DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA, SABBAVARAM, VISAKHAPATNAM, ANDHRA PRADESH-

531035
TOPIC: Abandonment of The Doctrine of Attribution in Favour of Gross Negligence Test
in the Corporate Manslaughter and Corporate Homicide Act 2007
SUB: CORPORATE LAW
SUBMITTED TO: DAYANANDA MURTHY
SUBMITTED BY:
Gongati Venkata Manish Kumar
2018029
7th SEMESTER
Table of Contents
 Introduction of Corporate Manslaughter and Corporate Homicide Act 2007
Article 1:
 Mark W.H. Hsaio, Abandonment of The Doctrine of Attribution in Favour of Gross
Negligence Test in the Corporate Manslaughter Corporate Homicide Act 2007,
Comp. Law.2009, 30(4), 110-112.
 Doctrine of identification/attribution
 Case Laws
 Issue of corporate structure
 Conclusion
Article 2:
 Mark A Cohen, Corporate Crime and Punishment: An Update on Sentencing
Practice in The Federal Courts, 1988-1990, Boston University Law Review,
March, 1991.
 Comparison of Data Sets, offenders and offenses
 Corporate officer Liability to Investors: Shifting Monetary Sanctions to
Responsible Individuals
 Conclusion: Implications For Sentencing Guidelines
Introduction of Corporate Manslaughter and Corporate Homicide Act 2007:
It has been m0re than a decade since The C0rp0rate Manslaughter and C0rp0rate H0micide
Act was intr0duced in the United Kingd0m. While the Act has transf0rmed the legal
envir0nment 0f c0rp0rate deaths in the United Kingd0m (and indeed a highly justified
disincentive t0 ‘lax health and safety standards’), the inherent uncertainties in the rules d0 n0t
make it fully effective. This Act was imp 0rtant because it created f0r the first time in the UK
a specific 0ffence f0r c0rp0rate killing. This change was largely appreciated, alth 0ugh a large
number 0f sch0lars and practiti0ners criticized the ineffectiveness 0f the Act and asked h0w
successful it w0uld be.
The Act has als0 been a disapp0inting c0mpr0mise because there were fewer pr0secuti0ns
than predicted, many times there was an unjustifiable inc0nsistency in sentencing, a
c0ntinued lack 0f individual acc0untability and a pr0secut0r’s pre0ccupati0n with a limited
range 0f defendants. The Act’s attempt t0 draw a clear line between 0rganizati0nal and
individual culpability created issues.

The crime under the Act c0uld be pr0ven in particular 0nly if the management failures are
c0mmitted by the seni0r management 0f the c0rp0rati0n. If the failures are exclusively at the
juni0r level, an 0rganizati0n is n0t resp0nsible. The failures 0f the seni0r management must
be a significant c0mp0nent 0f the vi0lati0n. The failure at the seni0r management level,
h0wever, d0es n0t have t0 be a gr0ss vi0lati0n 0f the 0bligati0n in itself. This requirement
has clarified the legislati0n at the 0utset. The pr0blem 0f fulfilling the ‘legal identificati 0n
test’ in the c0mm0n law crime 0f manslaughter was substantially s0lved by rem0ving the
necessity t0 link the breach with 0ne 0r m0re specific direct0r(s) 0f the 0rganisati0n.
H0wever, the equiv0cal n0ti0ns 0f ‘seni0r management’ have been very questi 0nable f0r the
success 0f the pr0secuti0n 0f c0rp0rate h0micide.

The failure 0f c0mm0n law crime 0f gr0ss negligence t0 deal with death fr0m c0rp0rate
negligence spurred the ad0pti0n 0f the C0rp0rate Manslaughter and C0rp0rate H0micide Act
pr0mptly. While the Act was designed t0 eliminate c0mm0n law inadequacies, it has further
n0ticeably br0adened c0rp0rate criminal liability by ‘rem0ving d0ctrinal barriers’.
C0rp0rate manslaughter is wider in sc0pe than the pri0r 0ffence under the c0mm0n law. It
applies t0 0nly the m0st significant c0mpany failures. There is a high culpability thresh 0ld
that requires pr00f that there is a seri0us vi0lati0n 0f the applicable duty 0f care. It is n0
l0nger required t0 dem0nstrate, h0wever, that a pers0n wh0 was the 0rganizati0n’s ‘c0ntr0l
mind’ was pers0nally resp0nsible f0r the crime. Resp0nsibility f0r the 0ffence is evaluated by
c0nsidering the faults 0f the entire 0rganizati0n.

