CRIMINAL VERSUS CIVIL SANCTIONS
3.1 In Chapter 2,1 the Commission raised the question of whether it is appropriate to impose criminal liability at all on corporations, instead of relying solely on the civil law. It has been suggested from time to time2 that a more effective sentencing strategy to control corporate behaviour would be to place greater reliance on civil penalties and persuasive techniques through self-regulation. The focus of law reform in this area would then shift to exploring the range of civil penalties and self-regulatory measures available. It is worth noting here that the Australian Law Reform Commission is currently conducting a general inquiry into the place of civil and administrative penalties within the (federal) legal system, including the relationship between criminal, civil and administrative penalties.3 There is the potential for some overlap between our reference and the ALRC’s reference, involving an analysis of civil, administrative, and criminal sanctions as modes of social control.4
3.2 Deterrence is generally cited as the primary aim of and justification for sentencing corporate offenders.5 This is because, in theory at least, corporations can be deterred from committing wrongful conduct. Unlike individuals, corporations do not commit crimes of passion, nor are they generally committed to crime as a way of life. They tend instead to engage in wrongful conduct as a calculated risk, often economically motivated. They can be deterred if that conduct represents a risk that is not worth taking. Similarly, it has been argued that rehabilitation should not be ignored as an achievable objective of sentencing corporations.6 It is said to be easier to rehabilitate a corporation than an individual, because the causes for offending, such as defective structures and processes, are more malleable and open to change than individual human personalities. These assertions, if accepted, provide support for imposing criminal sanctions on corporations.
3.3 However, it may be argued that criminal prosecution and criminal sanctions are both unnecessary and ineffective in dealing with corporate misconduct because, in their current state at least, they have little deterrent and rehabilitative effect.7 On a practical level, difficulties in investigating and proving corporate crime beyond a reasonable doubt may result in few successful prosecutions against corporations. The criminal law then poses little threat to potential offenders. Added to this is the delay that often arises in obtaining a verdict in a criminal matter, and reliance on public enforcement bodies for the decision to take action against a corporation. Even if a criminal prosecution is successful, the sentence that is imposed, in most cases a fine, is said to be inadequate in deterring and rehabilitating the offender. Lastly, there may be a range of offences affecting corporations that should properly be considered “regulatory” rather than truly criminal, because they are not so much morally reprehensible as a means of regulating corporate activity. It may be questioned whether the imposition of criminal sanctions for these offences lessens the impact of the criminal law in condemning more serious cases.
3.4 In contrast to criminal sanctions, civil penalties are imposed according to a lower standard of proof. They do not rely solely or primarily on public enforcement. They are also arguably more quickly available, with greater flexibility for the court to fashion an order that is appropriate in the particular circumstances. Moreover, measures can be taken to prevent the misconduct, rather than having to wait for damage from the misconduct to occur. Support has also been given to self-regulation as a means of persuading corporations to comply with the law and placing the burden on them to ensure compliance, since they are often in the best position to monitor behaviour and discover breaches.
3.5 The usual response to a suggested shift of emphasis from criminal sanctions to the civil law and self-regulation is, as noted in Chapter 2,8 that the criminal law is necessary to express the appropriate level of denunciation of the conduct. While it is recognised that the existing sentencing scheme for corporate offenders is inadequate in meeting the objectives of deterrence and rehabilitation, it is argued that the proper approach is to reform the criminal sanctions available, rather than reject altogether the imposition of criminal liability.
3.6 A number of commentators have suggested that the most effective sentencing strategy for corporate offenders is one that relies both on criminal and civil sanctions, and some degree of self-regulation.9 A possible model is one that relies first on self-regulation to persuade corporations to comply with the law, with criminal sanctions used as the ultimate threat for non-compliance. It may still be desirable, however, to widen the range of criminal sanctions available to ensure that they pose sufficient threat.
ISSUE 1
When, if ever, is it desirable to impose criminal sanctions on corporations, as opposed to civil and/or administrative penalties?
What should be the main aim(s) of sentencing of corporate offenders?
INADEQUACIES OF THE FINE
3.7 As we noted in Chapter 2, the fine is the most common sentencing option for corporate offenders, and, in most instances, is the only sanction available. Not only is it claimed that the amounts for fines are at times too low to provide any meaningful punishment and deterrence, but that monetary penalties of any amount are often an ineffective means of achieving the objectives of sentencing for corporate offenders. The following are the main arguments against the fine as a sentencing option for corporate offenders.10
3.8 Fines trivialise the gravity of corporate crime. It is argued that fines do not act as sufficient denunciation of serious criminal misconduct. They convey the message to the community that corporate crime is less serious than other crime and that corporations can buy their way out of trouble. Moreover, corporate crime causes harm to society that is more than economic. Sole reliance on a monetary sanction tends to diminish the significance of the non-economic harm caused, such as irreparable damage to the environment, or death or injury sustained from a workplace accident.
