GAB is delighted to welcome back Gönenç Gürkaynak (Managing Partner at ELIG Attorneys-at-Law in Istanbul and 2015 Co-Chair of the B20 Anti-Corruption Task Force), who, along with his colleagues Ç. Olgu Kama (ELIG partner and B20 Anti-Corruption Task Force Deputy Co-Chair) and Burcu Ergün (ELIG associate), contributes the following guest post:
Combating international corruption has come a long way in the last decade. More and more jurisdictions are adapting and updating their legal systems in an effort to eradicate impunity for corruption crimes. Yet an important question persists: Who should be held primarily liable for corruption crimes, the individual or the company? The US and European countries have traditionally provided diverging answers to this question, but there now seems to be some evidence of an emerging convergence, though a consensus is yet to be reached.
In the United States—the pioneering legal system in terms of fighting international corruption—although individuals can be charged with violations of the Foreign Corrupt Practices Act (FCPA), it is the companies that are primarily held liable for FCPA violations. The US embraces a broad notion of corporate criminal liability, based on the principle of respondeat superior (the employer is responsible for the acts or omissions of its employees) and the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have employed this theory as the basis for FCPA settlements with scores of corporations, raking in hundreds of millions of dollars in fines. However, there have been relatively few FCPA cases brought against individuals. This may be due in part to the fact that it is often difficult to attribute a corrupt act to any one specific individual, though it may also be due to the DOJ’s and the SEC’s traditional focus on going after the “deep pockets” of the corporations that come under their scrutiny.
In contrast to the US, the focus of criminal law in continental European systems has typically been on the culpability of individuals; thus, the introduction of the concept of “corporate criminal liability” is a relatively new development. Traditionally, the continental European systems have taken the view that criminal punishment can only be imposed on grounds of personal culpability, and that organizations cannot be held liable under criminal law (societas delinquere non potest). To that end, some European jurisdictions have preferred imposing administrative liability on corporations for actions that are considered to be administrative (rather than criminal) offenses.
In terms of deterring corrupt acts, a broad notion of corporate criminal liability goes a long way. The willingness of US authorities to impose significant fines on corporations provides powerful incentives for corporations to self-police. Furthermore, the threat of criminal FCPA sanctions—and the associated “moral sanctioning” of criminal liability—may have a more powerful effect on corporations than would similar fines imposed as administrative sanctions. On the other hand, the threat of corporate criminal liability is likely not sufficient, on its own, to foster a compliance culture within an organization. In a legal environment in which individuals face a credible threat of prosecution for their personal roles in organizational corruption, corporations could maintain a stronger culture of compliance as the employees themselves would be legally responsible for their misconduct and therefore less likely to engage in (or turn a blind eye to) corrupt practices.
Even though significant differences remain among jurisdictions, it is an encouraging development that there now seems to be gradually converging views regarding corporate criminal liability among these different legal systems.
Many European countries embraced the concept of corporate criminal liability in the 2000s, and there is an ongoing effort in those countries to determine the proper range of crimes that should be subject to corporate criminal liability. With that said, one should keep in mind that the basis for corporate criminal liability varies from jurisdiction to jurisdiction and that certain jurisdictions continue to impose only administrative liability on corporations for criminal offenses:
- In the UK (where the concept of corporate criminal liability is as old and as firmly established as in the US), the legal and moral basis for corporate criminal liability is derived from what is known as “identification theory.” According to this theory, the actions of the managers of the company are viewed as representing the mind and will of the company, and thus companies can be held criminally liable where management’s awareness of the corrupt act can be proven. The UK Bribery Act also provides a form of strict liability for corporations in the offense of failing to prevent bribery. For such an offense to be committed, no criminal intent is necessary.
- The Netherlands became the first civil law country to recognize the concept of corporate criminal liability. According to Dutch law, the factual basis for corporate criminal liability is to be evaluated by the courts in each case, according to whether or not the crime can reasonably be imputed to a corporation. The Dutch courts have elaborated that this determination can be made on the basis of factors such as whether the act was committed by an employee or whether the corporation benefited from the offense. In France, on the other hand, corporations can be held criminally liable when offenses are committed on behalf of the corporation by their organs or representatives.
- Although many European jurisdictions have recently come to accept the view that corporations can be held criminally liable, some European countries continue to resist this trend. These countries, including powerful economic and political actors on the European stage, such as Germany and Italy, constitutionally reject the notion of corporate criminal liability on the basis that criminal liability should be based on mens rea (“guilty mind”) and corporations, as fictitious entities, cannot have mens rea.
- Likewise, in Turkey, corporate criminal liability was briefly introduced into law as a result of the pressure from the OECD’s Working Group on Bribery, but that law was later repealed on the grounds that it violated the principle of the individuality of criminal liability (and, therefore, societas delinquere non potest), which is enshrined in the Turkish Constitution. Nevertheless, corporations in Turkey can still be held administratively liable for offenses (including corrupt acts) committed by their organs or representatives.
At the same time, as various European legal frameworks regarding corporate criminal liability continue to evolve and adapt to new norms, the US is pushing for ways to hold more individuals accountable for corrupt practices. The US Principles of Federal Prosecution of Business Organizations (“Principles”) emphasize the importance of individual liability, stating that “One of the most effective ways to combat corporate misconduct is by holding accountable all individuals who engage in wrongdoing. Such accountability deters future illegal activity, incentivizes changes in corporate behavior, ensures that the proper parties are held responsible for their actions and promotes the public’s confidence in our justice system.” Further, the DOJ has been trying to emphasize individual liability in corruption crimes through novel instruments, such as the 2015 Yates Memorandum, which provides guidance to US Attorneys on how to hold more individuals accountable for corporate crimes. The memorandum’s guidelines suggest that: (1) corporations can qualify for cooperation credit only when they disclose facts regarding the responsible individuals, (2) the investigation should focus on individuals from the beginning, and (3) the DOJ should not release culpable individuals from liability when resolving a matter with a corporation. Accordingly, the pilot program which seeks to promote greater accountability for both individuals and companies explicitly stipulates that full cooperation credit can be obtained when the company provides (among other things) facts about real persons involved in the criminal act, makes them available for interviews and discloses all relevant facts, even relating to third-party individuals involved.
Regardless of these developments in both the US and the European approach, the judicial fight against corruption undoubtedly remains a work in progress. With these converging approaches, however, there is a light at the end of the tunnel, as many legal systems around the world actively explore new concepts and legal tools in order to eradicate impunity for corruption crimes.
Pingback: Corporate or Individual Liability? Converging Approaches to Fighting Corruption | Anti Corruption Digest