Differing views of corporate criminal liability complicate anti-graft fight
Thursday, January 10, 2013 at 3:28AM
Philip Fitzgerald in Alistair Craig, Corporate Criminal Liability, France, IInternational Criminal Court, Mark Pieth, New York Central & Hudson River Railroad v. U.S., OECD Convention, OECD Working Group, Respondeat Superior

The criminal liability of corporations is an essential part of the fight against foreign bribery. Yet not every legal system views this area of law in the same way, and not everyone agrees on the best approach.

This divergence about how to treat so-called "legal persons" is openly acknowledged by international authorities. For example, the commentaries to Article 2 of the OECD Anti-Bribery Convention provide that “In the event that, under the legal system of a Party, criminal responsibility is not applicable to legal persons, that Party shall not be required to establish such criminal responsibility.”

An obvious consequence of the inconsistency is an uneven playing field. Businesses in some countries fall foul of the law, while competitors in other jurisdictions march on, free from such normative constraints.

One country that undoubtedly possesses a powerful legal arsenal against corporations is the United States -- the world leader in the fight against foreign bribery. Corporate liability in U.S. federal law is known by the Latin term respondeat superior. It is based on the agency principle and renders the company vicariously liable for the wrongful acts of employees acting within the scope of their employment. The application of this doctrine to legal persons is not only far-reaching, it is also nothing new: the watershed Supreme Court decision, New York Central & Hudson River Railroad Company v. U.S., was decided in 1909.

Industrialization was a major factor in the evolution of this issue in a number of common law systems. But attributing mens rea to a legal fiction hasn’t been seen as natural in some countries. This is particularly true of a number of continental European legal systems where there has been a traditional reluctance to recognize the criminal liability of legal persons (societas delinquere non potest).

France, for example, only introduced the criminal liability of legal persons in 1994, and corporate liability for the offense of transnational bribery in June 2000. The French texts do not permit the very wide enforcement seen under respondeat superior.

Article 121-2 of the French penal code provides that legal persons are criminally liable for offenses committed on their account, but the OECD Working Group on Bribery points out that the text alone does not clarify the extent of the required link between the corrupt act and the benefit or interest of the company. Further, Article 121-2 does not state which of the company’s organs or representatives are capable of invoking the liability of the company in a transnational bribery case. That in turn has caused confusion about a company's liability for acts of agents and third-party intermediaries, for example.

(A copy of the OECD Working Group's Phase 3 Report on France can be downloaded in pdf here.)

In the United States there is enormous scope for incriminating corporations, so much so that it sometimes appears unjust. It is even impossible for a corporation to defend itself once the relevant employee has admitted an offense or been found guilty. With regard to respondeat superior, the FCPA Blog has said: “As long as respondeat superior is the law of the land, corporations won’t be mounting any defense to potential criminal charges under the FCPA. They can’t win in court so of course they don’t go to court.” 

France does not perceive companies in the same manner. Again, the OECD Working Group on Bribery has highlighted that French law enforcement authorities tend to perceive legal persons as victims rather than perpetrators of a bribery offense.

At the crossroads of these approaches lies the locating of corporate blame in the procedure, operating systems or culture of a company. Examples of this are the company culture theory found in the Australian Criminal Code Act and the corporate homicide offense in the U.K. For FCPA Blog contributor Alistair Craig, the Australian model is perhaps the best at present, as it steers a course between the restrictive directing mind test [England] and the somewhat unfair U.S. vicarious test”. Professor Mark Pieth states that this “holistic” approach shifts the focus of corporate responsibility from misbehaviour of a leading person to a deficiency in the company, which could be quite independent of individual failure.

The differing approaches to the criminal liability of legal persons are a perfect example of the way that variations in national law can hamper the fight against foreign bribery. Yet these variations are very difficult to avoid, even with the signing of international conventions and implementing legislation. This begs the central question of whether national law is the long term solution for the fight against foreign bribery. 

The International Criminal Court has been suggested as a forum for punishing kleptocrats. With regard to legal persons, could there be a similar supranational solution to the lack of harmonization through international corporate governance standards and the legal means to sanction companies for foreign graft?

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Philip Fitzgerald is a contributing editor of the FCPA Blog.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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