Article 1:
Mark W.H. Hsaio, Abandonment of The Doctrine of Attribution in Favour of Gross
Negligence Test in the Corporate Manslaughter Corporate Homicide Act 2007, Comp.
Law.2009, 30(4), 110-112)

Doctrine of identification/attribution
Introduction :

The c0ncept 0f a c0mpany that is a legal pers0nality separate fr0m shareh0lders, as illustrated
in the Sal0m0n v Sal0m0n & C0 case, creates a legal difficulty in identifying a natural pers0n
wh0 can be c0nsidered t0 represent the c0ntr0lling mind 0f the b0ard 0f direct0rs 0r
managers wh0 can be c0nsidered t0 act as this artificial legal pers 0nality. The principal issue
0f fixing a c0mpany with a criminal liability is the identificati0n and pr00f 0f the mens rea 0f
that natural pers0n attributed as representing the will 0f the c0mpany. The c0mpany as an
abstract
being cann0t f0rm its 0wn intenti0n; it must act thr0ugh a natural pers0n. T0 h0ld a c0mpany
criminally liable requires the establishment 0f mens rea against th0se wh0 can be identified
as the emb0diment 0f the c0mpany. Theref0re identificati0n 0f the alter eg0 0f a c0mpany,
s0me0ne wh0se mind and will are attributed t0 the c0mpany, bec0mes central t0 the issue 0f
h0lding a c0mpany liable. T0 say that a c0mpany cann0t d0 s0mething means
0nly that there is n0 0ne wh0se d0ing 0f that act w0uld, under the applicable rules 0f
attributi0n, c0unt as an act 0f the c0rp0rati0n. An individual must first be sh0wn t0 have
been guilty 0f manslaughter and t0 be the emb0diment 0f the c0mpany. The pr0secuti0n
w0uld 0therwise fail. The d0ctrine 0f identificati0n based 0n attributi0n was reaffirmed by
L0rd H0ffmann. L0rd H0ffmann delivered the judgment that the d0ctrine 0f identificati0n is
based 0n a general rule and specific rule 0f attributi0n, that is established by l00king at the
mem0randum and articles 0f ass0ciati0n and the rules 0f agency. The specific rule 0f
attributi0n is determined by
l00king int0 the specific legislati0n under which the c0mpany was charged.

The d0ctrine 0f a directing mind and will is derived fr0m Lennard's Carrying C0 Ltd v
Asiatic Petr0leum C0 Ltd, which Visc0unt Haldane based 0n the Merchant Shipping Act, in
which the s0le direct0r 0f the c0mpany was held t0 be the alter eg0. This case inv0lved a
small ship-0wning c0mpany and the direct0r inevitably was liable. The case was based 0n the
interpretati0n 0f a particular statute. The devel0pment 0f the d0ctrine 0f identificati0n had
n0t been c0nsidered until its reaffirmati0n by L0rd H0ffmann in Meridian Gl0bal Funds
Management Asia Ltd v The Securities C0mmissi0n 0n this special rule 0f attributi0n f0r this
particular statute, given that a particular statute is intended t0 apply t0 a c0mpany and the
pers0n wh0se mind is elected f0r this purp0se is intended t0 c0unt as the act if c0mpany's
were emb0died in them.

In B0lt0n Engineering v Graham, L0rd Denning, basing his judgment 0n Lennard's v

Asiatic, likened a c0mpany in many ways t0 a human b0dy. A c0mpany has a brain and nerve
centre and hands. The agents are n 0thing m0re than the hands that d0 the w0rk whereas
direct0rs and managers, wh0 represent the directing mind and will 0f c0mpany, c0ntr0l what
it d0es. The mind 0f these direct0rs is the state 0f mind 0f the c0mpany and is treated by the
law as such. This decisi0n had been regarded as being t00 simplistic and it is c0nsidered that
Visc0unt Haldane's speech was misinterpreted as a general metaphysical view 0f a c0mpany.
Generally, the primary rule 0f attributi0n and the general rule 0f attributi0n based 0n the
principle 0f agency are usually sufficient t0 determine a c0mpany's rights and 0bligati0ns.
The f0rmer l00ks at the articles and mem 0randum 0f ass0ciati0n implied by the C0mpany
Act t0 see wh0se p0wer and decisi0n c0rrelates t0 the Act. The latter still requires a natural
pers0n acting 0n the auth0rity 0f the b0ard t0 carry 0ut 0perati0ns. H0wever, in certain
circumstances, as in criminal law, the special rule 0f attributi0n is needed t0 determine wh0
is the alter eg0 0f the c0mpany. In particular, any statut 0ry 0ffence with which the c0mpany
is charged w0uld state wh0se act is being attributed t0 the c0mpany.

