Notes for prof. Balan : In bold, is the untouched content from the original article, complemented by edits.

Final Wikipedia Article - Corporate Crime

In criminology, corporate crime refers to crimes committed either by a corporation (i.e., a business entity having a separate legal personality from the natural persons that manage its activities), or by individuals acting on behalf of a corporation or other business entity (see vicarious liability). Some controversial behaviors by corporations may not be considered as legally criminal by all jurisdictions; vary between jurisdictions. For instance, some country’s jurisdictions allow or does not consider insider trading a crime.

Corporate crime includes or overlaps with :

*white-collar crime, because the majority of individuals who may act as or represent the interests of the corporation are white-collar professionals;

*organized crime, because criminals may set up corporations either for the purposes of crime or as vehicles for laundering the proceeds of crime. The world’s gross criminal product has been estimated at 20 percent of world trade. (de Brie 2000);

*state-corporate crime because, in many contexts, the opportunity to commit crime emerges from the relationship between the corporation and the state. This include escalating practice such as state capture

Corruption, businesses may engage in illegal corrupt activities such as bribery, embezzlement or corporate fraud.

Organi-cultural deviance, as some theorists think that corporate crime is also a structural socio-cultural phenomenon

Definition problems

Legal person

An 1886 decision of the United States Supreme Court, in Santa Clara County v. Southern Pacific Railroad 118 U.S. 394 (1886), has been cited by various courts in the US as precedent to maintain that a corporation can be defined legally as a "person", as described in the Fourteenth Amendment to the U.S. Constitution. The Fourteenth Amendment stipulates that,

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

In English law, this was matched by the decision in Salomon v Salomon & Co [1897] AC 22.

In Australian law, under the Corporations Act 2001 (Cth), a corporation is legally a "person.

Corporate Liability

Susan Rose-Ackerman brings attention to the legal challenges of holding a corporation (or organization) accountable for a crime. This issue is notably framed as corporate liability. Thus, corporate liability aims at determining the extent to which a corporation can be held accountable for criminal acts as legally constructed person. It is sometimes regarded as an aspect of criminal vicarious liability, when one person is liable for joined or collective activity with another legal person. Corporate liability can be asserted and addressed at various judiciary levels, namely as a criminal, quasi-criminal (administrative) or civil case. It can be attached to the liability of individuals working within it or established as an independent law violation, regardless of separate individual sanctions. Nonetheless, the natural status of corporate liability is still up to debate. According to theorists like Thompson (1987) and Khanna (1996), if corporations can be considered as legal persons with legal personalities, their lack of humanity and homogeneous physical existence makes it that they ought not to be subject to criminal law. The process of criminal law is designed around procedural right protections and presumptions of innocence that address individual rights and not legal constructsCite error: There are <ref> tags on this page without content in them (see the help page).. Behavior can be regulated by the civil law (including administrative law) or the criminal law. In deciding to criminalize particular behavior, the legislature is making the political judgment that this behavior is sufficiently culpable to deserve the stigma of being labelled as a crime. In law, corporations can commit the same offenses as natural persons. Simpson (2002) avers that this process should be straightforward because a state should simply engage in victimology to identify which behavior causes the most loss and damage to its citizens, and then represent the majority view that justice requires the intervention of the criminal law. But states depend on the business sector to deliver a functioning economy, so the politics of regulating the individuals and corporations which supply that stability become more complex. For the views of Marxist criminology, see Snider (1993) and Snider & Pearce (1995), for Left realism, see Pearce & Tombs (1992) and Schulte-Bockholt (2001), and for Right Realism, see Reed & Yeager (1996). More specifically, the historical tradition of sovereign state control of prisons is ending through the process of privatisation. Corporate profitability in these areas therefore depends on building more prison facilities, managing their operations, and selling inmate labor. In turn, this requires a steady stream of prisoners able to work. (Kicenski: 2002). Consequentially, corporations and organizations fall under civil regulation that include penal charges. The problem with affixing a criminal liability to corporations is that criminal charges usually entails imprisonments, fines and community service orders which is inapplicable to instances such as corporation. Since a company has no physical existence, it can only act vicariously through the agency of the human being it employs.

Cross-country jurisdictions

Jurisdictions around the world do not always extend corporate liability to criminal law. In fact, many countries have disparate treatments of corporate liability, with different restrictions and sanctions affiliated with standards. However, available literature on international legal treatment of corporate crime is scarce. International treaties governing corporate malfeasance thus tend to permit but not require corporate criminal liability. The Global Corporate Liability Handbook 2017 attempts to offer a global overview of laws that affect corporations around the world. With a limited scope of countries available, interesting cases show such international disparities. Following is a brief list of country that have addressed the issue^[1] :

United States : U.S laws currently recognizes corporate criminal capacity. Under both federal and state jurisdiction, corporation are judged as legal persons capable of committing crimes. The conditions for a corporation to be held accountable include having the offence committed by an inside agent, during his time of work and the acts must be motivated for the benefit of the corporation instead of personal gain.

