Corporate Criminal Liability: An Overview of Federal Law
Released: 2013-10-30T00:00:00

Introduction

Under federal law, corporations or most other legal entities may be criminally liable for the crimes of their employees and agents. This is true in the case of regulatory offenses, like crimes in violation of the Federal Food, Drug, and Cosmetic Act; it is true in the case of economic offenses, like crimes in violation of the securities laws; and it is true in the case of common law crimes, like keeping a house of prostitution in violation of the Mann Act. Ordinarily, the agents and employees who commit the crimes for which their principals and employers are liable also face prosecution and punishment.

Individual criminal statutes, Justice Department policies, and the Sentencing Guidelines largely dictate the circumstances under which, and the extent to which, agents, employees, corporations, and similar unincorporated entities are prosecuted and punished. This is a brief overview of federal law in the area.

Background

It was said at common law that "a corporation cannot commit treason, or felony, or other crime, in its corporate capacity: though its members may, in their distinct individual capacities." That perception changed over time. First, it was agreed that a corporation might be held criminally liable for its failure to honor certain legal obligations (nonfeasance); then for the inadequate manner in which it performed certain legal obligations (malfeasance). At the dawn of the 20 th century, the Supreme Court expressed a more sweeping view:

It is true that there are some crimes which, in their nature, cannot be committed by corporations. But there is a large class of offenses ... wherein the crime consists in purposely doing the things prohibited by statute. In that class of crimes we see no good reason why corporations may not be held responsible for and charged with the knowledge and purposes of their agents, acting within the authority conferred upon them. If it were not so, many offenses might go unpunished and acts be committed in violation of law where, as in the present case, the statute requires all persons, corporate or private, to refrain from certain practices, forbidden in the interest of public policy.

The Court spoke of "crimes which in their nature, cannot be committed by corporations," but did not explain what specific crimes it had in mind. When it spoke, it did so in the midst of a debate over whether a corporation could be held criminally liable not only for crimes of action and inaction (malfeasance and nonfeasance) of its agents but also for those crimes which required that their agents acted with a specific intent (mens rea) such as the intent to defraud ("since a corporation has no soul, it cannot have actual wicked intent").

The Court pointed toward resolution of the issue, however, when it observed that the question turns on the nature of the crime and not the nature of the corporation ("some crimes in their nature, cannot be committed by corporations"). Since, in the federal sphere, there is no crime but by act of Congress, the question is one of statutory proscription and congressional intent.

Entities Subject to Corporate Criminal Liability

Most federal criminal statutes apply to "whoever," or to any "person" who violates their prohibitions. Although, in ordinary parlance, the word "person" usually refers to a human being, the law often gives it a broader meaning. The Dictionary Act provides that "In determining the meaning of any Act of Congress, unless the context indicates otherwise ... the words 'person' or 'whoever' include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." The courts have used the Dictionary Act definition to give meaning to the words "person" or "whoever" in the context of a criminal statute.

Federal statutes frequently provide individual definitions of the entities that fall within their proscriptions. Some are as terse as that of the racketeering statute, "'person' includes any individual or entity capable of holding a legal or beneficial interest in property." Others, like the tax crime definition, are more detailed:

When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—(1) Person.-The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation. (2) Partnership and partner.-The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term "partner" includes a member in such a syndicate, group, pool, joint venture, or organization. (3) Corporation.-The term "corporation" includes associations, joint-stock companies, and insurance companies.

Still others have taken special care to mention governmental entities when listing those covered by their proscriptions. The caution reflects judicial reluctance, absent explicit language, to conclude that Congress intends to expose governmental entities to punitive measures.

Scope of Authority

In federal law, corporate criminal liability is ordinarily confined to offenses (a) committed by the corporation's officers, employees, or agents; (b) within the scope of their employment; and (c) at least in part for the benefit of the corporation. The test for whether an activity falls within the individual's scope of authority is whether the individual engages in activities "on the corporation's behalf in performance of [his] general line of work.... those acts must be motivated, at least in part, by an intent to benefit the corporation." If the standard is met, the corporation will be liable notwithstanding the fact that it expressly directed its agent, employee, or officer not to commit the offense at issue.

