Consti

A CRITICAL STUDY OF CORPORATE
OFFENCES
H.T.No. 1726-15-836-006
BRANCH IV - CORPORATE LAWS
ACADEMIC SESSION: 2015-2017
PADALA RAMI REDDY LAW COLLEGE

AMEERPET, HYDERABAD
ACKNOWLEDGEMENTS
I am indeed grateful to Padala Rami Reddy Law College (Osmania University),
Hyderabad for having given me the opportunity to submit this Thesis as a part of
the Curriculum in LL.M.
I would like to express my sincere gratitude to my supervisor and guide
Dr. P. Vijaya Kalyani, Principal, P.R.R Law College, for her valuable guidance
towards the successful completion of this work and all other lecturers and staff of
P.R.R College of Law, Osmania University for their constant support and guidance
throughout the course. I express my sincere thanks and gratitude to respected Sir,
D. Rajeshwar Rao, P.R.R Law College, Hyderabad, who has bestowed his
personal attention and extended cooperation with his professional guidance.
I am also grateful to Ms. Hari Priya, Partner at Brown Tree legal Associates and ex-
Legal Advisor at Metro Rail, Hyderabad for the constant support and guidance
during my tenure and during the study and preparation of this thesis. I would also
like to express sincere gratitude to Mr. Gangadhar, Partner at Legal fox9 Associates,
Hyderabad for the constant support and guidance during my tenure and during the
study and preparation of this thesis thereof.
Lastly, I also acknowledge with a deep sense of reverence, my gratitude towards
my parents and members of my family and friends, who have always supported me,
had faith in me and urged me to do better.
H.T.No. 1726-15-836-006
Specialization: Corporate Laws
i
DECLARATION
I hereby declare that this dissertation titled “A Critical Study of Corporate
Offences” is my own original work, submitted to Osmania University,
Hyderabad, in partial fulfillment for the award of Degree of Master of Law
(LL.M.) has not been submitted before to any institution for assessment
purposes.
The views expressed in this dissertation are those of the author and do not
reflect the official policy or position in any jurisdiction.
Further, I have acknowledged all sources used and have cited these in the
reference section.
HT.NO: 1726-15-836-006
BRANCH: CORPORATE LAWS
PADALA RAMI REDDY
LAW COLLEGE, HYDERABAD.
Date: 9th May, 2017.
ii
CERTIFICATE
This is to certify that the candidate bearing Hall Ticket No.
1726-15-836-006, a student of LL.M., Final Year Course, Branch IV,
Corporte Laws, Padala Rami Reddy Law College, (Osmania University),
Hyderabad has prepared this dissertation entitled “A Critical Study of
Corporate Offences” under my supervision and it is in accordance with the
norms of the University.
I have verified the contents of the thesis. This thesis is prepared in
accordance with the rules and regulations of Osmania University.
Date: (DR. P. VIJAYA KALYANI)

M.A (ENGLISH LITERATURE), LL.M.,
Ph.D., PGDPM. PGDIPR. GCIPR (WIPO)
Geneva. PGDMM, PGDCA, (LL.D) in laws.
Place: Hyderabad PRINCIPAL,
PADALA RAMI REDDY LAW COLLEGE
AMEERPET, HYDERABAD.
iii
ABSTRACT
The central government has established a central investigative agency
called the Central Bureau of Investigation (CBI). Typically, the CBI investigates
and prosecutes cases of serious fraud or cheating that may have ramifications
in more than one state. Where needed, the CBI can be assisted by specialized
wings of the central government especially in economic or cross-border crimes.
It also gets involved in serious crimes where it is necessary to use an agency that
is independent of local political influence. The Serious Fraud Investigation
Office is a multi-disciplinary organization under the Ministry of Corporate
Affairs, consisting of experts in the field of accountancy, forensic auditing, and
law.
Much of our lives and daily routines are affected by corporate activities.
To a great extent, companies provide the food we eat, the water we drink, the
necessities and luxuries of everyday living. Increasingly, particularly with
growing privatization, it is not the State that provides these amenities - but
companies. Such companies generate wealth for the economy and their
shareholders and provide employment for much of the population. Short of a
revolutionary restructuring of the economy and the political institutions of the
country, it is certain that the power and influence of companies will grow and
not diminish in the foreseeable future.
iv
But, with great power comes great responsibility. Just as individuals owe
a duty not to harm or injure others in society without justification, so do
companies owe a duty not to poison our water and food, not to pollute our rivers,
beaches and air, not to allow their workplaces to endanger the lives and safety
of their employees and the public, and not to sell commodities, or provide
transport, that will kill or injure people.
With the advent of Globalization and Industrialization taking place at a
rapid pace the world over today, we are faced with Crimes of a nature which is
becoming institutionalized and hard to detect. Corporate Crimes is a major
challenge to the legal fraternity, the law makers, and the law enforcers. The
Serious Fraud Investigation Office is a multi-disciplinary organization under the
Ministry of Corporate Affairs, consisting of experts in the field of accountancy,
forensic auditing, law, much of our lives and daily routines are affected by
corporate activities. To a great extent, companies provide the food we eat, the
water we drink, the necessities and luxuries of everyday living. Increasingly,
particularly with growing privatization, it is not the State that provides these
amenities - but companies. Such companies generate wealth for the economy and
their shareholders and provide employment for much of the population. Short of
a revolutionary restructuring of the economy and the political institutions of the
country, it is certain that the power and influence of companies will grow and
not diminish in the foreseeable future.
v
TABLE OF CONTENTS
ACKNOWLEDGEMENTS ............................................................................................ i
DECLARATION ........................................................................................................... ii
CERTIFICATE .............................................................................................................iii
ABSTRACT.................................................................................................................. iv
LIST OF CASES .......................................................................................................... ix
CHAPTER I
INTRODUCTION
1.1 PREAMBLE.................................................................................................... 1
Alternatives to Corporate Criminal Liability.......................................................... 3
1.2 OBJECTIVE OF THE RESEARCH AREA ................................................. 11
1.3 SIGNIFICANCE OF THE STUDY .............................................................. 14
1.4 HYPOTHESIS .............................................................................................. 18
1.5 LITERATURE REVIEW .............................................................................. 27
1.6 RESEARCH METHODOLOGY .................................................................. 28
1.7 SCOPE OF THE STUDY ............................................................................. 29
1.8 SCEME OF STUDY ..................................................................................... 34
1.9 CHAPTERIZATION .................................................................................... 36
CHAPTER II
THE REGULATORY PROVISIONS AND AUTHORITIES
DEALING WITH “FRAUD”
2.1 WHAT ARE THE MAIN REGULATORY PROVISIONS AND
AUTHORITIES RESPONSIBLE FOR INVESTIGATING CORPORATE OR
BUSINESS FRAUD? ............................................................................................... 39
2.2 WHAT ARE THE SPECIFIC OFFENCES RELEVANT TO CORPORATE
OR BUSINESS FRAUD? ........................................................................................ 41
2.2.1 Fraud and misrepresentation related with sale of securities. ................. 41
2.2.2 Forgery (section 463, Penal Code). ............................................................. 44
2.2.3 Falsification of accounts (section 477A, Penal Code). ................................ 44
2.2.4 Dishonest misappropriation of property (section 403, Penal Code). .......... 44
2.2.5 Criminal breach of trust (section 405, Penal Code). ................................... 45
2.2.6 Tax crimes. .................................................................................................. 45
2.3 WHAT ARE THE REGULATOR'S POWERS OF INVESTIGATION,
ENFORCEMENT AND PROSECUTION IN CASES OF CORPORATE OR
BUSINESS FRAUD? ............................................................................................... 47
2.4 WHAT ARE THE POTENTIAL SANCTIONS OR LIABILITIES FOR
PARTICIPATING IN CORPORATE BUSINESS FRAUD? ................................. 47
CHAPTER III
BRIBERY AND CORRUPTION
AUTHORITIES RESPONSIBLE FOR INVESTIGATING BRIBERY AND
CORRUPTION?....................................................................................................... 49
3.2 WHAT INTERNATIONAL ANTI-CORRUPTION CONVENTIONS APPLY
IN YOUR JURISDICTION? ................................................................................... 51
vi
3.3 WHAT ARE THE SPECIFIC BRIBERY AND CORRUPTION OFFENCES IN
YOUR JURISDICTION? ......................................................................................... 52
3.4 WHAT DEFENSES, SAFE HARBORS OR EXEMPTIONS ARE
AVAILABLE AND WHO CAN QUALIFY? ......................................................... 53
3.5 CAN ASSOCIATED PERSONS AND AGENTS BE LIABLE FOR THESE
OFFENCES AND IN WHAT CIRCUMSTANCES? .............................................. 54
ENFORCEMENT AND PROSECUTION IN CASES OF BRIBERY AND
CORRUPTION?....................................................................................................... 54
3.7 WHAT ARE THE POTENTIAL SANCTIONS FOR PARTICIPATING IN
BRIBERY AND CORRUPTION?........................................................................... 55
3.8 TAX TREATMENT .......................................................................................... 55
CHAPTER IV
INSIDER DEALING AND MARKET ABUSE
AUTHORITIES RESPONSIBLE FOR INVESTIGATING INSIDER DEALING
AND MARKET ABUSE? ....................................................................................... 56
4.2 WHAT ARE THE SPECIFIC INSIDER DEALING AND MARKET
ABUSE OFFENCES? .............................................................................................. 57
AVAILABLE AND WHO CAN QUALIFY? ......................................................... 58
ENFORCEMENT AND PROSECUTION? ............................................................ 59
INSIDER DEALING AND MARKET ABUSE? .................................................... 60
CHAPTER V
MONEY LAUNDERING AND TERRORIST FINANCING
5.1 REGULATORY PROVISIONS AND AUTHORITIES RESPONSIBLE
FOR INVESTIGATING MONEY LAUNDERING AND/OR TERRORIST
FINANCING ............................................................................................................ 61
5.2 MONEY LAUNDERING AND TERRORIST FINANCING OFFENCES. 62
5.3 DEFENCES, SAFE HARBOURS OR EXEMPTIONS ARE AVAILABLE
AND WHO CAN QUALIFY ................................................................................... 63
5.4 REGULATOR'S POWERS OF INVESTIGATION, ENFORCEMENT AND
PROSECUTION ...................................................................................................... 63
5.5 SANCTIONS FOR PARTICIPATING IN MONEY LAUNDERING OR
TERRORIST FINANCING OFFENCES ................................................................ 65
CHAPTER VI
FINANCIAL RECORD KEEPING
6.1 GENERAL REQUIREMENTS FOR FINANCIAL RECORD KEEPING
AND DISCLOSURE................................................................................................ 66
6.2 SANCTIONS FOR FAILURE TO KEEP OR DISCLOSE ACCURATE
FINANCIAL RECORDS ......................................................................................... 67
6.3 ARE THE FINANCIAL RECORD KEEPING RULES USED TO
PROSECUTE WHITE-COLLAR CRIMES? .......................................................... 67
vii
6.4 GENERAL DUE DILIGENCE REQUIREMENTS AND PROCEDURES IN
RELATION TO CORRUPTION, FRAUD OR MONEY LAUNDERING WHEN
CONTRACTING WITH EXTERNAL PARTIES .................................................. 68
6.5 CIRCUMSTANCES WHEN A CORPORATE BODY ITSELF BE SUBJECT
TO CRIMINAL LIABILITY ................................................................................... 69
6.6 CIRCUMSTANCES WHEN A IT POSSIBLE TO OBTAIN
IMMUNITY/LENIENCY FOR CO- OPERATION WITH THE AUTHORITIES 69
6.7 INTERNATIONAL AGREEMENTS AND LEGAL INSTRUMENTS ARE
AVAILABLE FOR LOCAL AUTHORITIES ........................................................ 70
6.8 ARE WHISTLEBLOWERS GIVEN STATUTORY PROTECTION? ............ 71
6.9 IMPENDING DEVELOPMENTS OR PROPOSALS FOR REFORM ............ 72
6.10 WHAT ARE THE MAIN STEPS FOREIGN AND LOCAL COMPANIES
ARE TAKING TO MANAGE THEIR EXPOSURE TO
CORRUPTION/CORPORATE CRIME .................................................................. 72
CHAPTER VII
REGULATORY AUTHORITIES
REGULATORY AUTHORITIES ............................................................................... 73
CHAPTER VIII
COMPARATIVE STUDY OF OTHER JURISDICTIONS
8.1 ENGLISH AND FRENCH ................................................................................ 75
8.2 HISTORICAL EVOLUTION ............................................................................ 78
8.3 FRANCE – Ordonnance de Blois ...................................................................... 81
8.4 GERMANIC LAW ............................................................................................ 85
8.5 ITALY, PORTUGAL, GREECE AND SPAIN ................................................. 86
8.6 AMERICAN SOCIETY WAS EXPANDED TO MENS REA OFFENSES .... 88
8.7 ESSENTIAL CONDITIONS FOR CORPORATE CRIMINAL LIABILITY .. 90
8.8 ENTITIES .......................................................................................................... 90
8.9 NATURAL PERSONS CAN CAUSE CORPORATE CRIMINAL LIABILITY
................................................................................................................................ 101
8.10 ISSUES OF WHAT SANCTIONS ARE APPROPRIATE FOR CORPORATE
................................................................................................................................ 106
8.11 CRIMINAL ACTIVITIES ............................................................................. 109
CHAPTER IX
CONCLUSION AND SUGGESTIONS
CONCLUSION AND SUGGESTIONS .................................................................... 113
BIBLIOGRAPHY……………………………………………………………………..x
 REGULATIONS, PROVISIONS, POLICIES AND ENACTMENTS
 BOOKS
 ARTICLES/REPORTS
 OTHER INnTERNET SOURCES
viii
LIST OF CASES
1. Tesco Supermarkets Ltd. v. Nattrass

