Twenty Things You Should Know About Corporate Crime

Such companies generate wealth for the economy and their shareholders and provide employment for much of the population. Short of a revolutionary restructuring of the economy and the political institutions of the country, it is certain that the power and influence of companies will grow and not diminish in the foreseeable future.

But, with great power comes great responsibility. Just as individuals owe a duty not to harm or injure others in society without justification, so do companies owe a duty not to poison our water and food, not to pollute our rivers, beaches and air, not to allow their workplaces to endanger the lives and safety of their employees and the public, and not to sell commodities, or provide transport, that will kill or injure people.

Corporate crimes One was again reminded of the corporate crimes when on 19th July, the Supreme Court of India ordered the government to pay a remaining $325.5 million (15.03 billion rupees) due to Bhopal gas tragedy victims. The U.S. based Union Carbide Company, now owned by Dow Chemical Co., paid $470 million in compensation to victims in 1989. But distribution of most of that money was held up by bureaucratic disputes over the categorization of victims. At last on 19th July the victims or their representatives got justice 20 years after the tragedy took place.

The story goes back to the 1984 Union Carbide accident in Bhopal, India, which released a cloud of methyl isocyanate (MIC), hydrogen cyanide, and other toxins. Somewhere between 4000 and 8000 people died at the time, and victims' advocates estimate that in total over 20,000 have died as a result of this largest industrial accident ever, with 1,50,000 suffering continuing injuries and medical problems.

The cause was extreme corporate malfeasance. The plant was not up to minimal Union Carbide safety standards - large quantities of MIC were unwisely stored in a heavily populated area, the refrigeration unit for the MIC (which is supposed to kept at temperatures below 32 F) was deliberately kept turned off to save $40 per day in costs, the safety systems were dismantled, and the alarm system was turned off. This was in spite of the fact that the same plant had earlier suffered potentially lethal accidental releases of gases like the deadly nerve agent phosgene.

There are a number of corporate crimes that have come into light now days. One of the major havoc that is created in present times is because of mysterious disappearance of corporations. Of the 5,651 companies listed on Bombay Stock exchange, 2750 have vanished. It means that one out of two companies that come to the stock exchange to raise crores of rupees from investors, loot and run away. Even big names like Home Trade (remember Sachin, Sharukh, Hrithik sayingLife means more) came up with huge publicity stunts but after raising money, vanished into the thin air. About 11 million investors have invested Rs. 10,000 crore in these 2750 companies. We have Securities Exchange Board of India, Reserve Bank of India and Department of Companies Affairs to monitor the stock exchange transactions but none has documented the whereabouts of these 2750 odd companies suspended from the stock exchange. Many of the promoters and merchant bankers who are responsible for these are roaming s cot-free. The market regulators and stock exchanges are unable to penalize them or recover their funds. The regulators have been able to identify only 229 of 2750 vanishing companies so far.

Corporations also commit a number of crimes against their own workforce. With increasing globalization workers find themselves being pushed against the wall and shrinking revenues for redressal. Now days the debates and rage over corporate scams talks only of the interest of shareholders. Nowhere is there a mention of the employee who suffers the most. Take the case of public sector undertakings where many irregularities can be seen in. Factories were opened in some areas where the raw material was not available and where the location was correct, imported machinery was defective. Lavishness on the part of management was one of the factors, which led to these institutions becoming sick. No doubt that the labourers suffers the most in such cases. The plight of Mumbais textile workers is even worse. Legal dues have not been paid to 2 lakhs jobless mill workers. Trade unions are fighting with the reality of worker suicides and growing unemployment and the workers families are s truggling to get over their misery, leave alone fight for dues from faceless management.

The government across the world have given a free hand to corporations to exploit the natural and community resources, while depriving the common people of their right on these resources. For instance, in India, Corporations at Eloor, Kodaikanal and Gujarat have not only destroyed the water and land resources in these areas, but also impoverished communities by degrading their livelihood resources and health. All these communities suffer from disasters similar to Bhopal. Inaccessible to clean and safe drinking water was found to be a major problem in all these areas. The companies either pollute the water resources to an extent where it is no more portable or over exploit it till the water table goes down or dry up the wells. A befitting example could be of Coco Cola bottling plant in Kerala where the company extract excess amount of water from the ground due to which the water level has gone very low and the near by villages are suffering from scarcity of water.

Much has been talked about the pollution created by corporations. A train ride from Mumbai to Ahmedabad would be sufficient to realize the seriousness of industrial pollution the companies cause in this Golden corridor. It is important to note that most of the damages caused to the environment is irreversible.

