Corporate Liability in United States

By Crystal Jezierski (Baker McKenzie United States)

I.              Corporate liability deriving from criminal activity

1.             Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company).

Under both US federal and state laws, corporations are generally considered legal “persons” capable of committing crimes.[1] Corporations can be convicted of crimes under the doctrine of respondeat superior, based on the actions committed by their employees and agents.[2] To hold a corporation criminally liable, the offense must be committed by an employee or agent of the corporation: (i) while working within the scope of employment; and (ii) whose acts, at least in part, were motivated by the intent to benefit the corporation.[3] In cases where an employee deviates from his authorized duties, committing a tortious act in the process, courts examine whether the employee is no longer acting within the scope of employment (a “frolic”) or whether the deviation is minor or insignificant (a mere “detour”). In the case of a “frolic,” the employer is not liable for the individual’s action.[4] Courts consider a wide range of factors to determine whether an employee’s action may be deemed a “frolic” or a “detour.”[5]

In addition, courts interpret “individual agency” broadly to include actual, as well as apparent, authority to act on behalf of the corporation.[6] An employee/agent possesses actual authority when a corporation knowingly or intentionally authorizes the individual to act on behalf of the corporation, whereas the individual possesses apparent authority if a third party reasonably believes that the individual has the authority to act on behalf of the corporation. Thus, in cases involving apparent authority, a corporation can be held liable even if it had expressly prohibited the individual from committing the acts constituting the offense.[7] Notably, the corporation need not have derived any actual benefit from the actions of its employee/agent.[8] In addition, courts may find an intent to benefit the corporation if the actions of the individual were favorable to the interests of the corporation, even though the individual’s primary motive was personal gain.[9]

Determining whether to impute individual intent from an individual to a corporation is a fact-specific inquiry. While it is easier to do so in the case of senior officers and employees, the intent of more junior employees may also be ascribed to the corporation.[10] Once the culpable individual has been identified, and in the absence of any relevant statutory guidance,[11] courts have imputed the knowledge of the individual onto the corporation. Intent encompasses not only actual knowledge of the wrongful acts, but also willful blindness or deliberate ignorance of those acts.

2.             Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise

Corporations can be held liable for all crimes except for those “. . . which in their nature, cannot be committed by Corporations.”[12] Hence, unless expressly excluded in the statute or absent clear Congressional intent, corporations can be held liable for all crimes prescribed under law.[13]

In addition to prosecuting criminal conduct, the US Department of Justice (DOJ) policy “is that criminal prosecutors and civil trial counsel should timely communicate, coordinate, and cooperate with one another and agency attorneys to the fullest extent appropriate to the case and permissible by law, whenever an alleged offense or violation of federal law gives rise to the potential for criminal, civil, regulatory, and/or agency administrative parallel (simultaneous or successive) proceedings.”[14] In other words, the DOJ sets forth that each US Attorney’s Office and DOJ litigating component “should have policies and procedures for early and appropriate coordination of the government’s criminal, civil, regulatory and administrative remedies.”[15] Thus, corporations frequently face “parallel proceedings,” in which criminal and civil cases are pursued simultaneously by criminal and civil components of the DOJ, or the criminal prosecutors at DOJ and a civil enforcement agency like the Securities and Exchange Commission (SEC).[16]

3.             Identification of companies and entities to which liability may apply

Most federal criminal statutes apply to “whoever” or to any “person” in violation of the statute. The Dictionary Act, an act that defines commonly-used terms in federal statutes, provides that reference to a “person” or “whoever” in a federal statute includes corporations, companies, associations, firms, partnerships, societies and joint stock companies, as well as individuals.[17] Further, Chapter 8 of the US Sentencing Guidelines Manual (USSG), which federal judges consult in determining the appropriate sentences for convicted business organizations, provides that the term “organization” includes corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments and political subdivisions thereof, and non-profit organizations.[18]

Thus, all entities that would qualify as “person” or “whoever” pursuant to the definition in the Dictionary Act or “organization” under Chapter 8 of the USSG may be subject to criminal liability, unless provided otherwise. The manner in which the activities of individuals may be ascribed to these entities has been described in Section I.1 above.

4.             Corporate liability for crimes committed abroad by its representatives or subsidiaries

While the US Congress is generally recognized as having power to enforce laws beyond US boundaries,[19] federal laws are usually not explicit as to their extraterritorial application. Thus, it is generally left to the courts to discern the intent of Congress with respect to the extraterritorial applicability of specific laws. In the corporate context, courts have allowed for extraterritorial application of certain criminal laws, such as those involving economic sanctions, antitrust and corruption.

For example, one law with extraterritorial application is the Foreign Corrupt Practices Act (FCPA). The FCPA addresses two categories of corporate conduct: (i) bribery of foreign government officials; and (ii) false or inaccurate accounting. Provisions relating to bribery apply to three classes of entities: (i) “domestic concerns” (US persons and corporations); (ii) US issuers (US and foreign public companies listed on US stock exchanges or that file periodic reports with the SEC); and (iii) foreign individuals and businesses committing certain acts in furtherance of a crime within US territory. The accounting provisions require maintenance of accurate books and records, as well as systems of internal accounting controls; they also prohibit knowingly falsifying books and records or failing to maintain internal control systems. The accounting provisions, however, apply only to US issuers.

The federal agencies enforcing the provisions of the FCPA — the DOJ and the SEC – have adopted increasingly expansive theories attributing liability to entities that are covered under the FCPA. A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Resource Guide”), issued jointly by the DOJ and SEC, provides that a parent company may be liable under the FCPA’s anti-bribery provisions for a subsidiary’s actions not only when the parent directly participated in the subsidiary’s misconduct, but also “under traditional agency principles.”[20] The Resource Guide provides that the DOJ and SEC will evaluate “the parent’s control — including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction.”[21] However, there have been instances where the enforcement agencies, most notably the SEC, have held parent companies liable even without allegations that the parent company had actual knowledge of the unlawful payments made by subsidiaries and representatives at home or abroad.[22] Notably, whether the United States even has jurisdiction is a critical threshold question to be resolved prior to any analysis of corporate liability.

At any rate, the expansive theories of liability used by enforcement agencies against corporations, which impute knowledge to a parent merely by virtue of the corporate structure, are rarely tested in court, given the tendency of prosecutors and corporations to enter into settlement agreements rather than litigate these issues in protracted judicial proceedings.

5.             Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

US federal courts apply the corporate laws of the relevant state to decide on issues of successor liability. Parties are generally allowed to contractually allocate liabilities, irrespective of the nature of the transaction. If liabilities are not expressly agreed upon, the entity’s assumption of risk would be dependent on the nature of the transaction.

Acquisitions. In share purchase transactions, the purchasing corporation usually retains all of its liability because the entity does not change its form despite the change in shareholders.

