School of Legal Studies, Cochin University of Science and Technology, Cochin 682022, INDIA.
Crimes committed by corporations and crimes committed within the corporation cause great harm to the people and the economy. Irresponsible conduct by managers results in gross human rights violations. Investor confidence in the capital market gets eroded. The social and financial harm caused by the corporate crime is much larger than that caused by the traditional crimes. Even though law enforcement agencies have started giving serious attention to corporate crime, the enforcement strategy adopted to regulate corporate crime is focusing more on entity liability. The perpetrators of corporate crime either go unpunished or receive lenient punishments.
There is an ever increasing demand from the public that the perpetrators of corporate crime should be prosecuted and punished. The study examines the role of criminal sanctions in making corporate managers accountable for their acts and omissions. It tries to identify the issues involved in imposition of criminal sanctions on corporate managers and directors. It also attempts to assess the efficacy of criminal sanctions in disciplining corporate managers. The major obstacles in holding corporate managers accountable for their acts are identified. The research questions are framed based on the issues identified. The objective of the research is to help the policy makers in framing a better policy in imposing criminal sanctions against corporate managers.
The present study is both doctrinal and explorative in nature. The doctrinal part examines the theoretical basis of imposition of criminal liability of corporate officers. The present law on imposition of criminal liability on corporate officers for corporate crimes is analysed in detail and the problems therein are defined. The explorative part examines the need for use of criminal sanctions against corporate officers. It critically discusses the legal provisions and identifies the flaws in it. The study is mainly a collection and analysis of statutory provisions and case laws relating to attribution of criminal responsibility on corporate managers. Books, articles and committee reports pertaining to the field of study are also relied upon. The method of citation followed is the one suggested by Enid Campbell et.al, in Legal Research Materials and Methods, The Law books Company Ltd., Melbourne (1979).
The thesis is divided into eight chapters. The introductory chapter gives an overview of various mechanisms that are employed to ensure accountability of corporate managers. It traces the history of the use of criminal sanctions against corporate managers and directors.
The second chapter on corporate criminal liability discusses the legal issues involved in imposing criminal liability on corporations and gives an insight into the difficulties encountered in prosecuting and convicting corporate entities. It also analyses how the sanctions imposed on corporations fail in achieving the deterrent and preventive objective of punishment. It finally establishes the need for fixing responsibility on individuals.
The third chapter deals with the theoretical justifications for imposing criminal liability on corporate managers and directors. There have been a lot of criticisms relating to use of criminal sanctions to regulate corporate managers. Many theories were developed for increased use of criminal sanctions. Assessment of the views for and against use of criminal sanctions is an area which requires a detailed study. Law imposes various duties on corporate directors. The nonobservance of such duties is made punishable with criminal sanctions. The basis of the liability is variously termed as ‘direct’ liability, ‘vicarious’ liability, ‘strict’ liability, ‘liability for criminal omission’ or as ‘liability for negligence’. Judiciary has failed to make a theoretical exposition of the nature of criminal liability imposed on directors and officers of the company. The conflicting views taken by courts in this regard call for an in depth analysis. The ways in which corporate managers and directors escape liability are also discussed. Depending on the nature of punishment prescribed for an offence, courts have taken divergent views regarding the liability of the company. When the company is acquitted of the charges there is a tendency for courts to relieve its officers also from liability.
The fourth chapter addresses the issues involved in identifying the corporate officer who is to be made responsible for corporate crime. The statutory attribution of liability and increased use of no- fault liability has been subjected to wide criticisms. Statutes fail to make proper distinctions as to who is to be held liable for non-compliance of the law. This seems to violate the fundamental principle of criminal law that no individual shall be held criminally liable under a statutory provision unless the statute specifies with reasonable certainty that he is one of those individuals to whom the prohibition applies. How the courts have struck a balance in finding the person responsible for the violation requires a critical analysis.
An analysis of the application of criminal sanctions in various potential areas is made in subsequent chapters. Investors and creditors are the main stakeholders of the company. Hence the prominent areas identified for study are use of criminal sanctions for investor protection and creditor protection. The use of criminal sanctions for enforcement of disclosure regulations, prevention of unfair practices in securities transactions and prevention of fraudulent trading are selected to examine its utility in disciplining corporate managers.
The fifth chapter analyses how far criminal sanctions are used to ensure compliance with disclosure regulations. Disclosure regulations are aimed at enabling investors to make rational and informed decisions. There should be an effective mechanism to ensure compliance with disclosure regulations, failing which the regulations will remain as a mere paper tiger.
The scope of criminal sanctions to regulate corporate managerial misconduct in securities transactions are examined in the sixth chapter. Insider trading, price manipulation, market rigging and circular trading are some of the evils prevailing in the capital market. The chapter examines how far each of these unfair practices are regulated by the use of criminal sanctions.
The role of criminal sanctions in controlling fraudulent trading is another area examined in the study. Prohibition on fraudulent trading aims at protecting the creditors of the company. It prevents managers from excessive risk taking and from the abuse of limited liability principle. Directors are duty bound to consider the interests of creditors in times of financial distress and should restrain themselves from unreasonable gambling with the money of the creditors.
The concluding chapter summarises the issues discussed in the study and makes recommendations and suggestions that would help in developing a better legal framework for ensuring accountability of corporate managers.