Today’s guest post is from Matt Corrigan and Samuel Walpole, respectively General Counsel and Legal Officer at the Australian Law Reform Commission (ALRC).
The growth of multinational corporations in both size and number has raised concerns in many jurisdictions about the State’s capacity to hold corporations liable for crimes committed in the course of their business activities, including (but not limited to) bribery of foreign officials. One of the challenges of using the criminal law to address corporate misconduct is that the traditional criminal law evolved with “natural persons” (that is, real people) in mind. The law therefore typically focuses on the conduct and states of mind of individuals to determine whether a criminal offense has been committed. Corporations are comprised of, and act through, individuals, but corporations are greater than the sum of their parts. The law developed principles of attribution of responsibility—legal principles for ascribing conduct and states of mind of a particular person or persons to a corporation—in order to hold the corporation liable for ordinary criminal offenses. In practice, however, these do not produce a perfect fit, particularly in the case of large decentralized corporations.
The perceived inadequacy of traditional notions of criminal responsibility when applied to problems like corporate bribery has led some jurisdictions to introduce novel approaches to corporate criminal liability for such crimes. Perhaps most notably, in 2010, the United Kingdom enacted the Bribery Act, which introduced a novel criminal offense, specific to corporate defendants, of failing to prevent foreign bribery. Under this provision, corporations are liable if they fail to prevent their associates—including agents engaged to act on behalf of the corporation to win contracts and expand operations in foreign jurisdictions—from committing bribery, subject to an affirmative defense that the corporation had in place adequate procedures to prevent such bribery. The “failure to prevent bribery” offense, together with the deferred prosecution agreement (DPA) scheme introduced in 2014, have been important steps forward. As Professor Liz Campbell has explained, the “failure to prevent” model involves utilizing the criminal law “as leverage to effect change in corporate behaviour,” rather than an accountability framework that operates only after the fact. In reviewing the operation of the UK Bribery Act in 2019, the House of Lords Bribery Act Committee described the “failure to prevent” reforms as “remarkably successful” in promoting compliance.
Australia is now considering adopting a similar approach to the United Kingdom. In December 2019, the Australian government introduced the Crimes Legislation Amendment (Combating Corporate Crime) Bill. This Bill, which is currently before Australia’s federal Parliament, would introduce an offense of failure to prevent bribery of foreign public officials by a corporation into Australia’s federal Criminal Code, along with a DPA scheme for foreign bribery. More generally, Australia is considering more seriously the limitations of traditional notions of criminal responsibility when applied in the context of corporate crime. The Australian Law Reform Commission (ALRC), on which we serve, recently undertook an extensive inquiry into this issue and published a Final Report that made 20 recommendations for reform of Australia’s corporate criminal liability regime. Among these recommendations, a few seem especially pertinent to the debates over the Crimes Legislation Amendment, and the effective control of corporate bribery more generally:
- First, despite the fact that Australian law is traditionally been viewed as having an innovative and sophisticated approach to attribution of criminal responsibility, this has not necessarily translated into successful prosecutions of corporations, and for that reason the ALRC emphasized the need to strengthen and simplify Australia’s framework for attributing criminal responsibility to corporations.
- Second, the ALRC recognized that relying on traditional principles of attribution is sometimes insufficient for promoting compliance in the context of modern corporations. The ALRC therefore emphasized the importance of what it termed “specific offenses,” of which “failure to prevent” offenses (the sort embraced by the UK Bribery Act) are a particular species. The ALRC identified two other types of specific offenses: “duty-based offenses.” which impose a duty on a corporation itself and hold it liable if the duty is breached, and a novel type of offense developed by the ALRC called “system of conduct offenses,” where a corporation engages in a pattern of behavior that amounts to a breach of the law. Such an offense recognizes that corporate misconduct may arise from policies, procedures, collective decision-making, and corporate systems and processes. These are not easily accommodated within traditional approaches to criminal liability based on attribution.
- Third, while the UK experience demonstrates the success of the “failure to prevent” model in relation to foreign bribery, the ALRC also recommended its expansion to other offenses that might arise in the context of transnational business, such as tax evasion, slavery, human trafficking, and violation of foreign sanctions.
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Thank you for this post. At first view this idea looks great in any jurisdiction. But i think of my country of residence, Romania, where doublespeak comes as a second, or even first nature to many managers in the public as well as private sector.
I can imagine a scenario where corporate leaders embrace this new responsibility publicly and put in place all sorts of formal procedures, while informally and off the record directing their staff to go on bribing as usual. In such a scenario, proving that those leaders were involved in a crime and personally liable would actually be more dificult. Depending on the wording of the law, the corporation’s liability might disappear completely if bribes were handed out while the proper stack of procedures was in place.
