CORPORATE CRIMES

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INTRODUCTION

Corporations play vital role in our day to day lives, from providing necessities, employment generation to overall economic development of a Country. And with great power comes great responsibilities, but it is often now that we come across the news of scam worth of millions or even billions sometimes, committed by the people sitting on the prominent positions of these Corporations.[1] It is the position which plays an instrumental role in providing them with opportunities of committing financial crimes. These crimes are called Corporate crimes or White-Collar Crimes.

There is no uniform definition of corporate crimes. As the terminological differences exist between Corporate crimes, organised crimes & white-collar crimes, but they do not necessarily have implications on the essence of corporate crimes.[2] Hence, in general parlance, it can be defined as a type of organized crime committed by corporation or by individuals associated with such corporations for corporate gain. According to Sutherland, white-collar crime is a crime committed by a person of respectability and high social status in the course of his occupation.[3] Braithwaite defines “Corporate crimes” as the conduct of a corporation or of employees acting on behalf of a corporation, which is proscribed and punishable by law.[4]  

CORPORATE CRIMINAL LIABILITY

Corporations are “separate legal person”, but as we know it acts through its members, therefore, separate criminal liability can be imposed on corporations for wrongdoings of its members. The ground rule of criminal liability is based on a latin maxim “actus non facit reum, nisi mens sit rea”. It means that the act or omission is not wrongful unless done with guilty mind. Earlier, corporations were not held guilty for their acts or omissions because mens rea could not be proved, but the courts have expanded its horizons in the landmark judgment of Standard Chartered Bank Case[5] & held that the Company can be held liable for both civil & criminal offences & they are not immune from the criminal prosecution merely on the ground that they are incapable of possessing the necessary mens rea for the commission of criminal offences.[6] Certain doctrines adopted to establish corporate criminal liability are:

  1. Doctrine of vicarious liability: It is based on the maxim “Respondeat superior”, which means let the master be responsible for the acts of its servant. Though, master cannot be held liable for illegal acts of servant, a departure has been made in case of corporates. Hence, the doctrine is applied in criminal liability as well, wherein corporates can be held liable for the acts of its members or employees & Corporate is made liable to pay fines/penalties or seizure of property.
  • Doctrine of identification: This theory was developed to hold corporations liable for the acts of its agent directly, & not vicariously. A corporate has no mind, its will is directed by human agency of their directors or officers and authorized agents. Hence, there is no reason to exempt corporates from the crimes of its agents or officers which are essentially committed on behalf of corporates themselves.
  • Doctrine of collective blindness: According to this theory,it is the aggregate knowledge of all employees which forms the basis for committing a crime. The object of this theory is to prevent corporates from compartmentalizing their work and duties in such a way that it becomes elementary for them to evade liability by pleading ignorance in the event of any criminal prosecution.[7]
  • Doctrine of willful blindness: In context of corporate crimes, it considers “knowledge” as a substitute of “mensrea”. It states that Corporates cannot willfully choose to ignore the criminal liabilities of its members or employees. It is a deliberate act to ignore the facts that create a suspicion or awareness that there is a likelihood of wrongdoing. In the case of Global-Tech Appliances, Inc. v. SEB S.A.,[8] it was held that corporate which behaves in “wilfully ignorant” manner is just as culpable as those who are equipped with actual knowledge.
  • Doctrine of attribution: It states that the persons who are directing the mind & will of the company should be held liable along with the Company. In ‘State of Maharashtra vs. Syndicate Transport Co. (P) Ltd.’[9] the Bombay High Court held that the criminal liability of the corporate body depends on the nature of the offence and the position of the officer or agent of the corporate body.
  • Doctrine of Alter-ego: This doctrine is an exemption to the “presumption of law”. It was discussed in the case of Iridium India Telecom Ltd. vs. Motorola Incorporated and Ors[10], it was observed that the persons who are in actual control of the affairs of the company, are responsible for directing its will & mind, i.e., state of mind of these people is state of mind of Company thus, they act as “alter ego” of the company. Hence, the mensrea flows from the affairs of the corporation which are carried out by a person or a body person who are in charge of the affairs of the corporation in course of its business. 

