Whistleblowers and Rogues: The Urgent Call for an Affirmative Defense to Corporate Criminal Liability
52 Pages Posted: 26 Mar 2012 Last revised: 12 Sep 2013
Date Written: March 23, 2012
Courts hold corporations vicariously liable for the criminal acts of their employees even when those employees have acted contrary to established company policies, explicit employer instructions and without management’s knowledge or ratification. The current legal regime places firms in a quandary - do they rectify the wrongdoing internally and hope that a whistleblower does not report them to the authorities, or do they disclose to the government the fact that rogue employees have violated the law thereby subjecting themselves to high financial penalties, the threat of criminal prosecution, loss of shareholder value, civil suits, suspension of private and public contracts and reputational damage?
Corporations must comply and contend with Dodd-Frank whistleblower legislation, which rewards tipsters even if they bypass credible, functioning internal compliance programs; the 2010 UK Bribery Act, which imposes strict liability on companies doing business in the U.K; and the twentieth anniversary of the Federal Sentencing Guidelines used to sentence corporate defendants. With this changing regulatory landscape, it is time to eliminate the current disincentives to optimal investment in compliance.
Many academics and even former justice department officials have called for either the abolition of criminal liability or for an affirmative defense. This article raises the bar and proposes an affirmative defense and a presumption against criminal liability for a compliance program that exceeds the current standards and that would be audited by an objective third party free from conflicts of interest or, in the alternative and preferably, pre-certified by the government itself. This defense would level the playing field between corporations and prosecutors, would provide the proper incentives for companies to prevent, detect and disclose criminal activity, and would allow both the private and public sector to allocate their resources more productively.
Keywords: Dodd-Frank, whistleblower, compliance program, vicarious liability, corporate criminal liability, deferred prosecution agreement, Federal Sentencing Guidelines, FCPA, bribery, Department of Justice, affirmative defense, prosecution, SEC, strict liability, vicarious liability
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