Adulteration and contamination of food items also have a prominent place in the list of corporate crimes. Last year a PIL was filed by a Delhi based NGO, Srishti, which focused on food safety and quality. It pointed out the incidence of contamination through out the food chain, from the production, marketing to the consumption end. The writ said that consumers are ill aware of the consequences of such contamination or about remedial measures. According to an ICMR bulletin reports, residue data on pesticides on samples of fruits, vegetables, cereals, pulses, grains, oils, eggs, meat, butter and cheese in India indicates their presence in sizeable amount, this in turn affects the health of consumers. Various studies conducted have shown that very high level of extremely toxic pesticides has been found in human blood, fat and milk samples in India. Last year, to ones utter surprise, it was found that many brands of so called pure and safe bottled drinking water and also cold dr inks contain deadly pesticides beyond acceptable limits.

Also, have any one noticed that how much the convicted corporations are involved into dirty game of politics. Corporate Crime Reporter, a U.S. based legal newsletter published a report in July 2003 titled as Dirty Money: Corporate Criminal Donations to the Two Major Parties. This report grew out of the question that how much money are common criminal corporations dumping into the Republican and Democratic parties in U.S.? The report found that 31 corporate criminals gave more than $9 million to the Democratic and Republican parties during the 2002 election cycle, which runs from January 1, 2001 to December 31, 2002. These corporate criminals gave $7.2 million to Republicans and $2.1 million to Democrats. Many of these corporate criminals are large, multinational corporations, with billions of dollars in assets.

To get a sense of this, let's look at the top two corporate criminal donors to the Republican and Democratic parties. Archer Daniels Midland (ADM) tops the list. ADM pled guilty in 1996 to one of the largest antitrust crimes ever. The company paid a $100 million criminal fine -- at the time, the largest criminal antitrust fine ever. Same is the case in India. These corporate criminals give huge sums of money to the political parties in return of favours from these parties. Who suffers the most is the common man including the shareholders and workers.

Holding Corporations responsible for their criminal acts In India and internationally, laws to hold corporations accountable are systematically being dismantled, even as corporations and other agents of globalisation dictate policies of nations. The corporate sector enjoys far more rights than the common people. With the onset of the new trade regime, national laws are being changed to empower corporations with the right to hire and fire at will, to get the first right over natural and community resources.

Now its high time to put a control over these crimes. There has been a debate as to whether a Corporation can be held criminally liable. There are two theories regarding this- Nominalist and Realistic. Nominalist theory of corporate personality view corporations as nothing more than collectives of individuals. In this an individual first commits the offence; the responsibility of that individual is then imputed to the corporation. According to Realist approach corporations have an existence, which is to some extent independent of the existence of its members. Here, the responsibility of corporation is primarily. The Realist theory looks more convincing and practically applicable.

The argument in favour of corporate being criminally liable is that in many cases it is the corporation itself, through its policies or practices, that has done wrong and prosecution and punishment should be directed at the real wrongdoer. In many cases there is no individual who, alone, has committed a crime. It is the conjunction of the practices of several individuals, all acting in compliance with a company's sloppy or non-existent procedures, that has caused the harm. Alternatively, in many cases companies have complex structures with responsibility buried at many different layers within the corporate hierarchy making it difficult, if not impossible, to determine where the true fault lies.

The common law jurisdictions have adopted the approach and recognize that corporations may be held criminally liable. However, they do highlight the conceptual difficulty in applying a theory of criminal liability based on a view of fault centered on the psychological processes of humans to what is simply a fictional person. There is an apparent need, now, to adapt the notion of fault to the structure and particular modus operandi of corporations. The existing mechanisms used to attribute criminal liability to corporations are but a partial solution, and should be improved.

In so far as negligence as a fault element is concerned, it might be necessary to provide that criminal negligence refers to a significant departure from the standard of conduct of a prudent and diligent corporation. Corporate negligence is established by proof of negligence of its employees, agents or officers or, if no one individually is negligent, that the body corporates conduct, viewed as a whole, is negligent. This collective negligence may be established by proof that the prohibited conduct was substantially attributable to inadequate management control or supervision, or failure to provide adequate systems for conveying information within the body corporate.

The Doctrine of direct Liability (Theory of corporate organs): This doctrine, which was specifically developed for the purpose of imposing liability on corporations, seeks, in fact, to imitate the imposition of criminal liability on human beings. The direct doctrine relies on the notion of personification of the legal body. It identifies actions and thought patterns of certain individuals within the corporation called corporate organs who act within the scope of their authority and on behalf of the corporate body, as the behaviour of the legal body itself. Hence, the name of the doctrine: the theory of corporate organs or the alter ego doctrine referring to these individuals as the embodiment of the legal body. In its wake corporation can be rendered criminally liable for the very perpetration of the offences, resembling the liability imposed on a human perpetrator, subject to the natural limitations that follow from the character of the corporations as a legal personality .

