Corporations, Directors, And Officers: Potential Criminal And Civil Liability

This practice note provides an overview of the law and legal standards governing the imposition of criminal liability on officers, directors, and corporations for the acts of employees. The practice note discusses the federal government's policies and procedures in corporate criminal investigations and prosecutions, and the most common areas of corporate civil liability under the federal securities laws.

This practice note specifically addresses the following key issues in civil and criminal corporate liability:

Vicarious Criminal Liability for Corporations and Executives Assessing Potential Criminal Liability under Department of Justice (DOJ) Guidelines Criminal Liability under Federal Employment Laws Corporate Sentencing and Establishing Effective Compliance Programs Civil Liability in SEC Enforcement Actions Civil Liability in Shareholder Direct and Derivative Actions Although this practice note covers federal law, many of the topics addressed below also may implicate state laws, depending on the circumstances.

Be mindful that what begins as a commercial or civil matter may ultimately have consequences under criminal statutes as well. Similarly, regulatory investigations into potentially criminal conduct often result in civil litigation brought by contractual counterparties or shareholders. Thus, it is important to involve counsel with both criminal and civil expertise at the onset of a dispute or investigation. Finally, we emphasize the importance for corporations to develop and nurture a culture of rigorous compliance with the laws and regulations applicable in their respective industries. A substantive compliance program is both a significant mitigating factor considered by prosecutors in assessing penalties and a bedrock best corporate practice in a post-Enron, post-credit crisis environment.

VICARIOUS CRIMINAL LIABILITY FOR CORPORATIONS AND EXECUTIVES

Corporations can be charged with committing crimes. Federal criminal statutes apply to "whoever" or to any "person" who violates their prohibitions, terms which include not only individuals, but also corporations, companies, associations, firms, and partnerships. See, e.g., 18 U.S.C. §§ 371, 1956; 1 U.S.C. § 1.

As a legal entity that exists only in documents, a corporation is incapable of independently forming the mens rea necessary to commit a criminal act. Instead, the corporation acts through its employees and agents. Some U.S. states hold corporations criminally liable only for the acts of directors or senior managers. See, e.g., Model Penal Code § 2.07; Ariz. Rev. Stat. Ann. § 13-305. By contrast, federal law generally ignores an employee or agent's level of responsibility. See, e.g., United States v. Singh, 518 F.3d 236, 249-50 (4th Cir. 2008).

Respondeat Superior

The most prominent theory of corporate criminal liability is respondeat superior. Originally developed in tort law, respondeat superior holds corporations both civilly and criminally liable for the acts of their employees and agents, so long as the acts were...