3.9 Fines do not deter corporate crime. Larger corporations may treat relatively low fines as mere business losses, which are outweighed by the economic gain in committing the crime. They may pass on the cost of the fine to their shareholders, employees, or consumers of their products. In that case, the fine loses any deterrent effect it may have had.
3.10 In contrast, for smaller corporations, or for subsidiaries of larger corporations, fines of an amount necessary to reflect the gravity of an offence may be beyond their means to pay. It has been argued11 that, in this situation, a large fine can have as little impact as a fine for a small amount. Unlike an individual who is fined, and for whom imprisonment is the ultimate threat for failing to pay,12 there is no such final sanction that may be imposed on the corporation that does not or cannot pay. The final sanction for a corporation is civil action to recover the amount of the fine,13 including, for example, seizure of the corporation’s property, or placing a charge over land owned by it. It is questionable whether civil action is necessarily an effective means of enforcing a fine (and, ultimately, acting as an adequate deterrent), particularly for corporations that are not asset rich. Even where a corporation has sufficient assets to cover the amount of the fine, enforcing payment through seizure may drive it out of business, with disastrous effects on workers and creditors. And whereas an individual has the opportunity to “work off” a fine by performing community service,14 there is no such option for corporations. Therefore, there may be no action taken against a corporation that does not pay. In those situations, the fine has minimal deterrent effect.
3.11 Another ground for arguing that the fine is not an effective deterrent is that it does not address the non-economic motivations for a corporation to commit a crime. These may include, for example, the desire for greater power or prestige, or the need for security. Different divisions of the corporation may have different motivations for offending, such as preventing closure of a plant or local office. In that situation, the threat of a monetary penalty will not necessarily deter.
3.12 Fines do not address the rehabilitative aims of sentencing. When a corporation is sentenced to pay a fine, it is not compelled to review its management structure or reform the internal procedures or policies that contributed to or caused the wrongful conduct giving rise to the offence. It is left to the corporation to take that initiative itself, on the assumption that it will be motivated to do so in order to avoid reoffending and incurring further fines. As noted above, however, a fine may offer little such deterrence.
3.13 Large corporations may avoid the punitive effect of a fine through subsidiaries. Subsidiary corporations are regarded as separate legal entities from their parent corporation. A fine that is imposed on a subsidiary is therefore measured according to the resources of the subsidiary, rather than the parent corporation. In this way, large corporations that do business through subsidiaries may avoid the punitive effect of a fine that is imposed on the subsidiary rather than the parent, even if the subsidiary is acting on the orders of the parent corporation.
3.14 Fines may punish the “innocent”. It has been argued that fines may punish the innocent as well as, and sometimes, instead of, those responsible for the criminal conduct. As noted in paragraph 3.9 above, in the case of larger corporations in particular, the costs of a fine may be passed on to shareholders, employees, or consumers. These people may not have the power to influence the conduct of the corporation that gave rise to the offence. As also noted in paragraph 3.10, in the case of smaller corporations, or corporations that cannot pay the fine imposed, civil action to recover the fine can have disastrous effects on employees or shareholders if the corporation is put out of business.
3.15 Concern for the effect of a sentence on innocent parties is not in itself a reason for rejecting that sentence as the proper response to criminal conduct. Sanctions will often have a punitive effect on those not responsible for the crime, such as the effect on dependent children where a parent is sentenced to imprisonment. This last argument serves as an illustration of the limited deterrent effect of the fine as noted in paragraph 3.9-3.10, in so far as the corporation may avoid or minimise the impact of a fine by passing it on to others or by avoiding payment by pointing to the effect this will have on others.
ADVANTAGES OF THE FINE
3.16 Despite these criticisms, there are certain advantages to imposing a monetary penalty on corporate offenders. Fines are relatively inexpensive and easy to administer and enforce, and also generate revenue for the state. As well, they do not involve government intervention into the internal affairs of a corporation.
3.17 In the United States of America, the fine remains the primary sentencing option for corporate offenders convicted of federal offences, following sentencing guidelines first developed by the US Sentencing Commission in 1991.15 The Sentencing Commission’s approach to formulating an effective sentencing regime for “organizational defendants” was to re-evaluate the ways in which amounts of fines were determined, rather than exploring other, non-monetary sanctions (besides corporate probation). The Sentencing Commission set out equations for calculating suitable amounts for fines, which involved consideration of the seriousness of the offence and the culpability of the offender. The seriousness of the offence was given a cash value, taking into account the pecuniary gain or loss from the offence.