But, the procedure to prove corporations criminally liable is, prima facie, rather complex. If intention, knowledge or recklessness is an essential ingredient of the offence, these fault elements must be attributed to the body corporate if it expressly, tacitly or impliedly authorized or permitted the commission of the offence. First, the corporation's fault will be established (vicarious liability) if the body corporate's board of directors intentionally, knowingly or recklessly carried out the wrongful conduct, or expressly or by necessary implication authorized or permitted the commission of the offence. Second, the corporation's fault may be established by evidence that a high managerial agent of the company intentionally, knowingly or recklessly engaged in the relevant conduct or expressly, tacitly or impliedly authorized or permitted the commission of the offence. In this second case, however, the corporation will not be liable if it proves that it exercised due dilige nce to prevent the conduct. Third, the corporation's fault may be established by proof that a corporate culture existed within the body corporate that encouraged, tolerated or led to non- compliance with the relevant provision. Fourth, the corporation's fault may be established by proving that it failed to create and maintain a corporate culture that required compliance with the relevant provision.

The notion of corporate culture as a foundation for corporate criminal liability Generally speaking, it can be said that corporate culture refers to a "pattern of shared beliefs and values that give the members of an institution meaning and provide them with the rules for behavior in their organization". This rather broad notion can be used for many purposes, and is helpful in analyzing a corporation's personality in many respects. For the purposes of attributing criminal liability, corporate culture refers primarily to the chain of command, the decision-making structure and the general atmosphere concerning obedience to the law. The following indicators are often singled out as pointing to facets of corporate culture that are relevant in the context of criminal liability.

First, the development within the corporation of clearly defined responsibilities concerning the creation, evaluation and application of standards and procedures designed to ensure compliance with the law by employees would be a significant indicator of a corporate culture that is heedful of compliance with the law. If, for example, the corporate structure is so organized as to deprive senior managers of the information they need to exercise such powers, this would indicate a corporate culture that is designed to elude law enforcement. Generally, deficient structures for the dissemination of information within the firm would also be suspect. Indeed, providing that a deficient corporate culture can be the basis for a charge of intentionally committing a crime transforms into an intention what in my opinion is simply negligence but it must be proved that the corporate culture instigated, encouraged or led to the commission of the offence or that the failure to maintain a law-a biding atmosphere was deliberate.

Corporate Mens Rea Doctrine It is often asserted that companies themselves cannot commit crimes; they cannot think or have intentions. Only the people within a company can commit a crime (Sullivan 1995). However, once one accepts that the entire notion of corporate personality is a fiction - but a well-established and highly useful one - there seems no reason why the law should not develop a concomitant corporate mens rea fiction. Most of the other doctrines - identification, aggregation etc. - involve fictitious imputations of responsibility. The real question is not whether the notion of a corporate mens rea involves a fiction, but whether, of all the fictions, it is the one that most closely approximates modern-day corporate reality and perceptions. While this inevitably will raise problems of how to assess policies and procedures to ascertain whether they reflect the requisite culpability, such a task is not impossible. The answers might not be easy, but at least this approach involves asking the r ight questions. It is often argued in opposition to corporate criminal liability that the imposition of fines provides no guarantee that delinquent conduct will be deterred. The fines imposed on corporations are often minimal in comparison with the devastating effects of their wrongful acts, and virtually amount to a cost of doing business. But there is also a concern that excessive fines can have perverse effects that may have to be borne by innocent shareholders, creditors, employees or consumers. But, it should be remembered that the punishment of companies decreases their overall wealth. Accordingly, shareholders and employees have an incentive to encourage and monitor better corporate practices. Costs can only be passed on the public to the extent that the company remains competitive. Arguments that shareholders and employees need protection must be outweighed by the greater societal interest in ensuring the safety of employees, the public and the environment.

Conclusion In my opinion, there should be a distinct part of the Indian Penal Code expressly covering corporations. Criminal sanctions, in my view, are appropriate only if it is in fact the organization, its modes of operation and its deficient structures that are singled out where they produce unacceptable consequences that could have been avoided given the resources and information at the corporation's disposal.

One of the main objects of corporate criminal liability is to ensure that companies improve their work practices. If no individual who has committed a crime can be identified and no mechanism for corporate prosecution was to exist, the harmful practices would continue unabated. Companies should be prosecuted and convicted for the same general offences as individuals and subject to the same general rules for the construction of criminal liability. The law should recognise and give effect to the widely held public perceptions that companies have an existence of their own and can commit crimes as entities distinct from the personnel comprising the company. Prosecution of companies, particularly when accompanied by media attention, can provide a significant impetus to companies to improve their practices or can prompt law reform to improve safety standards.