2. V.S. Khanna, Corporate Criminal Liability: What Purposes Does It Serve?, 109
Harv. L. Rev. 1477, 1509 (1996).
3. National Rivers Auth. v. Alfred McAlpine Homes E. Ltd., [1994] 4 All E.R. 286
(Q.B. Div'l Ct.)
4. Taff Vale RR. Co. v. Amalgamated Society of RR. Servants, [1901] A.C. 426
5. U.S. v. A& P Trucking Co., 358 U.S. 121, 128
6. U. S. v. Alamo Bank of Texas, 886 F.2d 828, 830 (5th Cir. 1989)
7. Commonwealth v. Beneficial Fin. Co., 275 N.E.2d 33 (Mass., 1971)
8. Granite Construction Co. v. Superior Ct., 149 Cal. App. 3d 465 (1983); Vaughan
$ Sons, Inc. v. State, 737 S.W.2d
9. Ashbury Ry Carriage and Iron Co. v. Riche, [1875] L.R. 7 H.L. 653. People v.
Rochester Ry. & Light Co., 88 N.E. 22 (N.Y. 1909)
10. U.S. v. American Radiator & Standard Sanitary Corp., 433 F.2d 174, 204-05 (3d
Cir. 1970)
11. U.S. v. Bank of New England, N.A., 821 F.2d 844 (1st Cir. 1987)
ix
CHAPTER I
INTRODUCTION
1.1 PREAMBLE
India has a quasi-federal political structure comprising of 28 states and seven
centrally administered union territories. It has a democratically elected central union
government (central government) and each state has its own democratically elected
state government. Each state establishes and maintains its own police force.
Investigations are normally handled by the police force of the state where the crime was
committed.
The central government has established a central investigative agency called
the Central Bureau of Investigation (CBI). Typically, the CBI investigates and
prosecutes cases of serious fraud or cheating that may have ramifications in more than
one state. Where needed, the CBI can be assisted by specialized wings of the central
government especially in economic or cross-border crimes. It also gets involved in
serious crimes where it is necessary to use an agency that is independent of local
political influence.
The Serious Fraud Investigation Office is a multi-disciplinary organization
under the Ministry of Corporate Affairs, consisting of experts in the field of
accountancy, forensic auditing, and law. Much of our lives and daily routines are
affected by corporate activities. To a great extent, companies provide the food we eat,
the water we drink, the necessities and luxuries of everyday living. Increasingly,
particularly with growing privatization, it is not the State that provides these amenities
- but companies. Such companies generate wealth for the economy and their
shareholders and provide employment for much of the population. Short of a
1
revolutionary restructuring of the economy and the political institutions of the country,
it is certain that the power and influence of companies will grow and not diminish in
the foreseeable future.
But, with great power comes great responsibility. Just as individuals owe a
duty not to harm or injure others in society without justification, so do companies owe
a duty not to poison our water and food, not to pollute our rivers, beaches and air, not
to allow their workplaces to endanger the lives and safety of their employees and the
public, and not to sell commodities, or provide transport, that will kill or injure people.
With the advent of Globalization and Industrialization taking place at a rapid
pace the world over today, we are faced with Crimes of a nature which is becoming
institutionalized and hard to detect. Corporate Crimes is a major challenge to the legal
fraternity, the law makers, and the law enforcers.
The Serious Fraud Investigation Office is a multi-disciplinary organization
under the Ministry of Corporate Affairs, consisting of experts in the field of
accountancy, forensic auditing, law, much of our lives and daily routines are affected
by corporate activities. To a great extent, companies provide the food we eat, the water
we drink, the necessities and luxuries of everyday living. Increasingly, particularly with
growing privatization, it is not the State that provides these amenities - but companies.
Such companies generate wealth for the economy and their shareholders and provide
employment for much of the population. Short of a revolutionary restructuring of the
economy and the political institutions of the country, it is certain that the power and
2
influence of companies will grow and not diminish in the foreseeable future.
But, with great power comes great responsibility. Just as individuals owe a
duty not to harm or injure others in society without justification, so do companies owe
a duty not to poison our water and food, not to pollute our rivers, beaches and air, not
to allow their workplaces to endanger the lives and safety of their employees and the
public, and not to sell commodities, or provide transport, that will kill or injure people.
With the advent of Globalization and Industrialization taking place at a rapid
pace the world over today, we are faced with Crimes of a nature which is becoming
institutionalized and hard to detect. Corporate Crimes is a major challenge to the legal
fraternity, the law makers, and the law enforcers.
Alternatives to Corporate Criminal Liability
Some critics have argued that other types of liability are more efficient than
corporate criminal liability. Law and economics theorists believe that criminal liability
is too over deterring; it induces corporations to spend more resources for prevention
than is economically and socially useful.1 Moreover, the costs of criminal proceedings
are higher than the civil ones and therefore, not justified when both have the same
result—pecuniary penalties.2 It has also been argued that the reputational harm
accompanying corporate criminal liability is either unnecessary or excessive. 3 Thus,
1
Beale & Sawfat, supra note 36, at 93.
2
V.S. Khanna, Corporate Criminal Liability: What Purposes Does It Serve?, 109 Harv. L. Rev.
1477, 1509 (1996).
3
Id. at 1504; Beale & Sawfat, supra note 36, at 94.
3
corporations convicted for minor criminal offenses would suffer unjustified
reputational harm. Corporations that have a good reputation suffer the most, while
corporations not yet created or that previously lost their good reputation suffer little
reputational harm. When a corporation is convicted for a serious crime, the reputational
harm imposed through criminal liability might not even be necessary due to the negative
publicity created by the press. The high risk of reputational harm would also pressure
corporations to speed up the procedures and plead guilty when the charge is groundless.
In addition, the reputational damage resulting from a criminal conviction, unlike civil
damages, “does not provide a reciprocal gain to any injured party.” 4 Hence, several
authors argue that civil liability of corporations is sufficient.
Although the civil liability of corporations has its advantages in compensating
for the injuries caused by corporations, it is not sufficient to prevent corporate criminal
misconduct.
Some offenses, called crimes “of danger,” do not create victims who can sue
the corporations for civil damages. Or in environmental crimes, victims might not even
know about the commission of the crime by the corporations. Moreover, in some crimes
connected with the process of production and distribution of goods, the victim is so far
in the chain that he/she does not even realize that the corporation was the author of the
offense.5 On the other hand, although the benefit to the corporation is substantial due
to a high number of victims, the prejudice caused is so small that the initiation of a civil
4
Beale & Sawfat, supra note 36, at 95
5
Streteanu & Chirita, supra note 9, at 73
4
lawsuit is unjustified.6 Even when a corporation is civilly obligated to pay damages,
civil sanctions may not be sufficient to determine the corporation to refrain from future
misconduct when the benefits obtained from the misconduct outweigh the civil
damages paid. The reputational harm resulting from corporate criminal liability might
encourage faster settlements, thus avoiding pricey trials. 7 Furthermore, criminal
liability expresses the society’s condemnation of the corporate misconduct 8 “thereby
vindicating the proper valuation of persons and goods whose true worth was disparaged
by the corporation's conduct - just as in the case of an individual wrongdoer.” 9
Corporations have an identifiable persona and can express moral judgments distinct
from those of their members. Therefore, corporations can be the subject of the
expressive retributive goal of criminal law.
Another advantage is the possibility of using “the extensive network of federal
and state prosecutors and investigators…”10 which has additional resources compared
to the civil or administrative law enforcement departments. Defendants should afford
the criminal procedure guarantees and speedy trials. The types of the criminal sanctions
are also more diverse; in addition to fines, sanctions of corporate probation, equity
fines, or withdrawal of licenses can be applied.
6
Gobert, supra note 204, at 3 (“millions of customers illegally overcharged by a matter of
pence”).
7
Khanna, supra note 261, at 1507
8
Beale & Sawfat, supra note 36, at 95.
9
Friedman, supra note 71, at 852.
10
Id
5
Civil liability of corporations for criminal fines imposed on corporate officers
is another alternative to corporate criminal liability. This solution has been used in Italy
11
Portugal, 12
Netherlands Belgium Luxemburg, and France. This alternative has been
widely criticized. First, civil liability of corporations for criminal liability oftentimes
serves only as a surety. Second, this system contravenes the principle of individual
punishment; the corporate officer is said to be guilty, but the corporation has to bear the
sanction. The corporation is not the defendant in the criminal procedure and it does not
have the opportunity to prove its case, but the burden of the sanction is placed on it.
Third, this alternative would create inequality of treatment of the individuals convicted
for the offenses; if the law provides as sanctions for the offense both imprisonment and
a fine, the individual condemned to pay a fine will not execute it, but the individual
sanctioned by imprisonment must execute the punishment. Fourth, the identification of
the person who committed the offense is necessary. Corporations have a very complex
structure and sometimes it is very difficult or impossible to determine who the author
of an offense was. Finally, in a system that did not adopt the criminal liability of
corporations, the limits of a fine are established taking into account the potential to pay
of the individual. Therefore, even if the corporation has to pay the fine, the amount
11
Art. 197 the Italian Penal Code provides that corporations are obligated to pay the fine owed
by one of its insolvable representatives or administrators when the offense was committed by
the employee acting within the scope of his employment and in the interest of the corporation.
Codice Penale [C. Pen.] art. 197 (It.)
232 12 271
See Streteanu & Chritia, supra note 9, at 81 (numerous laws provided for
corporate liability for the fines
applied to the corporation’s employees if they acted as such when committing the offense)
6
would be derisory.13 Hence, the civil liability of corporations for criminal fines
imposed on its employees cannot fulfill the purposes of deterrence and retribution.
A very frequently used alternative to corporate criminal liability has been the
imposition of administrative sanctions. They are usually imposed by administrative
bodies which are part of the executive branch, the courts playing a limited role in some
countries when so allowed.14
Some of the reasons why different countries chose to impose administrative
sanctions by administrative bodies, as opposed to criminal sanctions imposed by courts,
are: the belief that moral stigma is superfluous, the flexibility of the concepts of guilt
and individual responsibility in the administrative law, and the specialized nature of the
administrative bodies that could handle the matters more efficiently. 15 Germany, which
still opposes the adoption of corporate criminal liability, has an elaborate system of
administrative-penal sanctioning consecrated in art. 30 of OwiG. Because some
administrative sanctions can be imposed by criminal courts and because they derive
from petty-offenses, the non-criminal character of these administrative sanctions has
been questioned.16 France and Belgium have devised administrative sanctions
whenever it seemed suitable in the course of drafting statutes. 17 Portugal18 and Italy19
have also implemented an extensive system of administrative sanctions. Many critics
13
Id.
14
See Stessens, supra note 16, at 502-03.
15
Id.; Streteanu & Chirita, supra note 9, at 74
16
See Stessens, supra note 16, at 503
17
Id
18
Decree-Law No. 433/10.27.1982
19
Law No. 300 of September 29, 2000; Decree-Law No. 231 of May 8, 2001
7
argue that the strong impact of these sanctions make them resemble criminal sanctions20
which lack the constitutional guarantees of criminal procedure.21 Moreover, corporate
administrative liability raises the same issues as corporate criminal liability does
regarding the mens rea element and the individual character of criminal liability.22
Some authors argue that it is unfair that the individuals may be held criminally liable
while the corporations are merely administratively sanctioned for the same offense. It
is also strongly criticized the fact that corporations are administratively penalized for
minor offense, but escape liability for very serious offenses like manslaughter. 23
Moreover, the administrative sanctions do not symbolize the moral condemnation of
the society. Thus, the doctrine has advanced a possible resolution: corporations should
be held administratively liable for minor offenses, but should be held criminally liable
for more serious offenses.24
Some authors have also argued that individual criminal liability is less
complicated and may be sufficient. This argument has been strongly criticized for
several reasons. First, due to the high complexity of modern corporations, the
individuals responsible for the offense might be impossible to identify. Such is the case
when the decision process is fragmented among multiple departments, when the activity
of some employees is not systematically verified because of his or her position of trust,
or when a decision is taken by a multimember board by secret vote. 25
20
See Stessens, supra note 16, at 504-05 (critics referring to the extremely high administrative
sanctions imposed by the European Commission)
21
Id. at 504
22
23
Id. citing R. Roth, Responsibilite Penale de l’Enterprise: Modeles de Reflexion [sic] Revue
Penale Suisse 349 (1997)
24
Id. citing L. del C. Zungiga Rodriguez, Bases para un Modello de Imputacion de
Responsibilidad Penal a las Personas Juridicas 208 (Aranzadi Ed., 2000)
25
See Heine,, supra note 40; Streteanu & Chirita, supra note 9, at 69
8
Second, prosecutors may conclude that indicting an individual is not justified
because the employee thought that his or her superiors were aware of and approved the
action or because they acted from fear of losing their jobs. 26 third, some of the persons
who made the illegal decision might be located in another country and could not be
prosecuted.27 Fourth, individual criminal liability is most of the times ineffective
because the amount of a fine is tailored to reflect the individual’s financial possibilities,
and some systems allow the reimbursement of fines paid by the corporate employee, or
corporations can insure themselves against intentional and unintentional wrongdoing
(for environmental offenses usually). 28 Lastly, some systems require the designation of
a person responsible for the corporation’s activities or high managers are automatically
presumed responsible without strong requirements of showing of guilt or proximate
cause;29 the agent is compensated for this high risk and is reimbursed for the criminal
fines. This solution encourages corporate wrongdoing because it would be probably
less expensive for a corporation to hire a new manager “responsible with going to
prison” than giving up the illicit activity. 30
All of the above arguments underline the extreme importance of criminal
corporate liability in a modern society. The new technology and development of
industry give raise to unpredictable risks that pose serious threats to our society.
26
Heine, supra note 40, at 176
27
28
Heine, supra note 40, at 176
29
Id. at 177
30
Streteanu & Chirita, supra note 9, at 71, citing C.M.V. Clarkson, Corporate Culpability [sic]
Web J. of Current Legal Issues §3 (1998)
9
Corporations try to obtain the highest profits in the shortest time, and some of them are
ready to achieve this result by any means.
Some corporations are especially incorporated with the secret purpose of
committing criminal offenses. Most countries that adopted criminal liability of
corporations concluded that corporate misconduct should not be left unsanctioned in
the most efficient way. Criminal sanctions’ retributive nature better expresses the
society’s moral condemnation and emphasizes the value of any victim. The experience
of United States, France, and England in implementing criminal sanctions on
corporations shows that corporate criminal liability can successfully improve and
coexist together with the criminal liability of individuals, administrative liability, and
civil liability of corporations and individuals. Corporate criminal liability better
promotes general fairness and is consistent with the principles of criminal law.
10
1.2 OBJECTIVE OF THE RESEARCH AREA
Corporate crimes in a globalize economy has no borders and can affect the
economies of countries on a large scale and on a smaller scale can cause huge losses to
Corporate houses and bring to halt the functioning of their businesses. Keeping in view
the disadvantages brought by the changing economy we render our expert advice to
corporate houses and also leading corporate personalities in mitigation of Corporate
Crimes like:
 Antitrust violations,
 Computer and internet fraud,
 Credit card fraud,
 Phone and telemarketing fraud,
 Bankruptcy fraud,
 Healthcare fraud,
 Environmental law violations,
 Insurance fraud,
 Tax evasion,
 Financial and securities fraud,
 Insider trading
 False and misleading advertising,
 Illegal exploitations of employees,
 Mislabeling of goods,
 Violation of weights and measures,
 Selling adulterated foodstuffs
 Evading corporate taxes
11
 Misappropriation of funds
 Embezzlement
 Black marketing,
 Profiteering and hoarding
 Work place crimes
 Smuggling and violation of foreign exchange
 Data theft
The cause was extreme corporate malfeasance. The plant was not up to
minimal Union Carbide safety standards - large quantities of MIC were unwisely stored
in a heavily populated area, the refrigeration unit for the MIC (which is supposed to
kept at temperatures below 32 F) was deliberately kept turned off to save $40 per day
in costs, the safety systems were dismantled, and the alarm system was turned off. This
was in spite of the fact that the same plant had earlier suffered potentially lethal
accidental releases of gases like the deadly nerve agent phosgene.
There are a number of corporate crimes that have come into light now days. One of the
major havoc that is created in present times is because of mysterious disappearance of
corporations. Of the 5,651 companies listed on Bombay Stock exchange, 2750 have
vanished. It means that one out of two companies that come to the stock exchange to
raise crores of rupees from investors, loot and run away. Even big names like ‘Home
Trade’ (remember Sachin, Sharukh, Hrithik saying Life means more) came up with
huge publicity stunts but after raising money, vanished into the thin air. About 11
million investors have invested Rs. 10,000 crore in these 2750 companies. We have
Securities Exchange Board of India, Reserve Bank of India and Department of
Companies Affairs to monitor the stock exchange transactions but none has
12
documented the whereabouts of these 2750 odd companies suspended from the stock
exchange. Many of the promoters and merchant bankers who are responsible for these
are roaming scot-free. The market regulators and stock exchanges are unable to penalize
them or recover their funds. The regulators have been able to identify only 229 of 2750
vanishing companies so far.
13
1.3 SIGNIFICANCE OF THE STUDY
Criminal liability of corporations has become one of the most debated topics
of the 20th century. The debate became especially significant following the 1990s, when
both the United States and Europe have faced an alarming number of environmental,
antitrust, fraud, food and drug, false statements, worker death, bribery, obstruction of
justice, and financial crimes involving corporations. The most recent and prominent
case in the United Sates has been the Enron scandal in which one of the largest
accounting firms in the world, Arthur Andersen LLP, was charged with obstruction of
justice.31 Some corporations, including Dynergy, Adelphia Communications,
WorldCom, Global Crossing, Health South, Parmalat (in Italy), and Royal Ahold (in
Netherlands) falsified their financial disclosures. Other corporations, among which are
Royal Caribbean, Olympic Pipeline, Exxon, Pfizer, Bayer, and Shering-Plough
Corporation,32 breached the environmental or health and safety laws. McWane Inc., one
of the world largest manufacturers of cast-iron pipes, has an extensive record of
violations causing deaths.33 These corporate crimes resulted in great losses. The
consequences that most directly affect our society are the enormous losses of money,
jobs, and even lives. At the same time, the long-term effects of these crimes, such as
the damaging effects upon the environment or health, which may not severely affect us
now, should not be underestimated.
31
See Arthur Andersen LLP v. U.S., 544 U.S. 696 (2005)
32
For a detailed list of the top 100 corporate criminals see Russell Mokhiber, Top 100
Corporate Criminals of the Decade, at http://www.corporatepredators.org/top100.html (last
visited Jan. 5, 2006)
33
David Barstow & Lowell Bergman, Deaths on the Job, Slaps on the Wrist, N.Y. Times, Jan.
10, 2003, at A1
14
The reaction to this corporate criminal phenomenon has been the creation of
juridical regimes that could deter and punish corporate wrongdoing. Corporate
misconduct has been addressed by civil, administrative, and criminal laws. At the
present, most countries agree that corporations can be sanctioned under civil and
administrative laws. However, the criminal liability of corporations has been more
controversial. While several jurisdictions have accepted and applied the concept of
corporate criminal liability under various models, other law systems have not been able
or willing to incorporate it. Critics have voiced strong arguments against its efficiency
and consistency with the principles of criminal law. At the same time, a large pool of
partisans, to which I belong as well, has vigorously defended corporate criminal
liability.
In the following sections, I will attempt to determine the purposes of corporate
criminal liability, the reasons why some jurisdictions adopted this concept, but others
still refuse to accept it, the models of corporate criminal liability developed so far, the
reasons why corporate criminal liability developed differently in different countries,
and the lessons we could learn from these developments. Different countries have
adopted various models of criminal liability or refused to adopt any due to their peculiar
historical, social, economic, and political developments. Based on these developments,
each country found it appropriate to respond to the criminal behavior of corporations in
different ways. None of the systems is perfect; each one has advantages and
disadvantages. Although the American system seems to be the best reply to the criminal
corporate phenomenon, other models of corporate criminal liability have some
elements that should be considered for the purpose of creating a better model.
15
The main goals of criminal liability of corporations are similar those of
criminal law in general. The first characteristic of corporate criminal punishment is
deterrence—effective prevention of future crimes. The second consists in retribution
and reflects the society’s duty to punish those who inflict harm in order to “affirm the
victim’s real value.”34 The third goal is the rehabilitation of corporate criminals. Fourth,
corporate criminal liability should achieve the goals of clarity, predictability, and
consistency with the criminal law principles in general. The fifth goal is efficiency,
reflected by the first three goals mentioned above, but also by the costs of implementing
the concept. Finally, we should not forget the goal of general fairness. The models
of corporate liability developed by different countries vary significantly and,
as shown below, none of them reflect all these goals perfectly.
i. Although corporate criminal liability initially started by imitating the
criminal liability of human beings, new models of criminal liability, such as the
aggregation or self-identity theories, have been developed to better fit the corporate
structure and operation. The American system of corporate criminal liability has
been the most developed and extensive system of corporate criminal liability
created so far. The American model includes a large variety of criminal sanctions
for corporations (such as fines, corporate probation, order of negative publicity,
etc.) in attempt to effectively punish corporations when any employee commits a
crime while acting within the scope of his or her employment and on behalf of the
corporation. The most distinguishing and bold element of the American model of
34
Jeffrie G. Murphy & Jean Hampton, Forgiveness and Mercy 130 (1988) cited in Joshua
Dressler, Cases and Materials on Criminal Law 33 (2d ed. 1999), at 46-47
16
corporate criminal liability is the adoption of the aggregation theory. This theory
provides that corporations can be held criminally liable based on the act of one
employee and on the culpability of one or more other employees who,
cumulatively, but not individually, met the requirements of actus reus and mens
rea of the crime. Although this system meets the goals of retribution, rehabilitation,
predictability, and clarity, it apparently has the tendency of being a bit over-
deterring and costly.35 It also has some significant spill-over effects on innocent
shareholders and employees, and, some argue that, due to the adoption of the
aggregation theory in particular, it lacks consistency with the traditional principles
of criminal law.
35
See V.S. Khanna, Corporate Criminal Liability: What Purposes Does It Serve? 109 Harv. L.
Rev. 1477, 1509 (1996); there are also some critics of the current systems of tort corporate
liability who argue that the extensive liability of corporations makes it difficult for corporations
to develop in the United States due to the significant amount of law suits that drain the resources
of corporations. Thus, it has been suggested that the American system of corporate liability has
been forcing corporations to relocate in foreign countries where the law is more lenient and
which, in turn, has a seriously negative effect on the American work force. Information was
obtained at a debate between Richard Scruggs and Steven Hantler.
17
1.4 HYPOTHESIS
Corporations also commit a number of crimes against their own workforce.
With increasing globalization workers find themselves being pushed against the wall
and shrinking revenues for redressal. Now days the debates and rage over corporate
scams talks only of the interest of shareholders. Nowhere is there a mention of the
employee who suffers the most. Take the case of public sector undertakings where
many irregularities can be seen in. Factories were opened in some areas where the raw
material was not available and where the location was correct, imported machinery was
defective. Lavishness on the part of management was one of the factors, which led to
these institutions becoming sick. No doubt that the laborers suffers the most in such
cases. The plight of Mumbai’s textile workers is even worse. Legal dues have not been
paid to 2 lakhs jobless mill workers. Trade unions are fighting with the reality of worker
suicides and growing unemployment and the worker’s families are struggling to get
over their misery, leave alone fight for dues from faceless management.
The government across the world have given a free hand to corporations to
exploit the natural and community resources, while depriving the common people of
their right on these resources. For instance, in India, Corporations at Floor, Kodaikanal
and Gujarat have not only destroyed the water and land resources in these areas, but
also impoverished communities by degrading their livelihood resources and health. All
these communities suffer from disasters similar to Bhopal. Inaccessible to clean and
safe drinking water was found to be a major problem in all these areas. The companies
either pollute the water resources to an extent where it is no more portable or
