#9111 - White Collar Crime - White Collar Crime

USSG § 2B1.1

Determine Relevant Conduct: by a preponderance

Determine Offense Level (Chapter 2)

Make any Chapter 3 adjustments: Role; obstruction; acceptance

Determine criminal history: Chapter 4

Determine Sentence: Chapter 5

28% tax rate: individual

34% tax rate: corporation

1. Why Impose Criminal Sanctions?

   1. Deterrence, incapacity, rehabilitation, protect rights of innocent, retributivist

2. Defining Criminal Conduct:

   1. 1) intentional or purposeful conduct; 2) that is morally wrong; 3) that causes harm; 4) for which the person deserves punishment

3. Why should government prosecute corps?

   1. Pros: Collateral estoppel; stigma; coordinated effort to go after corp and responsible individuals; deep pockets

   2. Cons: 1) challenge deterrent effect of sanctions cause corps don’t commit crimes, people do; 2) retributive function because corporate criminal sanctions punish innocent shareholders; 3) contest efficiency of organizational liability arguing that economic analysis shows that civil liability deters better than criminal

4. DOJ Guidance on Prosecution of Corps (Pg 12-16)

   1. Corporations “should not be treated leniently because of their artificial nature nor should they be subject to harsher treatment.”

   2. The nature and seriousness of the offense

   3. The pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management

   4. The corporation's history of similar misconduct

   5. The corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents

   6. The existence and effectiveness of the corporation's pre-existing compliance program

   7. The corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers

   8. collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others

   9. the adequacy of the prosecution of individuals responsible for the corporation's malfeasance; and

   10. the adequacy of remedies such as civil or regulatory enforcement actions

   11. Antitrust Division almost always goes after corporations rather than individuals

   12. Tax Division has a strong preference for prosecuting responsible individuals, rather than entities, for corp tax offenses

5. Corporate Criminal Liability

   1. Corps have the capacity to commit criminal acts.

   2. Intent: The Act is done for benefit of the principal while the agent is acting within scope of employment

      1. New York Central & Hudson River RR – RR and two employees were each held liable for bribing sugar refiners, an anti-competitive practice in violation of the Elkins Act. RR held liable b/c the crime was committed for the sake of the RR’s economic gain, the bribes were paid for with the RR’s funds, and the RR benefited by gaining a temporary competitive edge. S. Ct. Justice Day asked rhetorically, how else are we supposed to correct these kinds of abuses if not through criminal sanctions?

         1. Anything done by a corp subject to act, which done by any

         2. Note that there are pros & cons of imposing criminal liability on corps: potential to change the corp’s culture and set new industry-wide standards (pros); potential unfairness to shareholders, innocent employees, and consumers (cons).

      2. C.R. Bard, Inc.– A corp was held liable for its violations of FDA regulations, which led to serious injuries and deaths. Misconduct pervasive and motivated by greed; the executives approved it. Ct. held that the plea agreement at issue was reasonable b/c it had certain features: it allowed for criminal prosecution of individual employees; it imposed fines; and it imposed a compliance program involving more intense FDA oversight.

   3. Usual way of meeting an actus reus requirement: the respondeat superior doctrine: A corp can be held liable under this theory if (1) a corp agent (even the most menial employee) acted (2) within the scope of his or her employment authority (i.e., the acts were directly related to the performance of the type of duties the employee had a general duty to perform, actually or apparently) and (3) on behalf of the corp (4) w/ the intent to benefit the corp. This is defn. of the federal rule, and it’s the rule most prevalent in state courts.

      1. Beneficial Finance Co.– A group of small loan companies bribed public officials so that they could keep interest rates high (which benefited them). If an employee was a position such that he or she had enough power, duty, responsibility, and authority to act for and on behalf of the corp, then the employee’s acts which were committed within that scope may be imputed to the corp. Title/position does not conclusively determine authority.