Under the Model Penal Code and many state penal codes, corporate criminal liability may depend upon the misconduct of senior management officials; the misconduct of lower level employees is not always enough even when they act within their scope of authority for the corporation's benefit.

Imputed Intent and Knowledge

As a general rule, "[c]orporations may be held liable for the specific intent offenses based on the 'knowledge and intent' of their employees." Again, the rule extends only to those instances when the employee or agent acted, or acquired knowledge, within the scope of his or her employment, seeking, at least in part, to benefit the corporation. The law is somewhat more uncertain when a corporation's liability turns not upon the knowledge or the intent of a single employee but upon cumulative actions or knowledge of several.

Liability of Officers, Employees, Agents, Accomplices, and Conspirators

With rare exception, statutes which expose a corporation to criminal liability do not absolve the officers, employees, or agents whose violations are responsible for the corporation's plight. From time to time, the courts have encountered the argument that an individual cannot be at once both the person who violates the statute and the personification of the corporation that violates the statute: "[W]hen the officer is acting solely for his corporation, the appellee contends that he is no longer a 'person' within the Act. The rationale for this distinction is that the activities of the officer, however illegal and culpable, are chargeable to the corporation as the principal but not to the individual who perpetrates them." To which the courts have responded, "No intent to exculpate a corporate officer who violates the law is to be imputed to Congress without clear compulsion."

Conspiracy raises a slightly more difficult issue. Conspiracy is the agreement of two or more persons to commit some other federal crime. Although the courts have sometimes recognized an intracorporate defense in civil conspiracy cases, they have concluded that a corporation and each of the participating individuals may be liable for plots among two or more of the corporation's officers or employees. On the other hand, a "corporate officer, acting alone on behalf of the corporation, [may] not be convicted of conspiring with the corporation."

Conspiracy also presents one of the three situations in which corporate officials and employees may face criminal liability under federal law even though they themselves did not commit, and perhaps did not even know of, the misconduct of other officers or employees. Thus, though an officer or employee has no direct hand in the matter, he is liable for foreseeable offenses committed by one of his co-conspirators in furtherance of their common scheme.

The second situation occurs when the official or employee either instructs another to commit a federal offense or aids and abets another in the commission of a federal offense, or takes some action after the fact to conceal the commission of a federal offense by another. Like conspiracy, liability for procuring or aiding and abetting the offense of another focuses on conduct committed before the commission of the underlying substantive offense:

Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. (b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.

"In order to aid and abet another to commit a crime it is necessary that a defendant in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seek by his action to make it succeed." The officer or employee must know of the colleague's pending misconduct and by his action intend to facilitate it. Moreover, unlike conspiracy, which requires at least two individuals, even a sole stockholder may be guilty of aiding and abetting the crime of a corporation.

Misprision and liability as an accessory after the fact focus on conduct committed after the commission of the underlying substantive offense. Misprision requires proof that the defendant knew of the commission of a federal felony by another, and that he not only failed to report the offense to authorities but affirmatively acted to conceal it. An accessory after the fact charge requires proof that the defendant knew of the commission of a federal offense by another and assisted the other to avoid arrest, trial or punishment. Both statutes essentially create general obstruction of justice offenses. Consequently, the specific actions which offend their prohibitions will often constitute offenses under other more specific federal obstruction statutes.

The third instance of official liability triggered by the misconduct of others within the corporation requires no knowing participation, but instead occurs when a corporate official, responsible to do so, fails to prevent the commission of an offense. This is the least common of the three. It arises in the context of a regulatory scheme, crafted to ensure public welfare and capped with a criminal proscription which says nothing of the knowledge necessary for conviction. Two Supreme Court cases under the Federal Food, Drug, and Cosmetic Act first brought to prominence this so-called "responsible corporate official" doctrine.