Mergers. In case of transactions where the acquired corporation is merged out of existence, all of the merged corporation’s liabilities are usually assumed by the corporation surviving the merger. While the entity assuming the liability is different, like in the case of acquisitions, the buyer assumes liability in the absence of agreement to the contrary.

Asset purchases. Generally, the buyer does not assume liabilities of a corporation just selling assets, barring an agreement to the contrary. However, courts have come to recognize certain well-established exceptions that do not absolve the buyer of liability, such as the following:[23]

  • Transactions that are intended to fraudulently evade liability
  • Where the acquiring company’s business constitutes a “mere continuation” of the seller’s business
  • Where the transaction amounts to a de facto merger

In addition to these exceptions, liability may be imposed on the purchasing corporation when federal laws specifically provide for successor liability, such as in certain environmental laws or labor laws, or when federal laws preempt state laws in certain situations, such as in the area of bankruptcy. Additionally, in some FCPA cases, federal agencies have brought enforcement actions against successor companies using the presumption that successor companies, under certain circumstances, assume the liability of the predecessor company and without examining the specifics of the transaction.[24] However, the validity of this presumption by federal agencies in this context is yet to be tested in the federal courts.

Dissolutions. US courts are divided on the treatment of dissolved corporations. While in some instances, corporations have avoided liability through dissolution,[25] the predominant view is that liability can be imposed even if the dissolution occurs before the indictment where the finding of liability is supported by state law.[26]

II.            Applicable sanctions

1.             Type of sanctions applicable to a company

In criminal cases, US courts are required to consult the USSG to arrive at a sentencing range, though they have discretion to deviate from the guidelines if warranted by the facts at hand.[27] The USSG prescribes the following three types of sanctions for corporations:

  1. Remedies. The primary purpose of imposing any remedial measure is to compensate the victims of the crime, either through monetary relief or otherwise. There are four recognized means of remedying harm caused by corporate criminal offenses: restitution, remedial orders, community service and notice to victims.[28]

Restitution is a type of remedy intended to compensate victims and is mandatory when prescribed in the relevant statute. For instance, in areas as diverse as investment fraud and environmental violations, a court may order a corporation and/or the relevant individual to pay restitution to victims.[29] When the penalizing statute is silent, courts may still order restitution as a condition of probation (see Section II.1.b below). However, courts may not order restitution where the corporation has independently compensated victims, where the victims cannot be identified, or where it would cause a delay to the process that would outweigh the value of restitution.[30] In addition, as with individuals, the decision of whether or not to prosecute involves a consideration as to whether the corporation has the ability to pay restitution. Restitution is also imposed in state proceedings, particularly with investment frauds.[31]

Remedial orders are usually imposed to prevent future injury from the offenses in question and when an order of restitution will not provide sufficient remedy for the harm caused. Examples of such remedial orders include product recalls or environmental cleanup by errant corporations.

Community service can be ordered by courts in cases where a “convicted organization possesses knowledge, facilities, or skills that uniquely qualify it to repair damage caused by the offense.”[32] However, it is not likely to be imposed when a direct monetary sanction would be an adequate remedy under the circumstances.

Corporations may be called upon to pay the costs of providing notice to probable and unidentified victims in cases involving deceptive practices or fraud.

2. Probation. This sanction is frequently imposed to allow the court to monitor the corporation’s future activities, and if necessary, prevent further offenses by requiring, for instance, changes to the business practices of the corporation, improving the external monitoring of the corporation by providing disclosures of past offenses, or imposing other measures to deter improper behavior in the future. The USSG provides that the term for probation cannot exceed five years,[33] and that the corporation cannot commit additional crimes during the probation period.[34] Beyond these requirements, courts have significant discretion in setting the conditions for probation as reasonably necessary and related to the considerations prescribed generally for sentencing under 18 U.S.C. § 3553(a), (b)(2).

3. Fines. The primary purpose for imposing fines is deterrence. While the USSG provides guidance to the courts on how to determine the sentences to be imposed, these are subject to the minimum and maximum range as set forth in the relevant statutes prescribing the offense in question.

The fines imposed in each case are calculated by taking into account the seriousness of the offense, the harm caused, the requirement to disgorge unlawful gain, and the costs of prosecution. If a corporation is found to be operating primarily for a criminal purpose or by criminal means, courts are required to impose fines that would be sufficient to divest the entity of all of its net assets.[35] In other cases, the courts make a determination, taking into account the severity of the offense and the “culpability” of the corporation.

Courts are required to determine a base fine, taking into account the severity of the offense. Thereafter, courts determine the “culpability score” on the basis of aggravating and mitigating circumstances involved, which would increase or decrease the fine amount. The factors typically viewed as aggravating circumstances include tolerance for criminal conduct within the organization, a history of similar conduct, violation of a condition of prior probation or other court order, and obstruction of justice.[36] Courts also consider mitigating circumstances that would lower the fine imposed on the corporation, such as whether a corporation has an effective compliance program, whether imposing restitution would jeopardize the continued existence of the corporation not primarily run for a criminal purpose,[37] or whether a corporation cooperated by taking steps such as self-reporting, assisting with the investigation, and accepting responsibility for its actions.[38]

In addition to the above sanctions, corporations must also bear in mind that a criminal conviction may result in other collateral consequences such as preclusion from participating in federal or state funded programs (debarment) and revocation of business licenses and permits. Another possible civil remedy the SEC frequently seeks is “disgorgement,” which is described by the SEC as “a well-established, equitable remedy applied by federal district courts and [] designed to deprive defendants of ‘ill-gotten gains’.”[39] Courts have discretion in deciding whether to order disgorgement, and require findings that a causal connection exists between the wrongful conduct and the relevant amount of disgorgement.[40] Furthermore, “disgorgement extends only to the amount with interest by which the defendant profited from his wrongdoing.”[41]

 

2.             Interim measures, cease and desist orders, bans and confiscatory measures

In both civil and criminal cases, US courts can issue injunctions and temporary restraining orders pending investigations and findings on the merits. On the basis of findings, and subject to specific statutes, courts have the ability to fashion probationary measures, as mentioned above, to prevent further offenses by erring entities. Such measures could include cease and desist orders, bans, remedies such as product recalls or the appointment of an external monitor to oversee operations within an organization.[42]

In addition to criminal and civil interim measures and remedies, many white collar cases involving corporations give rise to administrative remedies, such as those set forth by the Commodity Futures Trading Commission (CFTC), the Consumer Fraud Protection Bureau (CFPB), and the Financial Industry Regulatory Authority (FINRA). For example, self-regulatory organizations, such as FINRA, can bring administrative actions against corporations and seek remedial relief, even if the corporation is simultaneously facing criminal proceedings. In addition to federal agencies and self-regulatory organizations, corporations may also face actions brought by state-level agencies, such as the New York State Department of Financial Services (DFS). Such regulators generally have lower evidentiary thresholds and may impose punitive measures similar to those of a criminal sanction, including significant monetary fines.

