An employee of a corporation, acting at least in part to benefit the corporation, commits a crime.

Under the standard of respondeat superior, the corporation is on the hook for the same crime.

Erin Sheley
University of Oklahoma
College of Law
Norman, Oklahoma

The standard has been criticized as over inclusive and under inclusive.

It arguably punishes corporations without fault. That’s the over inclusive part.

But it also has been criticized as under inclusive.

Let’s say that the employee engages in sexual violence. The requirement that the employee intended in part to benefit the corporation lets the corporation off the hook for liability for sexual violence.

Now comes Erin Sheley of the University of Oklahoma College of Law.

In a new article titled Tort Answers to the Problem of Corporate Criminal Mens Rea, Sheley argues that to solve these problems within the criminal law, “we should learn from their parallel development in the sphere of tort law, from which respondeat superior was derived in the first place.”

Sheley argues that criminal respondeat superior should apply only where the government can show that a crime occurred, regardless of whether or not any individual employee had the intent to benefit the corporation, show an omission by the corporation to take reasonable steps to prevent the crime, and show that the substantial risk of such a crime was objectively foreseeable to a reasonable person undertaking the corporation’s enterprise.

In the article, Sheley looks at the push by corporate lobbies to include a mens rea requirement into the criminal justice reform proposal.

“The first go around on criminal justice reform brought together people on both sides of the aisle that thought – okay, our justice system as applied to individuals has perhaps become overly punitive, at least in certain circumstances,” Sheley told Corporate Crime Reporter in an interview last week. “Maybe we can get a bipartisan coalition on board to figure out ways, particularly with respect to drug sentencing, to make the system less punitive.”

“What held things up the first time was a push for mens rea reform. Politicians on the right were advocating for mens rea reform. That reform would attach to all federal crimes some kind of element of willfulness.”

“It’s a slightly incoherent revision to make – to just add a mens rea element completely across the board to thousands of crimes without thinking about how that would work out.”

“The political narrative emerging from this was –  the Republicans were trying to get rid of so much liability for commercial behavior. The Democrats were resisting it. It’s more complicated than that, but that was the big tension.”

“The idea was that mens rea reform was going to make it harder to prosecute white collar crime and if the Republicans were going insist on it, it was going to derail the process.”

“My article is relevant not so much because it resolves the problem, and it certainly doesn’t resolve the myriad of issues involved with criminal justice reform generally, but it does try to say –  there is an excessive swath of liability for commercial offenses. But one aspect of that is the respondeat superior standard. Respondeat superior is the current law of the land for holding corporations liable for the crimes of their employees. If we went to a standard that narrowed the potential liability to cases where you could show some form of corporate intent, then that would be a step toward narrowing the overall amount of liability for corporations. It would be better and more precise than just saying – we are going to add a mens rea element to all federal crimes in one fell swoop.”

What do you mean by mens rea in the corporate context and what does respondeat superior mean in the corporate context?

“Mens rea in criminal law refers to the intent element. A crime is defined by the illegal thing that you do – the actus reus – and the mens rea – which is the accompanying intent. Things that are done purposefully are considered worse than things that are done recklessly.”

“In corporate criminal law, there is a challenge to figure out – who is the mind with the intent when you are talking about a corporation? Different jurisdictions have answered this in different ways. Some jurisdictions will require a certain high level officer has the requisite intent. Canada used to have that standard. If a high level officer has it, then you can put the corporation on the hook.”

“Australia looks at the culture of the corporation. Now Canada has crafted a very well intentioned but complicated two part statutory remedy, which requires a low level employee to have committed the offense and then requiring some level of supervisory employee to have some degree of at least negligence. It hasn’t been used very often by their Crown prosecutor because it’s complicated.”

“The United States decided to dispense with all of this complicated metaphysical musing about what it means for a corporation to intend something. The United States imported from tort law the standard of respondeat superior. That says – if an employee commits an offense, so long as the employee is motivated, at least in part, to benefit the corporation, then the corporation can be on the hook.”

“In the U.S., we have this standard that as long as you can find one employee, even if it is a low level rogue employee, someone who is acting against orders, if you can find that they committed the offense, even if it was intended to benefit the employee, but at least partially benefitted the employer, then the corporation can be on the hook.”

“This gives the government an enormous amount of leeway to get plea deals and deferred prosecution agreements out of companies, simply because the potential liability is so broad. There is no requirement that the government prove organizationally there was some kind of intent to violate the law.”

The debate over criminal justice reform the last time around was done in by the corporate lobbies wanting a mens rea requirement where before one didn’t exist.

