Sam Buell on the Responsibility Gap in Corporate Crime

Corporations commit crimes – corporate crimes – that inflict harm on society.

Sam Buell
Duke Law School

The corporations commit those crimes as a result of conditions within the corporations that are created by senior management.

Those managers bear serious moral responsibility for the fraud, deaths, cheating that results – for the corporate crime.

The managers are richly rewarded for their work.

Yet the criminal law offers us little to hold those managers accountable for the crimes of the corporation.

In a new paper, The Responsibility Gap in Corporate Crime, Duke Law Professor Samuel Buell, argues that the criminal law has not been effective in closing this responsibility gap and bringing the corporation’s managers to justice.

Buell is also author of the book Capital Offenses: Business Crime and Punishment in America’s Corporate Age.

What do you mean by the responsibility gap in corporate crime?

“In the paper, I look at a number of examples — BP in the Gulf, General Motors, Wells Fargo, JP Morgan, VW,” Buell told Corporate Crime Reporter in an interview last week. “You take all of these cases and they fit a pattern where there is a serious corporate crime committed by several or a group of people within the corporation. And they are in effect carrying out the corporation’s mission. They are not off on some rogue mission. Often they are responding to very clear directives and incentives that have been in place by management. But then when it comes to a decision to cross legal lines to carry out that mission, it can’t be established that the managers had the kind of knowledge and involvement in the actual wrongdoing that would implicate them in the crime.”

“The gap is the gap between the normative story that one can tell about managers having a real sense of at least moral responsibility for the wrongdoing — a gap between that and the legal doctrine which doesn’t allow that responsibility to be ascribed through the process of punishment in the enforcement of criminal law.”

“The paper takes on the issue at two different levels. One is — is there any way to fit existing law into these cases for establishing criminal liability? And the conclusion there is no.”

“And the second level is — what if we tried to reform existing law, for example, by expanding the responsible corporate officer doctrine to more serious punishments for a wider variety of offenses? Does that work? And my conclusion is ultimately no.”

What is the responsible corporate officer doctrine?

“It’s this odd doctrine that first popped up in the 1940s in a case called United States v. Dotterweich, which is a case under the federal Food Drug and Cosmetic Act. This is a statute that your readers will be familiar with for enabling these big prosecutions and settlements against pharmaceutical companies for mislabeling — which is really the crime of illegal marketing of pharmaceuticals. That statute is quite old — it predates the New Deal. In Dotterweich, the Supreme Court interpreted that law to mean that those who stand in responsible relation to the violation could also be held individually liable — at least at the misdemeanor level.”

“This reading of the statute was reaffirmed more clearly in a famous Supreme Court ruling in the 1970s called Park. That case involved adulterated food in a warehouse. Same statute, different setting. It that case, they made pretty clear that what they meant by the idea of responsible relation was that if you had the authority to prevent the violation and you had the ability to do so, you could be held liable.”

“Congress has over the years watched what the Supreme Court was doing with this. And Congress made it explicit that they wanted that kind of liability in both the Clean Water Act and the Clean Air Act. There are a handful of federal statutes that have this. It’s all at the misdemeanor level. The Court has made clear that there is a kind of affirmative defense available.”

“If you can establish that you were powerless to prevent the violation, you can’t be held liable. But otherwise it’s a kind of a strict liability. There is no knowledge or other mens rea required. The prosecutor doesn’t have to prove a criminal mental state but just a relationship of authority with respect to the violation. It should be noted that Park was contesting two $150 fines. It was not an imprisonment case.”

In your paper, you argue that the responsible corporate officer doctrine, even if expanded to reach non FDA cases, to reach the top of the corporations, to reach felonies, will not close the responsibility gap in corporate crime. Why not?

“What I mean by that is that it’s not an available tool. Any effort to deploy it in that fashion is going to run into serious legal problems. The Supreme Court will quite likely have a due process clause problem with a strict liability, felony corporate management offense. There is a long history of strict liability statutes which have been interpreted by the Supreme Court.”

“The Court says — we know that the Congress cares about mens rea. When there is a serious punishment attached to a statute, the Court says — we are going to read in a mens rea requirement. If Congress were to enact a statute where it said — we mean this to be strict liability — and they put a serious penalty on it — then you see an unavoidable due process challenge. And I think this Supreme Court would likely say no.”