The doctrine is triggered by legislation "of a now familiar type which dispenses with the conventional requirement of criminal conduct-awareness for some wrongdoing. In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger." The legislation generally involves the regulation of "potentially harmful or injurious items." "In such situations," the courts "have reasoned that as long as a defendant knows that he is dealing with a dangerous device of a character that places him in responsible relation to a public danger, he should be alerted to the probability of strict regulation," And they have further "assumed that in such cases Congress intended to place the burden on the defendant to 'ascertain at his peril whether his conduct comes within the inhibition of the statute.'" Thus, they "essentially have relied on the nature of the statute and the particular character of the items regulated to determine whether congressional silence concerning the mental element of the offense should be interpreted as dispensing with conventional mens rea requirements."

In such a legislative setting, "the Government establishes a prima facie case when it introduces evidence sufficient to warrant a finding by the trier of the facts that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so."

Prosecutorial Discretion

Generally

The decision to prosecute a corporation or its culpable employees or both is vested in the Justice Department. The courts will review the exercise of that discretion only in rare instances and then primarily to protect the constitutional rights of a defendant or potential defendant.

The Justice Department has two sets of guidelines governing the decision to prosecute—one general ("Principles of Federal Prosecution") and the other a supplement devoted to corporations ("Principles of Federal Prosecution of Business Organizations"). As they make clear, the decision to prosecute is in fact a series of decisions. The first is whether to initiate, decline, or defer a prosecution. Here perhaps the most easily assessed factor is the strength of the case against the defendant or defendants. Prosecutors ordinarily will not initiate a prosecution unless there is probable cause to believe that a person has committed a federal crime.

On the other hand, prosecutors will seriously consider initiating a prosecution if they believe that they have sufficient admissible evidence to secure a conviction. In those instances, the additional factors that influence the determination to prosecute fall into three categories: the weight of the federal interest, the prospect of effective prosecution elsewhere; and the adequacy of other alternatives.

Federal Interests

Whether to proceed with a prosecutable case ordinarily turns on the nature and seriousness of the offense and the culpability of the defendants. Some crimes, such as those involving immigration, civil rights, or federal tax violations, may warrant federal prosecution because of their very nature. Others, such as those involving major fraud or illicit drug trafficking, may call for federal prosecution because of the wide-spread harm they can inflict. The critical factors when it comes to corporate liability, however, are culpability factors. The factors identified in the business organization guidelines include

pervasiveness of the wrongdoing within the corporation; the corporation's history of misconduct; the existence and performance of compliance programs; the corporation's timely and voluntary disclosure of wrongdoing; the corporation's cooperation; absence of obstruction; collateral consequences; restitution.

Pervasiveness

The question is, was the corporation the victim of a rogue employee or is it a rogue corporation? Is crime committed for the corporation's benefit condemned, tolerated, or encouraged? Is the crime the work of an isolated individual or does corruption permeate the corporation? "Charging a corporation for even minor misconduct may be appropriate where the wrongdoing was pervasive and was undertaken by a large number of employees, or by all the employees in a particular role within the corporation, or was condoned by upper management." Conversely, it may not be appropriate to charge a corporation, "particularly one with a robust compliance program in place, under a strict respondeat superior theory for the single isolated act of a rogue employee." Most cases will fall between the two extremes and require recourse to other factors as well.

Corporate History

One indication of the pervasiveness of corruption within a corporation may be its involvement and response to any wrongdoing in its past. Past criminal conduct is telling, but the guidelines explain that earlier civil or regulatory enforcement actions may also be taken into account. The same may be said of the past transgressions of subsidiaries or affiliates, although short of a corporate department for the commission of criminal offenses the presence of subsidiaries or other liability-limiting features of corporate structure are not considered dispositive.

Compliance Programs

As noted earlier, a corporation may be liable for employee misconduct even where it has warned its employees against committing the offense. However, both the guidelines and the U.S. Sentencing Commission's Sentencing Guidelines encourage compliance programs. While a mere "paper program" may be to little avail, a closely supervised, widely dispersed compliance program tailored to detect and prevent the offenses most likely to occur in the corporation's operational environment may have a real impact. An effective plan may reduce the chances of a prosecution and reduce the severity of the charges and any subsequent sentence should a prosecution occur.