France : The French criminal code Incorporated corporate criminal liability in 1992. It was later integrated into the Council of Europe's criminal Law Convention on Corruption in 1998 (art. 18). However french laws only assert criminal liability for specific offences, such as peddling of influences or proof of active engagement in corrupt activities.

Germany : German law does not recognize corporate criminal capacity. The German Criminal Code (Strafgesetzbuch) strictly applies to natural person with determined intent. Nonetheless, they are eligible for quasi-criminal liability under the Act on Regulatory Offenses (Ordnungswidrigkeitengesetz. German firms can have liability only if a company legal representative commits a criminal or administrative offense where the company has been or was intended to maximize its gains. German corporations are also subject to fines for administrative violations

Argentina: Argentine does not recognize corporation criminal capacity. The criminal law relies on the principle of culpability or 'guiltiness'which is only applicable to individual committing illegal actions. This way, corporate criminal liability is not addressed by the Argentine Criminal Code. Nonetheless, criminal sanctions against corporations for certain offenses such as money laundering, environmental crime or tax evasion.

Brazil : The Brazilian Criminal Code also provides for criminal liability for individuals who engage in bribery of domestic and foreign public officials. In the recent years (August 2013) while enacting a new anti-corruption act, the Brazilian judicial reshaped foreign or domestic firms' legal status as subject to civil and quasi-criminal (administrative) liability for engagement in corrupt activities. Taking inspiration from the U.S. and the U.K., this law implied a set of regulations, including clear outlines of corporate social integrity.^[2]

Colombia : According to Colombian law, legally constructed instances cannot be held criminally liable. Nonetheless, companies or organization can be held vicariously liable under civil law if one of its representative or employee committed corruption offenses.

Egypt : The Egyptian judicial system has been continuously redesign its corporate governance over the last decades. From the 1981 Companies Law to the New Investment Law (2017), Egyptian laws do not recognize corporate liability at this day. Instead the firms Board of Directors (BOD) alongside with general assembly (constituted of stakeholders) appoint a chairman that will juridically represent and act on behalf of the company in court. The chairman's accountability is divided between civil and criminal liability charges.

South-Africa : The South-African Criminal Procedure Act of 1977 [under section 332(1)] grants corporate criminal liability under specific circumstances. Corporate bodies are considered 'legal persons' that are accountable for any offence that includes the performance or omission of act that falls under common or statute law. If directors perform as representative, the liability (if affixed to the company) will be held on the corporate body.

Theoretical Discussion

Edwin Sutherland's definition of white collar crime also is related to notions of corporate crime. In his landmark definition of white collar crime he offered these categories of crime:

Misrepresentation in financial statements of corporations
Manipulation in the stock market
'''Commercial bribery'''
Bribery of public officials directly or indirectly
Misrepresentation in advertisement and salesmanship
Embezzlement and '''misappropriation of funds'''
Misapplication of funds in receiverships and bankruptcies (O'Grady: 2011).

Organi-cultural deviance (Non-Edited)

Main article Organi-cultural deviance

Organi-cultural deviance is a recent philosophical model used in academia and corporate criminology that views corporate crime as a body of social, behavioral, and environmental processes leading to deviant acts. This view of corporate crime differs from that of Edwin Sutherland(1949),^[3] who referred to corporate crime as white-collar crime, in that Sutherland viewed corporate crime as something done by an individual as an isolated end onto itself. With the Organi-cultural deviance view, corporate crime can be engaged in by individuals, groups, organizations, and groups of organizations, all within an organizational context. This view also takes into account micro and macro social, environmental, and personality factors, using a holistic systems approach to understanding the causation of corporate crime.^[4]^: 4

The term derives its meaning from the words organization (a structured unit) and culture (the set of shared attitudes, values, goals, and practices). This reflects the view that corporate cultures may encourage or accept deviant behaviors that differ from what is normal or accepted in the broader society.^[4]^: 140 Organi-cultural deviance explains the deviant behaviors (defined by societal norms) engaged in by individuals or groups of individuals.^[4]

Because corporate crime has often been seen as an understudy of common crime and criminology, it is only recently that the study of corporate crime been included in coursework and degree programs directly related to criminal justice, business management, and organizational psychology. This is partly due to a lack of an official definition for crimes committed in the context of organizations and corporations.