over exploit it till the water table goes down or dry up the wells. A befitting example
18
could be of Coco Cola bottling plant in Kerala where the company extract excess
amount of water from the ground due to which the water level has gone very low and
the nearby villages are suffering from scarcity of water.
Initially, it has been argued that corporations are not capable of forming the
material and mental elements of a crime due to their immaterial and highly regulated
existence. The attribution of the acts and the mental state of persons acting on behalf of
the corporation to the corporation it was said to contravene the principle of individual
punishment underlying the criminal law. These arguments failed in most legal systems,
but the sphere of individuals and the conditions in which they can lead to the criminal
liability of corporations differs more or less dramatically from country to country.
At first, some critics argued that corporations do not have the capacity to act
on their own and therefore, the actus reus element of a crime cannot be attributed to
them.36 The acts attributed to the corporations are merely those of individuals acting on
behalf of the corporations.
Thus, “[i]mposing criminal liability on a corporate entity requires resort to the
principles of respondent superior, rather than individual responsibility, which is the
hallmark of the criminal law.”37 It is incontestable, that, due to the corporations’ nature,
the actions or inactions cannot be committed directly and personally by the corporation.
However, the acts of the representatives are those of the corporation itself because the
36
Ferguson v. Wilson, (1866) L.R. 2 Ch. App. 77, C.A
37
Beale & Safwat, supra note 36, at 93
19
representatives are not distinct from the corporation; representatives are part of the
corporation, a structural element of the corporation essential for the corporation’s
existence and without which the corporation cannot fulfill its purpose. Moreover,
representatives are not personally liable for acts within the scope of the powers granted
to them, but the corporation is held liable for them. Therefore, admitting the existence
of the corporations’ ability to act does not mean liability for another’s act; it merely
means that corporations are liable for the activity conducted by individuals on their
behalf using the power that has been conferred upon them by the corporations’
bylaws.38 Moreover, those that are subjects of legal duties, not only can perform those
duties, but can also breach them.39
Another argument was based on the ultra vires theory. Critics argue that an
illicit act would fall outside the scope of the corporation and therefore, cannot be
considered to be perpetrated by the corporations.40 The capacity of action of
corporations and their representatives is limited by the laws, articles of incorporation,
and bylaws; no law or bylaw gives them the power to commit a criminal offense.
Therefore, any crime is necessarily ultra vires. The protection of corporations resulting
from the ultra vires theory has been eliminated first in tort law and subsequently, at the
beginning of the 20th century, in the criminal law.41 The purpose of the articles of
incorporation and bylaws is to assure organized services, to avoid confusion regarding
the corporations’ activity, and to permit an efficient surveillance of their activity. It
38
39
Hirsch, supra note 39, at 37
40
Ashbury Ry Carriage and Iron Co. v. Riche, [1875] L.R. 7 H.L. 653. People v. Rochester Ry.
& Light Co., 88 N.E. 22 (N.Y. 1909)
41
Nicolette Parisi, Theories of Corporate Criminal Liability (or Corporations Don’t Commit
Crimes, People Commit Crimes), in Corporations as Criminals 41, 45 (Ellen Hochstedler ed.,
Sage Publications, 1984)
20
would be absurd to consider that the ultra vires theory, destined to insure the legality
of the corporations’ activity, could transform into a reason to refuse to punish the
corporations when acting illegally. 42 Moreover, although the articles of incorporation
provide certain scopes for the corporation, the corporation can do whatever else is
necessary to conduct its activity. The scope of incorporation should not be confused
with the corporations’ scopes during its activity; the scope of incorporation must always
be legal, but the corporations’ actions after incorporation are not always in conformity
therewith.43 Although civil offenses are not within the scope of a corporation,
corporations are nonetheless held liable when committing such offenses. Similarly,
corporations should be held liable for criminal offenses.
The core argument against corporate criminal liability has been the belief that
a corporation cannot have mens rea and therefore, cannot be blameworthy or guilty of
a criminal offense.44
Critics showed that the corporate will and power of decision are exercised
through the will of the collectivity of people managing the corporation. Therefore, it is
said that the mens rea element of a criminal offense does not belong to the corporation,
but to the members who made the decision to take a specific course of action. 45 The
corporation would be punished without being blameworthy and this would be against
the criminal law principles.46 However, the majority of doctrine recognizes the
42
43
Id
44
Hirsch, supra note 39, at 37; Beale & Sawfat, supra note 36, at 93
45
46
21
independent existence of a corporate will47 which does not always identify itself with
that of the collectivity of members of the corporation.48 The corporation’s capacity to
act and decide has been recognized in contract, administrative, and constitutional law.
Therefore, if a corporation has the capacity to think and decide when it is a
part to a contract (and thus being the subject of contractual rights and obligations), it
cannot be sustained that corporate will power exists when it produces legal effects, but
not when the effects created are illegal (criminal offenses).49 Moreover, being widely
accepted that corporations have civil liability, it would be difficult to explain why the
corporation should not be held liable when the offense committed is more serious
(criminal offense as opposed to civil offense). The culpability of corporations exists
and it is sufficient for the culpability required by the criminal law.50
After defeating these arguments, the issue became how wide the pool of
individuals who can draw the corporate criminal liability should be, by what acts, and
with what mental state.
Although the corporations are the subjects of the law, the action or inaction of
a human being is necessary to engage the corporations’ criminal liability. Initially, the
persons who could engage the corporations’ liability were limited to the corporate
47
See Streteanu & Chirita, supra note 9, 53-59; Friedman, supra note 71, at 847-52
48
For example, when some of the members opposed a specific course of action adopted by the
majority, the minority’s will cannot be identified with that of the corporation represented by
the majority
134 49
Streteanu & Chirita, supra note 9, at 55, citing R. Plascencia Villanueva, Teoria del
Delito
73-74 ([sic] Universidad Nacional Autonoma de Mexico, 2000)
50
22
organs. The organs represented the soul of the corporation, their actions were the
corporation’s actions, and therefore, the crimes committed by the organs were those of
the corporation.51 Nowadays, in some legal systems, there is a tendency of expanding
the categories of persons who can cause corporate criminal liability.
Under Article 121-2 of the French Penal Code, corporations are criminally
liable for the crimes committed on their behalf by their organs and representatives. 52
When the organs or representatives have the required mens rea and actus reus of the
crime, the corporation is automatically liable.53 The organs are individuals exercising
an administrative or other important function conferred by law or the charter of the
corporation.54 The notion of “representative” is wider than that of “organ,” and includes
other persons such as the temporary administrators, liquidators, and special agents. 55
Therefore, the acts of other members or subordinate employees cannot engage the
criminal liability of corporations even when the acts are committed in the benefit of the
corporations. Due to this requirement, the French system is the most restrictive model
of the jurisdictions presented here.56 However, it is not always necessary to identify the
representative or the organ; such is the case for the crimes by omission or when the
crime was based on a collective decision by secret vote. It is sufficient to know that an
organ or representative acted or failed to act when he or she had a duty to, but knowing
his or her identity is not necessary. 57
51
52
C. Pen. art. 121-2 (Fr.)
53
54
Id. at 121, citing F. Desportes, Responsibilite Penale des Personnes Morales 112 (Tecniques
Juris-Classeurs ed, 2001)
55
Id. at 123; Bouloc, supra note 30, at 238
56
Stessens, supra note 16, at 507
57
23
The organs and representatives must act on behalf of the corporation.58 The
notion of crime committed on behalf of the corporation varies based on the type of
crime committed because the commission of a crime presupposes the existence of a
subjective element—mens rea—and an objective element—the profit.59 Therefore,
when committing theft, the objective element will be more accentuated, but when
committing discrimination the subjective element would have more importance since it
is difficult to point to a specific profit that the corporation would gain from such crime.
Hence, crimes committed solely in the personal interest of the organ or representative
would not engage the criminal liability of the corporation.60
Nevertheless, when the individual acts partially in his benefit and partially in
the benefit of the corporation, the corporation would be held criminally liable. The
benefit may consist in obtaining a profit, avoiding a loss, or any other kind of benefit.61
Acting on behalf of the corporation does not always imply a benefit; such is
the case when a director discriminates in the process of hiring or when he or she
negligently fails to verify the safety equipment used by the corporation’s employees. 62
Despite the fact that the corporation does not benefit from such crimes, it is still held
criminally liable. Moreover, the crimes by omissions are presumed to be committed on
58
C. Pen. art. 121-2 (Fr.)
59
60
Bouloc, supra note 30, at 240
61
62
24
behalf of the corporation when the organ or representative had a duty to act. 63 Even
when an organ or representative acts outside the limits of his or her power, the
corporation is held criminally liable.
In France, the organ or representative of the corporation can commit both
intentional and unintentional crimes on behalf of the corporation. When the mens rea
and the actus reus elements are established with reference to the organ or
representative, the corporation is automatically liable as long as the cause and effect
relationship (but not the culpability) between the commission of the crime and the
activity done on behalf of the organization is proved. 64
In Germany, although corporations cannot be held criminally liable,
corporations are liable for criminal offenses under the administrative-penal law. Both
administrative and criminal courts can impose administrative sanctions. Section 30 of
the OWiG—Administrative Offences Act limits the class of individuals whose acts can
make the corporation liable to the legal representatives or directors of the corporation.
The acts of the representatives or directors are automatically considered those of the
corporation if the crime could have been prevented by the corporation. The corporation
is merely responsible for the offenses, but not criminally culpable.
The class of individuals who can engage the liability of corporations can be
expanded in two ways; first, the courts “have not considered it necessary to name the
persons who have acted provided it is clear that someone in the class described in
63
Id. at 129, citing A. Levy et all, La Responsibilite Penale des Collectivites Territoriales, de
Leurs Elus, de Leurs Agents 30 (Litec Ed., 1995)
64
Id. art. 121-2; De Maglie, supra note 104, at 556
25
section 30 of the OWiG has” and, second, because under section 130 of OWiG lack of
surveillance is an administrative-penal offense, when employees who are not legal
representatives or directors commit an offense that could have been prevented by an
adequate surveillance by officers within the section 30 of OWiG, the corporation is
liable. The lack of surveillance may be due to a defective organization of the
corporation. There must be a showing that the offense could have been revented with
reasonable efforts:65 only then it is justifiable to punish the corporation.
Section 30 of OWiG also provides procedural rules which do not make it
necessary to pursue or identify the individual author of the offense. 66 Moreover, the
offense must be connected with the corporate activities. The organ or representative
must either have violated his or her legal duties, or the conduct must have resulted or
been intended to result in patrimonial benefit to the corporation. 67 Under the German
law, strict liability offenses do not exist because culpability is the core requirement for
liability.
65
Streteanu & Chirita, supra note 9, at 121, citing G. Dannecker, Reflexiones Sobre la
Responsibilidad Penal de las Personas Juridicas [sic] Revista Penal 51 (2001); Hirsch, supra
note 39, at 69
66
67
Id.; Stessens, supra note 16, at 514
26
1.5 LITERATURE REVIEW
This research paper has required consultation of large number resources in order to
be able to substantiate any point or stance taken in the project. Thus researcher has
adopted the Doctrinal Form of research in compiling this project. The above category
of material consists of law reporters such as AIR and SCC and other commentaries.
Also, secondary soft copy sources of information have been perused from online
databases such as ‘Manupatra’, ‘India Code’ and ‘Judis’ and other international journals
like ‘Hein Online’, ‘JStor’, ‘WestLaw’ and ‘Kluwer Online’. The rest of the data can
be traced back to an assorted range of books and websites consulted, that form a part of
the secondary sources. Some research papers, journals and magazines have also been
referred to.
The various sources of literature used by the author in the research of this thesis are
broadly as follows:
1. Primary sources
Examples: Speeches, letters, diaries, autobiographies, interviews, official
reports, court records, or information from the official /Government sources.
2. Secondary sources
Examples: Biographical works; Commentaries, criticisms; Histories; Literary
criticism such as Journal articles; Magazine and newspaper articles;
Monographs, other than fiction and autobiography, websites.
3. Tertiary sources
Examples: Almanacs; Bibliographies; Dictionaries and Encyclopedias; Fact
books; Guidebooks; Manuals and Textbooks.
27
1.6 RESEARCH METHODOLOGY
The type of research that will be used in this study is primarily Theorotical
Research, wherein a non empirical approach to research, involving the perusal of
mostly published works like researching through archives of public libraries, court
rooms and published academic journals will be used. The methodology used in this
research paper is deductive in nature.
The type of research approach that will be used in this study Qualitative Research
and will involve describing in detail specific situation using research tools like studying
the available literature, interviews, surveys, and observations. Qualitative Research is
primarily exploratory research. It is used to gain an understanding of underlying
reasons, opinions, and motivations. It provides insights into the problem or helps to
develop ideas or hypotheses for potential quantitative research. Qualitative Research is
also used to uncover trends in the global market, and how the other nations are
combating the same issue. The study also studies the thought and opinions, and dives
deeper into the problem of Insider Trading and how it must be regulated, controlled and
effectively curtailed.
Research Tools: The Research Of this Project was carried out with the help of the
Internet and in the Library of the Padala Rami Reddy Law College, Ameerpet,
Hyderabad. The tools used are mainly books and websites along with the primary
Journal references.
Footnoting style: In whole of the Project Uniform Footnoting Style is adopted in
conformity with the Harvard Blue Book.
28
1.7 SCOPE OF THE STUDY
In common law systems, corporate criminal liability is based on two main
theories: the identification theory and the respondeat superior theory. The
identification theory (also called the alter ego theory) was developed by the English
law by importing the concept from the civil law of tort. Under this anthropomorphic
theory, a sufficiently high ranking corporate member acts not as an agent of the
corporation, but as the corporation itself. In Tesco Supermarkets Ltd. v. Nattrass,68 the
court compared corporations to human bodies; the high ranking managers represent the
nervous systems that control what the corporations do. Therefore, the mens rea and
actus reus of the high ranking managers are automatically those of the corporation and
no other method of proof is necessary. Whether an officer controls the corporation as
the brains control the human body is a question of law; the determining factor of this
test is whether the officer could act independently.
The identification theory has been largely criticized. This theory can function
properly only for small corporations where only the high-ranking managers are
involved in the decision process. Today’s corporations are very complex and many
other persons are involved in the decision making process. Corporate agents other than
the top managers do not engage the criminal liability of corporations. Moreover,
corporations can evade liability by structuring themselves in a way that few decisions
could be taken by controlling officers.69 The identification of the person is also
necessary and this creates a serious bar to prosecution of a highly complex corporation
characterized by diffusion of responsibility. Therefore, crimes that rely on defective
68
Tesco Supermarkets Ltd. v. Natrass, [1972] A.C. 153
69
National Rivers Auth. v. Alfred McAlpine Homes E. Ltd., [1994] 4 All E.R. 286 (Q.B. Div'l
Ct.)
29
organization are not included. Another disadvantage is that it is impossible to cumulate
the acts or mens rea of multiple controlling officers.70
In the English law, the essential conditions of corporate criminal liability vary
based on the nature of the crime. For strict liability crimes, corporations are liable if the
crime resulted in a benefit to the corporations. The jurisprudence considers that if the
law imposes an obligation, the corporations must organize themselves well enough so
they can abide the law.71 The corporations are liable under the respondeat superior
theory for strict liability offenses and for= crimes for which the law expressly or
impliedly provides for indirect liability. 72
For the crimes which require mens rea, corporations are liable under the
identification theory. The natural persons who can make the corporation criminally
liable are those who can identify themselves with the corporation; this category includes
the members of the board of directors, the managing directors, other persons
responsible for the general management of the corporation, and delegates responsible
with management functions who can act independently.
The crime must be committed within the person’s scope of employment. 73 If
these conditions are met, the corporation is criminally liable even when the corporation
itself is defrauded.
70
R. v. H.M. Coroner for East Kent [1989] Cr. App. R. 16
71
Alphacell v. Woodward, [1972] 2 All E.R. 475 (H.L.)
72
Allen v. Whitehead [1930] 1 K.B. 211; Streteanu & Chirita, supra note 5, at 147
73
Director of Public Prosecutions v. Kent & Sussex Contractors, Ltd., [1944] K.B. 146 (K.B.
Div'l Ct. 1943)
30
However, due to the strict limitations of the identification theory, it has been
almost impossible to have convictions of corporations for mens rea crimes. As a result,
the English law has started to slowly change; the courts decided that a corporation can
be convicted for negligently omitting to take some preventive measures even though no
person within the company had this specific duty. 74 At the same time, however, the
English jurisprudence has refused to adopt the aggregate or collective intent theory
based on precedent cases that imposed the necessity to identify the person who had the
required mens rea and actus reus.75 This refusal has been strongly criticized.
The United States has adopted the respondeat superior model from the civil
law. “The principle of respondeat superior represents the implementation of the
principles governing vicarious liability: the actus reus and the mens rea of the
individuals who act on behalf of a corporation are automatically attributed to the
corporation.” The corporation is liable if the employee commits the crime while acting
within the scope of his employment and on behalf of the corporation.
Under the federal law, a corporation may be held criminally liable for the acts
of any employee, not only for the acts of managers or directors.76 The majority of U.S.
jurisdictions agrees with the federal law and attributes the crimes of all the employees
to the corporations.
In addition, the employees must have been acting within the scope of their
employment. The acts “directly related to the performance of the type of duties the
74
Seaboard Offshore, Ltd. v. Secretary of State for Transp., [1994] 2 All E.R. 99, 104 (H.L.)
75
Streteanu & Chirita, supra note 9, at 149, citing S. Field and N. Jorg, Corporate Liability and
Manslaughter: should we be going Dutch? 161 Crim. L. Rev. 161(1991)
76
U. S. v. Gold, 734 F.2d 800 (5 th Cir. 1984); U.S. v. Automatic Medical Laboratories, Inc.,
770 F.2d 399 (4th Cir. 1985).
31
employee has general authority to perform” 77 fall within the scope of employment. It is
also sufficient that the employees act with apparent authority. It does not matter “that
the act was ultra vires or unauthorized or contrary to corporate policy or to specific
instructions given to the agent.”
Unlike English law, under American law it is not necessary to identify the
specific individuals who committed the crime; it is sufficient to prove that one or more
agents of the corporation must have committed it. The American law went a step further
and decided to impose liability based on the act of one employee and the culpability of
another who realized the significance of the act.” This is known under the name of
aggregation theory. 78 This theory also provides that, while no single employee had
sufficient information necessary to have the required mens rea of the offense, if
multiple individuals within the corporation possessed the elements of such knowledge
collectively, their aggregate knowledge can be attributed to the corporation. As a result,
in some situations corporations will be liable when no employee is.
The employee must act on behalf of the corporation. This means that the
employee must act with intent to benefit the corporation, but the corporation does not
have to actually derive a benefit from the employee’s act. If the employee intended to
benefit only himself or a third party, the corporation is not liable except for strict
liability offenses. If the employee intended to benefit both himself and the corporation,
the corporation is held criminally liable.
The Model Penal Code, adopted only by a few American jurisdictions, has
proposed a different model which contains three systems of corporate criminal liability.
77
U.S. v. American Radiator & Standard Sanitary Corp., 433 F.2d 174, 204-05 (3d Cir. 1970)
78
For a comprehensive analysis of this model/theory see Lederman, supra note 73, at 661-66
32
The first system is similar to the English alter ego criminal corporate liability.
Corporations are liable for the ordinary or true crimes, such as theft or manslaughter,
committed by managers or other high corporate officers whose acts represent the acts
of the corporation.79 This is a direct criminal liability of corporations. Under the second
system, corporations are liable for price-fixing, securities fraud, or other crimes for
which there is an apparent legislative intent to impose liability on corporations,
“committed by any employee acting within the scope of his employment on the
corporation’s behalf.” However, corporations can defend themselves by showing that
their managers used due diligence when attempting to prevent the crime. 80 Finally,
under the third system, corporations are generally liable for “violations” or regulatory
offenses for which the law imposes strict liability. The offenses can be committed by
any employee within the scope of his employment. The “due diligence” defense is not
available.
79
Wise, supra note 65, at 389
80
Id. at 390
33
1.8 SCEME OF STUDY
Generally, there are two models of corporate criminal liability: a restrictive
direct liability model, followed by France and England, and a wide vicarious liability
model, followed by the United States. The wider model seems to be more effective in
combating corporate crime. The French and English models are not in line with the real
developments of corporate structure. The reluctance of these models to adopt the
aggregate responsibility model is likely to hamper the accomplishment of justice and
accountability for significant types of corporate misconduct. 81
The fragmentation and specialization of corporate departments can create an
ideal way of escaping liability under the restrictive models: one’s apparently innocent
action coupled with another’s will often times form a crime. The requirement that the
crimes be committed by high ranking officers or managers is also a great impediment
in combating corporate crime because corporations will avoid liability by empowering
lower level employees to make decisions. The English system presents another
disadvantage when requiring the identification of the individual who committed the act.
The identification of the individual who committed the crime is often times impossible.
Although they have the advantages of being clear, predictable, and consistent with the
general principles of criminal law, these systems do not meet the requirements of
general fairness and efficiency. Moreover, due to the difficulty of prosecuting
corporations, the English and French systems are less deterring.
On the other hand, the American model establishes a wide system of corporate
criminal liability that promotes general fairness and deterrence. The adoption of the
aggregation theory and the fact that any employee can engage the criminal liability of
corporations under certain circumstances represent great advantages; the American
81
Harding, supra note 48, at 382.
34
model comprehensively covers the wide variety of loopholes existent under other
systems. This system is clear, predictable and efficient in preventing corporate crimes.
At the same time, the wide possibility of convicting corporations for acts of any
employee increases the number of lawsuits against corporations; this causes high costs
for the courts and the corporations, and the loss of jobs and profits for innocent
employees and shareholders.
Some countries did not adopt the concept of criminal liability, and others
adopted a restrictive model. Germany sticks to the old concept of societas deliquere
non potest for doctrinal reasons and because it believes that criminal sanctions are not
necessary. Due to the insufficiencies of the civil and administrative liability, France
distanced itself from the German model. France preferred a more restrictive model
because of the strong doctrinal issues that prevented it from initially adopting the
concept of criminal liability; also, the legislators might have considered it more
appropriate to make little steps and ease the transition towards a more comprehensive
model. Other political issues (such as the strong influence of corporations) may have
prevented the adoption of a wider liability model. These differences can increase the
number of corporate crimes. A country that does not have a comprehensive corporate
sanctioning system will attract corporations whose actions will not be accepted
somewhere else.82 This might create an initial economic benefit for that country, but on
an international, and ultimately national scale, such a result would be undesirable.
82
35
1.9 CHAPTERIZATION
The chapterization for the dissertation/thesis on “A Critical Study of Corporate
Offences” would be as follows:
CHAPTER I- INTRODUCTION
1.1 PREAMBLE
Alternatives to Corporate Criminal Liability
1.2 OBJECTIVE OF THE RESEARCH AREA
1.3 SIGNIFICANCE OF THE STUDY
1.4 HYPOTHESIS
1.5 LITERATURE REVIEW
1.6 RESEARCH METHODOLOGY
1.7 SCOPE OF THE STUDY
1.8 SCEME OF STUDY
1.9 CHAPTERIZATION
CHAPTER II- THE REGULATORY PROVISIONS AND AUTHORITIES