Put aside this Supreme Court. You think it’s a bad idea.

“There is a real problem of legitimacy in the criminal law there and over deterrence. I’m against the idea we should have strict liability for narcotics.”

“If the cops stop you and you have drugs in your backpack, you ought to be able to say — I didn’t know they were there. Someone planted them. It shouldn’t just be — you possess drugs, go straight to prison. There is nothing for you to litigate.”

“Mens rea requirements are the kind of wall that stands between convictions based on culpability and conviction based on no culpability.”

“In the paper, I’m very clear that there is a story to be told about responsibility in a general sense here. You are very well compensated. You supervise a process which needs to be safe and doesn’t injure the public. But the mere fact that you occupy that position — being a gateway to imprisonment — with no inquiry into mental culpability — is something that would be a deep departure from hundreds of years of our concept of what justifies imprisonment. So, yes, I would be opposed to that.”

“You are opposed to expanding the responsible corporate officer doctrine to close the responsibility gap. Let’s now look at corporate criminal liability. You believe that has a bit more promise, but still won’t close the responsibility gap.”

“It’s a second best alternative for trying to get at management. When management bears responsibility for what happens and they can’t be personally held accountable, the imposition of corporate criminal liability does have a somewhat punitive effect on managers. It doesn’t personally imprison them. It doesn’t fine them. But it throws the company into a deep crisis, deep scandal, potentially followed by punitive sanctions. Nobody wants to be presiding over a criminally prosecuted corporation. I do think that we hear managers constantly talking about how their worst case scenario is the Department of Justice coming at them with a criminal prosecution. They get sued every day — that’s a cost of doing business. But these corporate criminal prosecutions are something they fear.”

“For that to work, corporate criminal liability has to be imposed in a punitive way. And there are critics who have pointed out that is not necessarily the case. Brandon Garrett has a paper out that suggests, through some empirical work, that managers are landing on their feet after the corporation has been prosecuted.”

“If Brandon’s paper is showing that the managers are not materially hurt by corporate criminal liability, then that maybe raises the question of whether we ought to think more about whether the corporate criminal liability mechanism could include something that might be more punitive with respect to management. In my view, imprisonment in most of these cases is off the table. But maybe you could build something through legislation that would look more like the SEC process. The SEC has statutory authority to debar management from executive positions with SEC reporting companies. Could Congress put something like that in with corporate criminal liability?”

In your paper, you say that even as a second best choice, corporate criminal liability is not going to close the responsibility gap. At the end, you raise some ideas on where to look.

“This is a gesture to the last chapter in my book that came out last year. My book makes the argument that if we want to get this large corporate institution under control with regard to serious misconduct, criminal law is not going to get us there.”

“Deterrence is obviously important but what we may want to look at is ways to reform corporate law, to redefine the obligations of managers with respect to wrongdoing within the corporations that puts them at greater risk of civil liability for the failure to be more diligent. We have the famous Caremark decision out of Delaware that says there is a board of directors and management obligation to police the corporation for compliance with law. But given the Delaware corporate law regime writ large, there is not much that can be done if someone is found not to have fulfilled that obligation.”

“In some ways, we are back to the larger conversation that has gone on over the past hundred years to so in this country. How do we regulate corporations? How do we do corporate law? At a couple of junctures, we chose to go down the road of a federalist approach, where states would take the lead on this — there would be a diversity of approaches. There has been a long worry that a cost of that may be a race to the bottom.”

“Is this era of corporate crime we have been through causing us to rethink the question of whether we ought to have national regulation of corporate law? There have been a couple eras of our history where we looked at federalizing corporate law.”

Are you talking federal chartering?

“Or at least some federal regulation of the terms of the corporate contract — the obligations of corporate officers. There have been times in the past where we have talked about doing that. You can go into Delaware with a reform agenda to try and beef up the regime, but you would have to worry that whatever you did with Delaware law, if you might end up with corporate flight to a different jurisdiction.”

“In my understanding of corporate law right now, there has been some substantial movement to Nevada which has some features that are more attractive than Delaware to owners and managers.”

“Once you worked your way through the corporate crime problem, I’m suggesting that we may be reaching a point that we may need to look at more fundamental possibilities.”

[For the complete q/a transcript of the Interview with Samuel Buell, see 31 Corporate Crime Reporter 26(12), June 26, 2017, print edition only.]


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