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Corporate Criminal Liability

What can happen if my corporation is indicted criminally?

Corporate responsibility in the context of a criminal indictment is best looked at in terms of direct and collateral consequences.

The direct consequence is, of course, criminal liability. Everyone in the corporate hierarchy can be indicted for criminal activity--officers, directors, employees, even the corporation itself.

The collateral consequences of a criminal prosecution can transcend the financial liability resulting from a criminal trial. Among these collateral consequences are loss of government contracts and shareholder lawsuits. Moreover, a federal contract can be suspended based on modest evidence of fraud or theft.

According to a 1991 American Bar Association Report, the collateral consequences of corporate criminal activity can also include the following:

  • Revocation of the corporate charter by state authorities;
  • Civil penalties under the False Claims Act;
  • Cease and desist orders for financial institutions accompanied by temporary or permanent loss of deposit insurance, conservatorship and receivership;
  • Securities brokers are also subject to injunctions regarding their participation in securities transactions as well as cease and desist orders.

How can a corporation be held criminally liable for the actions of its employees?

A corporation can be held liable for the criminal acts of its employees as long as the employees are acting within the scope of their authority and their conduct benefits the corporation.

For the purposes of criminal liability, what must a corporate employee do to be considered acting within the scope of employment?

To act within the scope of his or her employment, the employee must have actual or apparent authority to engage in a particular act.

A corporate employee is said to have apparent authority if he or she engages in conduct that a third party could reasonably believe he or she as the authority to perform.

Actual authority is that authority a corporation knowingly and intentionally delegates to an employee. To put it simply, if a rational relationship can shown between an employee's criminal conduct and his or her corporate duties, chances are the corporation will be criminally liable for the employee's conduct.

Can a corporation be held criminally liable even when an employee violates corporate policy?

Even if an employee acts in outright violation of corporate policy, the corporation is not totally off the hook. The problem is that corporate rules and policies can never completely define the scope of the employee's authority. Those areas that are left undefined open the corporation up to criminal liability.

How could an employee's criminal conduct benefit the corporation and thereby make it criminally liable?

There are a couple of ways to satisfy the benefit prong of the corporate criminal liability test: (1) the employee has to act with an intent to benefit the corporation; or (2) the employee acts for his or her own personal gain, and the corporation ends up benefiting from the conduct, too.

The benefit that results to the corporation does not have to be the only reason behind the employee's actions.

Can I be criminally prosecuted for another employee's illegal acts?

Yes, you can be held criminally liable for another employee's illegal acts under something known as accomplice theory. If you help, encourage, or instruct a subordinate or co-worker to commit a criminal act, you could end up being convicted yourself.

Accomplice liability also applies to those supervisors who turn a blind eye and fail to take action. Supervisors have an affirmative duty - a duty to act - when the know their subordinates are engaging in criminal conduct.

You can also be criminally liable for having participated in a conspiracy. A conspiracy takes place when at least two people agree to commit a crime and at least one of the conspirators performs some overt act in furtherance of the conspiracy. See the Conspiracy FAQ for further details.

What is the RCO doctrine?

The responsible corporate officer (RCO) doctrine holds that a corporate officer is indirectly liable for a subordinate's criminal conduct when the officer is in a position of responsibility. The officer can be prosecuted if he has the authority and the ability to stop the offense and yet fails to act.

The RCO doctrine does not require proof that the officer either participated in or authorized the crime.

For a consultation with Lorandos Joshi, call 734-545-2919 or send the firm an e-mail.

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