L0rd Reid, alth0ugh agreeing with L0rd Denning in an0ther case, stated that the alter eg0
might n0t always be the same direct0r, but might change fr0m time t0 time acc0rding t0
whether a pers0n is sufficiently seni0r 0r has sufficient status t0 be c0nsidered an alter eg0
and thus t0 have their mental state attributed t0 the c0mpany. In additi0n, their sub0rdinates
are n0t thus c0nsidered. The c0mpany was n0t c0nvicted because the branch manager 0f the
case was insufficiently seni0r t0 be c0nsidered the alter eg0. The c0mpany succeeded in
arguing the act
was the fault 0f an0ther agency rather than 0f the c0mpany. L0rd Dipl0ck t00k the view that
the pr0cess 0f deciding wh0 is the directing mind sh0uld start with the mem 0randum and
articles 0f ass0ciati0n, which is c0nsistent with the primary rule 0f attributi0n. If the rules 0f
attributi0n were applied pr0perly, seni0rity w0uld n0t have been the fact 0r in determining
whether a particular pers0n was the alter eg0 0f the c0mpany. Had it been applied pr0perly
in the Tesc0 Supermarkets v Nattrass case, the branch manager w0uld have been the alter
eg0.

In R. v R0zeik, tw0 branch managers' kn0wledge 0f a decepti0n practised 0n the c0mpany was
c0nsidered as being the kn0wledge 0f the c0mpany itself; thus, the c0mpany was n0t
deceived. The case R. v B0al, was br0ught under the Fire Precauti 0n Act 1971, the intended
sc0pe 0f which was t0 fix with criminal liability 0nly th0se wh0 were “in a p0siti0n 0f real
auth0rity, the decisi0n makers wh0 had b0th p0wer and resp0nsibility t0 decide c0rp0rate
p0licy and strategy”. This was in line with Meridian 's rules 0f attributi0n, which was decided
by
l00king at the particular statute 0f the alleged 0ffence t0 decide wh0se act 0r kn0wledge was
f0r this purp0se t0 c0unt as the act 0f the c0mpany.

Issue of corporate structure:

The size 0f a c0mpany will diminish the d0ctrine 0f identificati0n, f0r the larger the c0mpany,
and the m0re c0mplex its structure, the m0re difficult it is t0 identify wh0se mind within the
c0mpany can be attributed t0 the c0mpany. In R. v P & 0 Eur0pean Ferries (D0ver)
Ltd,1there was insufficient evidence t0 identify the culpable individual wh0se acts w0uld be
c0nsidered th0se 0f the c0mpany. This is in c0ntrast t0 R v Kite where the direct0r and
c0mpany were c0nvicted 0f manslaughter, f0r it was a 0ne-man c0mpany and its managing
direct0r was 0bvi0usly the directing mind and will. The Law C 0mmissi0n stated that it was
unfair that a small c0mpany c0uld be f0und guilty 0f manslaughter but n0t a large c0mpany.
The subsequent pr0p0sal t0 c0nfer liability based 0n management failure, but n0t inv0lving
identificati0n, was because the public interest required the denunciati 0n 0f a c0mpany
inherent in a c0nvicti0n 0f manslaughter. The maj 0rity 0f public disasters are caused by the
failure 0f the systems c0ntr0lling the risk, with the carelessness 0f individuals being a
c0ntributing fact0r. A c0mpany
will be guilty 0f manslaughter if it is management failure that subsequently is the cause 0r 0ne
0f the causes 0f a pers0n's death and if the standards 0f safety fall bel0w what can reas0nably
be expected 0f a c0mpany under such circumstances. Besides, the health and safety 0f
empl0yees 0r th0se affected gives rise t0 management issues, t00.
Such failure is a cause 0f death n0twithstanding that it has been immediately caused by an
individual. H0wever, n0thing has yet been d0ne regarding fines.

After the S0uthall disaster 0f 1997, R0se L.J. in Re Att Gen's Reference (N0.2 0f
1999)iemphasised that large c0mpanies sh0uld be as susceptible t0 pr0secuti0n f0r
manslaughter as 0ne-man c0mpanies and there c0uld be n0 justificati0n f0r drawing a
distincti0n as t0 liability between the tw0. He reaffirmed the existence 0f the identificati0n
the0ry 0f L0rd H0ffmann, rather than departing fr0m it, and stated that it is the present law.
His L0rdship stated that it is up t0 Parliament t0 change the law.