“The corporate side was arguing that there be a mens rea requirement imposed on all federal offenses. You would have no more strict liability offenses on the books, even for individuals. There would have been a requirement written so that for any federal prosecution under any criminal law, the government would have to show willfulness.”

Jeffrey Parker of George Mason Law School argues there should be no corporate criminal liability.

As he told us – “no mind, no crime.” A corporation doesn’t have a mind and therefore can’t commit a crime. Are you in that camp?

“No. I disagree with that. While I do think the liability is too broad, there is a valid theoretical basis for punishing corporations. I talked about that in the first article I wrote in 2013 when I started writing about white collar crime. What I look at is the impacts of corporate misconduct on victims. Not all corporate crimes have easily discernible victims.”

“But some of them do. By looking at victim impact statements and victim accounts by people who have been harmed by financial fraud or oil spills or other environmental crimes, you get a lot of reference to the sense of helplessness. The corporation is going to have continued existence, it is going to continue to be powerful. Victims will identify that as part of  the source of the harm.”

“Think about the expressive purposes of criminal punishment which are generally associated with the idea of retribution – the idea that as a society, we are sending a message about what we think is bad. And that message is considered to be a valuable part of why we punish in the first place. If we were to stop punishing corporations and stop saying that a corporation should be subject to punishment, we would be ignoring the reality of the experience of victims of corporate crime, who do feel themselves to be victimized not just by an employee who forgot to do the inspection, but by the whole entity that caused the harm or suffering.”

“I disagree with that idea that we should not punish corporations. I just think that corporate criminal liability needs to be applied in a way that is more principled.”

Your proposal does get rid of strict liability. You are putting in place your mens rea requirement.

“Yes. But it does not require the government to show some kind of affirmative collective intent. It just requires the government to show a failure to take reasonable steps to prevent something that was objectively foreseeable.”

“It’s not like requiring the government to show that a corporation had collective knowledge. That gets really complicated and puts a pretty significant burden on the government. It’s a collective negligence standard with some tweaks.”

Let’s say we are looking at this from the perspective of the U.S. Chamber of Commerce. Does the Chamber of Commerce like Erin Sheley’s proposal?

“I think probably yes.”

In terms of straight corporate crime cases – environmental, bribery, corruption – does your standard make it easier or harder to bring the case?

“Harder, for sure. Say you have some rogue employee who has engaged in bid rigging with his counterpart at some other corporation. It’s a case where this is truly a rogue employee acting completely outside what they are being directed to do.”

“The first question – is bid rigging a reasonably foreseeable offense for someone engaged in some form of government contracting?  The answer to that is yes.”

“The next question becomes – was there a collective failure to take the reasonable steps necessary to prevent the bid rigging? That’s when we look to – what actually happened? Was there a compliance program? How was it applied? Many scholars say there should be corporate criminal liability if there is no good compliance program. But it would go beyond that. Could something have be done to prevent it? It would be a factual inquiry. If it is a case where steps were taken, but this guy was bound and determined and acting completely outside of the scope of oversight, then the corporation gets off. Whereas under the current rule, all you need to show is this guy did it and then the corporation is on the hook.”

Aren’t you assuming that the vast majority of these corporate crime cases involve rogue employees when in fact there is a lot of evidence showing the opposite? Many of these compliance programs are not effective. You have compliance officers complaining all the time of failure of the corporation to take compliance seriously. Are the majority of corporate crime cases rogue employee cases?

“Almost certainly not. But the government would still have to make that proof. Most of these cases are being resolved through deferred and non prosecution agreements. If there is some requirement that the government show the failure, then it is just going to make that bargain not as completely one sided as it would be under a pure respondeat superior standard.”

During the last debate over sentencing reform, Public Citizen argued in favor of the current strict liability for corporate crime because corporate crime is significantly different from street crime. Public Citizen argued that this push for default mens rea was a way to block corporate criminal prosecutions.

“There is the argument that we should care mostly about the regulatory agenda being fully realized. And we should be able to go after corporations without the complexities created by some sort of mens rea standard. It is certainly easier to go after corporations without a mens rea requirement. But it also leads to abuse. Since corporations have started pushing back against FCPA enforcement, the Department of Justice got caught doing some inappropriate things to prove these cases at trial. It suggests that it had become too easy with no mens rea requirement. Public Citizen is quite correct that it is easier to enforce the law if you are not required to prove the traditional elements of criminal law. But they are there for a reason. Even if they are unlikeable defendants, as some corporations tend to be, usurping the traditional requirements of criminal law carries a risk of government abuse.”

[For the complete q/a format Interview with Erin Sheley, see 32 Corporate Crime Reporter 46(11), Monday November 26, 2018, print edition only.]