In the past, I have talked about delinquent communities here and here. The basic argument is that most corporate fraud involves a delinquent community of people aiding and abetting, either helping themselves to the spoils or turning the other way.

But the problem is how do you prosecute a corporation? How do you prove beyond reasonable doubt that the corporation was an accomplice to a crime? That's why since May 2004, almost all the convictions have been individuals, including chief executives, chief financial officers and company founders. Between 2003 and 2006, 31 companies or "bad trees'' avoided prosecution and in slightly over half those cases, individuals were indicted. Also, Department of Justice policy allows companies to avoid prosecution by co-operating with investigators so that the "bad apples" are charged. The question is whether it's a system that allows to companies to get away with criminal activity?

It's a point taken up by Geraldine Szott Moohr, professor of law at the University of Houston. Her paper, Of bad apples and bad trees: considering fault-based criminal liability for complicit corporations, argues that where a corporation encourages or induces criminal conduct, it should be held criminally liable.

While powerful, the assumption that corporate crime begins and ends with the ethical and moral lapses of executives and employees, is not completely or always accurate, '' Moohr writes. "Moral content can be found in the ethos of an organization, and corporate policies can manifest fault and the deservedness of corporate punishment. In many instances of corporate crime, the interests of the firm and the individual are aligned, and agents act, however misguidedly, for the benefit of the firm as well as for themselves. In these cases, the principal-agent conception tends to obscure the corporation's responsibility for the offense ... Individuals commit criminal acts even when the interests of principals and agents converge, and firms can encourage unlawful conduct through executive directives and corporate policies."

She talks about the need to examine the notion of fault-based corporate liability where there is evidence that the corporation encouraged and induced the crime. "Under the theory of strict and vicarious liability, a firm can be liable even when its policies forbade the conduct at issue, and convictions have been upheld even when the firm's benefit was dubious.99 Firms may be liable when the crime was not tolerated or ratified by an officer, when the organization made good efforts to monitor, and when the firm had not been complicit. The patent unfairness of strict and vicarious liability is striking and can be counterproductive.100 Fault-based liability removes this arbitrary aspect of vicarious and strict liability. In addition, a clear, transparent standard for criminal liability produces a more efficient deterrent mechanism. The threat of liability in these circumstances can cause firms to engage in cumbersome oversight protocols, or over-deterrence. When firms know what type of conduct is
likely to expose them to criminal liability, wasteful efforts may be reduced."

Moohr raises a difficult question about responsibility. The Nuremberg war crimes tribunal following the Allied occupation of nazi Germany after World War II, for example, tackled this issue and established that persons could not use the defense that they were only following the orders of their superiors, if that order violated international norms. In other words, individuals could not escape responsibility for crimes committed on behalf of the state, another collective body.

It's a difficult issue because one needs to be fair to both the firm and individuals. A corporation should not escape criminal liability but, as Moohr says, it shouldn't be held criminally responsible just because it's a collective body.