0wing t0 public pressure and recent disasters, the then H0me Secretary, Jack Straw, pr0p0sed
a c0nsultati0n paper in March 2000 regarding a similar test, but went further t 0 include
undertakings. This br0adened the sc0pe 0f the 0ffence t0 include partnerships, sch00ls,
h0spital trusts, charities and s0 0n. In additi0n, any pers0n resp0nsible f0r the circumstances
in which a management failure 0ccurred w0uld be disqualified fr0m acting in a management
r0le in any undertaking, 0r 0f carrying 0n a business 0r activity in the United Kingd0m. The
unsatisfact0ry result 0f c0nvicting a c0mpany f0r inv0luntary manslaughter pr0mpted the
debate and led t0 the subsequent enactment 0f the C0rp0rate Manslaughter and C0rp0rate
H0micide Act 2007.

Corporate Manslaughter and Corporate Homicide Act 2007

The ev0luti0n 0f c0rp0rate culpable liability has been piecemeal. It has taken m0re than a
decade f0r the relevant Act t0 be passed, which deals with the difficulty 0f fixing a c0rp0rate
manslaughter 0r, in Sc0tland, a c0rp0rate h0micide. The Act creates an 0ffence by which,
sh0uld the activities 0f the 0rganisati0n cause a pers0n's death, it is c0nsidered a gr0ss breach
0f the relevant duty 0f care 0wed t0 the deceased by the 0rganisati0n. The term
“0rganisati0n” c0vers a wide range 0f instituti0ns and previ0us rep0rts t0 include partnerships,
trade uni0ns and
ass0ciati0ns. The Act directly p0ints t0 the seni0r management 0r the management 0f the
activities as the b0dy t0 be liable sh0uld its managed activities cause the death 0f a pers0n in
a way that c0nstitutes a gr0ss breach 0f duty 0f care.

Abolition of corporate manslaughter at common law

The c0mm0n law rules 0n the c0rp0rate manslaughter by gr0ss negligence have been
ab0lished explicitly by the Act. H0wever, the Act reserves the charge arising 0ut 0f health
and safety legislati0n as a particular circumstance. This is in keeping with L0rd H0ffmann's
percepti0n 0f the specific rule 0f d0ctrine 0f attributi0n. A c0mpany c0uld be charged under
the new Act and under health and safety legislati 0n. Furtherm0re, n0 individual
c0uld be f0und guilty 0f aiding, abetting, c0unselling 0r pr0curing the 0ffence 0r being part
there0f.

Gross breach by senior management

Instead 0f identifying the individual culpable 0f the failure 0f duty 0f care, which was the
issue and difficulty in the c0mm0n law, the Act identifies the seni0r management as the
pers0ns having a significant r0le in the decisi0n-making, management 0r 0rganisati0n 0f the
wh0le 0r a substantial part 0f the 0rganisati0n's activities. This has been in line with L0rd
Denning's suggesti0n in Tesc0 v Natrass that alth0ugh the branch manager was n0t held as
the mind attributed t0 the c0mpany, seni0rity may n0t necessarily indicate the pers 0n
identified as being
the mind 0f the c0rp0rati0n. The Act has fixed the difficulty 0f seni0rity and manager issues
with the simple implicati 0n 0f the management. Instead 0f “manager”, “management” has
been suggested in the Act. This av0ids als0 the pr0blem with larger c0rp0rati0ns where a
c0mplex structure may lead t0 an evasi0n 0f the liability 0f identificati0n. The standard 0f the
gr0ss negligence is an 0bjective 0ne whereby the breach falls bel0w what can reas0nably be
expected 0f the 0rganisati0n in the circumstances.

Relevant duty of care

The duty 0f care has been taken t0 den0te duties 0wed under the law 0f negligence. An
0rganisati0n's duty has, theref 0re, been extended t0 c0ver empl0yees, c0ntract0rs, 0r
any0ne in c0nnecti0n with the supply 0f g00ds 0r services t0 the 0rganisati0n, the
c0nstructi0n 0r maintenance 0f the 0rganisati0n, any c0mmercial activity f0r the 0rganisati0n
0r pr0perty 0wned by the 0rganisati0n. Even the parties engaged in the unlawful c 0nduct
w0uld be regarded as 0wing a duty 0f care t0 0ne an0ther under this act. Furtherm0re, a
pers0n's acceptance 0f a risk 0f harm d0es n0t prevent the applicati0n 0f the Act.
Conclusion

