Corporate crime

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In criminology, corporate crime refers to crimes committed either by a corporation (i.e., a
business entity having a separate legal personality from the natural persons that manage its
activities), or by individuals that may be identified with a corporation or other business entity
(see vicarious liability and corporate liability). Note that some forms of corporate corruption may
not actually be criminal if they are not specifically illegal under a given system of laws. For
example, some jurisdictions allow insider trading.

Corporate crime overlaps with:

• white-collar crime, because the majority of individuals who may act as or represent the
interests of the corporation are employees or professionals of a higher social class;
• organized crime, because criminals can set up corporations either for the purposes of
crime or as vehicles for laundering the proceeds of crime. Organized crime has become a
branch of big business and is simply the illegal sector of capital. It has been estimated
that, by the middle of the 1990s, the "gross criminal product" of organized crime made it
the twentieth richest organization in the world—richer than 150 sovereign states (Castells
1998: 169). The world’s gross criminal product has been estimated at 20 percent of world
trade. (de Brie 2000); and
• state-corporate crime because, in many contexts, the opportunity to commit crime
emerges from the relationship between the corporation and the state.

Contents
[show]

[edit] Definitional issues

[edit] Legal person

An 1886 decision of the United States Supreme Court, in Santa Clara County v. Southern
Pacific Railroad 118 U.S. 394 (1886), has been cited by various courts in the US as precedent to
maintain that a corporation can be defined legally as a 'person', as described in the Fourteenth
Amendment to the U.S. Constitution. The Fourteenth Amendment stipulates that,

"No State shall make or enforce any law which shall abridge the privileges or immunities
of citizens of the United States; nor shall any State deprive any person of life, liberty, or
property, without due process of law; nor deny to any person within its jurisdiction the
equal protection of the laws."

In English law, this was matched by the decision in Salomon v Salomon & Co [1897] AC 22. In
Australian law, under the Corporations Act 2001 (Cth), a corporation is legally a 'person'.

This doctrine of corporate personhood has often impeded prosecution of corporate crime by
allowing corporations to claim Bill of Rights protections in court, sometimes with success.
[edit] Function of law

History shows that laws have always served as instruments of regulation. Lea (2001) argues that
whereas crime used to be the exceptional event, disrupting the otherwise normal socio-economic
processes, as crime becomes more frequent it lost its status as an exceptional event and became
"a standard, background feature of our lives—a taken for granted element of late modernity."
(Garland 1996: 446)

[edit] Policy to enforce the law against corporations

Corporate crime has become politically sensitive in some countries. In the United Kingdom, for
example, following a number of fatal disasters on the rail network and at sea, the term is
commonly used in reference to corporate manslaughter and to involve a more general discussion
about the technological hazards posed by business enterprises (see Wells: 2001). Similar
incidents of corporate crime, such as the 1985 Union Carbide accident in Bhopal, India (Pearce
& Tombs: 1993) and the behaviour of the pharmaceutical industry (Braithwaite: 1984).

The Law Reform Commission of New South Wales offers an explanation of such criminal
activities:

"Corporate crime poses a significant threat to the welfare of the community. Given the
pervasive presence of corporations in a wide range of activities in our society, and the
impact of their actions on a much wider group of people than are affected by individual
action, the potential for both economic and physical harm caused by a corporation is
great."[1]

Similarly, Russell Mokhiber and Robert Weissman (1999) assert:

"At one level, corporations develop new technologies and economies of scale. These may
serve the economic interests of mass consumers by introducing new products and more
efficient methods of mass production. On another level, given the absence of political
control today, corporations serve to destroy the foundations of the civic community and
the lives of people who reside in them."

[edit] Discussion
[edit] What behavior to criminalize

Behavior can be regulated by the civil law (including administrative law) or the criminal law. In
deciding to criminalize particular behavior, the legislature is making the political judgment that
this behavior is sufficiently culpable to deserve the stigma of being labelled as a crime. In law,
corporations can commit the same offences as natural persons. Simpson (2002) avers that this
process should be straightforward because a state should simply engage in victimology to
identify which behavior causes the most loss and damage to its citizens, and then represent the
majority view that justice requires the intervention of the criminal law. But states depend on the
business sector to deliver a stable economy, so the politics of regulating the individuals and
corporations that supply that stability become more complex. For the views of Marxist
criminology, see Snider (1993) and Snider & Pearce (1995), for Left realism, see Pearce &
Tombs (1992) and Schulte-Bockholt (2001), and for Right Realism, see Reed & Yeager (1996).
More specifically, the historical tradition of sovereign state control of prisons is ending through
the process of privatisation. Corporate profitability in these areas therefore depends on building
more prison facilities, managing their operations, and selling inmate labor. In turn, this requires a
steady stream of prisoners able to work. (Kicenski: 2002)