Cooperation

The cooperative aspects of the guidelines are among its most controversial attributes. It may be thought unseemly for a corporation to profit from the misdeeds of an employee and then escape liability by turning its benefactor over to the authorities. Moreover, the lines between rewarding cooperation and punishing the assertion of constitutional and other legal rights are not easily drawn. The guidelines point out that the Justice "Department encourages corporations, as part of their compliance programs, to conduct internal investigations and to disclose the relevant facts to the appropriate authorities." This is only one of the guideline's cooperation directives. A second is the reminder that cooperation alone does not necessarily shield a corporation from prosecution. Earlier Justice Department policies relating to corporate cooperation with federal prosecutors came under fire because of concerns that they might interfere with the Sixth Amendment rights of corporations and corporate officials.

The guidelines now seek to still those concerns by emphasizing that "[w]hat the government seeks and needs to advance its legitimate (indeed, essential) law enforcement mission is not waiver of those [attorney-client and attorney work product] protections, but rather the facts known to the corporation about the putative criminal misconduct under review. In addition, while a corporation remains free to convey non-factual or 'core' attorney-client communications or work product—if and only if the corporation voluntarily chooses to do so—prosecutors should not ask for such waivers and are directed not to do so." By the same token, while corporate officials are not free to obstruct an investigation, the mere fact that a corporation pays the attorneys' fees of its officers or employees or enters into joint defense agreements will ordinarily not constitute obstruction. Attorneys who feel a prosecutor has breached these assurances are encouraged to contact senior Justice Department officials.

A corporation may also receive credit for agreeing to make victim restitution, disciplining offending employees, or addressing short-comings in its compliance program. Finally, a prosecutor may consider the adverse impact of a prosecution on innocent employees or shareholders.

Prosecution Elsewhere

The general guidelines remind prosecutors that prosecution in another jurisdiction may be more advantageous, particularly when the interests of the other jurisdiction are comparatively more substantial or the prospects of a more appropriate sentence are greater.

Alternatives to Criminal Trial

Prosecutors have several alternatives to criminal trial. They may accept a corporation's offer to plead guilty. They may defer prosecution of the corporation under a deferred prosecution agreement. They may accept a corporation's offer to sign a non-prosecution agreement, frequently with the intent to prosecute corporate officials or employees. They may elect to forgo prosecution in favor of civil sanctions.

Finally, since corporate misconduct often occurs in a regulatory context, civil or regulatory sanctions may be available. Whether prosecutors consider them appealing alternatives may depend in part on the severity of the misconduct and the severity of the sanctions. The factors the guidelines identify include "the strength of the regulatory authority's interest; the regulatory authority's ability and willingness to take effective enforcement action; and the probable sanction if the regulatory authority's enforcement action is upheld."

Deferred and Non-prosecution Agreements

The common perception is that the announcement of its indictment sounds a large corporation's death knell. Consequently, a large corporation, threatened with the prospect of indictment, may be inclined to accept a deferred prosecution agreement or a non-prosecution agreement at terms particularly favorable to the government.

Although they are very similar, "a deferred prosecution agreement is typically predicated upon the filing of a formal charging document by the government, and the agreement is filed with the appropriate court." On the other hand, a non-prosecution agreement does not involve filing of formal charges and "the agreement is maintained by the parties rather than being filed with a court."

In either case, an agreement gives both parties resolution without the expensive ordeal and uncertain outcome of a criminal trial and its attendant appeals. As part of, or in conjunction with an agreement, a corporation may be induced to shed executives, assist in their prosecution, underwrite extensive remedial action, pay substantial fines, acquiesce in the confiscation of property of considerable value, establish a robust compliance process, and accept an oversight monitor for assurance of its continued good behavior.

The guidelines address deferred prosecution and non-prosecution agreements primarily in their plea bargain instructions. As in the case of individuals, the guidelines remind prosecutors to include at least a basic statement of facts. In the case of government contractors, the guidelines prohibit prosecutors from "negotiat[ing] away an agency's right to debar or delist the corporate defendant." They also discourage agreements that shield individual corporate officers, employees, or agents from liability. Internal memoranda guide negotiation of agreements that feature the appointment of outside experts to serve as monitors of a corporation's continued good behavior.

Constitutional Rights

During a criminal investigation and throughout the course of criminal proceedings, corporations and other legal entities enjoy many, but not all, of the constitutional rights implicated in the criminal investigation or prosecution of an individual.

