Corporate Criminal Liability

Introduction

An individual bears legal responsibility, referred to as the criminal liability, if he engages in an act that is offensive in the eye of law. Criminal liability requires the offender to have committed the act, or omitted an act when there was a legal duty, with the necessary actus reus and mens rea. In the corporate field, the criminal liability extends to juridical entity of companies for the misconduct committed by the members that form that corporate body. Painting guilt on a corporate body that lacks a mind of its own introduces the difficulty of proving the required mens rea. Traditional legal systems have established that crime can be committed only by natural persons. This poses a threat in establishing the guilt of artificial entity that does not possess a physical mind to form criminal intent. Thus, this tight spot has compelled to shift the legal system to incorporate traditional scheme into the corporate dynamics. Various theories have been propounded to resolve this dilemma.

Theories of Corporate Criminal Liability

1. Theory of Vicarious Liability

From the realm of tort law, vicarious liability is defined as the imposition of liability on a person for the offence committed by another whilst acting on behalf of the former. This doctrine is derived from the legal maxim ‘respondeat superior’ which means ‘let the master answer’. In the corporate context, the company is held vicariously liable relying on offences committed by its employees. As was observed in Middleton v. Fowler, “when a servant acts in execution of the authority given by their master, then the act of the servant is the act of the master”. This theory was applied in the infamous scandal of Enron Corporation where the company was held vicariously liable for fraud committed by its executives as well as the employees within the course of employment.

2. Theory of identification

This theory assumes that in events of corporate crimes, the liability is direct. That is to say, the high-ranking officials of the corporation are directly held liable. Corporate mens rea is the combined intention of the corporation, rather than fixating on mental state of a single person.  Thus, the corporate intent is established through actions of the senior officers of the company. The “mind” of the company is represented by the directors, senior officers and the like. As per the doctrine of identification, the corporation is held to be directly liable, instead of being vicariously liable. The identification theory is rather a restricted version of vicarious liability. The difference is the former theory conducts that only the acts of the senior employees result in liability of the corporation, unlike vicarious theory which holds the fault of all the employees. It is to be highlighted the misconduct must be done during the course of employment, and not for mere personal gain. A major drawback of this theory is that it does not take the wrongful acts of the lower strata of the organization into consideration, as it is only the senior level that forms the “mind and will” of the corporation.

3. Theory of Corporate Organizational Fault

Corporate organizational fault theory focuses on the sole liability of the corporation when its internal structures, policies or work cultures encourage or fail to avert illegitimate activities. This theory is applied in events where a company is admonished for not adopting required compliance regulations to prevent offences. In this situation, corporate culpability is based on how corporations react to an offence committed, rather than prevention of one.

4. Theory of Strict Liability

The doctrine of strict liability is applied when the proof of mens rea is not required to be proved by the prosecution in regard to some elements of the actus reus. It is a conception where persons, natural and juristic, are held accountable for the act irrespective of the intention behind the same. In corporate entities, this theory is mainly applied in environmental and regulatory breaches. In this regard, the UK government will enforce the FTP Fraud Offence (failure to prevent fraud) via the Economic Crime and Corporate Transparency Act, 2023 (ECCTA). This offence will hold large corporations accountable when a fraudulent act has been committed by an associated member with intention to benefit the organization or its clients. The FTP Fraud Offence is introduced under the strict liability framework, as the corporation can be held accountable for the fraud committed by its members although it was not conscious of the offence. However, it can raise the defense that the corporation had proactively implemented reasonable prevention policies to dissuade the fraud.

Conclusion

A handful of theories have been integrated into the corporate world to ensure accountability and responsibility of artificial entities. The identification theory asserts criminal culpability when the senior officials of the company commit an offence while in the scope of employment. Conversely, organizations are held responsible under vicarious liability for the offences committed by the members, irrespective of their seniority level. In this context, the corporation (master) is made liable for the wrongs done by the employees (servant) during their course of employment. Additionally, the strict liability principle also encompasses the accountability of the corporation. This doctrine imposes liability on the organization upon non-compliance of the regulatory standards of the company, with no regard to the intention of the wrongdoer. Lastly, the corporate organizational fault theory promotes ethical atmosphere and proactive regulatory compliance within an organization. In summary, the choice of theory to apply depends on numerous factors such as the objectives of the company, the nature of activities in question and the gravity of misconduct committed. On a practical note, adopting a combination of these theories, rather than strictly adhering to one, would provide a more thorough framework for corporate criminal liability.

References: –

1. Sneha Solanki, What is criminal liability?- Legal glossary, THOMAS REUTERS (Jan. 26, 2025). https://legal.thomsonreuters.com/blog/what-is-criminal-liability/#:~:text=To%20be%20considered%20criminally%20liable,have%20far%2Dreaching%20legal%20implications.
2. Pradeep Kumar Singh, Corporate Criminal Liability in India, 8: 1-17 Athens Journal of Law 2 (2021) https://www.athensjournals.gr/law/2021-1-X-Y-Singh1.pdf.
3. Middleton v. Fowler (1698) 1 Salk 282, 282; 91 ER 247, 248 (KB)
4. Corporate Mens Rea, https://library.fiveable.me/key-terms/criminal-law/corporate-mens-rea (Jan. 28, 2025).
5. Gerry Ferguson, Corruption and Corporate Criminal Liabilty, 6-7 https://icclr.org/wp-content/uploads/2019/06/FergusonG.pdf?x37037#:~:text=26%20The%20identification%20doctrine%20is,as%20occurs%20under%20vicarious%20liability.
6. Amalia Orsina, Reactive Fault: The ‘New’ Frontier in Corporate Criminal Liability, RIDP (ISSN: 0223-5404) (2018) https://www.maklu-online.eu/en/tijdschrift/ridp/2018/role-corporations-criminal-justice/reactive-fault-new-frontier-corporate-criminal-lia/.
7. The Corporate Criminal Liability Options Paper, https://www.nortonrosefulbright.com/en-hk/knowledge/publications/8257c419/the-corporate-criminal-liability-options-paper?utm_source=chatgpt.com (Feb. 01, 2025).
8. UK Failure to Prevent Fraud Offence Widens Net for Corporate Criminal Liability, https://www.gtlaw.com/en/insights/2024/11/uk-failure-to-prevent-fraud-offence-widens-net-for-corporate-criminal-liability#:~:text=The%20FTP%20Fraud%20Offence,-The%20new%20offence&text=The%20offence%20is%20effectively%20one,place%20%E2%80%9Creasonable%E2%80%9D%20prevention%20procedures. (Feb. 02, 2025).