TYPES OF CORPORATE CRIMES

The major types of corporate crimes are bribery, counterfeiting, fraud, insider trading, blackmail etc. They are also capable of committing a variety of crimes which include crimes resulting in physical harm-like industrial disasters, occupational hazards, manufacturing unsafe products, causing industrial pollution which lead to environmental degradations and also committing human rights violations.[11] In his study Sutherland, identified false advertising, patent abuse, wartime trade violations, price-fixing, fraud, or intended manufacturing and sale of faulty goods as corporate crimes[12], but as we are moving towards technological advancements, the nature, scope & effects of these crimes are also expanding. Certain types of Corporate crimes are:

  • Insider Trading: When someone who has access to non-public material information about the company uses it to deal with the securities of a Company for the benefit of oneself is called insider trading.
  • Ponzi Scheme: It is a fraudulent investment scheme which generates investment for earlier investors from the money taken from later investors. When the fraudster is not able to attract sufficient number of investors to pay off its clients then the scheme collapses, leaving investors with huge loss.
  • Embezzlement: When an employee or person in authority misuses his authority & intentionally misappropriates the assets of Company or someone else for personal use it is called embezzlement.
  • Counterfeiting: With availability of easy & advanced technology, it is easy for fraudsters to print copies of currency notes or other negotiable instruments. This forged currency circulates in economy & harms not only the economy of the country but also hamper the investment money for public infrastructure.
  • Money-laundering: Money laundering is the generic term used to describe the process by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source.
  • Cyber-crimes: Cyber-crime is a type of criminal activity which involves a computer system or a computer network or a networked device. Some cybercriminals are organized, use advanced techniques and are highly technically skilled. Some types of cyber crimes are identity theft, internet fraud, crypto-jacking, cyber-espionage, theft or sale of data, phishing, hacking etc.

Some other types of corporate crimes include forgery, corporate pollution, falsification, misrepresentation or intentional omission of material information, false advertisement, bribing etc. The above-mentioned list is not exhaustive. Further, we can also demarcate Corporate Crimes on the basis of such crimes committed against various stakeholders are:

  • Against Customers: Customers are generally categorized as primary victims of corporate of white-collar crimes as they are subjected to to fraud, safety and health threats and deception from the production and sale of consumer goods and services directly or indirectly. But, crimes against them are generally not regarded as crime but as lack in quality of consumer services under Consumer Protection Act, 1986.[13] But, there are acts which come under the parlance of criminal acts & are separately addressed by various Statutes like Food Adulteration Act, Drugs & cosmetics Act etc. The wide range of crimes committed by corporates (both small & big) against customers include Food adulteration, misleading indications or descriptions about ingredients of products, misleading pictures, Food packaging, false labelling of products, manufacturing or distribution of dangerous products, selling goods at inflated prices, increased tax bill to avoid corporate tax or violation of licensing restriction etc. The corporates sometimes use their platform to promote racial & gender inequalities. In generality, only fines or penalties are imposed for such crimes & the actual officials behind these get away without even getting a scratch. The corporates must understand the importance of their role & range of impact on consumers. It is their duty to ensure health, safety & welfare of its customers. On the other hand, customers should also be aware (Caveat emptor) of the corporations & the quality of goods & services supplied by them.
  • Against Government: The Corporations are depended on the policies & economic decisions of Government. But there are times when Corporates go against their Corporate liabilities. Tax evasion, manipulation, falsification, alteration of accounting records, misrepresentation or intentional omission of amounts, misapplication or non-application of accounting principles, offering bribes to public officials etc are some examples of these kinds of crimes.
  • Against Employees: Employees are exploited by the corporates by not observing proper application of Labor laws. Their safety, health & welfare is neglected & endangered by Corporates. Occupational hazards, gender inequalities, delay in compensations, non-payment of medical expenses in case of accident, employing children in hazardous units etc. are some examples of crimes that are committed by corporations against its employees. But due to the fact that Company is an artificial being & cannot be arrested, only penalties are prescribed by the statutes.
  • Against creditors & investors: Insider Trading, fraud, embezzlement, money laundering, counterfeiting, manipulation of company’s financial reports etc are some types of offences committed by Companies. Further,Corporate bankruptcies among companies such as Enron, Worldcom, Sahara etc. have brought into focus the director’s duty to prevent fraudulent trading.[14]
  • Against Environment: Offences such as ‘environmental crime’ affect the general public and local communities. This includes a vast range of activities including illegal emissions from industry, farming and transport, littering, waste dumping, pollution of land, water and rivers and noise pollution.[15] Corporate environment crime is now new subset of Corporate crimes. Despite having environmental legislations & policies Corporates freely & without guilt are able to get away with environment crimes in the name of “development” requirements.

EFFECTS OF CORPORATE CRIMES[16]

  • Impact on Individual & societal economy: The corporate frauds & crimes rip innocent individuals of their savings, which not only affects their family finances but also have long lasting psychological effects. At national level, scams or frauds worth of millions can affect economy to its core. For Eg. in Punjab National Bank Case, not only the trust on public sector banks was broken but Indian Economy had to suffer loss which is impossible to be covered in short span of time.
  • Loss of government revenue: Evasion of taxes affects revenue sources & finance planning for the country, Low amount of budget is allotted to important infrastructure & development projects.
  • Impact on Judiciary: Increased number of cases put unnecessary burden on Judiciary. But corporations are capable of hiring expensive lawyers & so that they can stretch the cases from years to years without actually putting the culprits behind bars.
  • Impact on Company: The Corporations have to undergo strict societal & regulatory scrutiny; their reputation is severely affected & the long-term survival goal in market is seriously jeopardized.
  • Impact on Environment: Neglecting environment leads to sacrificing both presents & future generation needs. Cost of development should not be our ecological system.