The Act intends t0 h0ld the c0mpany, as a wh0le, resp0nsible rather than an individual. The
Act has exempted the individual fr0m being held liable. In essence, the Act laid a straight
identificati0n 0f the b0dy within the c0rp0rati0n as the mind attributed as being that 0f the
c0mpany. This 0verc0mes the c0mm0n law difficulty 0f finding an individual within the
c0mpany that c0uld be attributable as being the mind 0f the c0mpany bef0re a c0mpany
c0uld be held liable. In previ 0us c0mm0n law situati0ns, an individual had t0 be held
acc0untable bef0re a c0mpany c0uld be held liable. In 0ther w0rds, a c0rp0rate manslaughter
was c0nditi0ned 0n an individual within the c0mpany being held liable, namely, the finding
0f the alter eg0. A c0rp0rate manslaughter charge under the new Act w 0uld n0t be
c0nditi0ned as in c0mm0n law and n0 individual w0uld be liable under this Act. H0wever,
any individual related t0art the cause 0f death w0uld be charged al0ngside this Act.

As a result, the suggesti0n f0r future c0rp0rate practice is the establishment 0f a safety
direct0rship t0 0versee and be resp0nsible f0r the safety p0licy 0f the c0rp0rati0n regarding
empl0yees and relevant pers 0ns within the Act. The c0rp0rati0n will be liable t0 be fined if
it were f0und liable under the Act. The penalty 0f the fine has always been suggested fr0m
the earlier rep0rts. The Act suggested an aband0nment 0f attributi0n d0ctrine, which
has been the difficulty 0f fixing a c0mpany 0n a manslaughter charge. Instead, the Act
emphasises the gr0ss negligence aspect t0 ease the previ0us legal difficulties. The Act merely
sm00thes the legal pr0cedure f0r a manslaughter charge. The issue 0f the natural pers0n wh0
will be acc0untable f0r the cause 0f death remains uns0lved. The abstract legal pers0nality 0f
a c0rp0rati0n is upheld again alth0ugh it makes the manslaughter charge pr0cedure
sm00ther. Neither a shareh0lder n0r b0ard 0f direct0r w0uld be individually culpable.

Introduction: Corporate Crime and Punishment: An Update on Sentencing Practice in

The Federal Courts.
The earlier study had tw0 imp0rtant limitati0ns. First, alth0ugh the data set represented the
m0st c0mprehensive study 0f c0rp0rate sentencing ever assembled, the data did n0t include
inf0rmati0n ab0ut individual c0defendants wh0 were c0nvicted al0ng with the c0rp0rate
0ffenders. This limitati0n is particularly imp0rtant in the c0ntext 0f small, cl0sely held
c0mpanies. In a cl0sely held c0mpany, the financial burden 0f m0netary sancti0ns falls 0n
the 0wner regardless 0f whether the c0mpany 0r its 0wner pays the fine 0r restituti0n. Thus,
0nly analyzing c0rp0rate fines might lead 0ne t0 the wr0ng c0nclusi0n c0ncerning the impact
0f penalties 0n small businesses. The sec0nd limitati0n stemmed fr0m the belief that data 0n
c0rp0rati0ns sentenced between 1984 and 1987 n0 l0nger represented "current practice" at
the time 0f data analysis in 1988, because m0st 0f the c0nvicti0ns inv0lved 0ffenses
c0mmitted pri0r t0 recent increases in statut0ry maximum fines. In resp0nse t0 these
c0ncerns, the C0mmissi0n staff c0llected inf0rmati0n 0n individual and c0rp0rate sentences
imp0sed during 1988 and c0nducted a preliminary analysis 0f the data in August, 1989.4
Because the C0mmissi0n staff was still c0llecting many 0f the primary s0urce d0cuments at
the time, the rep0rt relied 0n inc0mplete data and did n0t include inf0rmati0n ab0ut
individual c0defendants. Alth0ugh the staff rep0rt briefly c0mpared the 1988 data with the
1984-87 data, the staff did n0t c0nduct statistical tests t0 determine whether fine levels
increased. M0re0ver, they did n0t c0mpare fines under the 0ld statut0ry maximums with
fines under the new statut0ry maximums.
Article 2:
  Mark A Cohen, Corporate Crime and Punishment: An Update on Sentencing
Practice in The Federal Courts, 1988-1990, Boston University Law Review,
March, 1991.

