Corporate Criminal Liability

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 What Is Corporate Criminal Liability?

Corporations are entities that only exist through their employees. Corporations, however, may be held vicariously liable for criminal activity unless they are limited liability corporations (LLCs).

Corporate liability is the legal responsibility of a corporation related to any criminal actions. For example, corporations can be criminally liable under the following circumstances:

  • The criminal act committed by the agent or the employee was within the scope of their employment;
  • A statute or statutes define what crimes a corporation is liable for; or
  • There was a failure to perform an affirmative duty;
    • Corporations must perform certain duties under the law. The failure to perform these duties may result in criminal liability. For example, a corporation will be guilty of tax evasion if it does not pay its taxes.

Can Corporations Be Held Criminally Liable?

A corporation may be held liable for a criminal act of an employee so long as that employee was acting in the scope of their employment and their conduct benefits the corporation. Corporations cannot be imprisoned or punished as individuals can.

There are, however, other ways to punish corporations, including:

  • Heavy fines;
  • Loss of business license(s); and
  • Regulation by government agencies.

When Does an Employee Act Within the Scope of Employment?

For an employee to be acting within the scope of their employment, they must have permission or actual authority to act on the behalf of the corporation. A corporate authority who is acting within their corporate duties and engaging in a corporate activity that is related to the corporation would be considered to be acting within the scope of their employment.

If there is a rational relationship between the criminal acts of the employee and their corporate duties, there will be corporate responsibility and the corporation can be held criminally liable for the conduct of the employee.

What Is White Collar Crime?

White collar crime is a term that is used to refer to a nonviolent crime that is, in general, committed for financial gain. These types of crimes are typically motivated by either monetary gain or avoiding losing:

  • Money;
  • Property; or
  • Services.

These crimes may also be motivated by a need to secure a business or personal advantage. The number of white collar crimes committed has increased exponentially as new technology and financial products have created many new opportunities and means to commit these types of crimes.

In addition, there are numerous new different categories of white collar crimes that are committed online, for example, fraudulent emails that request help by sending a substantial amount of money. Some white collar crimes are committed by individuals while others may include large-scale crimes perpetrated by numerous individuals through a corporate or government institution.

What Are Some Examples of White Collar Crime?

There are numerous examples of crimes that would be considered white collar crimes. Some of the more common examples of white collar crimes include:

  • Criminal fraud: Criminal fraud involves a scheme intended to cheat or deceive another individual or entity. This is done in order to obtain a financial or similar type of gain. According to criminal fraud law, any action that is intended to deceive another through false representation of fact, resulting in legal detriment to the individual who relied on the information, could be considered an act of criminal fraud;
    • Examples of criminal fraud include:
      • identity theft;
      • forgery; and
      • perjury;
  • Embezzlement: Embezzlement occurs when an individual who is entrusted to handle the finances of another person or business illegally takes that money for their own personal use. The crime is most commonly committed in situations involving an employee with access to their employer’s checks, cash, or bank accounts;
    • For example, if an accountant or a bookkeeper were to illegally write a check to themselves, steals cash, or withdraw money from the business bank accounts to put into their own bank accounts, it would be embezzlement;
  • Racketeering: Racketeering involves operating an illegal business, or racket, that is generally associated with organized crime. Protection rackets involve a criminal organization extorting money from businesses for protection against crimes, which would most likely be committed by the criminal organization itself. Examples of criminal rackets include:
    • the importation and sale of illegal drugs;
    • prostitution rings; and
    • gambling;
  • Securities fraud: Securities fraud is any type of fraud that is perpetrated in connection with the sale of a security. Securities fraud laws are generally intended to prevent any individual from:
    • using a scheme to defraud;
    • making untrue statements; or
    • failing to make a statement that deceives investors;
      • This offense may also include theft from manipulation of the market, as well as theft from securities accounts; and
  • Tax evasion: Tax evasion occurs when a person commits an act that is designed to defraud the Internal Revenue Service (IRS). The definition of tax evasion is very broad, so that the IRS may pursue an individual for almost any known misstatements on their taxes. Tax evasion, in general, involves an individual or a corporation that misrepresents their income to the IRS.

Other examples of white collar crime include:

  • Computer and internet fraud;
  • Bankruptcy fraud;
  • Bribery;
  • Credit card fraud;
  • Counterfeiting;
  • Trade secret theft;
  • Health care fraud;
  • Insider trading; and
  • Antitrust violations.

If a Corporation Is Criminally Liable, Are Individuals Punished?

When corporations are held criminally liable, the responsibility for the crimes also falls on the individuals. The corporation’s board of directors, officers, as well as other high-ranking officials will typically be held criminally liable as well.

In addition, an individual can be held criminally liable for the illegal acts of other employees under an accomplice liability theory. If an individual instructs, assists, aids, or encourages another employee to engage in or to commit a criminal act, they may also be held liable for that employee’s criminal act.

A supervisor or subordinate who has a duty to look after other employees and who knew or should have known that an employee was engaging in criminal conduct within the scope of their duties may also be held liable if they ignore the issue and fail to take action that would prevent the conduct.

What Are the Penalties for a Corporation that Is Held Criminally Liable?

If a corporation is held criminally liable for the criminal conduct of its employees, it may suffer both financially and criminally. Every individual in the corporate entity may be held liable for the criminal conduct, as noted above, including:

  • Officers;
  • Directors; and
  • The corporation itself.

The penalties the corporation may incur include:

  • Revocation of corporate charter by state authorities;
  • Civil penalties;
  • Loss of government contracts;
  • Shareholder suits; and
  • Permanent or temporary loss of deposit insurance, conservatorship, or receivership.

How Can an Attorney Help Me?

The laws that govern corporate responsibility are different in each state. The state laws that will apply depend upon the state in which the corporation was incorporated.

If you have any issues, questions, or concerns related to corporate criminal liability, it is best to consult with a criminal lawyer in your area. Your lawyer can advise you regarding the applicable laws, any defenses that may be available, and represent you during a criminal trial.

If you have been the victim of criminal activity by a corporation, it is important to consult with an attorney as soon as possible to receive compensation for your losses.

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