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

Directors, officers and employees may face criminal liability for misconduct attributed to the corporation in four situations:

Conspiracy. A corporation and participating individuals can be held liable for an agreement to participate in illegal acts by at least two of the corporation’s employees or officers.[43] A corporate officer acting alone cannot be held as “conspiring” with the corporation; conspiracy requires two human actors.[44] An individual may be held liable for certain acts attributed to the corporation in which he or she was not involved if the court finds that those criminal acts were a foreseeable result of the individual’s actions in furtherance of the common scheme. This is so even though the individual may not have committed, or perhaps even known about, the substantive offenses committed as part of the conspiracy.[45]

Aiding and abetting. Federal law attributes criminal liability to any individual who aids, abets, counsels, commands, induces, procures or otherwise willfully causes the commission of a criminal offense by any person, which may include an offense committed on a corporation’s behalf.[46] To be held liable, the individual should have known about the pending misconduct by, or on behalf of, the person accused of acting on the corporation’s behalf, and that his or her actions intended to facilitate it.[47] Unlike in a conspiracy, a single individual may be held guilty of aiding and abetting the commission of an offense by a corporation.[48]

Obstruction of justice. Individuals may be held criminally liable for actions after the commission of the federal offense when they knew of the commission of the offense and assisted in the avoidance of trial and punishment (accessory after the fact),[49] or where they actively tried to conceal the offense (misprision).[50] Further, specific statutes may prescribe other offenses that have the effect of obstructing investigations, such as providing false material statements[51] and tampering or destruction of evidence.[52]

Responsible corporate officerdoctrine. Liability under this doctrine is triggered when a responsible officer within a corporation fails to prevent the commission of an offense, even though he may have not in any way participated in its commission. This doctrine is invoked by specific statutes dispensing with the requirement that the individual must have been aware of any wrongdoing. The individual is held responsible by virtue of his position within the corporation.[53] Statutes that trigger the doctrine are typically those dealing with “public welfare” or “regulatory offenses,” in which courts impose strict liability (ie, no showing of intent is required) where Congress has been silent as to intent requirements.[54] However, in the case of crimes that carry significant punishments prescribed under law, courts usually presume the requirement of intent unless the statute otherwise specifies.[55]

Caremarkfiduciary duties. In 1996, in In re Caremark International Inc. Derivative Litigation (“Caremark”), the Delaware Chancery Court held that a board has “a duty to attempt in good faith to assure that a corporation’s information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.”[56] The court held that in addition to a knowing violation of the statute, a “sustained or systematic failure of the board to exercise oversight – such as an utter failure to attempt to assure a reasonable information and reporting system exist – will establish the lack of good faith that is a necessary condition to liability.”[57]

In the subsequent Stone v. Ritter decision in 2006, the Delaware Supreme Court reinforced that the following conditions must exist in order to hold a director liable under Caremark: (i) the director “utterly failed to implement any reporting or information system or controls”; or (ii) “having implemented such system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”[58]

Control person liability. Under Section 15 of the Securities Act of 1933 (“Securities Act”) and Section 20(a) of the Securities and Exchange Act of 1934 (“Exchange Act”), one who “controls” another person or entity may be held jointly and severally liable for the wrongful acts of the “controlled” person or entity. To establish control person liability under either Act, the government must establish: (1) a primary violation of the securities laws; and (2) control over the violator by the alleged “control person.”

This theory is traditionally used against officers and directors of companies alleged to have violated the securities laws, the premise being that these individuals “control” the primary violator.[59] Even if a defendant is found to have controlled the primary violator, that defendant will not be liable if he can establish the “good faith” affirmative defense. To prove good faith, a defendant must show that “he exercised due care in his supervision of the [primary] violator’s activities in that he maintained and enforced a reasonable and proper system of supervision and internal controls.”[60] This area of liability has seen an expansion in recent years.

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

Although the mere existence of a corporate compliance program does not exempt corporations from liability, an effective compliance program (and not merely a “paper program”) is one of the factors prosecutors consider when assessing whether to charge corporations, negotiate settlements, and potentially mitigate charges or sanctions against corporations, based on the USSG and the DOJ’s Principles of Federal Prosecution of Business Organizations.[61] Additionally, the implementation or enhancement of a corporate compliance program constitutes a “remedial action,” which prosecutors take into consideration when making the above assessments.[62] Moreover, with an effective compliance program, companies are better able to detect and investigate criminal misconduct, to be in a position to assess whether to voluntarily disclose misconduct to authorities and to cooperate in investigations more effectively.

However, the potential to earn credit for having an effective compliance program depends on the nature of the crime committed and the prosecutorial approaches involved. For example, corporations committing antitrust violations do not receive credit for their compliance programs because of the limitations imposed in the DOJ Antitrust Division’s leniency program.[63]

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

The USSG provides details on components of what would be considered an effective compliance program.[64] Under the Guidelines, companies must: (i) have standards and procedures generally effective in detecting and preventing criminal conduct; (ii) ensure that high level management is knowledgeable of the compliance program and is able to oversee the program to guarantee its effectiveness, and that specific individuals are responsible for its implementation in the organization; (iii) use reasonable efforts not to put any individuals who were involved in misconduct or illegal activities in leadership and authority positions; (iv) periodically communicate standards and procedures of the compliance program to company’s employees and provide effective training on the compliance program; and (v) monitor and audit the company’s implementation and adherence to the compliance program, evaluate the effectiveness of the program, and have reporting mechanisms in place for employees and third parties to obtain guidance or report potential or actual misconduct.

The DOJ’s Principles of Federal Prosecution of Business Organizations also instruct prosecutors on what should be considered an effective compliance program, but note that the DOJ does not have specific requirements for an effective compliance program. [65] Overall, the DOJ establishes that prosecutors must evaluate the compliance programs by verifying whether the compliance program is: (i) well designed; (ii) effectively implemented; (iii) being revised and monitored; and (iv) whether the company is sufficiently staffed to audit and monitor the implementation of its compliance program.

The size of the corporation will be taken into consideration while evaluating the compliance program because companies of different size have different resources for implementing their respective programs. Also, depending on the industry in which the company operates, companies will be required to follow industry practices and government regulations, and their compliance with these practices and regulations will be a factor in the evaluation of their programs.