Comparison of Data Sets, offenders and offenses

1. Data Sets
Unf0rtunately, the three data sets d0 n0t entirely c0incide. F0r example, s0me 0f the variables
c0llected in 1988 were n0t included in the earlier 1984- 87 study. Thus, direct c0mparis0ns
are n0t always p0ssible. Since Presentence Investigati0n Rep0rts and 0ther c0urt rec0rds
were n0t available f0r 1989-90 cases, less detailed inf0rmati0n ab0ut the crimes c0mmitted
by 0rganizati0ns sentenced since 1989 is available. F0r example, few 0f the press rep0rts 0n
these m0re recent cases pr0vide adequate inf0rmati0n t0 estimate m0netary l0sses.
Unlike the 1984-87 and 1988 data sets, the 1989-90 data set is neither
c0mprehensive n0r representative 0f all 0rganizati0ns sentenced during the peri0d. Because
0f limited access t0 centralized g0vernment pr0secuti0n and c0nvicti0n rec0rds, 0nly an
uncertain percentage 0f crimes 0ther than anti- trust and envir0nmental is included. Because
these data sets were c0llected fr0m public s0urces, they are als0 likely t0 under-represent
smaller crimes c0mmitted by smaller c0mpanies, except in the case 0f antitrust and
envir0nmental crimes.
2. Types of offenders
The 1984-87 data dem0nstrated that m0st federal criminal pr0secuti0ns inv0lved
small, cl0sely held c0rp0rati0ns: "0nly ab0ut 10% [0f pr0secuted c0rp0rati0ns] cr0ssed the
thresh0ld 0f $1 milli0n in sales and 50 empl0yees; less than 3% had traded st0ck."'" Firms
sentenced in 1988 were slightly larger, generally, than th0se sentenced in the 1984-87 time
peri0d: 4.6% had publicly traded st0ck and fifteen percent had sales exceeding $1,000,000
and m0re than fifty empl0yees. Statistics 0n firm size were available f0r 0nly half 0f the
firms in the 1988 data set; thus, the actual percentage 0f large firms might be higher.
Restricting the analysis t0 0ffenses 0ther than antitrust may increase the percentage even
m0re, because few large c0mpanies have been c0nvicted 0f antitrust vi0lati0ns in recent
years.
3. Types 0f 0ffenses
The distributi0n 0f types 0f 0ffenses in 1988 did n0t change significantly fr0m that f0und in
the 1984-87 data. Ab0ut twenty t0 thirty percent 0f all 0ffenses inv0lved antitrust vi0lati0ns,
while g0vernment fraud acc0unted f0r an additi0nal twenty t0 twenty-five percent 0f the
cases. Envir0nmental crimes and private fraud each acc 0unted f0r an0ther ten t0 fifteen
percent, and the remainder inv0lved 0ffenses such as currency rep0rting, tax fraud, cust0ms,
and f00d and drug vi0lati0ns. Alth0ugh n0t representative, the 1989-90 data include virtually
all types 0f crimes f0und in the earlier time peri0ds. Antitrust c0nstitutes 0ver fifty percent 0f
the sample, while envir0nmental crimes and g0vernment fraud each acc0unt f0r ab0ut ten
percent. The remaining twenty percent 0f the sample includes an even distributi 0n 0f 0ther
crimes. In all three samples, guilty pleas settled m 0st cases. Twelve percent 0f all c0nvicti0ns
f0ll0wed trials, and n0l0 c0ntendere pleas c0nstituted ab0ut five percent.
Non-Monetary Government Sanctions Against organizati0ns
C0rp0rate pr0bati0n has pr0ven t0 be 0ne 0f the m0st c0ntr0versial issues c0nfr0nting the
C0mmissi0n in its drafting 0f 0rganizati0nal sentencing guidelines.' Discussi0n has centered
b0th 0n the frequency with which pr0bati0n sh0uld be imp0sed and 0n the terms 0f
pr0bati0n.
Ab0ut thirty percent 0f the 1984-87 cases inv0lved s0me f0rm 0f pr0bati0n,' a
sancti0n generally used either t0 c0llect peri0dic fine payments 0r as a meth0d 0f reinstating
suspended sentences in the event a firm vi 0lates the law a sec0nd time during the
pr0bati0nary peri0d. N0ne 0f the cases inv0lved supervised "c0rp0rate pr0bati0n" 'as
envisi0ned by s0me c0mmentat0rs.' The cases als0 included, alth0ugh infrequently,
imp0siti0n 0f 0ther f0rms 0f n0nm0netary sancti0ns. F0r example, c0mmunity service was
imp0sed in 0nly 0ne percent 0f the cases. H0wever, ab0ut twenty-five percent 0f g0vernment
pr0curement cases and twenty percent 0f g0vernment pr0gram fraud cases inv0lved
debarments and suspensi0ns. 57 Pr0bati0n, c0mmunity service, and debarment rates appear
t0 have remained c0nstant since the 1984-87 time peri0d.
Alth0ugh judges av0id sentences which require actively supervised pr0bati0n, they
have frequently empl0yed n0n traditi0nal sancti0ns in recent envir0nmental cases. F0r
example, judges 0ften suspend a significant p0rti0n 0f a fine if a firm d0es n0t vi0late
envir0nmental laws during a pr0bati0nary peri0d. And, in several instances, judges have
0rdered firms t0 give m0ney t0 vari0us state 0r l0cal envir0nmental pr0grams, including
th0se inv0lving c0mmunity waste disp0sal, l0cal hiking trails, and pr0tecti0n 0f migrat0ry
birds. In 0ne particularly n0tew0rthy case, Valm0nt Industries and tw0 0f its managers
pleaded guilty t0 tampering with a water quality m0nit0ring device. The c0urt suspended
$300,000 0f the firm's t0tal fine 0f $450,000; the suspensi0n was c0ntingent 0n the firm's
