type of “frankpledge”. In Anglo-Saxon England, a frankpledge was a collection of men who were “bound together and held responsible for delivering anyone in any of their ten households who had committed a crime. If the criminal escaped, all ten members of the tithing were fined.”
Punishing corporations for the bad behaviour of individual employees might be viewed as a variant of this mechanism, insofar as it creates an incentive for employees and stockholders to monitor employee behaviour. But should we really punish whole groups for criminal actions carried out by individuals? And should we really expect such a regime to lead to more monitoring and accountability? Some would argue that it is reasonable to fine a corporation because an individual employee who is responsible for wrongdoing is unable to or cannot be forced to make restitution. But the fact that the guilty party cannot pay hardly justifies forcing others to do so instead.
In the 2008 financial crisis, US authorities fined banks $243-billion as punishments for crimes committed by employees. Between 2008 and 2018, only one top banker was sentenced in the US for his role in the financial crisis. The fact that two Goldman Sachs bankers have been charged in the 1MDB case is an exception that proves the rule.
Why do policymakers and the justice system prefer to impose criminal penalties on abstract legal constructs instead of going after those who actually committed the crimes? One answer might be that this approach gives regulators more power over the entities they regulate. Another is that prosecutors only bring cases they can win, and it is simply easier to go after the whole corporation than it is to prove who bears responsibility for which misdeeds. Jurors, too, probably find it easier to pronounce abstract entities guilty than to condemn a person to prison or a loss of livelihood. Obviously, it takes corporate employees to commit corporate crimes. But as long as they collude, no one goes to jail.