BUSINESS FRAUD?
OR BUSINESS FRAUD?
2.2.1 Fraud and misrepresentation related with sale of securities.
2.2.2 Forgery (section 463, Penal Code)
2.2.3 Falsification of accounts (section 477A, Penal Code)
2.2.4 Dishonest misappropriation of property (section 403, Penal Code)
2.2.5 Criminal breach of trust (section 405, Penal Code)
2.2.7 Tax crimes
BUSINESS FRAUD?
PARTICIPATING IN CORPORATE BUSINESS FRAUD?
CHAPTER III- BRIBERY AND CORRUPTION

CORRUPTION?
3.2 WHAT INTERNATIONAL ANTI-CORRUPTION CONVENTIONS APPLY
IN YOUR JURISDICTION?
3.3 WHAT ARE THE SPECIFIC BRIBERY AND CORRUPTION OFFENCES IN
YOUR JURISDICTION?
3.4 WHAT DEFENSES, SAFE HARBORS OR EXEMPTIONS ARE AVAILABLE
AND WHO CAN QUALIFY?
OFFENCES AND IN WHAT CIRCUMSTANCES?
36
CORRUPTION?
BRIBERY AND CORRUPTION?
3.8 TAX TREATMENT
CHAPTER IV - INSIDER DEALING AND MARKET ABUSE

AND MARKET ABUSE?
4.2 WHAT ARE THE SPECIFIC INSIDER DEALING AND MARKET ABUSE
OFFENCES?
AVAILABLE AND WHO CAN QUALIFY?
ENFORCEMENT AND PROSECUTION?
INSIDER DEALING AND MARKET ABUSE?
CHAPTER V- MONEY LAUNDERING AND TERRORIST FINANCING

5.1 REGULATORY PROVISIONS AND AUTHORITIES RESPONSIBLE FOR
INVESTIGATING MONEY LAUNDERING AND/OR TERRORIST FINANCING
5.2 MONEY LAUNDERING AND TERRORIST FINANCING OFFENCES
5.3 DEFENCES, SAFE HARBOURS OR EXEMPTIONS ARE AVAILABLE
AND WHO CAN QUALIFY
PROSECUTION
TERRORIST FINANCING OFFENCES
CHAPTER VI - FINANCIAL RECORD KEEPING

6.1 GENERAL REQUIREMENTS FOR FINANCIAL RECORD KEEPING
AND DISCLOSURE
FINANCIAL RECORDS
6.3 ARE THE FINANCIAL RECORD KEEPING RULES USED TO PROSECUTE
WHITE-COLLAR CRIMES?
RELATION TO CORRUPTION, FRAUD OR MONEY LAUNDERING WHEN
CONTRACTING WITH EXTERNAL PARTIES
6.5 CIRCUMSTANCES WHEN A CORPORATE BODY ITSELF BE SUBJECT
TO CRIMINAL LIABILITY
IMMUNITY/LENIENCY FOR CO- OPERATION WITH THE AUTHORITIES
AVAILABLE FOR LOCAL AUTHORITIES
6.8 ARE WHISTLEBLOWERS GIVEN STATUTORY PROTECTION?
6.9 IMPENDING DEVELOPMENTS OR PROPOSALS FOR REFORM
37
ARE TAKING TO MANAGE THEIR EXPOSURE TO
CORRUPTION/CORPORATE CRIME
CHAPTER VII - REGULATORY AUTHORITIES
CHAPTER VIII - COMPARATIVE STUDY OF OTHER JURISDICTIONS

8.1 ENGLISH AND FRENCH
8.2 HISTORICAL EVOLUTION
8.3 FRANCE – Ordonnance de Blois
8.4 GERMANIC LAW
8.5 ITALY, PORTUGAL, GREECE AND SPAIN
8.6 AMERICAN SOCIETY WAS EXPANDED TO MENS REA OFFENSES
8.7 ESSENTIAL CONDITIONS FOR CORPORATE CRIMINAL LIABILITY
8.8 ENTITIES
8.9 NATURAL PERSONS CAN CAUSE CORPORATE CRIMINAL LIABILITY
8.10 ISSUES OF WHAT SANCTIONS ARE APPROPRIATE FOR CORPORATE
8.11 CRIMINAL ACTIVITIES
CHAPTER IX - CONCLUSION AND SUGGESTIONS
BIBLIOGRAPHY
38
CHAPTER II
THE REGULATORY PROVISIONS AND AUTHORITIES


BUSINESS FRAUD?
India has a quasi-federal political structure comprising of 28 states and seven
centrally administered union territories. It has a democratically elected central union
government (central government) and each state has its own democratically elected state
government. Each state establishes and maintains its own police force. Investigations are
normally handled by the police force of the state where the crime was committed.
The central government has established a central investigative agency called the
Central Bureau of Investigation (CBI). Typically, the CBI investigates and prosecutes
cases of serious fraud or cheating that may have ramifications in more than one state.
Where needed, the CBI can be assisted by specialized wings of the central government
especially in economic or cross-border crimes. It also gets involved in serious crimes
where it is necessary to use an agency that is independent of local political influence.
The Serious Fraud Investigation Office is a multi-disciplinary organization under
the Ministry of Corporate Affairs, consisting of experts in the field of accountancy,
forensic auditing, and law of Information technology, investigation, company law, capital
market and taxation. It detects prosecutes or recommends for prosecution of white-collar
crimes/frauds.
In addition the central government under the Department of Revenue has set up
39
various agencies to fight economic crimes. Some of the significant ones are:
 Central Economic Intelligence Bureau (for economic offences and
implementation of the
 Conservation of Foreign Exchange and Prevention of Smuggling Activities Act
(COFEPOSA)).
 Directorate of Enforcement (for foreign exchange and money laundering offences).
 Central Bureau of Narcotics (for drug related offences).
 Directorate General of Anti-evasion (central excise related offences).
 Directorate General of Revenue Intelligence (customs, excise and service tax
related
offences).
 The Securities and Exchange Board of India (SEBI). This was established on
12 April 1992 under the Securities and Exchange Board of India Act 1992
(SEBI Act). SEBI deals with securities fraud and aims to, among other things:
 Protect the interests of investors in securities;
 Promote the development of the securities market;
 Regulate the securities market.
India has a unified (all India) legislation under the Indian Penal Code 1860 (Penal
Code) and the Code of Criminal Procedure 1973 for substantive and procedural laws
relating to crime.
40
OR BUSINESS FRAUD?
Specific offences relating to business or corporate fraud include insider trading,
money laundering, fraud and misrepresentation related with sale of securities, forgery
falsification of accounts, dishonest misappropriation of property, criminal breach of trust,
cheating and tax crimes.
2.2.1 Fraud and misrepresentation related with sale of securities.
This includes offences such as buying, selling and dealing in securities
fraudulently, or manipulation or deception~ these are covered under the:
1. SEBI Act.
2. Securities and Exchange Board of India Rules 1993 (SEBI Rules).
3. Regulation 3 and 4 of The Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations
2003 lay down the list of prohibited acts as follows. The prohibitions on dealings
in securities include:
 Buying, selling or dealing in securities in a fraudulent manner; using or
employing, in connection with the issue, purchase or sale of any security listed
or proposed to be listed in a recognized stock exchange, any manipulative or
deceptive device or contrivance in contravention of the Act or its rules and
regulations;
 Employing any device, scheme or artifice to defraud in connection with dealing
in or issue of securities that are listed or proposed to be listed on a recognized
41
stock exchange; engaging in any act, practice or course of business that operates
or would operate as fraud or deceit upon any person in connection with any
dealing in or issue of securities that are listed or proposed to be listed on a
recognized stock exchange, in contravention of the provisions of the SEBI Act
or the SEBI Rules.
 Manipulative, fraudulent and unfair trade practices are prohibited. Dealing in
securities is a fraudulent or an unfair trade practice if it involves fraud. This may
include all or any of the following:
 Indulging in an act that creates a false or misleading appearance of trading in the
securities market; dealing in a security not intended to effect transfer of beneficial
ownership but intended to operate only as a device to innate, depress or cause
fluctuations in the price of such security for wrongful gain or avoidance of loss;
 Advancing or agreeing to advance any money to any person thereby inducing any
other person to offer to buy any security in any issue only with the intention of
securing the minimum subscription to such issue; Paying, offering or agreeing to
pay or offer, directly or indirectly, to any person any money or money's worth for
inducing. Such person for dealing in any security with the object of inflating,
depressing, maintaining or causing fluctuation in the price of such security; Any
act or omission amounting to manipulation of the price of a security;
 Publishing or causing to publish or reporting or causing to report by a person
42
dealing in securities any information that is not true "or that he does not believe to
be true prior to or in the course of dealing in securities;
 Entering into a transaction in securities without intention of performing it or
without intention of change of ownership of such security;
 An intermediary reporting trading transactions to his clients entered into on their
behalf
 In an inflated manner in order to increase his commission and brokerage;
 An intermediary not disclosing to his client transactions entered into on his
behalf including taking an option position;
 circular transactions in respect of a security entered into between intermediaries
in order to increase commission to provide a false appearance of trading in such
security or to inflate, depress or cause fluctuations in the price of such security;
 Encouraging the clients by an intermediary to deal in securities solely with the
object of enhancing his brokerage or commission;
 an intermediary buying or selling securities in advance of a substantial client
order or whereby a futures or option position is taken about an impending
transaction in the same or related futures or options contract; Planting false or
misleading news that may induce sale or purchase of securities.
43
2.2.2 Forgery (section 463, Penal Code).
Forgery is defined under the Penal Code as making any false documents or false
electronic record or part of a document or electronic record with the intention to either:
Cause damage or injury, to the public or to any person.
Support any claim or title, or to cause any person to part with property, or to enter into
any express or implied contract, with intent to commit fraud.
2.2.3 Falsification of accounts (section 477A, Penal Code).
An employee is guilty of falsification of accounts if he wilfully and with an intention
to defraud either:
 Destroys or falsifies any book electronic record paper, writing, valuable security
or account that belongs to or is in the possession of his employer, or has been
received by him for or on behalf of his employer.
 Wilfully, and with intent to defraud, makes or facilitates the making of any false
entry in, or omits or alters or facilitates the omission or alteration of any material
particular from or in, any such document.
2.2.4 Dishonest misappropriation of property (section 403, Penal Code).
44
A person commits the offence of dishonest misappropriation of property if he
dishonestly misappropriates or converts to his own use any movable property.
2.2.5 Criminal breach of trust (section 405, Penal Code).
Criminal breach of trust is when a person who is entrusted with property or any
dominion over property is dishonestly misappropriating,
Converting the property to his own use, or dishonestly using or disposing of that property
in violation of any direction of law or legal contract.
2.2.6 Cheating (section 415, Penal Code).
This offence consists of deceiving any person and either:
i. Fraudulently or dishonestly inducing the deceived person to deliver property to
a person or
ii. allow a person to retain property.
Intentionally inducing the deceived person to do or omit to do anything that he would not
do or omit if he were not so deceived, and that causes or is likely to cause damage or harm
to that person in body, mind, reputation or property.
2.2.6 Tax crimes.
Various tax crimes (such as tax evasion, smuggling, customs duty evasion, valued
added tax evasion, and tax fraud) can be prosecuted under the:
45
i. Income Tax Act 1961.
ii. Customs Act 1962.
iii. Central Sales Tax Act 1956.
iv. Central Excise Act 1944.
These offences require a deliberate act by the accused rather than an act of negligence.
Managers’ officers and directors may have personal liability for aiding abetting,
counseling’s or procuring the commission of an offence. Typically, most statutes have a
section titled "Offences by Companies", which contains a template provision making any
person who, at the time the offence was committed, was directly in charge of and
responsible to the company for the conduct of its business guilty of an offence committed
by the company, unless either:
i. The offence was committed without his knowledge.
ii. He exercised all due diligence to prevent the commission of the offence.
46
BUSINESS FRAUD?
The CBI derives its legal powers of investigation from the Delhi Special Police
Establishment Act 1946 (DSPE). They enjoy the same investigation powers as the Police
and also have the power to launch prosecutions under a separate wing Under the Companies
Act 1956 the central government can inspect the books of accounts of a company, direct
special audits, order investigations and launch prosecutions for any offence.
SEBI has the powers of a civil court, such as ordering discovery and
production of books of account, summoning and enforcing the attendance of persons
and examining the inspection of books, registers and other documents and issuing
commissions for the examination of witnesses or documents.

PARTICIPATING IN CORPORATE BUSINESS FRAUD?
The prescribed sanctions are as follows:
 Fraudulent and unfair trade practices relating to securities. The higher of either
a fine of INR250 million (as at 1 August 2012, US$1 was about INR55); or Three
times the amount of profits made out of such practices.
 Forgery. Two years' imprisonment and/or a fine.
 Falsification of accounts - Seven years imprisonment and/or fine.
47
 Dishonest misappropriation of property - Two years' imprisonment and/or fine.
 Criminal breach of trust - Three years' imprisonment and a fine.
 Cheating - Simple cases of cheating are punishable with one year's
imprisonment and a fine. Cheating accompanied with delivery of property or
destruction of any valuable security is punishable by seven years' imprisonment.
48
CHAPTER III
BRIBERY AND CORRUPTION
CORRUPTION?
The following regulations govern bribery and corruption in India:
 The Prevention of Corruption Act 1988. This is a central government law enacted
by
Parliament to combat corruption and bribery among public servants. Under this
Act there is a presumption that a public servant or a person expecting to be a public
servant, who accepts or obtains or agrees or attempts to obtain from any person any
recompense as a motive or reward for doing or forbearing to do any official act, or
for showing favor or disfavor, is guilty of the crime of taking a bribe.
 Public service rules. These are applicable to various categories of public servants.
They
prescribe a code of conduct to be observed by public servants and outline the rules
pertaining to, among other things, accepting gifts and hospitality.
 Penal Code. Sections 1718 and 171E penalize bribery in relation to the exercise of
any
electoral right. Section 169 pertains to a public servant unlawfully buying or
bidding for property, rendering him liable for imprisonment and/or a fine. If the
property is purchased, it will be confiscated.
49
 The Benami Transactions (Prohibition) Act 1988. A "benami" transaction is a
transaction under a false name or identity. The Act prohibits any benami
transaction except when a person purchases property in his wife's or unmarried
daughter's name. (This Act was necessary as benami real estate purchases were
historically part of the law in India)
Other legislation that is proposed and pending before Parliament includes:
The Prevention of Bribery of Foreign Public Officials and Officials of Public
international Organizations Bill (2011).
The Citizen's Ombudsman Bill 2011 (Lokpal and Lokayukta Bill)
The three main regulators responsible for inquiring, investigating and prosecuting
corruption cases are the:
 Central Vigilance Commission.
 CBI.
 Anti-Corruption Bureau of each state.
The CBI and the Anti-Corruption Bureaus of each state investigate cases related to
corruption while the Central Vigilance Commission is a statutory body that supervises
corruption cases in governmental departments. It has supervisory powers over the CBI but
does not have authority to prosecute individuals.
Similarly, the state ombudsman (Lok Ayuktas) advises state government departments on
actions against offending government officials. They are fully empowered to initiate
50
investigations against public functionaries in corruption cases and can recommend
punishments In addition, the Prevention of Corruption Act provides for various classes of
police officers who are eligible to investigate offences under the Act.
3.2 WHAT INTERNATIONAL ANTI-CORRUPTION CONVENTIONS

APPLY IN YOUR JURISDICTION?
India is an active participant in the cross-border fight against corruption and has
signed and ratified the UN Convention against Corruption. The purpose of the Convention
includes:
 Promoting and strengthening measures to prevent and combat corruption
efficiently and effectively.
 Strengthening internal co-operation and technical assistance to check and
fight corruption and promote the integrity, accountability and proper
management of public affairs and property
A trilateral India-Brazil-South Africa co-operation agreement has been
established for the purpose of covering various public-policy sectors including ethics and
combating corruption, and social responsibility and transparency.
India is an executive member of International Association of Anti-Corruption
Authorities.
It is also actively involved with the Organization for Economic Co-operation and
Development in its Anticorruption Initiative for Asia-Pacific.
51
3.3 WHAT ARE THE SPECIFIC BRIBERY AND CORRUPTION OFFENCES
IN YOUR JURISDICTION?
Bribery involves any public servant (person in pay or service of the government):
 Receiving illegal recompense in relation to an official act.
 Receiving illegal recompense by corrupt or illegal means for influencing a
public servant.
 Receiving illegal recompense for the exercise of personal influence over s
public servant.
 Obtaining a valuable thing free of charge from any person concerned in a
proceeding or business transacted by the public servant.
The acceptance or agreement to accept or attempt to obtain such recompense is
enough to constitute an offence. Under the Prevention of Corruption Act, a public servant
or a person expecting to be a public servant who accepts or obtains or agrees or attempts to
obtain from any person any recompense as a motive or reward for doing or forbearing to
do any official act, or for showing favour or disfavour, is guilty of the crime of taking a
bribe.
A public servant commits the offence of criminal misconduct if he:
 Habitually accepts, or obtains or agrees or attempts to obtain from any person
or for any other person any recompense other than legal remuneration as a
motive or reward.
 Habitually accepts or obtains or agrees or attempts to obtain any valuable
thing without consideration, or for consideration that he knows to be
inadequate, from any person concerned with an official act.
52
Dishonestly or fraudulently misappropriates or otherwise converts for his own use
any property entrusted to him or under his control as a public servant or allows any other
person to do so.
Obtains for any person or for himself any valuable thing or pecuniary advantage by
corrupt or illegal means or by abusing his position as a public servant.
Obtains (or any person obtains) any valuable thing or pecuniary advantage while
holding office as a public servant, if he or any person on his behalf has at any time during
the period of his Office pecuniary resources or property disproportionate to his known
sources of income and for which he cannot satisfactorily account.
The Penal Code also defines offences of bribery/corruption in relation to elections.
At present there are no regulations relating to private business/commercial bribery.
However, there are ongoing efforts to combat bribery in the private sector. The emerging
trend is to make the sector transparent, accountable and at par with the mechanisms that
are in place for the public sector.

Diplomats enjoy immunity under the Vienna Convention on Diplomatic
Relations 1961. The Prevention of Corruption Act applies to only public servants and
does not cover the private sector. "Grease" or facilitating payments amount to bribery
under the Act.
53
OFFENCES AND IN WHAT CIRCUMSTANCES?
Any person who facilitates bribery whether or not an offence is committed in
consequence of that abetment is liable to be punished under the Prevention of Corruption
Act.

CORRUPTION?
In order to detect corrupt or improper practices the central vigilance commissioner
and vigilance commissions have, among other things, the power to:
 Summon and enforce the attendance of any person. the state Examine on oath.
 Order discovery and production of documents.
 Receive evidence on affidavit.
 Requisition public records.
 Issue commissions.
The CB/ and police officers have the power to arrest persons if they reasonably
suspect that a person is guilty of an offence under the Prevention of Corruption Act. In
addition, the officers of the anti-corruption bureau of each state have the powers of a police
officer and therefore the power to arrest.
On conviction, the Prevention of Corruption Act allows for the confiscation of
the assets of a public servant that are in excess of his known sources of income.
Additionally, a police officer can investigate offences under the Act and can, in the course
of investigation, seize or prohibit the operation of a bank account if the funds therein have
a direct link with the commission of an offence under investigation.
54
The Prevention of Corruption Act applies to all citizens of India, whether residing
in India or abroad. The provisions of the Penal Code apply to any offence committed by
any citizen of India outside of India and any person on any ship or aircraft registered in
India wherever it may be.