In February 2017, the Fraud Section of the DOJ published the “Evaluation of Corporate Compliance Programs,” outlining questions that can be asked by the department when evaluating compliance programs within the context of a criminal investigation. The guidance is not meant to be a comprehensive checklist, and contains 11 topics that can be used for the evaluation of the compliance program, such as: (i) the causes for the company’s misconduct, whether the company could have detected the misconduct, and remediation measures that were taken in order to prevent similar misconduct from happening in the future; (ii) how the topic of compliance was handled by management, and its commitment to implementing and overseeing the compliance program; (iii) the expertise and qualification of the individuals responsible for compliance functions, the autonomy of the compliance department and staff responsible for compliance, the resources made available by the company to invest in the program; (iv) how the compliance policies and procedures were designed, implemented and disseminated within the company; (v) how the company conducted its risk assessment to identify, analyze and address risks, and how the information obtained in the risk assessment was used in the company’s compliance program; (vi) how the company trained its employees, how effective this training was, and what resources were made available for employees to seek guidance in relation to the company’s policies and procedures; (vii) how the company’s reporting mechanisms worked, how information received from such mechanisms was used and analyzed, how the company ensured that investigations were conducted properly, and what the company’s response was based on the results of the investigations; (viii) how the company applied disciplinary measures against individuals involved in misconduct and what disciplinary measures were taken, and how the company incentivized and rewarded individuals who complied with the company’s compliance policies; (ix) how the company conducted audits to identify misconduct, what measures the company took to continuously test its compliance program, including controls, and how the company used the audits and testing to make improvement and revisions in its compliance program; (x) how the company managed the risks with third parties, and what controls are in place to mitigate the risks of dealing with third parties; and (xi) how the company managed risks in mergers and acquisitions.

3.             Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body

Although there are no specific requirements for the structure of a compliance department or for a compliance officer responsible for overseeing the company’s compliance program, companies should have in place a high-level compliance officer to take “ownership” of a company’s compliance and ethics program. The compliance officer, and other individuals who may be responsible for the day-to-day operations of the compliance program, should be given sufficient resources and authority in order to implement, supervise and monitor the compliance program. The compliance officer should also have direct access to high-level management and the board of directors, and should report to the board periodically about the effectiveness of the program.

The USSG also note that there are different expectations for the compliance program and structure for large and small companies, clarifying that small companies, due to limited resources, may designate employees in other functions to be responsible for the operation of the company’s compliance program, while a larger company is expected to employ personnel to specifically carry out compliance functions.[66]

IV.          Judicial proceedings to determine corporate liability

1.             Court competent to decide the liability of and penalties applicable to the company

US courts are competent to decide the liability of and penalties applicable to a company just as courts do with respect to individuals.

The scope and extent of judicial review is, in large part, dependent on the prosecutorial decisions made from the outset of the case. While the DOJ has two sets of guidelines governing the decision to prosecute a case – a general set of guidelines (“Principles of Federal Prosecution”) and guidelines specifically for companies (“Principles of Federal Prosecution of Business Organizations”) – the broad considerations made in each are similar.[67] Prosecutors “must weigh all of the factors normally considered in the sound exercise of prosecutorial judgment: the sufficiency of the evidence; the likelihood of success at trial; the probable deterrent, rehabilitative and other consequences of a conviction; and the adequacy of noncriminal approaches.”[68] When “a prosecutor has decided to charge a corporation, the same rules that govern charging natural persons apply.”[69] In either case, the prosecutorial rules require “a faithful and honest application of the Sentencing Guidelines.”[70]

However, due to the inherent nature of corporate “personhood,” prosecutors focus on “culpability factors.” Such factors include, for instance: (i) the pervasiveness of the wrongdoing[71]; (ii) the corporation’s history of similar misconduct[72]; (iii) the existence and performance record of compliance programs[73]; (iv) the corporation’s voluntary and/or timely nature of disclosure; (v) the corporation’s willingness to cooperate in the investigation[74]; and (vi) the absence of obstruction.[75] Prosecutors are also cautioned to evaluate potential harm to employees and shareholders with any charging decision.

Similarly, in civil enforcement proceedings, the SEC considers a number of factors in deciding whether, or how, to proceed with an enforcement action. In the “Seaboard Report,” which arose from a cease and desist proceeding, the SEC set out a number of factors it considers when deciding whether to proceed with an enforcement action or “credit” corporations, including: (i) the nature of the misconduct; (ii) the circumstances of the misconduct; (iii) the seniority of the employees involved in the misconduct; (iv) how long the misconduct lasted; (v) the extent of harm inflicted on investors and other corporate constituencies; (vi) who detected the misconduct and how; (vii) how quickly remedial steps were initiated; (viii) the extent of remediation and cooperation; (ix) what processes were used to resolve the misconduct; (x) the company’s commitment to finding out the truth; (xi) the extent of cooperation with the SEC; (xii) what steps the company took to ensure the misconduct would not reoccur; and (xiii) whether the misconduct occurred in a subsequently acquired company.[76]

To the extent judicial proceedings occur, they may culminate in either a bench or jury trial, just as for individuals. Like individuals, a company may waive its right to trial by jury.[77] If the company waives its right to a jury trial, the court then proceeds with a bench trial, in which the judge is both the “finder of fact” and the “finder of law.” In other words, the judge then decides both the corporation’s liability under the facts presented, and later, the appropriate penalties to be applied. To the extent a court presides over a trial, the Sixth Amendment and Article III of the US Constitution demand that for any defendant – a corporation or an individual – all federal criminal trials must be held in the state and judicial district in which the alleged crime occurred.[78]

The corporation may waive its right to trial and enter into a settlement agreement with a prosecutor. While courts have traditionally “rubberstamped” settlement agreements such as deferred prosecution agreements (DPAs), multiple courts have recently clarified that they have the authority to assess the reasonableness of a settlement agreement and decline approval if appropriate.[79]

2.             Possibility of the application of interim measures

US courts can prescribe interim measures as described in Section II.2. Such interim measures include injunctions or temporary restraining orders (TROs) pending a finding on the merits. Judges can issue temporary injunctions sua sponte (on its own motion) or upon application of the parties. Courts may fashion other types of measures to prevent offenses by entities, including cease and desist orders,[80] product recalls[81] or the appointment of an external monitor to oversee the organization’s operations.[82]

3.             Plea bargains and related effects on the corporate liability

Historically, federal prosecutors and corporations often entered into a plea agreement at the end of a criminal investigation in order to avoid the high cost of trial. Under Federal Rule of Criminal Procedure 11(c), all plea agreements are signed by a federal prosecutor at the DOJ, either in the applicable DOJ divisions or one of the 93 US Attorneys Offices. The Sentencing Guidelines for Organizations apply to all corporate settlements.

As far as the form of settlement, prosecutors may now generally chose among traditional plea agreements, DPAs or non-prosecution agreements (NPAs). The non-plea settlements such as DPAs and NPAs arose in the 1990s.[83] The Thompson Memo, issued by the DOJ in 2003, began a “DPA era” by prioritizing DPAs and NPAs over plea agreements in instances where corporations voluntarily disclosed the alleged wrongdoing and/or cooperated with the subsequent investigation.[84] Since 2000, the use of NPAs and DPAs has significantly increased.[85] In 2001, the DOJ recovered USD 900 million in NPA and DPA fines; in the first half of 2015 alone, it recovered USD 4.2 billion.[86] Notably, DPAs and NPAs may also be employed in civil settlements, not only in criminal prosecutions.