Ex Post Facto

The Constitution's ex post facto clauses condemn retroactive criminal laws, state or federal. In rough terms, the ex post facto clauses prohibit: "1 st . Every law that makes an action done before the passing of the law, and which was innocent when done, criminal; and punishes such action. 2d. Every law that aggravates a crime, or makes it greater than it was, when committed. 3d. Every law that changes the punishment, and inflicts a greater punishment, than the law annexed to the crime, when committed. 4 th . Every law that alters the legal rules of evidence, and receives less, or different, testimony, than the law required at the time of the commission of the offence, in order to convict the offender."

In cases involving corporate defendants, federal courts have generally proceeded directly to an ex post facto analysis, without pausing to question whether the prohibition applies to such defendants.

First Amendment

The Supreme Court has stated often that corporations are entitled to First Amendment protections. "[I]n the context of political speech, the Government may [not] impose restrictions on certain disfavored speakers" be they individuals or corporations. Nor may corporations suffer content-based blanket proscriptions of their truthful speech when it relates to lawful commercial activity.

Fourth Amendment

The Fourth Amendment condemns unreasonable searches and seizures. Ordinarily, a government search or a seizure is unreasonable unless it is conducted pursuant to a warrant issued on the basis of probable cause. "Corporations can claim no equality with individuals in the enjoyment of a [Fourth Amendment] right to privacy." Nevertheless, it cannot "be claimed that corporations are without some Fourth Amendment rights." At the turn of the 20 th century, the Supreme Court acknowledged that corporations enjoyed the protection of the Fourth Amendment when faced with boundless government subpoenas. In later cases, it found the Fourth Amendment's commands had been breached when officers seized a company's records and ledgers, once without a warrant and once with an invalid warrant.

The extent of the Amendment's protection will often turn not upon the nature of the subject to the search entity but the nature of its activities and the government's purpose for the search or seizure. In a regulatory context, commercial activities, corporate or otherwise, may be subject to reasonable warrantless inspections or inquiries bereft of probable cause, under some circumstances. The courts continue to affirm, however, that corporate entities may claim Fourth Amendment protection in cases involving searches and seizures occurring on commercial premises but conducted in the course of a criminal investigation.

Fifth Amendment

Of the rights which the Fifth Amendment guarantees, two have been denied corporations. "[A] corporation has no Fifth Amendment privilege" against self-incrimination, nor does it have a right to grand jury indictment. Of the others, two—Due Process, and Double Jeopardy—either have been said to protect corporations or have been construed to protect corporations.

Due Process

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury ... ; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. U.S. Const. Amend. V.

. . . [N]or shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. U.S. Const. Amend. XIV, §1.

The Fifth Amendment Due Process Clause limits the governmental prerogatives of the federal government; the Fourteenth Amendment Due Process Clause limits the prerogatives of the states. Nevertheless, the Supreme Court has recognized that many of the restrictions of the Bill of Rights, binding on the federal government, are—by virtue of the inclusion of those restrictions within the Fourteenth Amendment's understanding of due process—binding on the states under the same standards.

The Supreme Court has said long and often that a corporation is a "person" for purposes of the Fourteenth Amendment. Moreover, the courts have acknowledged the access of corporations to various due process rights, for example, the right to challenge a court's personal jurisdiction over them or "the right to be heard at a meaningful time and in a meaningful manner before being deprived of a protected interest in liberty or property."

On the other hand, the Supreme Court has said that the states of the United States are not "persons" for Fifth Amendment Due Process Clause purposes. The lower federal courts have followed suit with observations that neither the political subdivisions of the states nor foreign governments are "persons" for purposes of the Due Process Clause.

Double Jeopardy

The circuit courts have concluded that corporations are entitled to protection against double jeopardy. In addition, the Supreme Court has upheld a corporation's double jeopardy challenge without recognizing the right in so many words.

Sixth Amendment

The Sixth Amendment guarantees anyone accused of a federal crime several rights: the right to notice of the charges, to the assistance of counsel, to a public and speedy trial before a jury where the crime occurred, to call witnesses, and to confront his accusers. The text implies the rights are available to anyone, corporate or otherwise, accused of a crime.

