European Developments in Corporate Criminal Liability

James Gobert,Ana-Maria Pascal

• Publisher: Routledge
• Year: 2011
• ISBN:
  9781136741517
• Edition: 1
• Topic: Law
• Subtopic: Corporate Law
• Index: Law

When corporations carry on their business in a grossly negligent manner, or take a cavalier approach to risk management, the consequences can be catastrophic. The harm may be financial, as occurred when such well-regarded companies as Enron, Lehman Brothers, Worldcom and Barings collapsed, or it may be environmental, as illustrated most recently by the Gulf oil spill. Sometimes deaths and serious injuries on a mass scale occur, as in the Bhopal gas disaster, the Chernobyl nuclear explosion, the Paris crash of the Concorde, the capsize of the Herald of Free Enterprise, and rail crashes at Southall, Paddington and Hatfield in England.What role can the law play in preventing such debacles and in punishing the corporate offenders?

This collection of thematic papers and European country reports addresses these questions at both a theoretical and empirical level. The thematic papers analyse corporate criminal liability from a range of academic disciplines, including law, sociology/criminology, economics, philosophy and environmental studies, whilst the country reports look at the laws of corporate crime throughout Europe, highlighting both common features and irreconcilable differences between the various jurisdictions.

Part I

Thematic Issues

1

Containing Corporate Crime

Civil or Criminal Controls…

Celia Wells

Introduction

Everything about corporations and corporate liability seems to involve paradoxes and two-way mirrors. The title of this paper aptly demonstrates the skewed thinking that corporate crime can involve. If it is ‘crime’ then surely it should be controlled via ‘criminal’ law? But not everyone thinks so. Khanna for example argues that

If we start with the notion that corporate wrongdoing is not sufficiently deterred at present, then we would want to argue for curtailing corporate criminal liability and increasing the focus on corporate civil liability and managerial liability. This raises serious questions about how we regulate this area.¹

This is surprising on the face of it and we might question whether we are concerned solely with deterrence, but it is difficult to disagree that there are serious questions about how we regulate corporate wrongdoing. We appear to be moving in the direction that Khanna advocates, that enforcement of criminal law against corporate crime increasingly uses classic regulatory techniques of negotiation and settlement. One of the reasons that this is such a challenging area is of course because we are dealing with a construct of infinite size, variety and reach. Two recent commentators sum this up nicely:

The company has always shown a remarkable ability to evolve … [that is] ‘the secret of its success’. With its ‘amoebic’ qualities it can change again, those changes depend on economic logic and political imperatives.²

Economic logic and political imperatives affect both the nature of corporate wrongdoing and the responses that are made to it. I will start with a short account of the kinds of wrongdoing that the debate about corporate liability has been concerned with. Then I will briefly look at the range of legal mechanisms commonly used before turning to say something about the nature of the corporation as a legal person. This will then pave the way for the last section in which I describe the models available for criminal liability.

Wrongdoing: What Makes us Concerned about Corporate Liability…

The corporation is itself a means by and through which some crime is committed. The corporation may be our primary target because as a legitimate organisation it has committed a wrong. Or it may be a front for the activities of individuals already committed to fraud. To quote again, the corporation is for white-collar criminals ‘what the gun or knife is for the common criminal’.³

From the 1980s the debate in the UK was mainly about corporate manslaughter, about the negligently caused deaths and injuries from transport disasters and from poor safety standards in construction and other industries. At the same time, there was a quieter rumble about fraud. Much of this was about fraud within organisations, what might be called intra-organisational fraud, embezzlement and so on. This was eclipsed by the massive inter-organisational frauds that have unravelled since the Enron scandal in 2002. From being the seventh most valuable company in the USA, Enron lost 100 billion dollars in shareholder equity. By 2004, 31 people had been indicted; not only Enron fell but also Arthur Andersen, one of the world’s largest accounting firms, was reduced to a mere shadow of its former self. Then as we know there was Worldcom, followed by Parmalat and so on. And all this before the events of the last two years with the whole financial edifice of investment banking almost shaken to its knees by corporate collapses caused by absurd risk repackaging strategies as well as by some outright dishonesty, as in Bernie Madoff ’s Ponzi scheme.⁴

But before we get too excited about the novelty of these issues, it is salutary to go back to Edwin Sutherland’s ‘discovery’ of white-collar crime. Gilbert Geis and Colin Goff, in their introduction to the 1983 reprint of Sutherland’s classic 1949 work, remind us that sociologists had identified crimes by the powerful as early as 1901. Sutherland’s main message, radical at a time when causal explanations via various forms of deprivation (poverty, absent parenting etc.) were prevalent, was that crime is essentially about social values, that the violation of trust is more important than the financial cost.⁵ Despite this, Geis and Goff speculate that the revival of interest in Sutherland’s work in the 1980s was prompted by the economic downturn after a long period of post-war prosperity. They do not make the further point but it seems to follow naturally, that the timing of Sutherland’s seminal speech at the 1939 meeting of the American Sociological Society, when he first coined the term ‘The White-collar Criminal’ came just after the Great Crash. This may well explain why this objective, scientifically minded criminologist became the evangelist in relation to exposing the crimes of the powerful.