All types of settlement agreements – traditional plea agreements, DPAs and NPAs – contain the following four elements: (i) an admission of facts; (ii) an agreement to cooperate in further investigation; (iii) a specified duration of time the agreement will be in place; and (iv) monetary and non-monetary sanctions. The difference between traditional settlement agreements and DPAs/NPAs is that corporations entering the latter are not required to enter formal pleas, and therefore do not face the collateral costs of the criminal conviction.

It should be noted that important differences exist between DPAs and NPAs. DPAs require the filing of charges in federal court, unlike NPAs. In the case of DPAs, the prosecutor and corporation agree that even though charges are filed, the prosecutor will defer the prosecution of those charges for a certain period of time agreed upon by the parties. If at the end of that specified time period the corporation followed through on the agreed-upon obligations, then the prosecutor will dismiss the charges. In the case of NPAs, complying with the agreed-upon remedial provisions avoids charges altogether.

4.             Imposition of sanctions against the company

Under the various types of settlement agreements mentioned above, prosecutors may pursue sanctions for corporations under US federal law. Such sanctions are described in the Organizational Sentencing Guidelines, and as discussed above, include restitution, fines, probation, appointment of monitors, and termination of responsible individuals.[87] State laws also contain similar sanction regimes.

5.             Permanence of corporate liability if the crime is extinguished

The court’s oversight of a corporation ends at the time a sentence is completed or after the agreed upon terms of a DPA are complied with. In the case of NPAs, if the corporation abides by the agreed upon remedial provisions during a specified period of time, it avoids criminal indictment altogether.[88] As to DPAs, in exchange for the fines, sanctions or other agreed upon actions, the government dismisses the filed charges altogether if all the terms of the agreement are fulfilled after a certain period of time, which is typically two to three years.[89] If a corporation has entered a guilty plea and has been sentenced by the court, the criminal conviction is permanent and will often require disclosure to third parties when the corporation is applying for future financing or licensing benefits.

Corporations are often criminally liable for prior wrongdoing of a target after a merger or consolidation. As mentioned above, to determine whether such liability exists, federal courts apply the relevant state corporate law governing successor liability.

In addition, statutes of limitations (ie, prescribed time limits for filing charges) exist as to most federal crimes. The general federal statute of limitations for felonies, 18 U.S.C. § 3281, is five years, which applies unless a specific statute extends the statute of limitations for a particular offense. White collar crimes generally have their own statutes of limitations. For example, a securities fraud offense under 18 U.S.C. § 3301 has a statute of limitations of six years, while major fraud against the US, codified under 18 U.S.C. § 1031, has a statute of limitations of seven years. Several offenses, such as falsifying bank entries or transactions, mail or wire fraud that “affects a financial institution,” and receiving commissions or gifts for procuring a financial institution loan, all have a statute of limitations of 10 years under 18 U.S.C. 3293. In some instances, the statute of limitations period may be extended. For example, under 18 U.S.C. § 3288, if an indictment is dismissed after the statute of limitations period has expired, a new indictment may be returned within six months of the date of the original indictment’s dismissal. As another example, under 18 U.S.C. § 3292, a prosecutor may indicate to the court before a return of an indictment that the evidence of the charged offense is outside the US. To that end, if the court finds by a preponderance of the evidence that an official request to the relevant foreign authority was made for such evidence and it reasonably appears, or appeared at the time the request was made, that the evidence was outside the US, the court may suspend the running of the statute of limitations for a maximum of three years.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

As a general matter, limited liability, a key foundation of corporate law, provides that parents and subsidiaries each maintain their own corporate existence. However, in certain circumstances, this general principle of limited liability is disregarded in order to impose the subsidiary’s liability upon shareholders or the parent corporation. As explained more extensively below, such liability is typically based on either “parent-subsidiary” liability or “successor” liability.

2.             Basis of liability and applicable sanctions

As noted above, the basis for liability is either “parent-subsidiary” liability or “successor” liability. Under parent-subsidiary liability, there are two ways in which a parent company can be held liable for misconduct by the subsidiary.

First, a parent must have sufficiently participated in the alleged misconduct, such as directing the misconduct or otherwise directly participating in the scheme. For instance, a multinational parent company headquartered outside the US could be liable if one of its directors participated in conduct that occurred in the US.

Second, a parent may be liable under “agency principles,” based on a parent’s control. To assess the parent’s control, the SEC and DOJ evaluate the knowledge and direction of the subsidiary’s actions, generally and in the context of specific transactions. In other words, while the formal relationship between the parent and subsidiary is important, so are the practical realities of how the two function. If a prosecutor determines that the activities of the two companies are intertwined, the subsidiary’s knowledge and actions are imputed to its parent.

One means of imposing liability is through “piercing the corporate veil.” Veil piercing is defined as “the judicial act of imposing personal liability on otherwise immune corporate officers, directors, or shareholders for the corporation’s wrongful acts.”[90] While state corporate law governs whether veil piercing is justified, the following factors must generally be met: (i) control, or “complete domination” with respect to the transaction such that the corporate entity had no separate mind, will or existence of its own; and (ii) such domination was used by the defendant to commit fraud or the otherwise wrongful act that resulted in the injury.[91]

The most common means of piercing a corporate veil is through the “alter ego” theory, establishing that “when a corporation is the mere instrumentality or business conduit of another corporation or person, the corporate form may be disregarded.”[92] Under these circumstances, courts may “disregard the corporate entity and hold the individuals responsible for their acts knowingly and intentionally done in the name of the corporation.”[93] Courts are afforded wide discretion in deciding whether the specific facts warrant finding an alter ego relationship, based on factors such as: (i) whether the parent owns all stock in the subsidiary; (ii) whether the subsidiary is adequately capitalized; (iii) whether corporate formalities are observed; (iv) whether the subsidiary has its own offices, employees, corporate officers and directors; (v) whether the subsidiary has its own bank accounts and pays its own employees; and (vi) whether the subsidiary is otherwise a mere façade for the parent, among other factors.

In addition, in both criminal and civil cases, general agency principles under state law may be invoked to impose liability without piercing the corporate veil. In other words, if the subsidiary acts as the parent’s agent, the parent may be held liable under agency principles without ever piercing the veil.[94] For instance, under New York law, to establish agency, “(1) there must be a manifestation by the principal that the agent shall act for him; (2) the agent must accept the undertaking; and (3) there must be an understanding between the parties that the principal is in control of the undertaking.”[95] Several New York courts have used agency principles to hold a parent company liable for the debts of its subsidiary.[96]

Under successor liability, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liability. In contrast, as a general matter, a purchaser of a seller’s assets does not, as a matter of law, assume the seller’s liabilities. Determining whether successor liability applies to a particular corporate transaction requires examining both the specific facts of the transaction and applicable federal, state and foreign law. Courts typically recognize exceptions when: (i) the acquirer expressly or impliedly assumes the liability; (ii) the transaction is an attempt to fraudulently evade liability; (iii) the acquiring company’s business essentially is a “mere continuation” of the seller’s business; or (iv) the transaction is a de facto merger.[97] Notably, successor liability does not create liability when none was present before the transaction.