Assistance of Counsel

A corporation accused of a crime has the right to the assistance of counsel in its defense. A corporation, however, is not entitled to appointment of counsel at public expense to represent it.

Notice of Charges

The Sixth Amendment assures the accused that he will be "informed of the nature and cause of the accusation." Rule 7(c)(1) of the Federal Rules of Criminal Procedure carries forward the assurance regardless of whether the accused is charged by indictment or information.

Public Trial

In the presence of prejudicial pre-trial publicity or inflamed public sentiment, the right to a public trial may conflict with an accused's Fifth Amendment due process right to a fair trial and his Sixth Amendment right to trial by an impartial jury. Moreover, "the public trial right extends beyond the accused and can be invoked under the First Amendment."

Speedy Trial

The courts use a balancing test to determine whether an accused has been denied his right to a speedy trial. The analysis consists of weighing "the length of [the] delay, the reason for the delay, the defendant's assertion of his right, and [the extent] of prejudice to the defendant [caused by the delay]." The courts have used this constitutional analysis when the accused is a corporation. It is in this context, that the corporate right to a public trial is most often asserted.

Jury Trial

The Sixth Amendment assures an accused of the right to a jury in serious criminal cases. In three cases involving legal entities—two labor unions and a corporation—the Supreme Court made it clear that an accused facing a substantial criminal fine has the right to a jury trial.

Venue

By virtue of the Sixth Amendment and Article III, all federal criminal trials must be held in the state and judicial district in which the crime occurs. The venue standards which the courts use for individuals and for corporations are the same.

Call Witnesses and Confrontation

The accused in a criminal proceeding enjoys the rights under the Sixth Amendment "to be confronted with the witnesses against [and] to have compulsory process for obtaining witnesses in his favor." The right to confrontation includes the instruction that "testimonial statements of witnesses absent from trial can be admitted only where the declarant is unavailable, and only where the defendant has had a prior opportunity to cross-examine. Under the right to compulsory process "at a minimum, ... criminal defendants have the right to the government's assistance in compelling the attendance of favorable witnesses at trial and right to put before the jury evidence that might influence the determination of guilt." The rights ensure the integrity of the criminal fact-finding process. The sparse case law suggests they are available to corporations.

Eighth Amendment

The Eighth Amendment states that excessive fines may not be imposed. A fine is excessive if it is grossly disproportionate to gravity of the crime for which the defendant was convicted. A few courts avoid the question by noting that the Supreme Court has never decided whether the Eighth Amendment applies to corporations. Others have ruled against corporations on the merits.

Sentencing Guidelines

Corporations cannot be incarcerated. Nor can they be put to death. Otherwise, corporations and individuals face many of the same consequences following conviction. Corporations can be fined. They can be placed on probation. They can be ordered to pay restitution. Their property can be confiscated. They can be barred from engaging in various types of commercial activity.

Corporations and individuals alike are sentenced in the shadow of the federal Sentencing Guidelines. Federal courts must begin the sentencing process for felonies or class A misdemeanors with a calculation of the sentencing ranges recommended by the Sentencing Guidelines. When they impose sentence, they must consider the recommendation along with the factors prescribed in 18 U.S.C. 3553(a). Appellate courts review the sentences imposed on an abuse of discretion standard and will overturn lower court sentences that are procedurally or substantively unreasonable. A sentence is procedurally unreasonable when the sentencing court fails to correctly identify and apply the appropriate Sentencing Guidelines' recommended sentencing range. A sentence is substantively unreasonable when it is unduly harsh or unduly lenient or otherwise inexpedient.

The Sentencing Guidelines for organizations measure punishment according to the seriousness of the offense as well as the defendant's culpability and history of misconduct. On the other hand, they reward self-disclosure, cooperation, restitution, and preventive measures. The Guidelines supply special corporate sentencing directions for fines, probation, forfeiture, special assessments, and remedial sanctions.

Fines

The corporate fine Guidelines begin with the premise that a totally corrupt corporation should be fined out of existence, if the statutory maximum permits. A corporation operated for criminal purposes or by criminal means should be fined at a level sufficient to strip it of all of its assets. On the other hand, a fine need not be imposed at all, if it would render full victim restitution impossible.