BRIBERY AND CORRUPTION?
Special judges are appointed to try offences of bribery/corruption committed
under the Prevention of Corruption Act. Facilitating the offence is also punishable. The
prescribed punishment is imprisonment of between six months and five years along
with fine. This penalty applies to all offences, other than habitual offenders for whom
an enhanced punishment applies of imprisonment for between two and seven years, and
a fine to be decided by the court.
3.8 TAX TREATMENT

Are there any circumstances under which payments such as bribes, ransoms
or other payments arising from blackmail or extortion are tax-deductible as a
business expense?
Any expenditure incurred for any purpose that is an offence or that is prohibited by law is
not deemed to have been incurred for the purpose of business or profession and no
deduction or allowance can be made in respect of such an expenditure (section 37 ( /),
Indian Income Tax Act 1961). Therefore blackmail, ransom or bribe payments are not
allowed as a tax deductions.
55
CHAPTER IV
INSIDER DEALING AND MARKET ABUSE

AND MARKET ABUSE?
SEBI prohibits insider trading. "Insiders" must not (directly or indirectly) deal in
securities of a listed company when in possession of unpublished price-sensitive
information. An "insider' is any person who is connected with the company and expected
to have access to unpublished price-sensitive information in relation to the company's
securities. An insider also cannot communicate counsel or procure unpublished price
sensitive information to or for any person~ Prosecutions for insider trading in securities
are launched by SEBI.
The SEBI (Prohibition of Insider Trading) Regulations 1992 (Insider Trading
Regulations) have been framed under Section 30 of the SEBI Act and are intended to
prevent and curb insider trading in securities.
The Share Dealing Code is a procedure adopted by companies in furtherance to
the Insider Trading Regulations and aims to prevent insider trading activity. It restricts the
directors of a company and other specified employees from dealing in securities of the
company on the basis of any unpublished price-sensitive information that is available to
them by virtue of their position in the company.
SEBI is responsible for dealing with insider trading and market abuse in
accordance with the provisions of the SEBI Act.
56
4.2 WHAT ARE THE SPECIFIC INSIDER DEALING AND MARKET ABUSE
OFFENCES?
Insider trading can be committed in three ways (Regulation 3, Insider Trading
Regulations):
 Dealing in securities the price of which will be affected by the inside information
that is in that persons possession.
 Encouraging another person to deal in such securities.
 Disclosing the inside information to another person.
However, these restrictions are not applicable to any communication required in
the ordinary course of business or profession, or employment or under any law. Regulation
3A prohibits any company from dealing in the securities of another company or associate
of that other company while in possession of any unpublished price-sensitive
information. Therefore, misuse of information, making misleading statements and
encouraging market abuse all fall under the ambit of insider trading.
The Securities and Exchange Board of India (Prohibition of Fraudulent and
Unfair Trade Practices Relating to Securities Market) Regulations, prohibit manipulative,
fraudulent and unfair trade practices. Dealing in securities is a fraudulent or an unfair trade
practice if it involves fraud. This may include any act or omission amounting to
manipulation of the price of a security.
57
A defense is available to a company dealing in the securities of another company
while in possession of any unpublished price sensitive information if cumulatively
(Regulation 3B, Insider Trading Regulations):
The decision to enter into the transaction or agreement was taken on its behalf by
a person or persons other than that officer or employee who was in possession of the
information.
The company has put in place such systems and procedures that demarcate the
activities of the company in such a way that the person who enters into a transaction in
securities on behalf of the company cannot have access to information that is in possession
of other officers or employees of the company.
The company had in operation at that time, arrangements that could reasonably
be expected to ensure that the information was not communicated to the person or persons
who made, the decision and that no advice with respect to the transactions or agreement
was given to that person or any of those persons by that officer or employee.
The information was not communicated and no relevant advice was given.
That acquisition of shares of a fisted company is as per the Securities and
Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations
58
1997 (Takeover code 1997). The Takeover code, among other things, governs the
acquisition of shares and voting rights in public listed companies.
SEBI has recently published the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations 2011 (Takeover code 2011), which has been in effect from 22
October 2011. This exemption is only available for companies. Section 248 of the SEBI
Act empowers the central government to grant immunity from prosecution to any person
who is alleged to have violated the provisions of the Act but who has made a full and true
disclosure in respect of the alleged violation, subject to certain conditions as it may deem
fit.
This immunity can be taken away by the central government if the person has
given false information or failed to abide by the imposed conditions.

ENFORCEMENT AND PROSECUTION?
o SEBI has the powers of a civil court, such as ordering discovery and production of
books of account, summoning and enforcing the attendance of persons and
examining the inspection of books registers and other documents and issuing
commissions for the examination of witnesses or documents.
o SEBI can also, either during or after completion of the investigation/inquiry, in the
interest of the investors or securities market:
o Suspend the trading of any security in a recognised stock exchange.
59
o Restrain persons from accessing the securities market and prohibit any person
associated with the securities market from buying, selling or dealing in securities
o Suspend any office-bearer of any stock exchange or self-regulatory organisation
from holding such position.
o Impound and retain the proceeds or securities in respect of any transaction that is
under investigation.
o Direct any intermediary or any person associated with the securities market in any
manner not to dispose of or alienate an asset forming part of any transaction that is
under investigation.
o Appoint one or more officers to inspect the books and records of insider(s) or any
other persons
o Appoint a qualified auditor to investigate into the books of account or the affairs of
an insider.

INSIDER DEALING AND MARKET ABUSE?
Insiders who violate the SEBI Regulations are liable to a penalty of up to INR25O
million or three times the amount of profits made out of insider trading whichever is higher.
SEBI may, in addition to the above, pass directions to the defaulting insider not to deal in
the concerned shares in any particular manner and/or prohibit him from disposing of the
concerned shares and/or declaring the concerned transactions as null and void and so on.
In addition, any person indulging in fraud and unfair trade practices relating to securities
(see Question 2), is liable to a penalty of INR250 million or three times the amount of profit
made out of these practices, whichever is higher.
60
CHAPTER V
MONEY LAUNDERING AND TERRORIST FINANCING
5.1 REGULATORY PROVISIONS AND AUTHORITIES RESPONSIBLE FOR

INVESTIGATING MONEY LAUNDERING AND/OR TERRORIST
FINANCING
Money laundering is dealt with under the Prevention of Money Laundering Act
2002. The Act is an endorsement of various international conventions to which India is a
party and seeks to declare laundering of monies through specified crimes as a criminal
offence.
The Prevention of Money-laundering (Maintenance of Records of the Nature and
Value of Transactions the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the Identity of the Clients of
the Banking Companies, Financial Institutions and Intermediaries) Rules 2005 impose an
obligation on banking companies, financial institutions and intermediaries to verify the
identity of investors and maintain records of transactions with each investor.
The Unlawful Activities (Prevention) Act deals with terrorism and combating
terrorist funding.
The Reserve Bank of India (RBI) issued Know-Your-Customers (KYC)
Guidelines Anti-Money Laundering Standards on 16 August 2005, under” ‘which Banks
are advised to follow certain customer identification procedures for opening of accounts
and monitoring transactions of a suspicious nature and reporting it to the appropriate
authority.
61
In addition, the Indian Government has established a central national agency
called the Financial Intelligence Unit (FIU-IND) responsible for receiving, processing,
analysing and disseminating information relating to suspect financial transactions. FIU-
IND is also responsible for coordinating and strengthening national and international
intelligence, investigation and enforcement agencies in pursuing global efforts against
money laundering and related crimes. FIU-IND is an independent body, which reports
directly to the Economic Intelligence Council (EIC) headed by the Finance Minister of
India.
In 2010, India became the 34th member of Financial Action Task Force and is
also a member of the Asia/ Pacific Group on Money Laundering. In December 2010, India
joined the Eurasian Group on Combating Money Laundering and Terrorist Financing as a
member state. India ratified the UN Convention against Transnational Organised Crime in
May 2011.
5.2 MONEY LAUNDERING AND TERRORIST FINANCING OFFENCES
Money laundering consists of (directly or indirectly) knowingly assisting, being a
party to or actually involved in any process or activity connected with the proceeds of crime
and the presentation of it as legally obtained property (section 3, Prevention of Money
Laundering Act). The Prevention of Money Laundering Act details 156 offences under 28
statutes as scheduled offences. Money laundering is an offence only if it is related to an
activity connected with the proceeds of a crime specified as a scheduled offence.
62
The Unlawful Activities (Prevention) Act deals with terrorism and terrorist
funding. It also covers terrorist offences such as conspiracy and commission of a terrorist
act, and harbouring a person who is a terrorist. The Unlawful Activities (Prevention)
Amendment Bill 2011 was introduced in the Parliament on 29 December 2011 to amend
the Unlawful Activities (Prevention) Act and make it more effective in preventing terrorist
and other unlawful activities. The bill increases the period for which an association can be
declared as unlawful from two years to five years. It also expands the definition of
"terrorist act" to include acts that threaten the economic security of India through the
production, smuggling or circulation of "high quality" counterfeit currency.
The offences of money laundering and terrorist financing are strict liability
offences. The offence need not necessarily have been committed and even an attempt to
commit a crime would constitute a punishable offence.
5.3 DEFENCES, SAFE HARBOURS OR EXEMPTIONS ARE AVAILABLE AND

WHO CAN QUALIFY
There are no exemptions or qualifications applicable to such offences.

PROSECUTION
Investigation can be initiated only by authorities designated by the central
government such as the Directorate of Enforcement. These authorities can carry out
interim measures such as the survey, search, seizure and arrest of the accused. The
Prevention of Money Laundering Act gives the Requirements for:
63
 Financial institutions disclosure requirements in relation to
reportable transactions.
 Confiscation of the proceeds of the crime.
 Declaring money laundering as an extraditable offence.
 Promoting international co-operation in investigation of money
laundering.
Section 13 of Prevention of Money Laundering Act confers powers on the
Director (appointed by the Central Government and entrusted with powers of a civil court)
to ensure compliance and to call for records and make appropriate inquiries where
necessary. It also prescribes a list of officers (such as officers of the Customs and Central
Excise Department, police officers, officers of the RBI, and so on) who are expressly
required to assist the authorities in enforcing of the Act. The enforcement agency has
extensive powers to discharge its duties under the Act. The adjudicating authority for the
purposes of the Act is vested with powers of a civil court.
Under the Unlawful Activity (Prevention) Act, the central government has the
power to prohibit any person from using the funds of an unlawful association. These
prohibitory orders normally entail an arrest warrant/summons the designated authority, in
addition to having the powers of a civil court can also arrest persons or search any building,
conveyance or place. The officers competent to investigate such offences are the Delhi
Special Police Establishment not below the rank of a Deputy Superintendent of Police (or
not below the rank of an Assistant Commissioner of Police in the metropolitan areas). The
courts/regulators do not have extra-territorial jurisdiction to try these offences.
64
TERRORIST FINANCING OFFENCES
The punishment for money,-laundering is imprisonment for between three and
seven years and a fine of up to INR5OO000 (section 4, Prevention of Money Laundering
Act)~ For offences specified under paragraph 2 of Part A of the Schedule (Offences under
the Narcotic Drugs and Psychotropic Substances Act 1985) the punishment is up to ten
years.
Chapter IV of the. Unlawful Activity (Prevention) Act provides for the
following sanctions:
Unlawful activities. Individuals who take part, commit or abet the commission
of an unlawful activity face imprisonment for up to seven years and a fine. In addition,
individuals who assist in any unlawful activity face imprisonment of up to five years
and/or a fine.
Terrorist activities
The sanctions applicable are:
- Terrorist acts : Acts that result in death are punishable with death or life
imprisonment. Other cases range from five years to life imprisonment.
- Raising funds for terrorist activity and conspiracy: Imprisonment from five
years to life and a fine;
- Harbouring terrorists: Imprisonment from three years to life.
- Membership of a terrorist organization: Life imprisonment and a fine.
- Holding proceeds of terrorism: Life imprisonment and a fine.
These sanctions apply to both individuals and corporate bodies.
65
CHAPTER VI
FINANCIAL RECORD KEEPING
6.1 GENERAL REQUIREMENTS FOR FINANCIAL RECORD KEEPING AND

DISCLOSURE
Banks, financial institutions and intermediaries must (section 12 (1), Prevention
of Money Laundering Act):
Furnish information on prescribed transactions under the Prevention of Money
Laundering Act. Verify and maintain the records of the identity of all its clients.
Records must be maintained for ten years after the transaction concludes.
Banking companies, financial institutions and intermediaries must also furnish
information to Flu-IND when required to do so (section 12 (2) Prevention of Money
Laundering Act).
The maintenance and disclosure of records is specifically provided for in the
Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of
Transactions, the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the Identity of the Clients of
the Banking Companies, Financial Institutions and Intermediaries) Rules 2005.
Rule 3 provides that every banking company or financial institution or
intermediary must maintain a record of Cash transactions of more than INRl million or its
equivalent in foreign currency.
66
Series of cash transactions integrally connected to each other that have been
valued below INRl million or its equivalent in foreign currency where such series of
transactions have taken place within a month.
Cash transactions where forged or counterfeit currency notes or bank notes have
been used as genuine and where any forgery of a valuable security has taken place.
Suspicious transactions whether or not made in cash.
Rule 10 provides that banking companies financial institutions or intermediaries
must maintain records of the identity of its clients in hard and soft copies. The records
must be maintained for a period of ten years from the end date of the transaction between
the client and the banking company or financial institution or intermediary.

FINANCIAL RECORDS
To ensure compliance the Director has powers to (section /3, Prevention of Money
Laundering Act): Call for records and make appropriate inquiries. Levy fines of between
INRI 10000 and INR 1, 00,000 on a banking company, financial institution or
intermediary that fails to comply with any provisions of section 12 of the Act.
6.3 ARE THE FINANCIAL RECORD KEEPING RULES USED TO

PROSECUTE WHITE-COLLAR CRIMES?
The financial record keeping rules are used to prosecute white-collar crimes.
Violations of the rules may be used as evidence and trigger the prosecution of other crimes,
such as bribery and/or tax evasion.
67
RELATION TO CORRUPTION, FRAUD OR MONEY LAUNDERING
WHEN CONTRACTING WITH EXTERNAL PARTIES
Banks are required to undertake customer due diligence (COD) measures
depending on the type of customer, business relationship or transaction. COO measures
typically comprise the following;
- Obtaining sufficient information in order to identify persons who beneficially own
or control a securities account.
- Verifying the customer's identity using reliable, independent source documents,
data or information.
- Identifying beneficial ownership and control. That is, determining which
individual(s) ultimately own(s) or control(s) the customer and/or the person on
whose behalf a transaction is being conducted.
- Verifying the identity of the beneficial owner of the customer and/or the person on
whose behalf a transaction is being conducted, corroborating the other information.
Conducting ongoing due diligence and scrutiny. That is, performing ongoing
scrutiny of the transactions and account throughout the business relationship to
ensure that the transactions being conducted are consistent with the registered
intermediary's knowledge of the customer, its business and risk profile, taking into
account, where necessary, the customers source of funds.
- The financial record keeping rules are used to prosecute white-collar crimes.
Violations of the rules may be used as evidence and trigger the prosecution of other
crimes, such as bribery and/or tax evasion.
68
6.5 CIRCUMSTANCES WHEN A CORPORATE BODY ITSELF BE
SUBJECT TO CRIMINAL LIABILITY
Various judicial decisions have made clear that a company/legal entity is broadly
in the same position as any individual and may be convicted of breach of statutory offences
including those requiring mens rea (a guilty mind).
However, there is no law specifically governing corporate manslaughter in India.

IMMUNITY/LENIENCY FOR CO- OPERATION WITH THE
AUTHORITIES
The power to grant a pardon can be exercised by a magistrate during the
investigation of an offence. The provision for pardon applies only to cases triable by the
Sessions Court, that is, where the offence would attract a punishment of imprisonment of
seven years or more.
A pardon may be granted in order to obtain evidence from any person supposed to
have been directly or indirectly concerned with or privy to an offence, A condition for the
grant of a pardon is that the person makes a full and true disclosure of all facts within his
knowledge. Any person who accepts an offer of a pardon would be examined as a witness
in the trial.
Where a person has accepted an offer of a pardon but it is alleged by the public
prosecutor that he has wrongfully concealed an essential fact or given false evidence, or not
complied with the conditions on which the tender was made, he may be tried for the offence
in respect of which the pardon was offered or for any other offence for which he appears to
have been guilty and also for the offence of giving false evidence.
69
The concept of plea-bargaining is recognised in India by a 2005 amendment to the
Code of Criminal Procedure. Plea-bargaining is available only for offences that are
punishable by imprisonment of under seven years.