For instance, under New York law, these four general exceptions apply, with the “de facto merger” exception among the most disputed.[98] Under New York law, “the de facto merger” doctrine creates successor liability when the transaction between the purchasing and selling companies is in substance, if not in form, a merger.”[99] New York courts analyze the following four factors to determine whether a de facto merger occurred: (i) continuity of ownership; (ii) cessation of ordinary business and dissolution of the acquired corporation as soon as possible; (iii) assumption by the purchaser of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and (iv) continuity of management, personnel, physical location, assets and general business separation.[100]

Applicable sanctions are described in Sections II.2 and IV.4 above.

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1.             Significant case law, if any

  • New York Central & Hudson River Railroad Co. v. United States, 212 U.S. 481 (1909) — It is the first case to establish the US federal standard for corporate criminal liability.
  • Excerpt: “Since a corporation acts by its officers and agents, their purposes, motives, and intent are just as much those of the corporation as are the things done. If, for example, the invisible, intangible essence on air which we term a corporation can level mountains, fill up valleys, lay down iron tracks, and run railroad cars on them, it can intend to do it, and can act therein as well viciously as virtuously.
  • The President Coolidge (Dollar Steamship Co. v. United States), 101 F.2d 638 (9th Cir. 1939) — It found corporate liability for a regulatory nuisance offense committed by an employee, despite the action being contrary to a corporation’s instructions to employees.
  • Melrose Distillers, Inc. v. United States, 359 U.S. 271 (1959) — Supreme Court permitted criminal actions against a company even after it dissolved, based on state statutes that considered the corporations “existing” for purposes of the Sherman Act.
  • Standard Oil Co. of Texas v. United States, 307 F.2d 120 (5th Cir. 1962) — Corporate criminal liability requires that the alleged misconduct be for the benefit of the corporation, but does not require that the corporation actually receive a benefit.
  • Under a statute requiring that there be ‘a specific wrongful intent’. . . . the corporation does not acquire that knowledge or possess the requisite ‘state of mind essential for responsibility’ through the activities of unfaithful servants whose conduct was undertaken to advance the interest of parties other than their corporate employer.
  • Other jurisdictions have ruled in accordance with this view.[101]
  • United States v. Hilton Hotels Corp., 467 F.2d 1000 (9th Cir. 1972) — It imputed liability to a corporation for an agent’s violation of the Sherman Act (antitrust).
  • “[A]s a general rule a corporation is liable under the Sherman Act for the acts of its agents in the scope of their employment, even though contrary to general corporate policy and express instructions to the agent.”
  • United States v. Bank of New England, 821 F.2d 844 (1st Cir. 1987) — The First Circuit upheld a district court decision to impute individual knowledge onto the bank through the “collective knowledge doctrine,” which presumes that the corporation/institution (there, a bank) “is the sum of the knowledge of all of the employees.”
  • Scholars are far from being in agreement on the applicability of the doctrine.[102] While some have observed that the doctrine has been applied several times after Bank of New England,[103] others have pointed out that the doctrine itself has never been applied, but rather is added as further justification when a corporation has already demonstrated willful blindness.[104]
  • Similarly, several courts, including the Fifth Circuit, Ninth Circuit and D.C. Circuit, have called the doctrine’s applicability into question.[105]

2.             Proposed or contemplated new legislation

There are none currently pending.

[1] Unless specifically mentioned otherwise, this chapter focuses on corporate criminal liability under US federal law.

[2] N.Y. Cent. & H.R.R. Co. v. United States, 212 U.S. 481, 494-95 (1909).

[3] See, eg, United States v. Singh, 518 F. 3d 236, 249-50 (4th Cir. 2008).

[4] Mark E. Roszkowski & Christie L. Roszkowski, Making Sense of Respondeat Superior: An Integrated Approach for Both Negligent and Intentional Conduct, 14 S. CAL. REV. L. & WOMEN’S STUD. 235, 243 (2005).

[5] Id. at 254.

[6] United States v. Chon, 713 F. 3d 812, 820 (5th Cir. 2013) (“[A] corporation is criminally liable for the unlawful acts of its agents, provided that the conduct is within the scope of the agent’s authority, whether actual or apparent.”) (quoting United States v. Inv. Enters. Inc., 10 F.3d 263, 266 (5th Cir. 1998)).

[7] However, it would be liable to seek a reduced penalty on account of having in place a working compliance and ethics program. US Sentencing Guidelines Manual (USSG) § 8C2.5(f).

[8] See, e.g., United States v. Automated Med. Labs., Inc., 770 F. 2d 399, 407 (4th Cir. 1985); Standard Oil Co. of Tex. v. United States, 307 F. 2d 120, 128-29 (5th Cir. 1962).

[9] United States v. Sun-Diamond Growers of Cal., 138 F. 3d 961, 970 (D.C. Cir. 1998); Automated Med. Labs., Inc., 770 F. 2d at 407.

[10] See, eg, United States v. Josleyn, 206 F. 3d 144, 159 (1st Cir. 2000).

[11] For instance, some federal laws recognize strict liability in relation to certain “regulatory” crimes, which involve public welfare. In these cases, the corporation would be held liable by virtue of an act having been committed on its behalf, without courts having to conduct an inquiry of whether circumstances justify imputing individual intent to a corporation.

[12] New York Cent. & H.R.R. Co. v. United States, 212 U.S. 481, 494 (1909).

[13] Charles Doyle, Corporate Criminal Liability: An Abbreviated Overview of Federal Law, CONG. RESEARCH SERV. 3.

[14] See Memorandum: Coordination of Parallel Criminal, Civil Regulatory, and Administrative Proceedings, U.S. Attorneys’ Manual (Jan. 30, 2012), U.S. DEP’T OF JUST, available at https://www.justice.gov/usam/organization-and-functions-manual-27-parallel-proceedings.

[15] Id.

[16] Id. at 2.

[17] 1 U.S. Code § 1.

[18] §8A1.1.

[19] See, eg, United States v. Yousef, 327 F.3d 56, 86 (2nd Cir. 2003).

[20] A Resource Guide to the U.S. Foreign Corrupt Practices Act 27, U.S. DEP’T OF JUST. (Nov. 2012), available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf.

[21] Id.

[22] See, eg, In re Alcoa Inc., Admin. Proceeding 3-15763 at 10 (Cease and Desist Order) (Jan. 9, 2014), available at https://www.sec.gov/litigation/admin/2014/34-71261.pdf (attributing liability to a US parent company despite the fact that “[t]his Order contains no findings that any officer, director or employee of Alcoa knowingly engaged in the bribe scheme”).