Otherwise, corporations face different fine standards depending upon the offense of conviction. In chapter 8C, the Guidelines set specific standards for crimes with a commercial flavor—antitrust, smuggling, and gambling offenses, for instance. The Sentencing Commission explicitly declined to promulgate special corporate fine standards for other offenses. Instead, corporate fines for such offenses are governed by two general statutory sentencing provisions. One, §3571, sets the permissible maximum amount for any fine. The other, §3553, outlines the sentencing factors and procedures applicable to both individuals and corporations. The limited case law suggests that sentencing courts may disregard the Guidelines completely in the case of a corporation convicted of one of these other offenses.

For the offense to which Chapter 8C's fine provisions apply, a sentencing court must begin by deciding whether the defendant entity is able to pay a fine. If so, the amount of an organization's fine is determined by the applicable offense level and the level of its culpability. An organization's offense level is calculated in the same manner as an offense level for an individual but without the adjustments for things like vulnerability of the victim or role in the offense. Unless the amount of gain or loss associated with the offense is greater, the organization's base fine is pegged at one of 33 levels corresponding to its offense level—from $5,000 for an offense level of 6 or less to $72.5 million for an offense level of 38 or more.

The applicable fine range is then ascertained by multiplying the amount assigned to the offense level by minimum and maximum factors determined by the corporation's culpability score. A corporation's score sheet begins at 5. Points are added or subtracted to reflect greater or less culpability. The lowest culpability score merits a range ascertained by multiplying the offense level amount by .05 (setting the bottom of the range) and 0.2 (setting the top). Conversely, the highest culpability score merits a range ascertained by multiplying the offense level amount by 2.0 (setting the bottom of the range) and 4.0 (setting the top).

The Guidelines then identify 11 factors to be considered when deciding where within the applicable range a corporation ought to be fined. The absence of an effective ethics and compliance program is perhaps the most distinctive factor on the list. The Guidelines also identify a number of circumstances that may require or argue for a fine outside of the recommended range. First, the sentence imposed must conform to statutory requirements. Thus, applicable statutory maximums or minimums trump any conflicting Guideline sentencing range boundaries. Second, the sentencing process may leave the corporation with the windfall from its misconduct. Consequently, the Guidelines recommend that the fine level be set so as to disgorge any illegally gotten gains that would otherwise be left to a corporation after the payment of its fine, compliance with the restitution order, or other remedial costs. On the other side, a fine below the recommended range should be imposed when necessary to permit restitution or may be below that range when the corporation will be unable to pay a higher fine even on an installment basis. A below-range corporate fine may also be fitting in light of individual fines imposed upon the owners of a closely held corporation.

The Guidelines supply several examples of when a fine outside the recommended range might be considered. A fine above the range (referred to as upward departures) may be warranted when

the offense resulted in a risk of death or serious bodily injury; the offense constituted a threat to national security; the offense presented a threat to the environment; the offense presented a threat to the market; the offense involved official corruption; appropriate to offset reductions attributable to compliance programs; and the corporation's culpability score exceeds the limit for additional multipliers.

Departures below the range (referred to as downward departures) may be warranted when

the corporation provides substantial assistance to authorities; the corporation is a public entity, for example, a local governmental agency; the corporation's beneficiaries (other than stockholders) are also victims of the offense; and the corporation's remedial costs far exceed its gains from the misconduct.

Probation

Corporations convicted of a federal crime must be placed on probation, if the court elects not to fine them. If they are fined, the court may also sentence them to probation. The court may impose a probationary term of no more than five years. In the case of felony convictions, the term must be for at least one year.

The Guidelines call for probation as a means of ensuring that convicted corporations comply with their obligations to pay a fine or special assessment, make restitution, establish a compliance program, perform community service, or comply with the court's remedial orders. They also find probation appropriate when

the organization committed the offense within five years of a prior similar conviction; a senior corporate official involved in the offense within five years was involved in a prior similar offense; necessary to reduce the risk of future criminal misconduct on the part of the corporation; or necessary in order to comply with the sentencing directives of 18 U.S.C. 3553(a)(2), i.e., the need to reflect the seriousness of the offense, promote respect for the law, and provide just punishment, afford adequate deterrence, protect the public, and effectively provide for offender training, care, and correctional treatment.

