September 13, 2007
For more information, please contact Bob Webb.
Question: Will the Government indict and prosecute a corporation for the illegal acts of its employees?
Answer: Yes. Corporations are "legal persons" capable of committing crimes. The U.S. Department of Justice will prosecute a corporation "for the illegal acts committed by its officers and employees if (i) the criminal acts occur within the scope of the employee's duties and (ii) the criminal acts were performed at least in part for the benefit of the corporation. However, this does not mean that the corporation must actually have authorized the employee to commit the illegal acts. In fact, most corporate prosecutions occur when employees commit illegal acts that are contrary to express instructions by the corporation. In other words, corporations can be prosecuted even if the employee's activities violate the corporation's policies.
An example of a case where the government could prosecute a corporation involves a truck driver. If a truck driver dumped a load of waste at an unauthorized site, the government could criminally prosecute the corporation even if the corporation had given him specific instructions not to dump waste at unauthorized locations.
The main factors that the government will consider in deciding whether to prosecute a corporation are:
(1) The seriousness of the crime, including the risk of harm to the public.
(2) The involvement of corporate management in condoning the criminal acts.
(3) The history of the corporation's conduct, such as prior criminal or civil proceedings against it.
(4) The corporation's timely and voluntary self-reporting of the wrongdoing to the government, and its willingness to cooperate with the government by waiving its attorney-client and work product privileges that protect its communications between its employees and the corporation's lawyers.
(5) The existence and adequacy of the corporation's compliance plan.
(6) The corporation's attempts to remedy the problems once the criminal conduct is discovered.
The best way that a corporation can protect itself from a government attack is to establish and enforce a corporate "compliance plan" that discourages unlawful conduct by its employees. An adequate and effective compliance program has the following features.
(1) It must detect and deter employee misconduct.
(2) It must be communicated to all employees and reinforced on a regular basis. It cannot be drafted by an attorney and then filed away never to be seen again.
(3) It must have teeth. Employees who engage in unlawful conduct must suffer consequences that deter other employees from committing unlawful conduct in the future. In other words, the compliance program must be supported by management.