We are again emerging from a global financial crash with questions about corporate responsibility and corporate control in the headlines not just of criminology journals but also in the daily press. It is timely to think further about how best not just to regulate but to control corporations and their directors, whether to use and in what combination, administrative, civil, or criminal laws to address corporate misconduct. These are in many ways perennial questions. What is the argument for revisiting them? Corporate criminal liability tends to fall between the two legal specialisms of criminal and corporate law in each of which it is somewhat marginal. A double marginalisation then occurs given that the literature on specialised regulation often bypasses that on corporate criminal liability. This prompts the first theme of this chapter which explores the interface of regulation and criminal law.

Two other developments have contributed to the continued search for appropriate mechanisms for holding corporations to account. One is the transnational move through the OECD to standardise sanctions against bribery of public officials.⁶ A second is the strong force within the international human rights movement to bring corporations within the realm of international law in relation to their complicity in human rights abuses.⁷ Both of these moves require us to think about the core principles of corporate liability and how they can translate across different legal traditions. This has implications for the development of appropriate models of liability as well as for effective comparative work.⁸ This then provides the second theme.

Throughout the chapter I assume that we endorse some form of corporate liability. Of course, in many cases senior officers or managers of a corporation are to blame for illegal corporate behaviour and it is important that any system provides for this. There may have been little point in prosecuting Bernard L. Madoff Investment Securities rather than Bernie Madoff himself. The judge’s comment in sentencing him to 150 years in prison that his crimes were ‘extraordinarily evil’ would have sounded odd if applied to the company, although the follow-up remark that ‘this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll’⁹ would not have been so out of place. But of course sometimes there is no functioning corporate entity to pursue – as was the case once Enron and Worldcom became bankrupt.

Mechanisms

One possible legal mechanism for dealing with corporate wrongdoing is by resort to private law – let the parties sort this out themselves. I don’t think anyone seriously suggests this as the only option. Even Khanna emphasises the importance of public enforcement.¹⁰ Sutherland noted that many white-collar violations are prosecuted under non-criminal (in other words, regulatory) statutes. Regulation can involve civil or criminal penalties. It is distinguished from criminal law – which applies across the board – in two ways: it targets those engaged in specialised activities and its underlying purpose is said to be different in that regulation is concerned to mould or encourage behaviour rather than to condemn it. While these distinctions have always been open to some debate, regulation and criminal law have for a long time been seen as a binary divide. My thesis is that the lines between regulatory and criminal procedures are becoming more tangled and blurred. This is not a new insight of course and partly builds on Karen Yeung’s work on the public law aspects of regulatory enforcement.¹¹ But I am turning the lens in the opposite direction, looking at the implications of using regulatory mechanisms in the criminal law sphere, and training the focus more specifically on the corporate defendant. This is a (possibly subtle) variation on a familiar theme that crimes of the powerful tend to be downplayed or marginalised. Whereas it has been argued that their wrongdoing is either differently labelled or selectively enforced, the argument here is that it is being differentially enforced. The rhetoric is of clampdown and control but the method is more benign. Or at least that is the question.

Let me give some more detail to this abstract argument. Whether a civil or criminal regulatory penalty or a criminal sanction is imposed, the bottom line is generally a monetary fine. The ‘civil’ penalties imposed by some regulators are supplanting the criminal enforcement powers that are available to them. On the one hand this appears to be a tougher stance, enabling large fines to be administered (and administered seems the right word rather than imposed) but on the other the negotiation that this process allows appears to give the targeted corporation considerable bargaining power. In addition, the reputational and legal or transaction costs may vary considerably between regulatory and criminal law procedures.¹²

Fines are often accompanied by some form of operating restriction – suspension or removal of a licence to practise in the relevant area.¹³ A further development is the pre-emptive Order, part of a more general move towards preventive justice chronicled by Ashworth and Zedner.¹⁴ The recently introduced Serious Crime Prevention Order (SCPO) can be imposed for up to 5 years either on conviction of a serious crime or on proof of involvement in such a crime in civil proceedings.¹⁵ The first use of this was against a fuel fraud conspiracy; the Order banned the defendants from dealing in fuel oils for 5 years.¹⁶

Civil recovery of proceeds of crime is another significant weapon. Powers introduced in 2008 give the Serious Fraud Office power to recover property without the need to establish a specific offence against any particular company or individual, merely that the property sought is the proceeds of unlawful conduct. Combined with the use of negotiated settlements, these civil sanctions are on the rise and arguably supplanting formal criminal law enforcement.¹⁷

To illustrate these different approaches, I have compiled a brief case file, a pen portrait, on one particular international construction company, Balfour Beatty, which describes itself in this way:

Balfour Beatty is a world-class engineering, construction, services and investment business. We create and care for essential assets: hospitals, schools, road, rail, utility systems and major structures.