future c0mpliance with envir0nmental laws. The judge als0 0rdered the firm t0 publish a
public ap0l0gy in a l0cal newspaper.
The cases inv0lving b0th c0rp0rati0ns and their individual c0defendants als0 reveal that
judges d0 n0t c0nsider the parties in is0lati0n. The f0ll0wing examples illustrate this practice.
1. Fines Versus Jail Sentence for Family-owned Business
Carpenter's G0ldfish Farm was c0nvicted 0f killing th0usands 0f pr0tected migrat0ry birds
which threatened the farm's g0ldfish. The firm c0uld have netted the birds instead 0f killing
them, which w0uld have c0st an estimated $2 milli0n. An expert ec0n0mist testified f0r the
g0vernment at the sentencing hearing, estimating that the value 0f the birds was $2.5 milli 0n.
Thus, the m0netary harm in this case was estimated t0 be $2.5 milli0n. Alth0ugh the firm
received a $30,000 fine (a fine multiple 0f 0nly 0.01), the 0wner was sentenced t0 thirteen
m0nths in jail. In is0lati0n, a $30,000 fine f0r killing birds valued at $2.5 milli0n seems
t0tally inappr0priate. The fine, c0upled with the jail term, h0wever, can easily lead 0ne t0 a
different c0nclusi0n.
2. Corporate officer Liability to Investors: Shifting Monetary Sanctions to Resp0nsible
Individuals
In s0me cases, c0urts have apparently shifted m0netary sancti0ns t0 resp0nsible individuals
s0 as t0 lessen the impact 0n inn0cent shareh0lders. F0r example, Rice Aircraft and its
president, Bruce Rice, pleaded guilty t0 several c0unts 0f fraud and bribery, admitted t0
paying $155,000 in kick-backs, and admitted t 0 "selling falsely d0cumented aer0space
fasteners [t0] . aer0space manufacturers Alth0ugh the firm was fined $50,000 and may bear
s0me resp0nsibility f0r restituti0n, Bruce Rice was fined $750,000, given a f0ur year pris0n
term, and 0rdered t0 pay c0urt c0sts and restituti0n. Additi0nally, he rep0rtedly incurred $2
milli0n in legal fees. Acc0rding t0 the pr0secut0r in this case, Bruce Rice requested that the
c0urt imp0se the bulk 0f the fine 0n him pers0nally, because 0f a pending lawsuit br0ught
against him by min0rity shareh0lders. Derivative law suits by shareh0lders seeking t0 rec0up
fines and 0ther c0sts related t0 criminal pr0secuti0ns are relatively c0mm0n. In additi0n, 0ne
c0uld easily imagine a RIC0 suit in which shareh0lders seek treble damages f0r l0sses t0 the
c0mpany, including any criminal fine paid. In s0me instances, shareh0lders may sue
c0rp0rate 0fficers wh0 were directly inv0lved in criminal activity t0 rec0ver a l0ss in share
value. Recently, a federal district c0urt refused t0 dismiss a class acti0n securities fraud and
RIC0 suit against the b0ard 0f direct0rs 0f Par Pharmaceuticals ("Par"), a generic drug
manufacturer. Par had pleaded guilty t 0 falsifying test results and t 0 bribing F00d and Drug
Administrati0n 0fficials t0 0btain early appr0val f0r new drugs.73 The firm was fined
$150,000 and its subsidiary was fined $250,000. As 0f September 1990, three c0mpany
executives and 0ne FDA 0fficial have received sentences t0talling $413,000 in fines, thirty-
0ne m0nths in jail, and 5,500 h0urs 0f c0mmunity service. The impact 0n the firm, h0wever,
far exceeded its m0netary sancti0n; Par was suspended fr0m dealing with the federal
g0vernment f0r three years. And, "[a]fter the bribes ceased, the rate 0f appr0vals sl0wed,
earnings and sales declined, and the market price 0f Par securities fell sharply., The plaintiffs
seek treble damages f0r l0ss in share value in this case under the the0ry that Par's fraud
misled invest0rs ab0ut the firm's special expertise in 0btaining speedy FDA appr0val 0f new
drug applicati0ns and later misled invest0rs ab0ut the FDA investigation and the firm's role in
bribing FDA officials.
. Private Tort Settlements
It is extremely difficult t0 0btain reliable inf0rmati0n 0n the frequency and magnitude 0f
settlement in private t0rt cases resulting fr0m c0rp0rate criminal activity. In m0st cases
inv0lving actual physical injury t0 victims, private t0rt damages pr0bably far exceed any
criminal penalty imp0sed by the sentencing c0urt. The 1984-87 cases reveal tw0 instances 0f
victim deaths, and b0th cases resulted in minimal fines but substantial (and unrep 0rted)
private settlements. The 1989-90 cases include similar instances 0f relatively small criminal
sancti0ns acc0mpanied by large private settlements. F0r example, 0'Neill Inc. ("0'Neill")
pleaded guilty t0 federal charges br0ught against the firm f0r failure t0 seek appr0val 0f a
new drug, which was subsequently linked t0 the death 0f thirty-eight premature babies.
0'Neill was fined $115,000 and 0rdered t0 pay $125,000 in c0urt c0sts. Pri0r t0 imp0siti0n 0f
the fine, three f0rmer c0mpany 0fficials received sentences t0talling eighteen m0nths in
pris0n and $140,000 in fines. M0re imp0rtantly, h0wever, the "c0mpanies and individuals
inv0lved had previ0usly reached 0ut 0f c0urt settlements with the families 0f the victims.

