Corporate Justice

[Jonathan Buhacoff]

Proposal:

In cases where a corporation acted unlawfully, both the corporation and its involved, knowledgeable, and responsible personnel shall be prosecuted. Involved personnel include the officers, managers, and employees who were involved in the unlawful acts. Knowledgeable personnel include the officers, managers, and employees who had knowledge of the unlawful acts and a duty to report such acts but failed to report them. Responsible personnel include the officers, managers, and employees whose duties involve doing or supervising the activities, facilities, or equipment that were involved in the unlawful acts and therefore should have had knowledge of the unlawful acts, and failed to notice and correct them.

Personnel who were aware of the unlawful acts but were not mandatory reporters at the time shall not be considered as knowledgeable personnel.

When the unlawful act is a misdemeanor or restorable violation, the corporation and its involved, knowledgeable, and responsible personnel shall each receive the citation with a fine.

When the unlawful act is a restorable violation, the corporation shall also receive and be responsible for the invoice for victim compensation.

When the unlawful act is a felony misdemeanor, felony restorable violation, or felony violation, the corporation and its involved, knowledgeable, and responsible personnel shall each be tried and, if convicted, punished separately according to their circumstances such as level of involvement, knowledge, and responsibility. A corporation cannot be imprisoned but if the unlawful acts were severe enough the corporation may be prohibited from engaging in certain activities, or from operating in certain areas, or the corporation may lose its business license and be required to dissolve. The involved and knowledgeable personnel may be imprisoned for felony violations. The punishment for responsible personnel who were neither involved not knowledgeable of the unlawful act shall be limited to fines and they shall not be imprisoned.

A corporation’s shareholders shall not be individually liable for fines for a misdemeanor or fines and victim compensation for a restorable violation because they are already affected by the corporation’s liability. However, if a corporation is convicted of felony misdemeanor, felony restorable violation, or felony violation, and does not have or is unable to obtain sufficient capital to pay the fines and victim compensation, the corporation’s shareholders shall be liable for the remainder, not to exceed the dividends and profits they received from the corporation. A corporation’s shareholder liability is limited to the financial benefit received from the corporation. Shareholders cannot be imprisoned for unlawful acts by the corporation’s personnel.

Corporate fines shall be calculated based on a percentage of corporate annual revenue in addition to a minimum pre-determined corporate fine for each unlawful act.

Involved, knowledgeable, and responsible personnel fines shall be calculated based on a percentage of total personal annual income from all sources in addition to a minimum pre-determined personal fine for each unlawful act.

Intent:

Corporations must be held accountable for unlawful activity. Shareholders care about profits, so corporate fines must be based on percentage of revenue to ensure that they are significant enough to be noticed by shareholders, who will then demand that officers of the corporation follow the law to avoid more fines.

Furthermore, individual officers and managers in the corporation must be held accountable for their unlawful actions even if they were unintentional, for example if the individual was unaware of the law or unaware that they or their employees were violating it.

Shareholders should not be able to profit from a corporation’s wrongdoing, so if a corporation is found guilty of a felony unlawful act and doesn’t have the capital to pay the fines and victim compensation, shareholders are liable for the remainder but only up to the amount of financial benefit they received from the corporation.

Personnel and shareholders who were not involved in the unlawful acts shall not be imprisoned for them.

Discussion:

This proposal attempts to address an injustice where a person may be prosecuted for a crime but when a corporation commits a crime the corporation is either not prosecuted or receives a judgement that is insignificant compared to the corporation’s revenues or assets, or where the corporation’s management finds a “fall guy” to take the blame while everyone else who was involved in the wrongdoing goes unpunished.

One important part of the solution to this injustice is that while a corporation is liable for unlawful acts that were part of its operation (as opposed to liability for unlawful acts that were committed by an employee but unrelated to the corporation’s business or acting outside of the corporation’s established policies and procedures), its involved, knowledgeable, and responsible personnel are also liable to different extents for unlawful acts. The involved personnel are the doers — if convicted, they would receive the full sentence such as fines and imprisonment. The knowledgeable personnel are people who both had knowledge of the criminal activity and a legal duty to report it, but failed to meet that obligation — if convicted, they would receive a full sentence for failing to meet their legally required reporting obligation but not the full sentence sentence for the crime itself, because they didn’t do it. The responsible personnel are people who, due to their position, should have been aware of what was happening and either had no awareness or were aware but failed to stop or report it — if convicted, they would receive a lighter sentence that would not include imprisonment because because they neither did the crime nor had a legally required reporting obligation. This is what would prevent a CEO from claiming they had no knowledge of the crime and therefore no responsibility at all — they would at least be responsible for paying fines based on a percentage of their personal income for being in a position where they should have known but didn’t, and can continue doing their job and learning from their mistakes.

Another important part of the solution to this injustice is that corporation and its involved, knowledgeable, and responsible personnel are each held accountable, and any fines that are due are computed as a percentage of the corporation’s or the person’s annual income such that they are significant at any scale.

A corporation may separate (terminate the employment of) its involved, knowledgeable, or responsible personnel as a consequence of being cited for unlawful actions, but may not transfer the legal responsibility of paying corporate fines or victim compensation to its personnel. However, a corporation may invoice its personnel for some amount of its fines or victim compensation, possibly with a payment plan, as a condition of continued employment. The personnel may reject the plan and resign, and the corporation would still be liable to the government for the fines and to the victims or their successors for compensation.

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