AVAILABLE FOR LOCAL AUTHORITIES
The formal mechanisms for co-operating with foreign prosecutors are given under
section 166A of the Code of Criminal Procedure. One such mechanism is through a letter
rogatory or formal letter of request.
During the course of an investigation into an offence, an application can be made
by an investigating officer that evidence is available in a country or place outside India The
court may then issue a letter of request to a court or authority outside India to:
Examine any person acquainted with the facts and circumstances of the case and
record his statement. Require such person or any other person to produce any document or
thing that may be in his possession pertaining to the case.
Forward all the evidence to the court issuing the letter.
The CBI serves as the national central bureau for the purpose of correspondence
with ICPO-INTERPOL (an international police organisation to extend co-operation
between member countries and their police forces, which may furnish or request information
70
or services for combating International crime) to co-operate and co-ordinate with each
other in relation to collection of information, location of fugitives and so on.
India has negotiated double tax avoidance agreements and finalised tax
information exchange agreements with various countries to strengthen exchange of
information relating to tax evasion, money laundering and so on.
In addition, mutual legal assistance treaties facilitate co-operation in matters
relating to service of notice, summons, attachment or forfeiture of property or proceeds
of crime, or execution of search warrants under section 105 of the Code of Criminal
Procedure.
India has adopted the Convention on Mutual Legal Assistance in Criminal
Matters and has operational agreements with 31 countries. The Ministry of Home
Affairs carries out these agreements.
6.8 ARE WHISTLEBLOWERS GIVEN STATUTORY PROTECTION?
The law relating to whistleblowers is fairly recent. The Parliament (Lok
Sabha) passed the Public Interest Disclosure and Protection to Persons Making the
Disclosures Bill 2010 on 27 December 2011. The Bill is pending before the Upper
House (Rajya Sabha). The Bill aims to set up a regular mechanism to encourage persons
to disclose information on corruption or wilful misuse of power by public servants,
including ministers. It also aims at providing adequate protection to persons reporting
corruption or wilful misuse of discretion that causes demonstrable loss to the
government, or commission of a criminal offence by a public servant.
71
In the interim, the government has issued recommendations to safeguard the
interests of whistleblowers and the Central Vigilance Commissioner has been
designated as the agency to act on complaints from whistleblowers until the Parliament
passes appropriate legislation.
6.9 IMPENDING DEVELOPMENTS OR PROPOSALS FOR REFORM
The Companies Bill 2011 is pending before Parliament. Among other things,
the Bill will provide for self-regulatory mechanisms to combat corruption. It also
provides for stringent compliance provisions.
ARE TAKING TO MANAGE THEIR EXPOSURE TO CORRUPTION/
CORPORATE CRIME
Many companies have become far more mindful of the need to combat
corruption and ensure that there are no rogue elements within their ranks that could
disrupt the company and drag it into controversy. Companies have started voluntarily
complying with the Code of Conduct mooted by the Government for private entities
(though this has not yet come into force). The Code covers best practices such as
whistleblower protection, empowering shareholders' committees using remuneration
committees and so on.
72
CHAPTER VII
REGULATORY AUTHORITIES
1. Central Bureau of Investigation (CBI)1
Status: Government organisation.
Principal responsibilities:
The CBI Normally investigates and prosecutes cases of serious
fraud or cheating that may have ramifications in more than one state. It also investigates
corruption cases.
2. Serious Fraud Investigation Office2
Principal responsibilities:
A multi-disciplinary organisation under the Ministry of Corporate
Affairs, it detects and prosecutes or recommends for prosecution of white-collar
crimes/frauds.
3. Central Vigilance Commission3
Status: Statutory body.
Principal responsibilities: The Central Vigilance Commission supervises corruption
cases in governmental departments. It has supervisory powers over the CBI but does not
have authority to prosecute individuals.
1
www.cbi.co.in
2
www.sfio.nic.in
3
www.cvc.nic.in
73
4. Central Economic Intelligence Bureau4
Principal responsibilities: The Central Economic Intelligence Bureau monitors economic
offences and co-ordinates co-operation with international agencies in relation to economic
offences.
5. Directorate of Enforcement (DOE)5
Principal responsibilities: Enforcement of Foreign Exchange Management Act 1999
and the Prevention of Money Laundering Act 2002. The organisation falls under the
Ministry of Finance and is headquartered in New Delhi.
6. Economic Intelligence Council (EIC)6
Principal responsibilities: Established under the Ministry of Finance to facilitate co-
ordination among the enforcement agencies dealing with economic offences.
4
www.ceib.nic.in
5
www.directorateofenforcement.gov.in
6
www.ceib.nic.in
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CHAPTER VIII
COMPARATIVE STUDY OF OTHER JURISDICTIONS
8.1 ENGLISH AND FRENCH
The English and French models proved to be more restrictive mainly due to
their requirement that the individuals acting on behalf of the corporation hold a high
position or play a key function within the corporation’s decisional structure. Moreover,
these systems refused to adopt the aggregation theory. Due to the contemporaneous
tendency of corporations to fragment and delegate the power to decide and act, the
prosecution of a significant number of crimes is prevented. Thus, although the
requirements of clarity and consistency with the traditional principles of criminal law
are met for the most part, these models seem to be under-deterring, less retributive,1
and, overall, less efficient. Moreover, due to the lack of the sanction of criminal
probation the way it is instituted in U.S. and, in England, due to the lack of various
other forms of sanctioning, the rehabilitative requirement is not adequately satisfied.
In Germany, the criminal liability of corporations is non-existent. Instead,
Germany implemented a comprehensive administrative-penal system that regulates
corporate criminal wrongdoing. The German legislators believe that the administrative
liability of corporations fulfills the goals of deterrence, predictability, clarity, and
general fairness, and is also less costly to implement than corporate criminal liability.
Moreover, by refusing to adopt the concept of corporate criminal liability, the German
law system pays tribute to the traditional concepts of the criminal law. Thus, Germans
argue that the administrative-penal system is sufficient. However, many critics have
1
When fewer crimes can be prosecuted, it cannot be said that the corporate criminal is
adequately punished for its wrongdoing or that the vengeance of the victims is appropriate
75
emphasized the close similarity between the German administrative-penal law and the
criminal law, and suggested that this system might be just a façade for criminal
sanctioning without the protections offered by the criminal procedure. The German
system underemphasizes the role of the moral stigma that accompanies any criminal
sanction; therefore, it is not characterized by the retribution of the criminal punishment.
In addition, the lack of corporate criminal liability might create the undesirable effect
of attracting corporations whose acts are not tolerated by the criminal law of other
countries; this, in turn, would increase the level of corporate crime.
The Continent European countries have based their legal systems on long
history and traditions that have permanently marked the development of their laws. In
civil law countries, the doctrinal issues heavily influenced the laws and judicial
decisions. And the tradition has been that corporations cannot commit crimes. Germany
still refuses to accept the criminal liability of corporations and remains loyal to the old
maxim societas delinquere non potest. Some of the reasons for this refusal have been
the alleged corporations’ lack of capacity to act, lack of culpability, and
inappropriateness of criminal sanctions.2 The most important reason has been the belief
that the moral stigma of criminal sanctions is not necessary to fulfill the scopes of the
punishment. At the same time, German corporations have been extremely well
regulated by the very advanced German system of administrative law. Thus, Germany
has not yet considered it necessary to override the old doctrinal restraints on corporate
criminal liability.
2
For a more in dept analysis of these arguments, see the following sections of this article
76
France has abandoned the old maxim societas delinquere non potest and
adopted a comprehensive, yet restrictive, system that addresses corporate criminal
liability. This change was a much needed response to the increasing corporate crime
phenomenon, especially when France lacked the very well developed and established
system of administrative law previously developed by Germany. The French system is
more restrictive compared to the American one because it is relatively new and the
legislators have been probably cautious when implementing new concepts. Moreover,
the adoption of corporate criminal liability has encountered a strong opposition from
the French corporations.
Unlike, civil law systems, the common law legal systems have not struggled
with doctrinal issues at the same level of intensity. The Anglo-American legal system
has adopted the concept of corporate criminal liability as soon as it became necessary
(due to the increasing corporate crime and lack of adequate civil or administrative
sanctions) without thinking and re-thinking the old doctrinal traditions and arguments
the way Germany or France did. The English and American law systems incorporated
corporate criminal liability models easily. Although the English model is still much
more restrictive than the American one, several authors predict that the English model
will soon undergo substantial changes towards a model similar to the American one.
Some of the reasons that prevented the adoption of an extensive criminal corporate
liability model in England have been the possible negative effects on innocent
individuals and the high costs that corporations would have to pay for a monitoring
system that would effectively prevent crimes.
77
The development of the concept of corporate criminal liability in different
countries reveals its important functions in our society. However, because corporate
criminal liability is only at its inception, this area of law is open to continuous
improvement. Only time and practice will tell what the best way of achieving the goals
of corporate criminal liability are. In the following sections I will emphasize the
historical, social, and political contexts that influenced the development of the corporate
criminal liability, the essential differences among different models of corporate
criminal liability, and the possible desirable changes in the existing models.
8.2 HISTORICAL EVOLUTION
Corporate criminal liability has its origins in ancient law, and became the
center of the doctrinal discussions at the end of the 19 th century. The history, laws,
economics, and politics unique to each country have had a remarkable influence on the
adoption and development of the concept of corporate criminal liability. This influence
resulted in different models of corporate criminal liability. The concept of criminal
liability of corporations has had a different evolution under civil law systems as
compared to its development under common law systems. At the same time, under the
civil law or common law systems, corporate criminal liability has developed differently
to reflect the historical and socio-economic realities of different countries. The
historical evolution of corporate criminal liability shows that corporate criminal
liability is consistent with the principles of criminal law and the nature of corporations.
Furthermore, the historical development of corporate criminal liability reveals that
criminal liability of corporations is part of an important “public policy bargain. The
bargain balances privileges granted upon the legal recognition of a corporation—such
as limited liability of corporate shareholders and the capability of a group of investors
78
to act through a single corporate form— with law compliance and crime prevention
pressures on the managers of the resulting corporate entity.” 3
Aside from the existence of the Roman state and its territorial units called
civitas or coloniae, the right of individuals to constitute trade, religious, and charitable
associations has been recognized early in the development of the Roman law. The
Roman entities were called universitates personarum (or corpus/ universitas, which
included the Roman state and other entities with religious, administrative, financial, or
economic scopes) and univesritates rerum (which included entities with charitable
scopes). Upon creation by authorization, the entities had their own identity, owned
property separate from that of their founders, and had independent rights and
obligations. Although these entities were viewed as a fiction of the law, and despite the
fact that the Roman doctrine considered that these associations lacked independent will,
in some authors’ view, an entity could commit a crime and criminal causes of actions
against them existed.4 The acknowledgement of the existence of independent entities
with rights and obligations constituted the basis for the evolution of corporate
institutions in the medieval. The Germanic law has also promoted the development of
associations. The land was shared among families, and not among individuals.
However, unlike the Roman universitas, which were fictitious creations of the law, the
Germanic law considered that both the corporations and the individuals were real
subjects of law. In 595, Coltaire II created the centuries and curies (territorial units);
3
Richard Gruner, Corporate Criminal Liability and Prevention 2-7 (Law Journal Press ed., 2nd
release, 2005) (2004)
4
Florin Streteanu & Radu Chirita, Raspunderea penala a persoanei juridice 7 (Rosetti ed., 2002)
(one example is the action against the City of Cheronea; the city was found not-guilty, which
saved it from destruction)
79
these territorial entities were liable for the crimes committed on their territory. 5 The
rationale of the collective responsibility in the Germanic law relied on the function of
the sanction; sanctions were imposed not based on the concept of guilt, but on the
outcome of the action. Therefore, if damages resulted from an individual action, a
sanction was imposed to repair the damages. The sanction was viewed more as
compensation than punishment, and because the property was owned by the
collectivity, it was only logical that the collectivity should pay the damages.
Later, in the 12th-14th centuries, the concept of corporate criminal liability
evolved; the Romanic law clearly imposed criminal liability on the universitas, but only
when its members were acting collectively. 6 At the same time, Pope Innocent IV created
the basis for the maxim societas delinquere non potest by claiming that, unlike
individuals who have willpower and a soul, can receive the communion, and are the
subjects of God’s and emperor’s punishments, universitas are fictions that lack a body
and a soul, and therefore, cannot be punished. However the majority of the doctrine
rejected this argument because of the realties of that time, and admitted the existence
of juristic persons and their capacity of being sanctioned for their crimes if certain
conditions were met. The emperors and popes used to frequently sanction the villages,
provinces, and corporations.7 The sanctions imposed could be fines, the loss of specific
rights, dissolution, and spiritual sanctions upon the members of the corporations, such
as the loss of the right to be buried, or excommunication.8In the 14th century, the
5
Id. at 9, citing Cg. Geminel, De la Responsibilite Penale des Associations 8 (Librarie Arthur
Rousseau ed., 1899)
6
Id. at 11, citing G. Richier, De la Responsibilite Penale des Personnes Morlaes 53 (1943)
(dissertation)
7
Id. at 12
8
Id. at 13-14
80
doctrine recognized that corporations had their own willpower and therefore, their
criminal liability was a given. With a few exceptions (such as bigamy, rape, etc.), an
entity could commit any crime which could be committed by an individual, regardless
of the fact that the crime had no connection with the scope of the corporation.9 This
theory dominated the continental European doctrine until the end of the 18 th Century.
The medieval conception was based on the belief that all the corporations should be
liable, both civilly and criminally, for the acts committed by their members. Cities,
villages, universities, trade, and religious associations have been required to pay fines
for their crimes. At the same time, the Germanic law was still loyal to the old concept
of collective responsibility and, through a 1548 ordinance, sanctioned the cities that did
not keep the peace by fines and loss of all liberties.10
8.3 FRANCE – Ordonnance de Blois
In France, Ordonnance de Blois of 1579 enacted the criminal liability of
corporations. The crime committed must have been the result of the collectivity’s
decision. Therefore, although the corporations were still considered legal fictions, the
existence of corporate criminal liability sustains the conclusion that corporate criminal
liability was not incompatible with the nature of the corporations. Before the French
Revolution, the French Grande Ordonnance Criminelle of 1670 established11 the
criminal liability of corporations on similar basis. In addition, the ordinance provided
9
Id. at 15
10
Id. at 19, citing Geminel, supra note 10
11
Guy Stessens, Corporate Criminal Liability: A Comparative Perspective 43 Int’l & Comp.
L.Q. 493, 494 (1994)
81
for the simultaneous criminal liability of individuals for committing the same crimes as
accomplices.
The French Revolution brought extreme changes in the French law; the
corporations, including the provinces and nonprofit hospitals, have been completely
eliminated and all their goods confiscated.12 The notion of corporation was incompatible
with the individualist aspirations of the revolutionary government. 13 Moreover, the new
government thought that, due to their economic and political influence, corporations
represented a potential threat for the newregime.14 There was also a financial explanation
for this decision; the new revolutionary government was in immediate need of funds.
The finances were mainly owned by the corporations and the easiest way of getting
those funds was by confiscation from the corporations after their elimination.
Therefore, the French Penal Code of 1810 stopped mentioning the criminal liability of
corporations, but not because the concept was incompatible with the doctrine, but
because such liability was futile as a consequence of the corporations’ disappearance
from the French system of law.15
Under the influence of the French Revolution ideals, the majority of the
continental Europe changed its view regarding corporate criminal liability.
Corporations lost their power and importance and became undesirable entities under
the antagonistic coalition of the monarchic absolutism and liberalism. This reality
12
13
14
Streteanu & Chirita, supra note 9, at 23, citing A. Gebara, La Responsibilite des Personnes
Morlaes en Droit Positif Francais 12 (1945) (dissertation)
15
82
determined the creation of doctrinal theories that tried to find a basis for the lack of
criminal liability of corporations. Malblanc and Savigny are the first authors sustaining
the principle societas delinquere non potest in the 19th century.16 The main argument
was that a corporation is a legal fiction which, lacking a body and soul, was not capable
of forming the criminal mens rea or to act in propria persona. Moreover, corporate
criminal liability would violate the principle of individual criminal punishment. 17
German jurists also adhered to the “fiction theory.” Thus, E. Bekker and A. Briz argued
that corporations have a pure patrimonial character which is created for a particular
commercial purpose and lacks juridical capacity. Therefore, corporations cannot be the
subjects of criminal liability.
Critics of the “fiction theory,” such as O. Gierke and E. Zitelman, argued that
corporations are unities of bodies and souls and can act independently. The corporations’
willpower is the result of their members’ will.18 F. von Liszt and A. Maester were some of
the principal authors who tried to substantiate the concept of corporate criminal liability in
this period. They argued that the corporations’ capacity to act under the criminal law is
not fundamentally different from that under civil or administrative law; corporations
are juristic persons that have willpower and can act independently from their
members.19
16
Streteanu & Chirita, supra note 9, at 24-25
17
L.H. Leigh, The Criminal Liability of Corporations and Other Groups: A Comparative View,
80 Mich. L. Rev. 1508, 1509 (1982)
18
Id. at 26, citing St. Stancescu, Studiu Asupra Responsibilitatei Penale a Persoanelor Juridice
31 (Libraria “Universala” Acaly ed. [sic])
19
Id., citing F. von Liszt, Tratado de Derecho Penal 299-300 (Rues ed., 1999), and A. Maestre,
Les Personnes Morales et le Probleme de Leur Responsibilite Penale 137 (1899) (dissertation)
83
During the time of these doctrinal disputes, the number and importance of
corporations in the European society increased significantly. The laws became more
flexible and the states’ role in the process of incorporation diminished. For the purpose of
controlling the corporate misconduct, the Council of Europe recommended that “those
member states whose criminal law had not yet provided for corporate criminal liability to
reconsider the matter.” France responded by making several revisions of its Penal Code for
the purpose of modernizing its text. The revision of 1992 officially recognized the corporate
criminal liability because, in the opinion of the French legislators, it made more judicial
sense and because it lacked other effective ways of sanctioning criminal corporate
misconduct. This process culminated with the Nouveau Code Penale in 1994.20 The French
New Penal Code established, for the first time in any civil law system, a comprehensive set
of corporate criminal liability principles and sanctions21 providing in article 121-2 that,
with the exception of the State, all the juristic persons are criminally liable for the offenses
committed on their behalf by their organs or representatives. The establishment of the
corporate criminal liability attracted the critiques of thousands of corporations that could
not believe in “such a revolution.”33 Ever since, France has had a relatively wide practice
in this field.
France’s example was followed by numerous other European countries. Thus,
Belgium, through the Law of May 4, 1999, modified art. 5 of the Belgian Penal Code and
instituted the criminal liability of juristic persons. Netherlands adopted the concept of
20
B. Bouloc, La Criminalisation du Comportament Collectif – France, in La Criminalisation
du Comportament Collectif: Criminal Liability of Corporations 235, 237 (H. de Doelder &
Klaus Tiedemann eds., Kluwer Law Int’l, 1996)
21
Leonard Orland & Charles Cachera, Essay and Translation: Corporate Crime and
Punishment in France: Criminal Responsibility of Legal Entities (Personnes Morales) Under
the New French Criminal Code (Nouveau Code Penal), 11 Conn. J. Int’l L. 111, 114 (1995)
84
corporate criminal liability even earlier, in 1976. Art. 51 of the Dutch Penal Code provides
that natural persons as well as juristic persons can commit offenses. In 2002 Denmark
modified its Penal Code and established that corporations may be liable for all offenses
within the general criminal code.22
8.4 GERMANIC LAW
Germany on the other hand, due to doctrinal issues, still resists the idea of
incorporating corporate criminal liability in its legal system. 23 In Germany, corporate
criminal liability is still governed by the maxim societas delinquere non potest and
corporate misconduct is the subject of a very developed system of administrative and
administrative-penal law.24 Germany’s administrative-penal system, called
Ordnungswidrigkeiten (OwiG),25 is the successor of Ubertretungen, a category of petty
offences. The reason for “this growth of administrative procedures is of course to be
found in the evolution of the Etat-Gendarme to the twentieth-century welfare State,
resulting in an enormous expansion of the domain of the State.
The administrative fines, called Geldbussen, are imposed by specialized
administrative bodies which are part of the executive branch of the government. The
sanctions can be imposed both to individuals and corporations. Under the
22
Sara Sun Beale & Adam G. Safwat, What Developments in Western Europe Tell Us about
American Critiques of Corporate Criminal Liability+, 8 Buff. Crim. L.R. 89, 97 (2004)
23
Orland & Cachera, supra note 31, at 116
24
H.J. Hirsch, La Criminalisation du Comportament Collectif – Allemange, in La
Criminalisation du Comportament Collectif: Criminal Liability of Corporations 31, 31 (H. de
Doelder & Klaus Tiedemann eds., Kluwer Law Int’l, 1996)
25
Gunter Heine, New Developments in Corporate Criminal Liability in Europe: Can Europeans
Learn from the American Experience—or Vice Versa?, 1998 St. Louis-Warsaw Transatlantic
L.J. 174 (1998)
85
administrative-penal law, punitive sanctions can be applied. However, the imposition
of administrative sanctions does not imply moral stigma “and this consideration seems
to have been the most important for the German legislature in opting for administrative
sanctions rather than leaving the matter under the aegis of the criminal law.” The main
arguments in defense of the lack of corporate criminal liability in Germany are:
corporations do not have the capacity to act, corporations cannot be culpable, and the
criminal sanctions are appropriate, by their nature, only for human beings.
8.5 ITALY, PORTUGAL, GREECE AND SPAIN
Italy, Portugal, Greece, and Spain followed the German model and refuse to hold
corporations criminally liable. For example, Italy imposed a system of administrative
liability of corporations through the Decree-Law No. 300 of September 29, 2000 and the
Decree-Law No. 231 of May 8, 2001.26 However, the Italian doctrine argues that this
administrative liability is, in reality, criminal in nature because it is connected to the
commission of a crime and is applied by using rules of criminal procedure.27
Due to historical circumstances, the evolution of common law systems has
been different and did not embrace the Roman concepts. Unlike the civil law, which
has its sources in legislative acts, the sources of the common law are the judicial
decisions and the legislative acts. The adoption of the concept of corporate criminal
26
See La Relazione al Decreto Legislativo Guida Normativa June 29, 2001(Il Sole 24 Ore
S.p.A. Ed., 2001)
27
Streteanu & Chirita, supra note 9, at 77, citing G. Fiandaca & E. Musco, Diritto Penale. Parte
Generale 146 (Zanachelli Ed., 2001)
86
liability has followed a conservative course under the English law.28 Initially, England
refused to accept the idea of corporate criminal liability for several reasons.
Corporations were considered legal fictions, artificial entities that could do no more
than what “legally empowered to do (ultra vires theory).” Because corporations lacked
souls, they could not have mens rea and could neither be blameworthy, nor punished.
Chief Justice Holt decided that corporations could not be criminally liable, but their
members could. In addition, corporations were very few in number, incorporation being
a privilege granted by the crown. Therefore, the influence of corporations on the society
was minimal.
During the 16th and 17th centuries, corporations became more common and
their importance in the socio-economic life increased. A need for controlling corporate
misconduct became more and more obvious. Corporations have been recognized as
independent entities which owned property distinct from that of their members. The
first step in the English development of corporate criminal liability was made in the
1840s when the courts imposed liability on corporations for strict liability offenses. 29
Lord Bowen decided that the most efficient way of coercing corporations was by
introducing the concept of corporate criminal liability in the English law.30 Soon after,
by borrowing the theory of vicarious liability from the tort law, the courts imposed
vicarious criminal liability on corporations in those cases when natural persons could
28
C. Harding, Criminal Liability of Corporations-United Kingdom , in La Criminalisation du
Comportament Collectif: Criminal Liability of Corporations 369, 382 (H. de Doelder & Klaus
Tiedemann (eds.), Kluwer Law Int’l, 1996)
29
Regina v. Birmingham & Gloucester R.R. Co., (1842) 3 Q. B. 223 (breach of statutory duty;
strict liability for omissions--nonfeaseance); Gt. North Of England R.R. Co., (1846) 9 Q.B.
315(strict liability for actions-- malfeasance)
30
Regina v. Tyler, 173 Eng. Rep. 643 (Assizes 1838)
87
be vicariously liable as well. In 1944, the High Court of Justice decided in three landmark
cases31 to impose direct criminal liability on corporations and established that the mens rea
of certain employees was to be considered as that of the company itself. The motivation of
the decisions was vague and confusing due to the lack of clear and organized criteria for
attributing the mens rea element to corporations. This issue was clarified in 1972 in a case
in which the civil law alter ego doctrine was used to impose the criminal liability on
corporations; this is now known under the name of “identification theory.” The Chamber
of Lords compared the corporation to a human body, different individuals representing
different organs and functions of the juristic person (e.g. the directors and managers
represent the brain, intelligence, and will of the corporation). The willpower of the
corporations’ managers represented the willpower of the corporations. This theory was later
criticized and slightly modified, but this decision still represents the landmark precedent in
the English corporate criminal liability.
8.6 AMERICAN SOCIETY WAS EXPANDED TO MENS REA OFFENSES
The United States initially followed the English example, but later developed
differently and more rapidly due to the important role of corporations in the American
economy and society. The foundation of most forms of political organization in the
American colonies was the corporate charter which perpetuated the corporate form of
governance. Unlike the English courts, the American courts were much faster in
holding corporations criminally liable. Initially, the American courts promoted similar
arguments against corporate criminal liability.
31
DPP v. Kent and Sussex Contractors, Ltd., [1944] 1 All E.R. 119 (director used a false
document); Moore v. Bresler, [1944] 2 All E.R. 515 (tax evasion); R. v. I.C.R. Haulage, Ltd.,
[1944] K.B. 551 (common law conspiracy)
88
The courts started by imposing criminal corporate liability in cases of
regulatory or public welfare offenses not requiring proof of mens rea32—nuisance,
malfeasance, non-feaseance and vicarious liability cases. 33
At the beginning of the 20th century, the corporate criminal liability concept
was widely accepted in the American society and was expanded to mens rea offenses.
The Court held in New York Central & Hudson River R.R. v. U.S.34 that the defendant
corporation can be responsible for and charged with the knowledge and purposes of its
agents, acting within the authority conferred upon them. The Court held that the law
“cannot shut its eyes to the fact that the great majority of business transactions in
modern times are conducted through these bodies, and particularly that interstate
commerce is almost entirely in their hands, and [giving] them immunity from all
punishment because of the old doctrine that a corporation cannot commit a crime would
virtually take away the only means of effectually controlling the subject-matter and
correcting the abuses.
32
E.M. Wise, Criminal Liability of Corporations- US, in La Criminalisation du Comportament
Collectif: Criminal Liability of Corporations 383, 384 (H. de Doelder & Klaus Tiedemann eds.,
Kluwer Law Int’l, 1996)
33
People v. Corporation of Albany, XII Wendell 539 (1834) (non-feasance); State v. Morris
Essex R.R., 23 Zabrinski’s N.J.R. 360 (1852) (misfeasance); see also Brickey, supra note 50,
at 75-81 for a detailed presentation of the nuisance, malfeasance, and nonfeasance liability
development in U.S
34
212 U.S. 481 (1909) (sustaining the constitutionality of the Elkins act which provides that
the acts and omissions of an officer acting within the scope of his employment were considered
to be those of the corporation)
89
8.7 ESSENTIAL CONDITIONS FOR CORPORATE CRIMINAL LIABILITY
Criminal liability of corporations has been the subject of vigorous debates for
the last century. International congresses, studies, articles, and notes have addressed
this issue and have been the ground for doctrinal confrontations among the partisans
and adversaries of this concept. Every element of corporate criminal liability has been
discussed, attacked, or defended. Most of the arguments were built on the principle
societas delinquere non potest and on the belief that alternative forms of liability (like
civil or administrative liability of corporations or criminal liability of individuals acting
for the corporation) are superior to corporate criminal liability. In the following
subsections I will show how different countries have responded to these arguments, and
the basic elements of corporate criminal liability which vary from country to country.
First, it must be determined what entities can be held criminally liable. Second, you
will find out for what crimes corporations can be held criminally liable.
8.8 ENTITIES
The first step in determining the applicability of corporate criminal liability is
delineating the types of entities that it applies to. There is no unitary view regarding
this aspect. Initially, some argued that corporations cannot be held criminally liable
because, unlike human beings who are true subjects of law, corporations are legal
fictions. This argument was rapidly abandoned due to the fact that the existence of the
corporations is an incontestable realty in the social, economic, and juridical life of our
society. Nowadays, corporations have legal capacity in the majority of areas of law,
own real property and goods distinct from those of their members, and have their own
rights and obligations.
90
Similar to individuals, corporations have an identifiable persona and the
capacity to express moral judgments.35 Corporations have an identifiable persona in the
sense that they have a unique presence in the community, different from that of their
owners or managers; they have “ethos” that makes them unique and different from the
individuals controlling or working for the corporations.36 The ethos can be derived from
the corporation’s dynamic, structure, monitoring system, aims, policies, promotion of
compliance with the laws, and discipline of the employees.37 The United States
Supreme Court has decided that corporations have the capacity to express independent
points of view and moral judgments, and their freedom of speech should not be abridged
without a compelling state interest.38
Moreover, corporations are recognized as passive legal subjects in criminal
law; a corporation has a cause of action against an individual who harmed it. It would
be at least bizarre to accept that a corporation is a reality when it is harmed by others,
but not when it violates the rights of other persons. 39 Therefore, the “fictive character”
argument cannot be successfully used by the adversaries of corporate criminal liability.
35
Lawrence Friedman, In Defense of Corporate Criminal Liability, 23 Harv. J.L. & Pub. Pol'y
833, 846 (2000)
36
Pamela H. Bucy, Corporate Ethos: A Standard for Imposing Corporate Criminal Liability,
75 Minn. L. Rev. 1095, 1099 (1991)
37
Eli Lederman, Models for Imposing Corporate Criminal Liability: From Adaptation and
Imitation Toward Aggregation and the Search for Self-Identity, 4 Buff. Crim. L. R. 694, (2000)
38
Bank of Boston v. Bellotti, 435 U.S. 765, 787-95 (1978)
39
Bank of Boston v. Bellotti, 435 U.S. 765, 787-95 (1978)
91
Once it has been decided that corporations can be subjects of criminal law, it
has been subsequently debated whether all corporations should be held criminally
liable. Some authors have argued that the creation of exceptions would produce an
inequitable discrimination. This point of view cannot be sustained because the criminal
law also has exceptions regarding the individuals who can be subjects of criminal
liability.40 Thus, if a government employee acting in his or her ministerial function is
immune from criminal liability, there is no reason why the governmental institutions
would not benefit from the same exception. Some very limited and clearly delineated
exceptions that promote higher interests should be admissible. At the same time, in
order to avoid confusion, entities with no legal status, or entities in process of
dissolution or merger should be held liable when the entities held liable are clearly
individualized.
The majority has agreed that private entities are subject to criminal liability.
The French legislators have raised the issue of freedom of association when deciding
whether entities without a lucrative scope should be held criminally liable. They
decided that the freedom of association cannot be manifested outside the legal limits.
The non-commercial character of the associations cannot justify their impunity when
committing a crime; the exceptions from criminal liability must be absolutely
necessary.41 Thus, private entities with commercial and non-commercial scopes
should be held equally liable under the criminal law. Under article 121-2 of the
40
Id. at 88
41
Id. at 89
92
French Penal Code the juristic persons are criminally liable for the crimes they
committed.42
Therefore, associations, foundations, parties, and syndicates/ unions are
criminally liable because they often own property that could be used for illicit
purposes or they could use information obtained from their members for illegal
purposes.43
The criminal liability of syndicates in England has a special treatment. In 1871,
syndicates were not considered passive subjects of criminal law and the causes of
actions against them were actually causes of actions against their trustees. In 1901, the
English court decided that syndicates could be held criminally liable; if the law
acknowledges the syndicates’ capacity to own property and commit defamation, then
syndicates should bear the responsibility for their unlawful acts.44 Following the strong
protests of the syndicates, the English Parliament adopted in 1906 a law conferring
immunity from criminal liability to syndicates. At the present, the English syndicates
are the only private entities that are not held criminally liable. 45
Unlike England, the United States decided in 1922 that unions can be held
criminally liable. The Supreme Court held in United Mine Workers v. Coronado Coal
42
C. Pen. art. 121-2 (Fr.)
43
Streteanu & Chirita, supra note 9, at 89 (for example, information could be used to commit
libel or treason)
44
Taff Vale RR. Co. v. Amalgamated Society of RR. Servants, [1901] A.C. 426
45
93
Co. that trade unions could violate the criminal law provisions and they should not
escape its application.
Because unions manage enormous sums of money and their membership
exceeds hundreds of thousands of people, they should be held criminally liable.
Moreover, the victims of unions’ misconduct cannot realistically sue such a large
number of members individually in order to recover the damages caused.
The majority of legislations granted the state/government an exception from
criminal liability. Art. 121-2 of the French Penal Code provides that the juristic persons,
with the exception of the State, are criminally liable. 46 France also grants an exception
to some territorial collectivities when exercising a governmental function which cannot
make the subject of delegation to private subjects of law. Thus, the majority of public
entities have a criminal responsibility similar to that of private entities.
In common law systems, the rule was that the King can do no wrong. In
England, the state, government, and ministries are not criminally liable for the common
law crimes. However, the laws can provide that the Crown can be held liable for other
crimes.47 In the United States, the Model Penal Code expressly states that the entities
organized by a governmental agency for the purpose of implementing a governmental
activity are not criminally liable. However, the courts have not denied the possibility
that governmental institutions be held criminally liable. Even though there is no case
46
C. Pen. art. 121-2 (Fr.)
47
Leigh, supra note 23 at 18
94
of criminally sanctioning governmental institutions, the administrative liability of such
institutions has been admitted.48
The issue of whether entities without a legal status can be held criminally liable
has been also resolved differently. Some opinions argued that criminal liability of such
entities should not be allowed in order to maintain the coherence, consistency, and
predictability of the criminal law. Others argue that the act of registration or
incorporation should not bear so much importance when the entity is already an
autonomous subject; the predictability of the criminal law can be assured if the law
clearly individualizes the entities that can be assimilated to the juristic persons.
Article 121-2 of the French Penal Code does not acknowledge that the non-
legal-status entities can have the capacity to commit crimes. The Cassation Court
manifested the intention of extending the criminal liability to non-legal status entities
that benefited from such crimes.49
The majority of the French doctrine has negatively criticized this attempt based
on theoretical concepts. The doctrine argued that such a jurisprudential extension of the
concept of juristic person would create insecurity. Moreover, due to the basic
characteristics of the civil law systems, courts are to strictly interpret the law and cannot
create new rules throughout the stare decisis process.
48
Wise, supra note 65, at 394
49
95
In common law systems, the unregistered or unincorporated entities are
criminally liable under the same conditions as the registered or incorporated entities.
Thus, in England, under the Interpretation Act of 1978, the concept of juristic person
includes associations50. In U.S., the traditional view was that, in the absence of a law
passed by Congress that provides otherwise, partnerships or joint ventures cannot be
held criminally liable because they do not have a separate identity from that of their
members.51 However, under the federal law, the concept of “person” includes the
partnerships and other similar entities.52 The U.S. Federal Sentencing Guidelines
defines and lists the organizations which are subject to regulation. “Organization”
means a “person other than an individual.” ”The term includes corporations,
partnerships, associations, joint-stock companies, unions, trusts, pension funds,
unincorporated organizations, governments and political subdivisions thereof, and
nonprofit organizations.”53
On the other hand, corporations and partnerships going trough the process of
dissolution, transformation, or merger are liable for the crimes committed in most of
the countries. Thus, under article 133-1 of the French Penal Code, the fines can be
executed before the end of the liquidation of the corporation. The American law has
similar rules. Succession or merger does not extinguish the corporate criminal liability.
When a corporation merges with another, the former continues to exist as part of the
50
Interpretation Act 1978, Ch. 30, Sch. 1 (Eng.)
51
U.S. v. A& P Trucking Co., 358 U.S. 121, 128
52
Wise, supra note 65, at 393; 49 U.S.C. 303(a); 18 U.S.C. §1
53
U.S. Sentencing Guidelines Manual, 18 U.S.C.S. Appx. § 8A1.1 (2005) [hereinafter U.S.
Sentencing Guidelines]
96
latter, and is responsible for its crimes. The courts have held that corporations in the
process of dissolution can be held criminally liable because corporations continue to
exist for the purpose of “paying, satisfying and discharging any existing debts and
obligations…”54
In Germany, under the non-criminal liability model, corporations and other
legal status entities are autonomous subjects of law enjoying the same fundamental
rights as the individuals.55 The liability of corporations, enterprises, entrepreneurs,
associations, and other juristic persons is equally recognized under the administrative-
penal system. At the same time, public entities and territorial collectivities can be held
liable under the administrative-penal law.56
The American system of defining the entities that can be held liable under the
criminal law has some substantial advantages. Listing the entities that can be held
criminally liable is probably more clear and cheaper; it prevents unnecessary waste of
time and money by the courts when determining what entities can be held criminally
liable. At the same time, the goal of general fairness is satisfied by including non-legal
status entities. This inclusion reflects the reality that non-legal-status entities can
commit crimes and should not escape liability due to a technicality. Because of the
unpredictable situations that can appear due to the development of the law and the
ingenious nature of the human beings creating such entities, the list should not be
54
Melrose Distillers Inc. v. U.S., 359 U.S. 271, 273 (1959); See also Lederman, supra note 73,
at 641
55
56
Id. at 54-55
97
exhaustive so courts could add to the list new entities based on clear standards that give
appropriate notice. This would satisfy the predictability requirement. The American
model also meets the goals of deterrence and retribution by giving notice to all potential
corporate criminals and by punishing most of them. The only disadvantage would be
the arguable lack of consistency with the general principles of criminal law when
punishing non-legal status entities.
The French and English models are more restrictive. They are less efficient
because they do not clearly enumerate the entities that can be held criminally liable.
The requirement of general fairness is not met when refusing to punish non-legal-status
entities that commit crimes. At the same time, the goals of deterrence and retribution
are not satisfied. However, these systems have the advantages of being clear and
consistent with the general principles of criminal law.
There are three systems of determining for which crimes the corporations can
be held liable. Under the first system—general liability or plenary liability57—the
juristic persons’ liability is similar to that of individuals, corporations being virtually
capable of committing any crime. The second system requires that the legislator
mention for each crime whether corporate criminal liability is possible. The third
system consists of listing all the crimes for which collective entities can be held liable.
102 57
Cristina De Maglie, Centennial Universal Congress of Lawyers Conference-Lawyers
and Jurists in the 21st Century: Paper: Models of Corporate Criminal Liability in
Comparative Law, 4 Wash. U. Global Stud. L. Rev. 547,
(2005)
98
The first system has been adopted by England, Netherlands, Belgium, Canada,
and Australia.58In England, the corporations are liable for almost any type of crimes.
Although general liability is the rule, there are some limits based on the principle lex
non cogit ad impossibilia.59 Thus, juristic persons are not liable for crimes punished
only by imprisonment.108 Presently there are only two crimes punishable only by
imprisonment: murder and treason. Under the same principle, corporations are not
liable for crimes expressly excluded by the legislator or crimes that, due to their nature,
cannot be committed by corporations. Hence, corporations cannot commit bigamy,
incest, perjury, or rape even though, some authors argue that such crimes could be
60
committed by corporations as instigators. The English courts have held that
corporations can be sued for manslaughter.61
The second model expressly provides for such liability. Thus, when one wants
to know whether a corporation is liable for a certain crime, he or she must look in the
code/law, under the section for that specific crime, to see whether the legislator
mentioned the possibility of engaging the criminal liability of corporations. This system
has its rationale in the science of criminology; corporations are sanctioned for specific
crimes based on the frequency of the corporations’ involvement in such crimes.
However, this system is not comprehensive. By trying to exclude the crimes that cannot
be committed by corporations, the French legislators inadvertently omitted some labor
58
See generally La Criminalisation du Comportament Collectif: Criminal Liability of
Corporations (H. de Doelder & Klaus Tiedemann eds., Kluwer Law Int’l, 1996)
59
Streteanu & Chirita, supra note 9, at 112-13 (the law cannot foresee the impossible)
60
Streteanu & Chirita, supra note 9, at 113, citing R. Card, Introduction to Criminal Law 195
([sic] London/Edinburg 1988)
61
R. v. P & O European Ferries (Dover) Ltd., 93 Cr App Rep 72 (1990, UK); Lederman, supra
note 73, at 645-46
99
and economic crimes, and also neglected the fact that even the crimes that cannot be
committed by corporations as authors can probably be committed by corporations as
instigators or accomplices.
The third model is reflected by the American law. The U.S. Sentencing
Guidelines include a detailed list of the offenses that can be committed by corporations.
Corporate criminal liability virtually extends to all the crimes that can be committed by
individuals.116 Thus, a corporation can be convicted for theft, forgery, bribery, and
manslaughter or negligent homicide.62 Also, in People v. O’Neil, even though the
corporation has not been found guilty, the court has not denied the possibility that
corporations can be held criminally liable for murder.
Under the German non-criminal model of corporate liability, the corporations
are administratively liable for crimes or administrative-penal offenses committed by an
organ or representative. Section 30 of Ordnungswidrigkeitengesetz (OWiG) does not
impose a limit on the list of offenses for which corporations can be held liable.
Corporations are not liable for offenses which by their very nature can be committed
only by individuals. The only condition is that the offenses be linked with the
corporation’s activities. However, it is not required that the offense be within the
competences conceded to the corporation. Thus, a corporation can be held liable under
the administrative-penal system for homicides, offenses against the patrimony, etc. 63
62
Granite Construction Co. v. Superior Ct., 149 Cal. App. 3d 465 (1983); Vaughan $ Sons, Inc.
v. State, 737 S.W.2d 805 (Tex. Crim. App., 1987)
63
Id. at 58
100
The American model has the advantages of avoiding confusion and long
searches in various statutes. Thus, the American system meets the requirements of
clarity, predictability, efficiency, and consistency with the general principles of
criminal law. Unless it is certain that there is no other possible crime that a corporation
could be held liable for, the list of crimes should not be exhaustive. In this respect, the
English and German models are good examples because they do not limit the list of
crimes for which corporations can be held criminally liable, but they provide for
liability similar to that of individuals. The French system, in attempt to be clear and
predictable, turned out to be less efficient due to the amount of time necessary to do the
searches in various statutes and to the omission of several crimes. Moreover, similarly
to the English system, the French system omits the possibility that some crimes that
could not be committed by corporations as principals could probably be committed by
corporations as accomplices or instigators.
8.9 NATURAL PERSONS CAN CAUSE CORPORATE CRIMINAL