3.18 This approach assumes that a fine can provide adequate deterrence and punishment. That assumption has been criticised for being fundamentally flawed, for the reasons set out above. That does not mean, however, that the fine should be rejected altogether as a sentencing option for corporate offenders. Arguably, the advantages of the fine make it a useful and appropriate sanction for the less serious, more “regulatory” offences.
ISSUE 2
In what circumstances, if ever, is a fine an appropriate sentencing option for a corporation?
What factors should a sentencing court take into account when fixing the appropriate amount to impose as a fine on a corporate offender?
ALTERNATIVE SENTENCING OPTIONS
3.19 Numerous suggestions have been made for sentencing options for corporate offenders as alternatives to the fine.16 These are listed and explained below.
3.20 Equity fines: An order to pay an equity fine requires the corporation to authorise and issue a number of its shares to the state’s crime victim compensation fund. The fund is then able to liquidate the securities in whatever manner maximises its return. Legislation could list potential beneficiaries to receive the shares in addition to the victim compensation fund. One advantage of the equity fine over the cash fine is that the amount imposed is not restricted by the corporation’s resources, which may be less than the amount that is required to reflect the gravity of the crime. Another advantage is that its effect could not be avoided or minimised by passing it on to “innocent” employees and consumers. It would, however, affect shareholders, including shareholders with relatively little control over the corporation’s activities.
3.21 Publicity orders: The sentencing court could require the convicted corporation to give appropriate publicity to the conviction by notice to the class, or classes, of persons, or sector of the public, interested in or affected by the conviction. Publicity orders are directed primarily towards the infliction of loss of corporate prestige. It is argued that many corporations are sensitive about their prestige as an interest over and above profits, and potential loss of prestige plays an important part in corporate decision-making. The shame generated by negative publicity therefore punishes the offending corporation and deters it from reoffending. Although publicity orders cannot guarantee reform of the procedures or policies that contributed to or caused the commission of the offence, they could be used to put public pressure on the corporation to carry out such reforms. There is a danger, however, that if used indiscriminately or inappropriately, the public may simply become bored of long lists of advertisements reporting convictions, and in that way the effect of the publicity order would be lost. The new Occupational Health and Safety Act 2000 (NSW) includes provision for the use of publicity orders as a sentencing option for corporations. The legislation does not include any details as to the form of the publicity or when a publicity order is to be imposed. It is presumably left to the discretion of the sentencing court to make these determinations.
3.22 Corporate probation: Probation is aimed primarily at rehabilitating the offender to prevent further offending. As with an individual on probation, corporate probation suspends the imposition of a more serious sanction conditional on the corporation complying with certain requirements. For example, the sentencing court may appoint probation officers, paid for by the corporation, to monitor operating procedures over a period of time to make sure that the corporation complies with the law. Probation may be particularly appropriate for sentencing small corporations, where offences can often be attributed to ignorance of the law or poor financial management.17 If New South Wales legislation were to provide for probation as a sentencing option for corporate offenders,18 it would need to be determined what sanction would follow breach of the probationary order.
3.23 Suggestions have been made19 for two specific forms of corporate probation, internal discipline orders and organisational reform orders. Internal discipline orders require the corporation to investigate an offence committed by it, carry out appropriate disciplinary proceedings against the individuals responsible, and return a detailed and satisfactory compliance report to the court. The main advantage of an internal discipline order is that it places the burden of investigation and, to an extent, punishment, on the corporation, in circumstances where it may be difficult or impossible for a government body with limited resources to investigate and prosecute those responsible for the criminal conduct. It would not, however, be appropriate where such conduct is properly attributable to the corporation as an institution, rather than to the acts of a few individuals within it. There is also a risk that injustice will arise from a corporation undertaking internal investigation and discipline without the safeguards of the criminal trial process to protect the rights of the individual, and the corporation using an individual as a scapegoat to attribute blame. On the other hand, it has been argued20 that internal discipline is not the same as criminal proceedings in terms of stigma or the imposition of a sentence such as a term of imprisonment, although this may be small comfort to an individual who is wrongly accused and loses his or her job.