The only mandatory condition of corporate probation is a requirement that the corporation not engage in any further criminal conduct. The array of discretionary probationary conditions under the Guidelines includes requirements that the corporation

publicize its conviction at its own expense; establish and maintain a compliance program; notify its employees and shareholders of its offense and compliance program; notify or periodically report to the court or the probation service on its finances, compliance program, or involvement in government investigations or proceedings; undergo periodic audits at its own expense; or make periodic restitution or fine payments.

In addition, a sentencing court remains free to impose any probationary condition that is reasonably necessary and related to the considerations prescribed for sentencing generally under 18 U.S.C. 3553(a), (b)(2).

In response to a corporation's failure to comply with the conditions of its probation, a court may resentence the corporation, extend the term of its probationary period, or impose additional probationary conditions.

Special Assessments

Corporations are subject to a special assessment upon conviction at a rate of $400 for each felony count, $125 for class A misdemeanor count, $50 for each class B misdemeanor count, and $25 for each class C or infraction count.

Restitution, Compliance Programs, and Other Remedial Sentences

Restitution

Depending on the nature of the offense, a court may be required to order a convicted corporation to pay victim restitution. In other instances, it may do so as a matter of discretion. In still others, the court may impose restitution as a condition of probation or pursuant to a plea bargain.

Restitution is required when a defendant has been convicted of

a crime of violence; a crime against property including fraud; maintaining a crack house; tampering with consumer products; theft of medical products; sexual abuse; child pornography; domestic violence; telemarketing fraud; child support; copyright and trademark infringement; production of methamphetamines; or human trafficking.

The court may order restitution when a corporation is convicted of

any offense under title 18 of the U.S. Code for which mandatory restitution is not required; transportation of hazardous materials; air transportation of hazardous materials; air piracy; interference with a flight crew; or violations of the Controlled Substances Act under 21 U.S.C. 841 (possession with intent to distribute), 848 (drug kingpin), 849 (trafficking a truck stops or rest stops), 856 (maintaining a crack house), 861 (using children in drug operations), 863 (drug paraphernalia).

In the absence of other specific authority, the court may order restitution as a condition of probation or pursuant to a plea bargain. In related matter, corporate defendants convicted of fraud may be ordered to pay for victim notification.

Compliance Programs

The Guidelines' effective compliance and ethics program features are perhaps its most well-known corporate component. A corporation that lacks such a program is likely to have one imposed at sentencing or pursuant to a plea bargain. As noted earlier, a corporation that has one is likely to fare better during the investigation, bargaining, and sentencing phases of a criminal case.

The Guidelines envision programs that promote an ethical and law-abiding culture within a corporation and that are calculated to identify and prevent criminal misconduct within the corporation. The elements of such a program consist of the following:

1. An established set of standards and procedures designed to detect and prevent criminal misconduct. 2. Senior management involvement in the program including its day to day operations. 3. Minimizing the operation participation of those previously ethically challenged. 4. Training corporate employees and agents. 5. Monitoring, auditing, and evaluating the program. 6. Encourage and reward performance consistent with the program's goals; discipline inconsistent conduct. 7. Responding appropriately to the discovery of in-house criminal conduct.

Community Service

The Guidelines provide that a corporation may be sentenced to perform community service related to the harm caused by its offense as a probationary condition as long as the corporation has skills, facilities, or knowledge particularly suited to task. Otherwise, it suggests that fines or other monetary sanctions may be more appropriate and that service unrelated to harm caused by the offense is not consistent with the Guideline.

Other Remedial Orders

The court may impose other probationary conditions that address the harm caused or to be caused by the corporation's crime, including in cases of substantial anticipated future harm the creation of a trust fund.

Forfeiture

Forfeiture, the confiscation of property as a consequence of its relation to a criminal offense, is a creature of statute. Some forfeiture statutes are remedial, some punitive, and some serve both purposes. The Guidelines confirm that the property of a corporation is no less subject to confiscation than the property of an individual.