LIABILITY
Initially, it has been argued that corporations are not capable of forming the
material and mental elements of a crime due to their immaterial and highly regulated
existence. The attribution of the acts and the mental state of persons acting on behalf of
the corporation to the corporation it was said to contravene the principle of individual
punishment underlying the criminal law. These arguments failed in most legal systems,
but the sphere of individuals and the conditions in which they can lead to the criminal
liability of corporations differs more or less dramatically from country to country.
101
At first, some critics argued that corporations do not have the capacity to act
on their own and therefore, the actus reus element of a crime cannot be attributed to
them.64 The acts attributed to the corporations are merely those of individuals acting on
behalf of the corporations. Thus, “[i]mposing criminal liability on a corporate entity
requires resort to the principles of respondeat superior, rather than individual
responsibility, which is the hallmark of the criminal law.”65 It is incontestable, that, due
to the corporations’ nature, the actions or inactions cannot be committed directly and
personally by the corporation. However, the acts of the representatives are those of the
corporation itself because the representatives are not distinct from the corporation;
representatives are part of the corporation, a structural element of the corporation
essential for the corporation’s existence and without which the corporation cannot
fulfill its purpose. Moreover, representatives are not personally liable for acts within
the scope of the powers granted to them, but the corporation is held liable for them.
Therefore, admitting the existence of the corporations’ ability to act does not mean
liability for another’s act; it merely means that corporations are liable for the activity
conducted by individuals on their behalf using the power that has been conferred upon
them by the corporations’ bylaws. 66 Moreover, those that are subjects of legal duties,
not only can perform those duties, but can also breach them.
Another argument was based on the ultra vires theory. Critics argue that an
illicit act would fall outside the scope of the corporation and therefore, cannot be
64
Ferguson v. Wilson, (1866) L.R. 2 Ch. App. 77, C.A
65
Beale & Safwat, supra note 36, at 93
66
102
considered to be perpetrated by the corporations.67 The capacity of action of
corporations and their representatives is limited by the laws, articles of incorporation,
and bylaws; no law or bylaw gives them the power to commit a criminal offense.
Therefore, any crime is necessarily ultra vires. The protection of corporations resulting
from the ultra vires theory has been eliminated first in tort law and subsequently, at the
beginning of the 20th century, in the criminal law.68 The purpose of the articles of
incorporation and bylaws is to assure organized services, to avoid confusion regarding
the corporations’ activity, and to permit an efficient surveillance of their activity. It
would be absurd to consider that the ultra vires theory, destined to insure the legality
of the corporations’ activity, could transform into a reason to refuse to punish the
corporations when acting illegally. Moreover, although the articles of incorporation
provide certain scopes for the corporation, the corporation can do whatever else is
necessary to conduct its activity. The scope of incorporation should not be confused
with the corporations’ scopes during its activity; the scope of incorporation must always
be legal, but the corporations’ actions after incorporation are not always in conformity
therewith. Although civil offenses are not within the scope of a corporation,
corporations are nonetheless held liable when committing such offenses. Similarly,
corporations should be held liable for criminal offenses.
67
Ashbury Ry Carriage and Iron Co. v. Riche, [1875] L.R. 7 H.L. 653. People v. Rochester Ry.
& Light Co., 88 N.E. 22 (N.Y. 1909)
68
Nicolette Parisi, Theories of Corporate Criminal Liability (or Corporations Don’t Commit
Crimes, People Commit Crimes), in Corporations as Criminals 41, 45 (Ellen Hochstedler ed.,
Sage Publications, 1984).
103
The core argument against corporate criminal liability has been the belief that
a corporation cannot have mens rea and therefore, cannot be blameworthy or guilty of
a criminal offense.69 Critics showed that the corporate will and power of decision are
exercised through the will of the collectivity of people managing the corporation.
Therefore, it is said that the mens rea element of a criminal offense does not belong to
the corporation, but to the members who made the decision to take a specific course of
action. The corporation would be punished without being blameworthy and this would
be against the criminal law principles. However, the majority of doctrine recognizes the
independent existence of a corporate will70 which does not always identify itself with
that of the collectivity of members of the corporation.71 The corporation’s capacity to
act and decide has been recognized in contract, administrative, and constitutional law.
Therefore, if a corporation has the capacity to think and decide when it is a part to a
contract (and thus being the subject of contractual rights and obligations), it cannot be
sustained that corporate will power exists when it produces legal effects, but not when
the effects created are illegal (criminal offenses). 72 Moreover, being widely accepted
that corporations have civil liability, it would be difficult to explain why the corporation
should not be held liable when the offense committed is more serious (criminal offense
as opposed to civil offense). The culpability of corporations exists and it is sufficient
for the culpability required by the criminal law. After defeating these arguments, the
issue became how wide the pool of individuals who can draw the corporate criminal
69
Hirsch, supra note 39, at 37; Beale & Sawfat, supra note 36, at 93
70
See Streteanu & Chirita, supra note 9, 53-59; Friedman, supra note 71, at 847-52
71
For example, when some of the members opposed a specific course of action adopted by the
majority, the minority’s will cannot be identified with that of the corporation represented by
the majority
135 72
Streteanu & Chirita, supra note 9, at 55, citing R. Plascencia Villanueva, Teoria del
Delito
73-74 ([sic] Universidad Nacional Autonoma de Mexico, 2000)
104
liability should be, by what acts, and with what mental state. Although the corporations
are the subjects of the law, the action or inaction of a human being is necessary to
engage the corporations’ criminal liability. Initially, the persons who could engage the
corporations’ liability were limited to the corporate organs. The organs represented the
soul of the corporation, their actions were the corporation’s actions, and therefore, the
crimes committed by the organs were those of the corporation. Nowadays, in some legal
systems, there is a tendency of expanding the categories of persons who can cause
corporate criminal liability. Under Article 121-2 of the French Penal Code, corporations
are criminally liable for the crimes committed on their behalf by their organs and
representatives. When the organs or representatives have the required mens rea and
actus reus of the crime, the corporation is automatically liable.73 The organs are
individuals exercising an administrative or other important function conferred by law
or the charter of the corporation.74 The notion of “representative” is wider than that of
“organ,” and includes other persons such as the temporary administrators, liquidators,
and special agents. Therefore, the acts of other members or subordinate employees
cannot engage the criminal liability of corporations even when the acts are committed
in the benefit of the corporations.
Due to this requirement, the French system is the most restrictive model of the
jurisdictions presented here. However, it is not always necessary to identify the
representative or the organ; such is the case for the crimes by omission or when the
crime was based on a collective decision by secret vote. It is sufficient to know that an
73
74
Id. at 121, citing F. Desportes, Responsibilite Penale des Personnes Morales 112 (Tecniques
Juris-Classeurs ed, 2001)
105
organ or representative acted or failed to act when he or she had a duty to, but knowing
his or her identity is not necessary. The organs and representatives must act on behalf
of the corporation. The notion of crime committed on behalf of the corporation varies
based on the type of crime committed because the commission of a crime presupposes
the existence of a subjective element—mens rea—and an objective element—the
profit.75 Therefore, when committing theft, the objective element will be more
accentuated, but when committing discrimination the subjective element would have
more importance since it is difficult to point to a specific profit that the corporation
would gain from such crime. Hence, crimes committed solely in the personal interest
of the organ or representative would not engage the criminal liability of the corporation.
8.10 ISSUES OF WHAT SANCTIONS ARE APPROPRIATE FOR