REGULATORY LEGISLATIONS TO CONTROL CORPORATE CRIMES

  1. Stock & Exchange Board of India, 1992: SEBI regulates the financial instrument Market in India & promotes the interests of investors. From time to time, it issues Regulations & rules pertaining to insider Trading, takeover, disclosure requirements etc.
  • Companies Act, 2013: The Companies Act provides for Corporate governance, corporate criminal liability & setup of Tribunals for effective resolution of disputes.
  • Indian Penal Code, 1886: It provides for penalties for fraud, forgery, breach of trust etc. It forms the basis, when no specific statute provides for an offence.
  • Prevention of Corruption Act, 1988: The Act provides for criminal liability of public officer or public servant. This act holds the people in government offices liable for offence of bribery or any other, committed as per the Act.
  • Competition Act, 2002: It ensures that Corporations do not abuse their money & power to distort healthy competition environment in country.
  • Taxation Statutes: By providing for penalties, fines & other regulatory authority actions, it ensures that Government revenues are not evaded by the corporations & its people.
  • Environment Protection Laws: Protection of environment is a responsibility of a Community as a whole & by establishing National Green Tribunal & requirements of environmental impact assessment, corporate crimes against environments can be reduced.
  • Prevention of Money Laundering Act, 2002: Corporates are largely involved in these kinds of socio-economic offences. This Act prevents abuse of economy by stating money laundering as an offence & providing penal provisions for the same.
  • Information Technology Act, 2000: Technological advancements has opened our economy to cyber crimes & frauds. To encounter these penal provisions pertaining to corporations are included in the said Act.

Other authorities like Central bureau of Investigation (CBI) & Enforcement Directorate (ED), also play crucial role in investigating & preventing corporate crimes.

CONCLUSION

As corporate crimes are difficult to prevent or deter, especially because they are performed by the elite class of well-educated people of our society they are considered as more threat to our society than the local street crime like theft, burglary, etc. Corporations have affected both good & bad part of our society. Their actions in form of corporate crimes can neither be avoided nor accepted. Hence, Corporate criminal liability is gaining importance in all the important spheres of society. The loopholes in our regulatory system gives them opportunity to getaway with liabilities. Thus, they cannot be dealt with by implementing more laws or governance practices, but rather by effective and stringent action against the perpetrators. To combat corporate crimes, the regulatory mechanism has to be strengthened and provisions for the imposition of stringent legal penalties have to be made.

The increasing presence of International corporations & their domination is becoming a threat to society rather than method of development; despite having number of legislations in position a great effort towards improving corporate governance practices and making companies more responsible and answerable is required. Hence, we need more effective measures at both national & international level to ensure proper checks & balances on these corporations.


[1] Asha Joshi, (2012), Corporate Crimes: An Introduction, SSRN Electronic Journal, DOI: 10.2139/ssrn.2148235.

[2] Šikman, M., (2013), Corporate Crime – New Approaches and Future Challenges.  Institute of Corporate Security. (103-114).

[3]Sutherland, Edwin H. (1940), The White-collar criminal.  American Sociological Review, 5:1–12. DOI: 10.2307/2083937.

[4] Braithwaite, John, (1991), Poverty, Power, White-Collar Crime and the Paradoxes of Criminological Theory.

[5] Standard Charter Bank v. Directorate of enforcement, AIR 2005 SC 2622.

[6] B.N. Monisha, Keerthana.J, Criminal Liability of Corporation: An Indian Perspective, ISSN 2321-4171.

[7] Sheeba Sulthana, Greeshma K.V, Corporate Criminal Liability, ISSN 2321-4171.

[8] 563 U.S. 754 (2011).

[9] AIR 1964 Bom 195.

[10]  AIR 2011 SC 20.

[11] Gyan Tiwari, (2020), Corporate criminal Liability: An Analytical study.

[12] Supra Note 3.

[13] Hazel Croall. White collar crime, consumers and victimization. Crime, Law and Social Change, Springer Verlag, 2008, 51 (1), pp.127-146. ff10.1007/s10611-008-9147-zff. ffhal-00478394.

[14] Preetha S, (2011), The Fraudulent Trading Offence: Need for A Relook, Published in Articles section of www.manupatra.com.

[15] Supra Note 5.

[16] Aroj Ali, (2019) Impact of White Collar Crime and Essence of Special Enactment: Bangladesh Perspective, International Journal of Humanities Social Sciences and Education (IJHSSE) Volume 6, Issue 2, PP 41-49 ISSN 2349-0373 (Print) & ISSN 2349-0381.

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