The social philosophical study of common crime gained recognition through Cesare Beccaria during the 18th century, when Beccaria was heralded as the Father of the Classical School of Criminology.^{[citation needed]}

However, corporate crime was not officially recognized as an independent area of study until Edwin Sutherland provided a definition of white collar crime in 1949. Sutherland in 1949, argued to the American Sociological Society the need to expand the boundaries of the study of crime to include the criminal act of respectable individuals in the course of their occupation.^[5]^: 3

In 2008, Christie Husted found corporate crime to be a complex dynamic of system-level processes, personality traits, macro-environmental, and social influences, requiring a holistic approach to studying corporate crime. Husted, in her 2008 doctoral thesis, Systematic Differentiation Between Dark and Light Leaders: Is a Corporate Criminal Profile Possible?, coined the term organi-cultural deviance to explain these social, situational and environmental factors giving rise to corporate crime.^[4]^: 178

Enforcement policy

Corporate crime has become politically sensitive in some countries. In the United Kingdom, for example, following wider publicity of fatal accidents on the rail network and at sea, the term is commonly used in reference to corporate manslaughter and to involve a more general discussion about the technological hazards posed by business enterprises (see Wells: 2001).

In the United States, the Sarbanes-Oxley Act of 2002 was passed to reform business practices, including enhanced corporate responsibility, financial disclosures, and combat fraud,^[6] following the highly publicized scandals of Enron, Worldcom, Freddie Mac, Lehman Brothers, and Bernie Madoff. Company chief executive officer (CEO) and company chief financial officer (CFO) are required to personally certify financial reports to be accurate and compliant with applicable laws, with criminal penalties for willful misconduct including monetary fines up to $5,000,000 and prison sentence up to 20 years.^[7]

The Law Reform Commission of New South Wales offers an explanation of such criminal activities:

Corporate crime poses a significant threat to the welfare of the community. Given the pervasive presence of corporations in a wide range of activities in our society, and the impact of their actions on a much wider group of people than are affected by individual action, the potential for both economic and physical harm caused by a corporation is great (Law Reform Commission of New South Wales: 2001).

On the other hand, Russell Mokhiber and Robert Weissman (1999) assert:

At one level, corporations develop new technologies and economies of scale. These may serve the economic interests of mass consumers by introducing new products and more efficient methods of mass production. On another level, given the absence of political control today, corporations serve to destroy the foundations of the civic community and the lives of people who reside in them.

'

Similarly, Dima Jamali (2006) expands on the growing concern towards corporate's ethics and responsible behavior, especially in the 21st century. Increasing business scandals, corporate corruption and ongoing accusation of unethical business access significantly hindered the general public trust in private firms for general lack of integrity, transparency as well as accountability. Jamali notably evokes the need for reconciliation between shareholder interest (or value) with societal expectation and ethics. This way, many business and economic theorists explored ethical and social accountability in the business context namely through the adoption of corporate social responsibility (CSR) framework, notably defined as a type of business engagement that properly meets legal, ethical and public societal expectation while still respecting the objectives and requirement formulated by top-managements as well as stakeholder. Consequentially, many jurisdictions and public institutions actively engaged with the development, promotion and enforcement of CSR. As Jamali writes,

Demands for responsible business behavior have continued unabated into the 21st century, with the European Commission (EC)
designating 2005 as the year of CSR in European Union (EU)countries(Luetkenhorst 2004). Likewise, individual EU member states have taken important steps, such as the United Kingdom appointing a minister for CSR within the Department for Trade and Industry,France spearheading a movement to institute mandatory standards for social reporting for companies comprising more than 300
employees, and the Danish government establishing the Copenhagen Center—a CSR-focused research institution (Luetkenhorst 2004).

^[8]

Corruption and the private sector

Common Methods

If bribery seems like the most common form of corrupt action, it is not the most dominant within the business world. Although, cases like foreign companies or transnational corporations in 'developing country' do engage in bribing public officials to secure contracts, or other important deals monitored by the public administration. It can also be used to bypass local regulations, notably when it comes to construction, field allocation (Walmart in Mexico). Nonetheless, there are many other methods by which private firms can be involved in corruption.

Bribery

Embezzlement

Embezzlement is the act of withholding assets for the purpose of conversion (theft) of such assets, by one or more persons to whom the assets were entrusted, either to be held or to be used for specific purposes. Embezzlement is a type of financial fraud which is classified as a corrupt activity.

Corporate Fraud

Corporate fraud typically designates a set of action, undertaken by a corporate or one of its representative designed to maximize personal gain or interest through deceitful, dishonest or illegal matter giving an unfair advantage to the organization. It encompasses intentional misrepresentation of financial information, hiding financial or economic activity as well as mislead public institution for the intent of increasing profits of the company. Corporate fraud is highly complex and secretive. Typical cases of corporate fraud led to economic scandals such as the Brazilian Operation Car Wash.