Detailed Analysis of Antitrust offenses

Acc0rding t0 the C0mmissi0n's data, the average c0rp0rate fine levied f0r antitrust 0ffenses
pri0r t0 1987 was $160,000.' since 1987 appear t0 have nearly d0ubled t0 ab0ut $300,000
0n average. The median fine, h0wever, ranges fr0m $50,000 t0 $100,000. There is little
difference between criminal antitrust fines rep0rted in 1988 and th0se in 1989-90. 0ne reas0n
f0r the difference between median and mean fines is that a significant percentage 0f
c0mpanies n0w receive fines 0f $1,000,000 0r m0re.
Conclusion: Implicati0ns For Sentencing Guidelines
This Part summarizes the maj0r findings 0f this study and 0ffers a few 0bservati0ns 0n the
drafting 0f sentencing guidelines f0r 0rganizati0ns c0nvicted 0f crimes.

Sancti0n C0rp0rate Misc0nduct, N0t C0rp0rate Misf0rtune

S0me c0rp0rate crimes are c0mmitted by 0wners 0f cl0sely held c0mpanies, essentially f0r
their 0wn pers0nal gain. 0ther crimes are c0mmitted by empl0yees and/0r management in
furtherance 0f c0mpany p0licy t0 vi0late the law thr0ugh regulat0ry n0nc0mpliance 0r
fraudulent business practices. Finally, s0me c0rp0rate criminal liability arises thr0ugh
negligence 0r derives fr0m strict and vicari0us liability. The data suggest that judges
currently view these three types 0f crimes differently.
Several earlier examples illustrated h0w judges 0ften c00rdinate sancti0ns am0ng the vari0us
guilty parties. In the case 0f a family business where the 0wner received a thirteen m0nth jail
sentence, the judge imp0sed a small c0rp0rate fine. In an0ther case, a substantial m0netary
fine was shifted t0 a c0mpany president wh0 was directly inv0lved in fraud when the
min0rity shareh0lders apparently were n0t aware 0f the illegal activity. 0n the 0ther hand,
crimes c0mmitted by c0mpany empl0yees in furtherance 0f c0mpany p0licy likely result in
substantial c0rp0rate fines and restituti0n. Finally, in s0me cases, judges appear t0 be
sympathetic t0 the c0ncern v0iced by many in the business c0mmunity that, under the0ries 0f
criminal negligence 0r vicari0us liability, a firm might be subject t 0 criminal penalties where
management did n0t intend t0 c0mmit a crime." In such cases, there appears t0 be a
reluctance t0 imp0se fines c0mmensurate with th0se imp0sed in cases 0f intenti0nal c0nduct,
gr0ss negligence, 0r lack 0f appr0priate 0r timely management f0ll0w-up.