We work in partnership with sophisticated customers who value the highest levels of quality, safety and technical expertise – applying our skills to meet their individual needs.

The company has an annual turnover of £9.5 billion (with a £270m pretax profit in 2008), proclaims its commitment to corporate social responsibility and sustainability and has won the award ‘Most Admired Major Construction Company’ several years running.

The Balfour Beatty story is a cautionary, and I hope illuminating, tale:

In 1993, the company was fined £17,500 for breaching safety rules at its Derbyshire foundry, where a worker was crushed to death.

Balfour Beatty (BB) was one of five UK companies contracted to build the Channel Tunnel, linking England and France, and found guilty in 1993 of failing to ensure the safety of seven workers who were killed during the construction period. The companies were fined between £40,000 and £125,000. In one case, the prosecutor claimed that the breaches were a continuing danger that the contractors had done nothing to prevent. Commenting on the circumstances surrounding the death of a 26-year-old worker, the judge said,

The failure in this case is one of the worst this court has heard about in the past years. This accident happened because the safety procedures in place were not properly supervised and carried out.

In 1999, BB was fined a record £1.2 million for health and safety breaches during the construction of Heathrow Express. The fine was the highest ever meted out for incidents involving no loss of life. The judge called the incident ‘one of the worst civil engineering disasters in the United Kingdom in the last quarter of a century. It is a matter of chance whether death or any serious injury resulted from these very serious breaches.’

In 2005, BB was fined £10 million for its part in the Hatfield rail crash in which four people died. This was reduced on appeal to £7.5 million in 2006 (on the grounds that it was disproportionate compared with the £3.5 million fine on Railtrack, now Network Rail).

We can speculate that this escalation in fine severity reflected the public outcry in relation to these well-publicised transport disasters. This hypothesis is supported when we see the much lower fines when rail workers are killed, sadly a far less newsworthy event. Thus in 2007, Balfour Beatty was fined £180,000 following the fatal electrocution of a track worker. This was not an aberration. Between 1997 and 2001, Balfour Beatty companies were fined amounts of less than £12,000 for health and safety offences on six occasions. In 2005, they incurred two fines of £3,000 and reached an all-time low, a fine of £400 in relation to a fatal accident in the same year.¹⁸

Moving away from health and safety, in the first civil settlement as part of a foreign bribery investigation, the Serious Fraud Office reached a £2.25m settlement with Balfour Beatty plc in October 2008. This was for ‘inaccurate accounting records’ during one of its subsidiaries’ projects in Egypt (bribes, in other words). The settlement came only six months after the SFO was given the powers to make a civil recovery of the proceeds of crime.¹⁹

If you are a shareholder or director of this company, there is nothing to fear in the light of the recent announcement that Balfour Beatty Construction US has just been awarded $480 million of new contracts, including the Mecklenburg County Jail expansion project. The facility will contain an estimated 1,300 to 1,700 beds. Should Balfour Beatty’s recidivism ever trigger a ‘three strikes and you are out’ sentence, as would be applied to any common-or-garden burgla...

Table of contents

• Cover Page
• Half Title page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of Contributors
• Foreword
• Introduction
• Part I Thematic issues
• 1 Containing Corporate Crime Civil or Criminal Controls?
• 2 A Legal Person's Conscience Philosophical Underpinnings of Corporate Criminal Liability
• 3 The Challenges of Regulating Powerful Economic Actors
• 4 State Complicity in the Production of Corporate Crime
• 5 Penalising Corporate ‘Culture' The key to Safer Corporate Activity?
• Part II Organisational v. Individual Liability
• 6 The Organizational Component in Corporate Crime
• 7 Individual Liability of Company Officers
• 8 Squaring the Circle The Relationship Between Individual and Organizational Fault
• Part III Particular Offences
• 9 Environmental Offending, Regulation and ‘The Legislative Balancing Act'
• 10 Investigating Safety Crimes in Finland
• 11 Political Autonomy, Accountability and Efficiency in the Prosecution of Serious White-collar Crimes
• Part IVa Country Reports: Countries with Criminal Liability
• 12 Country Report: Austria
• 13 Country Report: Belgium
• 14 Country Report: Denmark
• 15 Country Report: Estonia
• 16 Country Report: Finland
• 17 Country Report: France
• 18 Country Report: Ireland
• 19 Country Report: Italy
• 20 Country Report: Lithuania
• 21 Country Report: Luxembourg
• 22 Country Report: The Netherlands
• 23 Country Report: Poland
• 24 Country Report: Portugal
• 25 Country Report: Romania
• 26 Country Report: Slovenia
• 27 Country Report: Spain
• 28 Country report: UK
• Part IVb Country Reports: Countries with Administrative Liability
• 29 Country Report: Czech Republic
• 30 Country Report: Germany
• 31 Country Report: Sweden
• Index