Insider trading

Insider trading designates the exchange of non-public information, as well as a company stock, bonds or stock options by an individual in exchange for personal favor or gain. Conditional Insider trading are accepted by some jurisdictions, when it doesn't involve the trade of non-public information that create unfair competition.

Others

Corporate crime related to corruption include additional illegal or conditionally controlled activities such as lobbying, clientelism and influence peddling

Challenges and Impact

It is no easy task to empirically assess the impact of corporate corruption, as some theorists view it as a symptom of poor infrastructural development and governance, while others view it as a cause. Bolivian Development Economics Gonzalo F. Forgues-Puccio inquiries what relates poor governance as an effect of public corruption to (mis)behavior of private firms. As he addresses the issues that arise in the relationship between the private sector and corruption, his main findings can be summarized as follow^[9] :

Barrier to entry into the formal sector : Engaging in corrupt activities significantly increases informality in the interactions among businesses as well as individual agents. This way, Corruption is deemed to be acting as a barrier to entry into the formal sector. The more informal interactions a private firm exercises, the less likely it is to shift to the formal sector. As a direct outcome, firms that are forced to go underground operate at a much smaller scale with less productivity.

Corruption and Firm growth : Corruption also affects the growth of firms in the private sector. This result seems to be independent of the size of the firm. A channel through which corruption may affect the growth prospects of firms is through its negative impact on product innovation.

Private sector corruption as a symptom : Corruptions is an outcome that is mostly symptomatic of poor governance and therefore addressing public sector corruption cases might help decrease corrupt activities within the private sector. Nonetheless, improving governance comes to be a pretty difficult task, almost impossible without the coordinated efforts among the state, businesses and firms and the civil society

Corporations also generates corruption : There is enough evidence that the private sector does also have a responsibility in generating corruption in the public sector. Particular situations such as intense lobbying as well as state capture come to be extremely damaging for the economy.

Nevertheless, the consequences of corporate corruption can be quite detrimental to corporation's personal interests. According to Linda Ray, corporations abusing their power for personal gains unavoidably creates a harmful business climate generated by low public trust and business credibility. It has four effects^[10] :

° Inefficiency as the displacement of essential resources for inappropriate use hinders on business development. With insufficient resources, company can barely maintain its level of operations and paying further bribes would accelerate the process.

° Lost Resources because covering up corrupt activities and embezzlement involves increasing costs, including inflating employee's risk which is going to create higher prices for consumers.

° Weakened development as it decreases the amount of willing investors with a history of bribing or gift-giving. Without consistent investment, a firm cannot expand within the market, multiplying the risk for further lack of investment.

° Increased Crime as the start of corruption can trigger a vicious circle feeding black market's interests while increasing the risk for criminal organization to infiltrate business.

Transnational Corporations

Due to ill-defined local and international laws, Transnational Corporations (TNCs) have been historically involved in signicant levels of corruption, especially when implemented in a developing economy. John Wraithwaite (1977) recounted alarming findings when examining past revelations on the behavior of American transnational corporations, leading on criminologists to later spur further academic focus towards the particular issue.^[11]

Even the monumental scale of transnational corruption has not been sufficient to startle the ruminating criminologists from stampeding after a reality that left them behind a generation ago. It was left to journalists to tell us in five and half year period until 1975 Lockheed Aircraft had paid $22 millions to foreign government officials and political parties to secure sales contract.

Transnational corporations, even if purely profit-oriented do not usually prefer having recourse to deviant behavior (such as paying bribes to local governments). In fact, the wasted profits alongside with high legal risk as well as potential reputation cost if they are ever found. Productive business activity is usually favored through legitimate engagement, even when seeking influence. Nonetheless because of the lack of institutional infrastructure, poor local governance and low administrative efficiency TNCs resort to such activity to secure its interest. In other cases, TNCs actively take advantage of lax-regulation (mainly due to ill-defined local policies). Recent researches found that TNCs can have dramatic effect on regional as well as national development perpetuating the lack of infrastructure, impoverishing local communities and regions as well as repeated and systematic abuse of human rights. Cecilia Olivet (2010) examined thoroughly evidences from European TNCs in Latin America and Caribbean countries. She recounts the two last session of Permanent People's Tribunal. Empirical evidence accounted TNCs for offenses such as attacks on labor rights; destruction of environment and vital resources; repeated violations of communities rights encompassing indigenous groups; health damages on local communities, privatization of public services as well as promotion of corruption.^[12]

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