CORPORATE
The issue of what sanctions are appropriate for corporate criminal activities
has been the constant subject of the doctrinal debates, and often times, has been the
argument for rejecting corporate criminal liability. The first issue raised in this debate
was the individual character of criminal responsibility. The critics argue that by
sanctioning the corporate entity, all its members are sanctioned regardless of whether
they had any participation in the criminal offense. Thus, sanctioning a corporation to
pay a criminal fine would have the indirect effect of diminishing the income of the
stockholders, or the corporation would be forced to reduce the number of innocent
75
106
employees who would lose their income.76 This would amount, in the critics’ view, to
a criminal liability for another’s crimes, which would be unacceptable. However, the
majority of the doctrine sustains that corporate criminal liability does not conflict with
the individual character of criminal responsibility. The only person suffering the direct
effects of a criminal sanction is the corporation. Corporate property is separate from the
property of its members who assumed the risk of losing their contribution to the
corporate patrimony after incorporation. Members form corporations in order to avoid
personal liability. Even though protected by the corporations’ veils, members, through
their corporations, cannot avoid any legal penalties that would result from their actions
as members. Members are not usually personally liable for the corporation’s activity,
any liability being covered by the corporation’s patrimony. The side effects of losing
profits are risks that members have taken from the beginning. As members may benefit
from the advantages resulting from the corporations’ activities, they also may suffer
some inconveniences.77 Moreover, the indirect effects of corporate criminal liability
suffered by the corporation’s members are similar to the indirect effects that family
members of an individual criminal offender suffer. Thus, family members of a
convicted criminal offender would lose the criminal’s material contribution and would
suffer additional societal stigma. Similarly, members of a corporation may lose their
profits, but, unlike family members of a criminal offender, they would not significantly
suffer the infamous effect of the criminal conviction of a corporation if they are not also
individually charged for the criminal offense.
76
James Gobert, Controlling Corporate Criminality: Penal Sanctions and Beyond, 2 Web JCLI
page 6 (1998) available at http://webjcli.ncl.ac.uk/1998/issue2/gobert2.html (last visited
January 14, 2006)
77
107
It has also been argued that corporate criminal liability would result in double
sanctioning when both the individuals and the corporation are convicted for the same
criminal offense. Thus, the convicted individuals who acted on behalf of the corporation
would be sanctioned through the individual penalty and also by losing income from the
corporation.78 However, as shown above, there is no risk of violating the non bis in
idem principle because the corporation and the individuals have separate patrimonies
and identities. When a representative of the corporation commits a criminal offense we
can distinguish two separate liabilities—individual liability and corporate liability—
which are based on separate elements.79 Therefore, corporate criminal liability is not
incompatible with the individual character of criminal liability.
Part of the doctrine argued that the notion of corporation is incompatible with
the notion of punishment. Critics consider that the concepts of prevention,
rehabilitation, and moral pressure cannot be applied to corporations. Moreover,
corporations cannot be physically retained in prisons (one of the most effective
sanctions known) or executed. The solutions proposed by different countries vary
widely from sanctions that merely affect the patrimony of corporations to those that
affect all the corporations’ attributes. Although corporations cannot always be
sanctioned identically to human beings, the concept of punishment includes a variety
of sanctions that can alternatively be applied, and new types can be created, as
necessary, both in the case of humans and corporations. The criminal fine penalty has
been successfully applied to corporations in the majority of countries and has had a
78
Id.
79
108
deterrent effect when its quantum was properly individualized. 80 The negative publicity
associated with the criminal conviction causes reputational harm that most of the
corporations try to prevent. Criminal convictions would determine the adoption of new
corporate policies and practices designated to prevent future illegalities. Moreover, the
concept of rehabilitation has also been applied to corporations through the penalties of
reorganization or probation.81 The death penalty has been replaced with the penalty of
corporate dissolution. At the same time, the criminal punishment of corporations has
been proven to be just when it was proportional to the culpability of the corporation.
Thus, the experience of the countries that have adopted corporate criminal liability has
shown that criminal sanctions are appropriate means of fulfilling the retributive,
rehabilitative and deterrent goals of the criminal law.
8.11 CRIMINAL ACTIVITIES
The criminal fines are the most common sanction. A pecuniary sanction has the
advantages of directly affecting the corporation, it generates the capital necessary for
compensation or restitution to the victims, it can be executed with minimum costs, and
when appropriately individualized, it has a sufficiently strong impact to accomplish the
scope of the punishment (especially the retributive and deterrent scopes). 82 “Whereas
the greatest threat to an individual may be the loss of liberty, the greatest threat to a
company is the loss of profitability. Because such a loss strikes at the essential purpose
of the company, a fine holds the potential to be an effective deterrent.” A corporation
will balance the monetary gain from the offense with the loss from the potential
80
See supra Introduction
81
Gobert, supra note 204, at 13
82
109
criminal fine. Therefore, the fines must be sufficiently high to have an impact on the
corporations. The amount of the fines should also take into account the financial
resources of the corporation.
At the same time, fines have some disadvantages. A very high fine would have a
negative effect on innocent third parties. Although a corporate manager usually
commits the crime, he will be the last one to suffer the impacts of his actions. 83
However, the stockholders, other employees, and creditors will be affected by the
secondary consequences of the penalty. Other effects can be the increase of the price
for the corporation’s products and even the dissolution of As a penalty, the activity of
the corporation can be suspended for a limited period of time. This sanction has an
important drawback because of the ricochet effect on the employees who would lose
wages. However, this sanction seems to be justified for serious violations of labor or
environmental laws.84 Moreover, as a solution that would attenuate the ricochet effects,
some authors suggested that employees should be paid their salaries for the time of
suspension.
Dissolution represents the capital punishment for corporations. Due to its drastic
effects, some authors argued that the sanction of dissolution should be applied only
when the corporation committed very serious crimes, or when the corporation was
83
Id. at 4
84
110
created for illegal purposes. Others argue that such punishment should be completely
eliminated for the category of corporate sanctions.85
The publication of the decision or the adverse publicity orders (which consist in
the publication at the company’s expense of an advertisement emphasizing the crime
committed and its consequences) are also sanctions for corporate criminal activity.
The German non-criminal model accepts as sanctions the following: fines,
dissolution, confiscation of the fruits of the crime, privation of rights or licenses, and
the imposition of mandatory management oversight. The publication of the judgment
has been rejected because it would be too hostile to the corporations. The maximum
fine varies according to whether the offense was a criminal offense or an administrative
one. For criminal offenses, the corporation can be fined up to DM 1 million. 86 For
administrative offenses the maximum must be more than the ill-gotten gains.
Mandatory oversight can be imposed only when the other measures have been
unsuccessful in preventing the commission of criminal acts and it cannot be imposed
for more than five years.
In England, the standard sanction is the fine. However, because the fines are often
too low in relation to the corporation’s financial means and the damages caused by the
85
Streteanu & Chirita, supra note 9, at 172, citing L. del C. Zungiga Rodriguez, Bases para un
Modello de Imputacion de Responsibilidad Penal a las Personas Juridicas 754 (Aranzadi Ed.,
2000)
86
Stessens, supra note 16, at 516.The amount of this sanction is provided in DM and not in
Euro because of the source’s date
111
offense, corporate probation, confiscation of the proceeds of the crime, and withdrawal
of licenses have also been scarcely accepted.87 Some authors argue that English law
should reassess both the nature of the sanctions applicable to corporate offenders and
the principles of attribution of criminal liability to corporations.88
87
Harding, supra note 48, at 381; Stessens, supra note 16, at 517
88
Harding, supra note 48, at 382
112
CHAPTER IX
CONCLUSION AND SUGGESTIONS
Several countries were, and some still are refusing to accept the concept of
corporate criminal liability due to doctrinal, political, and historical reasons. Out of
those formerly refusing to accept this concept, some started to slowly change their
views. Why now? What has changed? The realities of our times have been changing so
much that legislatures have realized that doctrinal issues are less important than the
prevention and appropriate punishment of large-scale white-collar crimes, money-
laundering, illegal arms sales, environmental harm, product liability, and many others.
Some of the countries that have newly introduced the corporate criminal liability in
their legal systems provide for restrictive systems of engaging liability and punishing
criminal activities of corporations. That might be because they are apprehensive of
rapid and extreme changes in a short period of time. Or maybe the realities of their
societies are not sufficiently pressuring; the historical, social, economic, and political
realties differ from country to country, and these differences have a strong influence on
the legal systems. Also, the influence of the interests of powerful corporations should
not be ignored. Hopefully, all the legal systems will achieve uniformity regarding this
issue.
Although the system developed in United States is presently considered the
most advanced in the world, the American model has a few drawbacks that could
probably beeliminated by using elements from other models or by creating new
solutions. The American system’s most important disadvantages are the significant
spill-over effects on innocent employees and shareholders, the possible over-deterring
effect, and the high costs of implementing corporate criminal liability. However, its
113
advantages outweigh its disadvantages. The American model seems to better reflect the
actual developments of corporate structure and, thus, it is better suited to punish
corporate crime. The retributive and rehabilitative effects of criminal punishment are
almost perfectly reflected by the American model. Moreover, this system is clear,
predictable, consistent with the principles of criminal law, and fair.
The French and English systems are also clear, predictable and consistent with
the general principles of criminal law. Moreover, they do not have significant side
effects on innocent individuals and are not over-deterring. However, these systems
seem to be less deterring and, sometimes, unfair (in the English system for example,
when the corporation is liable even when the manager defrauded the corporation itself).
The prosecution of corporations is very difficult due to the significant restrictions of
these models. Thus, the retributive goal of the criminal law cannot be effectively
achieved. In addition, these systems, together with the German one, would probably
have the effect of attracting potential corporate criminals seeking to avoid liability.
Corporations are independent juristic persons that can cause harm. Therefore,
corporations should bear the responsibility of their actions. Although corporations have
been initially conceived as a method of avoiding personal liability, and although its
members will feel the side effects of sanctioning corporations, members do not lose
more than what they were willing to risk from the beginning (at incorporation).
Moreover, they can prevent corporate crime by adopting special preventive measures,
as the American model suggests.
114
The corporate criminal liability models developed so far show that the only
way to effectively punish and battle corporate crime is to criminally punish
corporations. Prosecution of individuals only is unjust not only to them, but to society
at large because convictions of individuals will rarely affect the way corporations will
conduct their business in the future. Moreover, civil and administrative liability of
corporations is not sufficient. Victims do not always have the financial resources to
pursue a civil claim. Although the administrative liability system promoted by Germany
has some efficiency, similarly to civil liability systems, it lacks the procedural
guarantees and the stigma characteristic to criminal law. Criminal law is the only one
that reaffirms all the values trampled on by corporate criminals. Criminal law punishes
justly; its irreplaceable retributive, deterrent, and rehabilitative characteristics satisfy
the public demand for vengeance. Criminal punishment of corporations sends a
symbolic message: no crime goes unpunished. And a just punishment includes the
moral condemnation of society.
115
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xiii

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A CRITICAL STUDY OF CORPORATE

PADALA RAMI REDDY LAW COLLEGE

I am indeed grateful to Padala Rami Reddy Law College (Osmania University),

the Curriculum in LL.M.

I would like to express my sincere gratitude to my supervisor and guide

personal attention and extended cooperation with his professional guidance.

study and preparation of this thesis thereof.

Lastly, I also acknowledge with a deep sense of reverence, my gratitude towards

had faith in me and urged me to do better.

I hereby declare that this dissertation titled “A Critical Study of Corporate

Offences” is my own original work, submitted to Osmania University,

Hyderabad, in partial fulfillment for the award of Degree of Master of Law

reflect the official policy or position in any jurisdiction.

Date: 9th May, 2017.

This is to certify that the candidate bearing Hall Ticket No.

1726-15-836-006, a student of LL.M., Final Year Course, Branch IV,

Corporte Laws, Padala Rami Reddy Law College, (Osmania University),

Hyderabad has prepared this dissertation entitled “A Critical Study of

Corporate Offences” under my supervision and it is in accordance with the

norms of the University.

I have verified the contents of the thesis. This thesis is prepared in

accordance with the rules and regulations of Osmania University.

Date: (DR. P. VIJAYA KALYANI)

The central government has established a central investigative agency

wings of the central government especially in economic or cross-border crimes.

is independent of local political influence. The Serious Fraud Investigation

Office is a multi-disciplinary organization under the Ministry of Corporate

Affairs, consisting of experts in the field of accountancy, forensic auditing, and

necessities and luxuries of everyday living. Increasingly, particularly with

shareholders and provide employment for much of the population. Short of a

revolutionary restructuring of the economy and the political institutions of the

not diminish in the foreseeable future.

a duty not to harm or injure others in society without justification, so do

transport, that will kill or injure people.

With the advent of Globalization and Industrialization taking place at a

becoming institutionalized and hard to detect. Corporate Crimes is a major

Serious Fraud Investigation Office is a multi-disciplinary organization under the

Ministry of Corporate Affairs, consisting of experts in the field of accountancy,

water we drink, the necessities and luxuries of everyday living. Increasingly,

a revolutionary restructuring of the economy and the political institutions of the

not diminish in the foreseeable future.

1. Tesco Supermarkets Ltd. v. Nattrass

India has a quasi-federal political structure comprising of 28 states and seven

centrally administered union territories. It has a democratically elected central union

The central government has established a central investigative agency called

government especially in economic or cross-border crimes. It also gets involved in

serious crimes where it is necessary to use an agency that is independent of local

The Serious Fraud Investigation Office is a multi-disciplinary organization

under the Ministry of Corporate Affairs, consisting of experts in the field of

shareholders and provide employment for much of the population. Short of a

the foreseeable future.

With the advent of Globalization and Industrialization taking place at a rapid

fraternity, the law makers, and the law enforcers.

The Serious Fraud Investigation Office is a multi-disciplinary organization

under the Ministry of Corporate Affairs, consisting of experts in the field of

employment for much of the population. Short of a revolutionary restructuring of the

With the advent of Globalization and Industrialization taking place at a rapid

fraternity, the law makers, and the law enforcers.

Alternatives to Corporate Criminal Liability

accompanying corporate criminal liability is either unnecessary or excessive. 3 Thus,

authors argue that civil liability of corporations is sufficient.

Although the civil liability of corporations has its advantages in compensating

encourage faster settlements, thus avoiding pricey trials. 7 Furthermore, criminal