      2. Lessoff & Berger– A law partnership was held liable for fraud, even though only one of the partners was involved in the commission of the crime. “Harsh, but rational.” Harsh: Other partners who were clueless about the misconduct suffered. Rational: The other partners also stood to gain from the fraud, and they should have had incentives to do a better job of policing.

      3. Hilton Hotels – Corp held liable for the acts of its rogue employee, even though corp had explicit policy that it wouldn’t engage in illegal boycotts and the employee acknowledged receiving specific instructions to the same effect. The employee just went off the deep end b/c of “anger and personal pique.” If a corp entrusts an employee with enough responsibility so that it’s possible for the employee to get into significant trouble with the law while acting within the scope of his employment, then the corp should take the precaution of policing the employee to the extent that that risk exists. Note that mgmt’s diligence is no defense: If the agent acts willfully, then we can impute the agent’s act to the principal.

   4. Alternative way of meeting an actus reus requirement: proving that there was a corporate policy. If the misconduct was performed, authorized, ratified, adopted, or tolerated (even recklessly tolerated) by the corp’s directors, officers, or other “high managerial agents” who are sufficiently high in the hierarchy to warrant the assumption that their acts in some substantial sense reflect corporate policy, then the corp can be held criminally liable. This is MPC standard. Proof problems: higher-ups usually cover their tracks.

   5. Mens rea requirements: knowledge and willfulness. Two ways of proving knowledge: (1) one or more agents had actual knowledge; (2) collective knowledge doctrine (i.e., if one employee knows one piece of info, and another knows another piece, then the employer can be charged with the aggregate knowledge). Two ways of proving willfulness: (1) one or more agents acted willfully; (2) there was flagrant organizational indifference (serves as a proxy for proof of willfulness on the part of a single agent).

      1. Bank of New England (p.31) – Bank held liable for violating the Currency Transaction Reporting Act; customer withdrew more than $10K in cash by presenting multiple checks simultaneously to a single bank teller. Other employees gossiped about how unusual and suspicious this was, and yet no one reported or even inquired whether the transactions should be reported. The Bank didn’t even make any effort to report after it received a federal grand jury subpoena (the transactions at that point were still reportable). Ct. held that the Bank’s flagrant indifference to its reporting obligations could serve as a proxy for willfulness.

6. Personal Liability in an Organizational Setting

   1. Direct participants: Federal law doesn’t recognize any distinction bet. principals and accessories.

      1. Wise (p.50) – A corporate officer may be held personally liable if he knowingly participates in illegal conduct – whether he authorizes, orders, or helps perpetrate the crime – even if he’s acting in a representative capacity. Both the corp and the officer can be prosecuted. We punish the corp to encourage supervision and the implementation of compliance programs; we punish the officer b/c that has a particularly powerful deterrent effect.

         1. Legislative Intent: Well settled that absent clear legislative intent to exclude corporate agents from personal responsibility for crimes they commit, they cannot use the corporate entity as a shield against liability for their own misdeeds.

   2. Imposing liability on corporate officers via the responsible share theory: A corporate officer may be found to have had a responsible share in a transaction which led to a violation if (1) she was in a position of power and authority over the transaction/operation out of which the violation arose and (2) she had a legal duty to prevent or correct such violations.

      1. Dotterweich (p.61) – President/general manager (Dotterweich) of Buffalo Pharmacal was held personally liable for FDA violations for shipping adulterated and misbranded drugs in interstate commerce. If someone must be responsible for the purity of the drugs and the accuracy of the representations, then, bet. the public (consumers) and the manufacturer and the shipper, the last two are in the best position to minimize the risk of harm.

         1. Held: Manager could be held criminally responsible for violations even though there was no evidence that he knew the drugs were misbranded and adulterated or that he personally participated in shipping them

      2. Park (p.65) – CEO of huge corp w/ multiple operations and locations (in contrast to the pharmaceutical corp in Dotterweich) was held personally liable for FDA...