[23] Taylor J. Phillips, The Federal Common Law of Successor Liability and the Foreign Corrupt Practices Act 6 WM. & MARY BUS. L. REV. 89, 102 (2015).

[24] See Resource Guide, supra note 22, at 28 (“As a general legal matter, when a company . . . acquires another company, the successor company assumes the predecessor company’s liabilities.”). However, the Resource Guide provides that successor liability is restricted to instances where the acquired entity was subject to FCPA jurisdiction prior to the acquisition. For actual instances of enforcement against successor corporations, see the non-prosecution agreements in, for instance, In re InVision Techs., (Dec. 3, 2004), available at https://www.justice.gov/criminal-fraud/case/re-invision-technologies-inc-2004; and United States v. Latin Node, Inc., No. 1:09-cr-20239-PCH, 2009 WL 1423436 (S.D. Fla. Mar. 24, 2009).

[25] See, eg, Nat. Gas Co. v. Oklahoma, 273 U.S. 257, 259 (1927) (analogizing dissolution of company to death of natural person); In re Segno Commc’ns, Inc., 264 B.R. 501, 507 (Bankr. N.D. Ill. 2001) (declaring that a corporation is not liable after dissolution, unless Illinois state law provides otherwise); see also Joe Albano & Alexander Sanshyn, Corporate Criminal Liability, 53 AM. CRIM. L. REV. 1027, 1065 (2016).

[26] See, eg, Melrose Distillers v. United States, 359 U.S. 271, 273-74 (1959) (holding that in Maryland and Delaware, corporations remain viable for purposes of legal proceedings for statutorily imposed time period).

[27] United States v. Booker, 543 U.S. 220, 264 (2005) (Courts are required to consult the guidelines and take them into account while sentencing, but are not required to abide by them).

[28] USSG § 8B1 cmt.

[29] See, eg, Press Release: Former Securities Lawyer Sentenced to Six Years of Imprisonment for Securities Fraud, U.S. DEP’T OF JUST. (Feb. 15, 2017), available at https://www.justice.gov/usao-ndca/pr/former-securities-lawyer-sentenced-six-years-imprisonment-securities-fraud (ordering defendant to pay restitution of over $4.6 million to his securities fraud victims); Press Release: Real Estate Development Company and its President Ordered to Pay $1 Million in Restitution for Securities Fraud and Wildlife Violations, U.S. Dep’t of Just. (Mar. 11, 2016), available at https://www.justice.gov/usao-ndca/pr/real-estate-development-company-and-its-president-ordered-pay-1-million-restitution.

[30] See 9-28.1000, U.S. Attorneys’ Manual, U.S. DEP’T OF JUST.

[31] See, eg, Securities division reports $2.1 million returned to investment fraud victims since 2013, COLO. DEPT. OF REGULATORY AGENCIES (Feb. 4, 2015), available at https://www.colorado.gov/pacific/dora/investment%20fraud%20returns.

[32] USSG § 8B1.3 cmt.

[33] USSG § 8D1.2(a)(1)-(2) (providing five-year maximum term of probation for all convictions, with minimum term of one year for felony convictions).

[34] USSG § 8D1.3(a).

[35] USSG § 8C1.1.

[36] USSG § 8C2.5(b)-(e).

[37] USSG § 8C3.3(b).

[38] USSG § 8C2.5(f)-(g).

[39] Report Pursuant to Section 308(c) of the Sarbanes-Oxley Act of 2002 2-3, U.S. SECS. & EXCH. COMM’N (2003), available at www.sec.gov/news/studies/sox308creport.pdf.

[40] Id. at 3.

[41] Id. (citing SEC v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978)).

[42] See, eg, Press Release, Deceptive Trade Practices and Telemarketing Fraud: Recent Cases, U.S. DEP’T OF JUST. (updated Mar. 22, 2017), available at https://www.justice.gov/civil/current-and-recent-cases (providing examples of cases in which cease and desist orders and product recalls were ordered); Memorandum: Statement of Principles for Selection of Corporate Monitors in Civil Settlements and Resolutions, U.S. DEP’T OF JUST. (Apr. 13, 2016), available at https://www.justice.gov/oip/foia-library/asg_memo_statement_of_principles_corporate_monitors_civil_settlements/download (“In recent years, the Department has obtained significant civil resolutions with corporations and other entities. Certain of these negotiated agreements have included provisions pertaining to the appointment of an independent corporate monitor.”)

[43] See, eg, United States v. Sain, 141 F.3d 463, 475 (3d Cir. 1998); United States v. Hughes Aircraft Co., 20 F.3d 974, 979 (9th Cir. 1994).

[44] United States v. Stevens, 909 F.2d 431, 432-34 (11th Cir. 1990) (holding that a corporate officer acting alone on behalf of a corporation may not be convicted of conspiring with the corporation.)

[45] Pinkerton v. United States, 328 U.S. 640, 647-48 (1946); United States v. Clark, 717 F.3d 790, 808-09 (10th Cir. 2013).

[46] 18 U.S.C. § 2(a).

[47] See, eg, United States v. Kemp, 500 F.3d 257 (3d Cir. 2007) (quoting United States v. Dixon, 658 F.2d 181, 189 n.17 (3d Cir. 1981) (“[T]he defendant charged with aiding and abetting that crime knew of the commission of the substantive offense and acted with the intent to facilitate it.”)

[48] Sain, 141 F. 3d at 474-75 (holding a sole stockholder of a corporation liable for actions of the corporation).

[49] 18 U.S.C. § 3.

[50] 18 U.S.C. § 4.

[51] 18 U.S.C. § 1001.

[52] 18 U.S.C. § 1512.

[53] United States v. Park, 421 U.S. 658, 669 (1975) (internal citations omitted) (The doctrine triggered by a legislation “…of a now familiar type which dispenses with the conventional requirement of criminal conduct-awareness for some wrongdoing. In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger.”) Charles Doyle, Corporate Criminal Liability: An Overview of Federal Law 7, CONG. RESEARCH SERV. (Oct. 30, 2013) available at https://fas.org/sgp/crs/misc/R43293.pdf.

[54] Staples v. United States, 511 U.S. 600, 606 (1994).

[55] Id. at 618-19.

[56] 698 A.2d 959, 970 (Del. Ch. 1996).

[57] Id. at 971.

[58] 911 A.2d 362, 370 (Del. 2006).

[59] Control Person Liability: Tips for Investment Firms, LAW360 (Sept. 21, 2011), available at https://www.law360.com/articles/272035/control-person-liability-tips-for-investment-firms.

[60] SEC v. First Jersey Sec. Inc., 101 F.3d 1450 (2d Cir. 1996).

[61] 9-28.300, U.S. Attorneys’ Manual, U.S. DEP’T OF JUST.