3.24 Organisational reform orders require revision of corporate policies and procedures under court supervision for a limited time. They have been described as a “soft” sentencing option, with more serious crimes calling for more punitive sanctions.21
3.25 One concern with corporate probation is the possibility that it will subject a corporation to inefficient and excessively intrusive governmental intervention. In response, it has been argued that this is the price that may need to be paid in order to maintain an effective crime control system over this group of offenders. Precautions could also be taken to ensure that the degree of state control over a corporation does not become overbearing, such as allowing corporate offenders an opportunity to set out, before sentencing, the initiatives they propose to take in response to their conviction.22 Corporate probation would appear to have the particular advantage of forcing the corporation to identify and correct the defective system that gave rise to the offence. A probationary order could require remedial work to be performed and to satisfy inspection when completed. This would require the sentencing court to supervise the performance of its order, a role that courts do not usually take on. It may however be necessary for the courts to undertake a supervisory role over orders that are designed to remedy established defects or poor practices which might again produce widespread damage if they are not remedied.
3.26 Community service orders: As with individuals sentenced to perform community service, corporations could be ordered to undertake a socially useful project involving a commitment of their time, effort, and skills. For example, a corporation that has been criminally negligent in manufacturing and distributing a drug causing birth defects could be ordered to set up and administer a facility to manufacture aids such as prosthetic limbs for those affected.23 Community service orders would not in themselves guarantee proper corporate reform to prevent reoffending. However, it has been suggested that such reform could be achieved if community service were combined with probation.24
3.27 Brent Fisse cites two potential problems with the use of community service orders for corporate offenders.25 First, there is opportunity for judicial officers to channel corporate resources into pet charity programs. That concern could be addressed by a legislative requirement that the community service bear a reasonable relationship with the offence or with the offender’s potential for rehabilitation, or by listing an authorised range of projects in the legislation or subordinate legislation. The second potential problem is the risk of a corporation “cheating” on its community service. Professor Fisse suggests that this problem could be overcome by setting up certain safeguards, such as court-appointed monitors paid for by the corporation.
3.28 Disqualification and dissolution: Two more draconian sanctions are disqualification and dissolution. A corporate offender could be disqualified from engaging in certain business, such as disqualification from government contracts. It is questionable whether it is appropriate for the courts to become involved in the government’s decision whether or not to enter into a contract with a particular corporation. A corporation could also be dissolved by, for example, placing it in the hands of a receiver or nationalising it. This has been described as a form of “corporate capital punishment” and for some may be ideologically repugnant.26
ISSUE 3
Which, if any, of the following sentencing options would be an effective sanction against a corporation, and in what circumstances: equity fines, publicity orders, corporate probation, community service orders, disqualification and dissolution.
Are there any problems or disadvantages in including these sanctions in the sentencing regime for corporations? Are there other sanctions that should be included?
Pre-sentence reports
3.29 In determining an appropriate sentence for a corporate offender, it may be useful for the sentencing court to have before it information in a form similar to the pre-sentence report that is commonly tendered when sentencing individual offenders.27 For example, information relating to the company’s accounts, and the salary packages (including bonuses and option deals) of its senior executives, may be relevant in determining the appropriate sentence.
ISSUE 4
Should a sentencing court be entitled or required to consider a pre-sentence report in determining an appropriate sentence for a corporate offender?
What information would be relevant to include in such a report?
CONSOLIDATION: A GENERAL SENTENCING SCHEME?
3.30 As we have noted,28 criminal liability and the imposition of criminal sanctions for corporations typically arise from disparate pieces of legislation that affect various areas of corporate activity. In reviewing sentencing issues concerning corporate offenders, a fundamental question is whether it is appropriate to devise a general sentencing scheme for corporations, and consolidate at least the more serious corporate offences in a single piece of legislation, or whether it is preferable to continue with individual models specific to these various areas of activity.
3.31 One suggested reason29 why corporate crime may not be treated as seriously as other crime is that there is no central statute dealing with corporate offenders. Instead, corporate offences and criminal sanctions are scattered over a wide range of statutes that are outside the mainstream criminal legislation for New South Wales. It is argued that “statutory segregation” of this kind tends to depreciate the gravity of corporate crime. Moreover, it could be argued that a principled and properly considered approach to sentencing corporations is better achieved by developing a general model, rather than leaving such reform to ad hoc amendments of various pieces of legislation, or to separate reviews of each area of activity.
3.32 On the other hand, it could be argued that it is inappropriate and perhaps even impossible to devise a general sentencing scheme that could readily apply to the various areas of corporate activity.
ISSUE 5
Should legislation consolidate sentencing options for corporate offenders under a general sentencing scheme?