Reading this post, I was reminded of a case currently pending in the US Supreme Court, Nestle USA, Inc. v. Doe I. Nestle and Cargill (a co-defendant) effectively control the production of cocoa in the Ivory Coast, an area notorious for its reliance on child slave labor. The plaintiffs are three victims of that slave labor, and the conditions and treatment they endured is horrific. The defendants deny responsibility, claiming they didn’t act with the purpose to aid and abet child slave labor. However, in 2001, the House of Representatives passed a bill that would have required US importers and manufacturers to certify and label their products “slave free.” The defendants urged instead that they should adopt of a private, voluntary enforcement mechanism, and that voluntary system was what was ultimately adopted. This litigation is the result. It boggles my mind that a company can rail against a bill designed to criminalize exactly the kind of behavior in which they are engaged and then claim they never intended to utilize child slave labor. Worse, the defendants will likely succeed. In a country where mass incarceration remains a huge problem, corporations remain largely untouchable. I can only hope the US similarly adopts a duty-based approach to corporate liability soon.
Mr. Corrigan and Mr. Walpole:
I wanted to first thank you both very much for your blog post. I thought it painted a clear picture of the corporate criminal liability reform efforts in Australia, as well as the motivations behind them. After reading your post, however, I found myself with a lingering concern and an alternative solution for holding corporations accountable, both of which I wanted to share with you.
First, my concern is this: I worry that retooling corporate criminal liability laws is misguided when a civil liability framework would more effectively achieve the end goals of corporate accountability and proactive self-enforcement.
As you note in your post, corporate criminal prosecutions—even with Australia’s innovative and sophisticated approach—are often unsuccessful. They’re also inherently more burdensome for the government than are civil suits. As in the United States (where I am a law student), a criminal prosecutor in Australia must demonstrate proof of guilt “beyond a reasonable doubt.” This of course forces the government to produce more and better evidence than if the action were civil, which requires only a showing “on the balance of probabilities.” The result is a greater investment of time and resources from the Australian government. But this investment is unnecessary. Since the corporate entity exists only on paper, irrespective of whether the underlying action is criminal or civil, it can suffer nothing more than the assessment of a monetary penalty. Thus, even when a corporate criminal prosecution is successful, it is not at all clear to me what is achieved that could not have been done so more easily and more effectively by civil means.
None of the traditional justifications for punishment satisfactorily explain the reliance on criminal laws here. Even deterrence doesn’t hold, since research ascribes the significantly greater deterrent value to the certainty of being caught as opposed to the severity of the punishment that awaits. So if civil standards meaningfully increase the likelihood that corporations can be held financially accountable for bribery or other crimes, then general deterrence would best be served not by the stigma of criminality but by the lower proof threshold of civil suits. Of course, crime is also a powerful expression of a community’s moral disapproval of something. But again, if the disapproval comes only at the cost of hamstringing enforcement efforts, then it seems to me that the nominal benefit gained through use of the word “crime” is simply outweighed by the practical hardships it invites.
This brings me to my alternative solution. Your post lauds the many successes of the U.K.’s Bribery Act, in particular, the novel “failure to prevent” offenses, which have been credited with bringing about a proactive shift in corporate anti-bribery regimes. But if greater accountability and the recalibration of corporate incentives are the true ends, I believe that a strict liability civil framework would actually be the significantly more effective means.
Take respondeat superior, a flavor of vicarious civil liability under both the American and Australian common law doctrines of agency. Respondeat superior holds that a principal is strictly liable for the actions of their agent. As the High Court of Australia has noted, the doctrine “rests ‘in a deeply rooted sentiment that a business enterprise cannot justly disclaim responsibility for accidents which may fairly be said to be characteristic of its activities.’” Unlike “failure to prevent” offenses, however, respondeat superior already exists in Australia, thereby obviating much of the need for extensive litigation to flesh out its subtle contours and kinks. And while the effect is the same in that the burden to prove the corporation’s mental state is alleviated—proving that any agent of the corporation paid a bribe would be enough to hold it accountable—doing so only by a showing “on the balance of probabilities” makes it all the more attractive an option.
If a civil liability framework like this were implemented, the risk of liability for any Australian corporation would skyrocket. Strict liability would eliminate any defenses after the fact, so a corporation’s only viable option would be to proactively ensure that its agents were not breaking the law. With a change of this magnitude, it stands to reason that what was theretofore widespread corporate resistance could be transformed almost overnight into corporate diligence and care. The corporation’s bottom line would require nothing less.
In sum, a strict liability civil framework would allow the Australian government to hold corporations accountable to the same degree as through criminal means, only with greater evidentiary ease and certainty. For these reasons, I believe that implementing the former, instead of overhauling the latter, is the better way forward.
Thank you again very much for your time and for your post. I look forward to reading your response!