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.
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