The majority of crimes are committed because the offender has the 'right opportunity', i.e., where
the offender simply sees the chance and thinks that he or she will be able to commit the crime
and not be detected.[dubious – discuss][citation needed] For the most part,[peacock term] greed, rather than conceit, is
the motive, and the rationalisation for choosing to break the law usually arises out of a form of
contempt for the victim, namely that he, she or it will be powerless to prevent it, and has it
coming for some reason. For these purposes, the corporation is the vehicle for the crime. This
may be a short-term crime, i.e., the corporation is set up as a shell to open credit trading accounts
with manufacturers and wholesalers, trades for a short period of time and then disappears with
the revenue and without paying for the inventory. Alternatively and most commonly, the primary
purpose of the corporation is as a legitimate business, but criminal activity is secretly intermixed
with legal activity to escape detection. To achieve a suitable level of secrecy, senior managers
will usually be involved. The explanations and exculpations may therefore centre around rogue
individuals who acted outside the organizational structures, or there may be a serious
examination of the occupational and organisational structures (often hinged on the socio-
economic system, gender, racism and/or age) that facilitated the criminal conduct of a
corporation

Bribery and corruption are problems in the developed world, and the corruption of public
officials is thought[according to whom?] to be a large cause of crime in poor countries that have large
IMF debts and IMF sovereign obligations.

[edit] What penalties to impose

In part, this will be a function of the public perception of the degrees of societal culpability
involved. Weissman and Mokhiber (1999) catalog the silence and indifference of the major
media in the face of the widespread corporate corruption. Only in part is this justifiable. The
news media find it difficult to respond to corporate crime both because reporting may
compromise the trial by tainting the jury's perceptions, or because of the danger of defamation
proceedings. Further, major corporate crime is often complicated and more difficult to explain to
the lay public, as against street or property crimes, which may provide graphic visual evidence of
harm to victims injured, or of property that has been damaged or vandalized in spectacular
fashion. But, more significantly, the news media are owned by large corporations which may
also own prisons. Thus, the political decisions on the resources to allocate to investigate and
prosecute will tend to match the electorate's understanding of the dangers posed by 'crime'. In
sentencing, the fact that the convicted individuals may have had an impeccable character as
presidents, CEOs, chairmen, directors and managers is likely to be a mitigating factor.
Examples of criminal behavior in most jurisdictions include: insider trading, antitrust violations,
fraud (usually involving the consumers), damage to the environment, exploitation of labour in
violation of labor and health and safety laws, and the failure to maintain a fiduciary
responsibility towards stockholders.

[edit] Enforcement and Legal or Quasi-legal corrupt

activities
One example, may be in the area of takeovers and top executive compensation :

It is fairly easy for a top executive to reduce the price of his/her company's stock - due to
information asymmetry. The executive can accelerate accounting of expected expenses, delay
accounting of expected revenue, engage in off balance sheet transactions to make the company's
profitability appear temporarily poorer, or simply promote and report severely conservative (eg.
pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to
(at least temporarily) reduce share price. (This is again due to information asymmetries since it is
more common for top executives to do everything they can to window dress their company's
earnings forecasts). There are typically very few legal risks to being 'too conservative' in one's
accounting and earnings estimates.

A reduced share price makes a company an easier takeover target. When the company gets
bought out (or taken private) - at a dramatically lower price - the takeover artist gains a windfall
from the former top executive's actions to surreptitiously reduce share price. This can represent
10s of billions of dollars (questionably) transferred from previous shareholders to the takeover
artist. The former top executive is then rewarded with a golden handshake for presiding over the
firesale that can sometimes be in the 100s of millions of dollars for one or two years of work.
(This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from
developing a reputation of being very generous to parting top executives).

Similar issues occur when a publicly held asset or non-profit organization undergoes
privatization. Top executives often reap tremendous monetary benefits when a government
owned or non-profit entity is sold to private hands. Just as in the example above, they can
facilitate this process by making the entity appear to be in financial crisis - this reduces the sale
price (to the profit of the purchaser), and makes non-profits and governments more likely to sell.
Ironically, it can also contribute to a public perception that private entities are more efficiently
run reinforcing the political will to sell of public assets. Again, due to asymmetric information,
policy makers and the general public see a government owned firm that was a financial 'disaster'
- miraculously turned around by the private sector (and typically resold) within a few years.