[62] Id.

[63] Id. at 9-28.400, 9.28.800.

[64] USSG § 8B2.1

[65] 9.28.800, U.S. Attorneys’ Manual, U.S. DEP’T OF JUST.

[66] USSG § 8B2.1

[67] Doyle, supra note 13, at 8-9.

[68] 9-28.300, U.S. Attorneys’ Manual, U.S. DEP’T OF JUST.

[69] Id. at 9-28.1400, 9-27.300.

[70] See id. at 9-27.300.

[71] Id. at 9-28.500.

[72] Id. at 9-28.600.

[73] Id. at 9-28.800.

[74] Id. at 9-28.720.

[75] Id. at 9-28.730; see also Doyle, supra note 13, at 9 (citing the same.)

[76] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, SEC Rel. Nos. 34-44969 and AAER-1470 (Oct. 23, 2001) (the “Seaboard Report”).

[77] In the US, under Federal Rule of Criminal Procedure 12(a), a waiver of the right to trial by jury must be both knowing and intelligent. The government (prosecution) must consent to proceeding without a jury. Furthermore, under Federal Rule of Criminal Procedure 23(a), the judge must approve a jury trial waiver, and typically does so unless it is unreasonable. Not approving a waiver is rare. FED. R. CRIM. P. 12(a), 23(a).

[78] See U.S. CONST. Art. III, § 2, cl. 3 (“The trial of all Crimes . . . shall be held in the State where the said Crimes shall have been committed . . .”); U.S. CONST. amend. VI (“In all criminal prosecutions, the accused shall enjoy the right to . . . a trial, by an impartial jury of the State and district wherein the crime shall have been committed. . .”); see also United States v. Oceanpro Indus., Ltd., 674 F.3d 323, 327-30 (4th Cir. 2012); United States v. Canal Barge Co., Inc., 631 F.3d 347, 351-54 (6th Cir. 2011); United States v. Beech-Nut Nutrition Corp., 871 F.2d 1181, 1188-91 (2d Cir. 1989).

[79] See Mary Miller, Note: More than Just a Potted Plant: A Court’s Authority to Review Deferred Prosecution Agreements Under the Speedy Trial Act and Under Its Inherent Supervisory Power, 115 MICH. L. REV. 135, 138-40 (Oct. 2016) (citing United States v. HSBC Bank USA, N.H., No. 12-CR-763, 2013 U.S. Dist. LEXIS 92438, at *10-12 (E.D.N.Y. July 1, 2013); United States v. Saena Tech. Corp., 140 F. Supp. 3d 11, 13 (D.D.C. Oct. 21, 2015) (holding it had “the authority to assess the reasonableness of a [DPA] and to decline to approve agreements that are not genuinely designed to reform a defendant’s conduct”)).

[80] See, eg, 15 U.S.C. § 57(b).

[81] See, eg, Press Release: Judge Orders Recall of Dangerous Magnets, U.S. DEP’T OF JUST. (Mar. 23, 2016), available at https://www.justice.gov/opa/pr/judge-orders-recall-dangerous-magnets.

[82] See supra Section II.2; see also Doyle, supra note 13, at 20.

[83] In 1994, Prudential Securities entered into the first deferred prosecution agreement that involved a public corporation. See Cindy R. Alexander & Mark A. Cohen, The Evolution of Corporate Criminal Settlements: An Empirical Perspective on Non-Prosecution, Deferred Prosecution, and Plea Agreements 52 AM. L. REV. 537, 544 n.35 (2015).

[84] Id. at 538.

[85] See Miller, supra note 82, at 137.

[86] See id. (internal citation omitted).

[87] Id.

[88] See Resource Guide, supra note 21, at 75.

[89] See id. at 74.

[90] J.S. Nelson, The Corporate Conspiracy Vacuum, 37 CARDOZO L. REV. 249, 271 (2015) (quoting Piercing the Corporate Veil, BLACK’S LAW DICTIONARY (10th ed. 2014)).

[91] Id. at 272 (citing 18 Am. Jur. 2d Corporations § 54 (perm. ed., rev. May 2015) (“The courts have found consistently that the key requirements to sustain a veil-piercing are that the owner exercised complete domination over the corporation with respect to the transaction at issue and that such domination was used to commit a fraud or wrong that resulted in the plaintiff’s injury.”)

[92] Id. (citing 1 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 41 (perm. ed., rev. vol. 2015) (footnotes omitted)); see also The SEC’s Recent Alter Ego Theories, FCPA Prof. (Feb. 29, 2016), available at http://fcpaprofessor.com/the-secs-recent-alter-ego-theories/#more-18415 (citing SEC enforcement actions brought against a parent company based on a subsidiary’s conduct).

[93] Id.

[94] Williams J. Rands, Domination of a Subsidiary by a Parent, 32 IND. L. REV. 421, 443 (1999).

[95] See, eg, Rubin Bros. Footwear, Inc. v. Chem. Bank, 119 B.R. 416, 422 (S.D.N.Y. 1990).

[96] Id. (collecting New York cases).

[97] Phillips, supra note 23, at 102.

[98] See Successor Liability: Corporate Asset Buyers Beware, LAW360 (4 May 2009), available at https://www.law360.com/articles/99861/successor-liability-corporate-asset-buyers-beware.

[99] New York v. Nat’l Serv. Indus. Inc., 460 F.3d 201, 205 (2d Cir. 2006).

[100] Successor Liability, supra note 101 (citing id. at 209).

[101] WHITE COLLAR CRIME IN A NUTSHELL 31, West Academic Publishing (5th ed. 2015).

[102] Melissa Ku & Lee Pepper, 45 Am. Crim. L. Rev. 275, 284-85 (2008).

[103] Id. at 285 n. 65 (citing Patricia S. Abril & Ann Morales OlazAbal, The Locus of Corporate Scienter, 2006 Colom. Bus. L. Rev. 81, 116-20.

[104] Ku & Pepper, supra note 105, at 285 n. 66 (citing Thomas A. Hagermann & Joseph Grinstein, The Mythology of Aggregate Corporate Knowledge: A Deconstruction, 65 GEO. WASH. L. REV. 210, 236 (1997) (noting that under the collective knowledge doctrine, “no company was ever convicted without having acted in some conscious, culpable manner . . . . Rather, when courts have aggregated knowledge, they invariably have done so as a technique in response to willful blindness to inculpatory knowledge.”)).8

[105] See Southland Secs. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 366 (5th Cir. 2004) (refusing to analyze the collective knowledge of all corporate officers in order to determine scienter for purposes of the Securities and Exchange Act); Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424, 1435 (9th Cir. 1995) (finding no support for collective knowledge theory of corporate criminal liability for purposes of establishing scienter); Saba v. Compagnie Nationale Air France, 78 F.3d 664, 670 n.6 (D.C. Cir. 1996).