Corporate liability, also referred to as liability of legal persons, determines the extent to which a company as a legal person can be held liable for the acts and omissions of the natural persons it employs and, in some legal systems, for those of other associates and business partners.
Since corporations and other business entities are a major part of the economic landscape, corporate liability is a key element in effective law enforcement for economic crimes. A 2016 mapping of 41 countries’ corporate liability systems shows wide variations in approaches to liability, and that corporate liability is a dynamic area of legal innovation and evolution.
The term legal person refers to a business entity (often a corporation, but possibly other legal entities, as specified by law) that has both legal rights (e.g. the right to sue) and legal obligations. Because, at a public policy level, the growth and prosperity of society depend to a large extent on the business community, governments must carefully tailor the extent and ways that each permitted form of business entity can be held liable.
Important design elements of corporate liability systems include jurisdiction, successor liability, related and unrelated entities as sources of liability, sanctions and mitigating factors.[1]
Poorly designed or non-existent corporate liability systems can make it impossible to enforce laws effectively and can lead to profound injustices for individuals or entities seeking accountability and redress for wrongdoing.[2]
Nature of corporate liability
Countries can base their corporate liability systems in criminal or non-criminal law (that is, administrative or civil law) or in both. They can also enact legislation that creates liability for legal persons in specific areas of law (e.g. covering health and safety, and product safety issues). Under this approach, the wording of a statutory offence specifically attaches liability to the corporation as the principal or joint principal with a human agent.
Generally, countries’ approaches to this issue reflect long-standing and diverse legal traditions. For example, Australia and Canada anchor their corporate liability systems in criminal law, while the German and Italian systems are based in administrative law. Some jurisdictions use criminal and civil systems in parallel, thereby expanding options for pursuing legal accountability for legal persons and for making political judgments on when to use the criminal law in order to maximise the impact of those cases that are prosecuted. The United States’ system of corporate liability is an example of one that incorporates both criminal and civil law elements.[1]
Standards of liability
Standards of liability for legal persons help clarify when a legal person can be held liable for an unlawful act. This raises subtle questions: since business entities can only commit crime through the agency of the people (natural persons) they employ or otherwise contract with, under what conditions should culpability be attached to the business entity? Indeed, what does culpability mean for such entities? Can the concepts of knowledge and intent required for mens rea (guilty mind) even be applied to business entities?
Typically, companies are held liable when the acts and omissions, and the knowledge and intent of their employees or business partners can be attributed to the corporation. But again, countries adopt a wide variety of approaches to this attribution. These vary from the all-encompassing approach of strict liability to those that look at the entity’s corporate culture and management systems in order to determine whether these ignored, tolerated or even encouraged criminal activity.[1]
Strict liability
Strict liability is a standard of liability under which a person (legal or natural) is legally responsible for the consequences flowing from an activity, even in the absence of fault or criminal intent on the part of the defendant.[3]
Specific issues
Successor liability
The problem of successor liability arises when a company does something that alters its organisation or identity, such as a name change, a merger or an acquisition. Rules on successor liability determine when and how corporate liability is affected by various changes in a company’s organisation or identity. For example, is a company’s liability for bribery extinguished when it is acquired by another company? In the absence of successor rules, companies may be able to avoid liability through reorganisation or by otherwise altering corporate identity. The 2016 study of comparative corporate liability systems shows that successor liability is, in quite a few countries, an under-scrutinised area of law — in some jurisdictions, it may be the case that even cosmetic organisational changes can, from a corporate liability perspective, ‘wipe the slate clean.’[1]
Sanctions
Sanctions for corporate crime can take a number of forms. First, there are fines, which, in many jurisdictions, are subject to maximum and (in fewer cases) minimum thresholds. Second, confiscation is designed to deprive the sanctioned companies of the proceeds of their crimes. Third, other punitive actions may be taken that deprive the company of certain rights or privileges or that impose certain obligations. Loss of rights may include ineligibility for public subsidies or participation in public procurement processes. Sanctions may also impose monitoring of the company’s legal compliance policies, either by a court or by a court-appointed corporate monitor.’
References
- Liability of Legal Persons for Foreign Bribery: A Stocktaking Report - OECD www.oecd.org, retrieved 2021-03-27^
- Margaret Carlson. Hot Coffee, Cold Cash and Torts: Margaret Carlson Bloomberg, 13 July 2011, retrieved 9 August 2013^
- strict liability