Should Corporate Criminal Liability Even Exist?

Should corporations face criminal punishment? Experts disagree.

John Hasnas, professor of business at Georgetown University, argued against corporate criminal liability in a debate Wednesday with Jimmy Gurulé, professor of law at Notre Dame Law School, who argued in favor of the practice.

“There’s no ‘thing’ there to absorb the punishment,” Hasnas said. “If you punish a corporation, it necessarily passes through the corporate form and falls on human beings. The only thing that you can punish are human beings.”

Sometimes those people are innocent, Hasnas said, pointing to accounting firm Arthur Andersen, which lost nearly 85,000 jobs worldwide after just one employee ordered staff to shred documents related to Enron. The corporation was convicted of obstruction of justice, but the conviction was reversed by the U.S. Supreme Court. Still, the corporation was dealt a death blow, voluntarily giving up its licenses as Certified Public Accountants and effectively closing the firm. That’s unjust collateral impact, he argued.

Instead of punishing the corporation as a whole, he said, punish the specific people in the corporation that are guilty of the wrongdoing.

In addition, the practice is unnecessary, he said, because corporations are subject to a number of other regulations and liabilities outside of criminal law through which they can be fined. There’s also the impact of “metaphorical liability,” Hasnas said, when a company sees financial loss after negative press.

Gurulé argued that corporations are prosecuted only in the most extreme cases, where the punishment rarely rises to the level of the damage that was caused. Prosecutors are too lenient and reluctant to file criminal charges, he said.

What does it take to prosecute a corporation? Quite a bit, he said.

“The misconduct must be extreme at the highest – corporate officers acting on behalf of the corporation must have placed profits ahead of public safety,” he said. “Not just any public safety; we’re talking about public safety that has resulted in multiple deaths. The corporation must have placed profits ahead of national security. The corporation must have placed profits ahead of the environment, resulting in massive damage to our rivers and oceans.”

He pointed to several corporations as examples, including Takata Corporation, whose malfunctioning airbags killed 17 people. The corporation knew of its faulty airbags for 15 years but still continued to produce them, Gurulé said. The corporation plead guilty in January and was fined $1 billion, most of which went to the companies within the auto industry to finance the largest recall in U.S. history and compensate the accident victims.

Stephen Smith, professor of law at Notre Dame, moderated the debate, which was sponsored by the Notre Dame chapter of The Federalist Society. He closed the debate with some comments of his own, seeing both sides of the argument.

Prosecutors are very restrained, Smith added, at least in part because the consequences are dire. Having effective regulations would make criminal corporate liability unnecessary, but they frequently fail to prevent harm.

“Corporations are just not real,” Smith said. “You can’t touch them. You can’t high-five them. All you can do to a corporation is get in their pockets. Isn’t there a better way to do that than a criminal conviction?”

Gurulé argued that, at least in some cases, the cost of the fine isn’t a deterrent itself. The corporations fear the label of a criminal conviction. The payment of a criminal fine is merely “the cost of doing business,” he said.

“The threat of criminal conviction, now that’s really something special. That’s something every corporation wants to avoid, because the stigma of a corporation being held liable, being convicted of a felony, is unique,” Gurulé continued. “It speaks volumes in terms of the severity, the nature, and the expansiveness of the criminal conduct that the corporation engaged in.”