IN THE COURTROOM Assessing Common Law Theories Of Corporate Criminal Liability Posted by on Feb 7, 2008, 03:55

The endorsement of criminal liability of corporations has largely been a twentieth century judicial development, influenced by the “sweeping expansion” of common law principles. The majority of theories of corporate criminal liability are typical of common law developments; they have been constructed on a case-by-case basis. Despite their importance, these theories have proved to be ineffective, for their lack of strong theoretical basis and their individualistic roots. Examples of these models are the agency theory and, in a more elaborate form, identification and aggregation theories.
The agency theory was first developed in tort law and gradually was carried over into the criminal arena. According to this theory, the corporation is liable for the intents and an act of its employees.Vicarious liability (or respondent superior) is commonly employed by several countries including. In other jurisdictions, this theory is restrictively established in relation to some strict liability and hybrid offences that deal with matters such as pollution, food, drugs, health and safety at work but not to mens rea offences. The agency theory is based on the premise that criminal violations normally entail two elements, actus reus and mens rea. Since corporations are considered to be purely incorporeal legal entities, they do not posses any mental state and the only way to impute intent to a corporation is to consider the state of mind of its employees. The theory encompasses a simple and logical method of attributing liability to a corporate offender, if corporations do not have intention, someone within the corporations must have it and the intention of this individual as part of the corporation is the intention of the corporation itself.  In countries where the theory is widely used, have developed a three-part test to determine whether a corporation will be held vicariously liable for the acts of its employees. First, the employee must be acting within the scope and course of his employment. Secondly, the employee must be acting, at least in part, for the benefit of the corporation, yet it is irrelevant whether the company actually receives the benefit or whether the activity might even have been expressly prohibited. Thirdly, the act and intent must be imputed to the corporation.

Scope of Employment
The requirement that an employee must be acting within the scope of his or her employment is met if the employee has actual or apparent authority to engage in the act in question. Actual authority exists when a corporation knowingly and intentionally authorizes an employee to act on its behalf. The agents acted within the scope of actual authority because they were authorized to set up freight rates. Therefore, they acted within the scope of authority conferred upon them by the corporation. The president’s unlawful acts could be imputed to the corporation because he is an undisputedly authorized agent. A corporation’s liability can be extended to acts performed within the agent’s apparent authority. Apparent authority is defined as the authority that has not been expressly agreed but can be understood by a third party from the context of the agent’s acts. It is the authority which an outsider could reasonably assume that an agent would have judging from his position within the company, and the responsibility previously entrusted to him, and the circumstances surrounding his past conduct. The question of whether an employee acted in the scope of his or her authority is differently determined by each source of law and factual framework. In some countries the courts have constantly held that a corporation may be liable for the actions of its agents regardless of the agent’s position within the corporation. These Courts have found that an employee’s act can bind the corporation even where the corporation has implemented policies prohibiting the behaviour. When an employee’s conduct is contrary to the company’s compliance policies and specific directives, the company can still be held liable. The company can prove that it has established corporate policies in an effort to reduce crime, but this does not prevent a court from finding it criminally liable. The existence of an effective compliance policy will not provide an absolute defence from criminal liability, but the company may qualify for a reduced penalty. The concept of “scope of employment” is common and has broad interpretations. Thus, courts have held that even non-employees conduct can be attributed to be as the corporation’s action. It was suggested that independent contractors might act for the benefit of the corporation thereby exposing it to criminal liability. Some countries have adopted specific legislative strategy to deal with corporations that requires criminal acts be committed by “high managerial agents” in order to trigger liability. This position closely resembles the identification theory. In some jurisdictions, however, the rule is that the actions taken by a corporation’s agents need not have been ratified by the corporation’s directors, officers, or other high managerial agents in order to be chargeable to the corporation. A stricter standard can be found in the Model Penal Code. The Code requires, as an additional element that the commission of the offence be authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting on behalf of the corporation within the scope of his office or employment. By differentiating the ascription of liability based on the actions of agents and based on the actions of high managerial agents, the Code directly distinguishes between the ability of managerial employees and lower employees to understand and prevent crime.

Benefiting the Corporation
The second element of corporate criminal liability according to the theory of vicarious liability is that the act benefits the company. The benefit need not be real, yet potential. As Professor Hall points out, “for this requirement, the corporation need not actually receive a benefit; the employee’s mere intention to bestow a benefit suffices.” It is not necessary that the employee be primarily concerned with benefiting the corporation since many employees act primarily for their own personal gain. Although the corporation did not actually gain from the action or the agent violated a company policy, liability may still be imputed to a corporation.

Identification Theory:
The doctrine of identification is the traditional method by which companies are held liable in most countries under the principles of the common law. The limitations of the agency theory led to the construction of a direct liability theory. This theory was developed as an attempt to overcome the problem of imposing primary, as opposed to vicarious, corporate criminal liability for offences that insisted on proof of criminal fault. A corporation is an abstraction as most time argued. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody, who for some purposes may be called an agent, but who is really the directing mind and will of the corporation; the very ego and centre of the personality of the corporation. As in the agency theory, the identification theory relies on an individual to attribute liability to a corporation. However, while the former doctrine simply imitates tort principles, the latter adjusts these principles to the reality of corporate misconduct. Furthermore, the identification theory introduces the personification of the corporate body. According to this theory, the solution for the problem of attributing fault to a corporation for offences that require intention was to merge the individual within the corporation with the corporation itself. Unlike the agency theory, the individual employee is assumed to be acting as the company and not for the company. The theory de-emphasized the need for the development of vicarious liability. The agency theory has now been considered as unjust and lacking in defensible penal rationale. (To be continued next Tuesday under this column)