FOOTNOTES
1. See para 2.10-2.12.
2. See, for example, South Australia, Criminal Law and Penal Methods Reform Committee, The Substantive Criminal Law (Report 4, Government Printer, Adelaide, 1977) at para 5.1-5.12; H Croall, White Collar Crime (Open University Press, Buckingham, 1992) ch 9; J Braithwaite and P Grabosky, Occupational Health and Safety Enforcement in Australia: A Report to the National Occupational Health and Safety Commission (Australian Institute of Criminology, Canberra, 1985), particularly ch 8; V Khanna, “Corporate Criminal Liability: What Purpose Does It Serve?” (1996) 109 Harvard Law Review 1477. Note also J Duns, “A Silent Revolution: The Changing Nature of Sanctions in Companies and Securities Legislation” (December 1991) Companies and Securities Law Journal 365, which discusses and assesses the shift in the sanctioning scheme of the Australian companies and securities legislation from reliance on the criminal to the civil sanction.
3. See Australian Law Reform Commission, Civil and Administrative Penalties (Consultation Paper, December 2000).
4. See Australian Law Reform Commission, Civil and Administrative Penalties (Consultation Paper, December 2000).
5. See, for example, R Tomasic, Corporate Crime and Corporations Law Enforcement Strategies in Australia (Discussion Paper 1/93, Centre for National Corporate Law Research, Canberra, 1993) at 6-7; B Fisse and J Braithwaite, Corporations, Crime and Accountability (Cambridge University Press, Cambridge, 1993) at 31-44; B Fisse, “Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault, and Sanctions” (1983) 56 Southern California Law Review 1141; J Braithwaite and P Grabosky, Occupational Health and Safety Enforcement in Australia: A Report to the National Occupational Health and Safety Commission (Australian Institute of Criminology, Canberra, 1985) at 78-79.
6. Brent Fisse argues that, in the context of corporate crime, rehabilitation and incapacitation are subgoals of deterrence: see B Fisse, “Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault, and Sanctions” (1983) 56 Southern California Law Review 1141 at 1159-1160. See also J Braithwaite and P Grabosky, Occupational Health and Safety Enforcement in Australia: A Report to the National Occupational Health and Safety Commission (Australian Institute of Criminology, Canberra, 1985) at 78-79.
7. See, for example, J Duns, “A Silent Revolution: The Changing Nature of Sanctions in Companies and Securities Legislation” (December 1991) Companies and Securities Law Journal 365; H Croall, White Collar Crime: Criminal Justice and Criminology (Open University Press, Buckingham, 1992); V Khanna, “Corporate Criminal Liability: What Purpose Does It Serve?” (1996) 109 Harvard Law Review 1477.
8. See para 2.12.
9. See J Braithwaite and P Grabosky, Occupational Health and Safety Enforcement in Australia: A Report to the National Occupational Health and Safety Commission (Australian Institute of Criminology, Canberra, 1985) at 83-90; B Fisse and J Braithwaite, Corporations, Crime and Accountability (Cambridge University Press, Cambridge, 1993) at 141-145.
10. See, for example, B Fisse, “Sentencing Options Against Corporations” (1990) 1 Criminal Law Forum 211; B Fisse, “Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault, and Sanctions” (1983) 56 Southern California Law Review 1141; Australian Law Reform Commission, Sentencing: Penalties (Discussion Paper 30, 1987) at para 290; B Fisse, Sanctions Against Corporations: Economic Efficiency or Legal Efficacy? (Transnational Corporations Research Project, Sydney, 1986); J Braithwaite and P Grabosky, Occupational Health and Safety Enforcement in Australia: A Report to the National Occupational Health and Safety Commission (Australian Institute of Criminology, Canberra, 1985) at 89.
11. B Fisse, “Sentencing Options Against Corporations” (1990) 1 Criminal Law Forum 211 at 217-219; JC Coffee, “‘No Soul To Damn No Body To Kick’: An Unscandalized Inquiry Into the Problem of Corporate Punishment” (1981) 79 Michigan Law Review 386 at 390.
12. See Fines Act 1996 (NSW) Pt 4 Div 6.
13. See Fines Act 1996 (NSW) Pt 4 Div 4, Pt 4 Div 7. The Fines Act applies, among other things, to any monetary penalty imposed by a “court”. A “court” includes the Supreme, Local and District Courts, and the Industrial Relations Commission, the Land and Environment Court, or “any other court”.
14. See Fines Act 1996 (NSW) Pt 4 Div 5.
15. See United States of America, Sentencing Commission, Supplementary Report on Sentencing Guidelines for Organizations (August 1991).
16. For example, B Fisse, “Sentencing Options Against Corporations” (1990) 1 Criminal Law Forum 211; B Fisse, Sanctions Against Corporations: Economic Efficiency or Legal Efficacy? (Transnational Corporations Research Project, Sydney, 1986); Australian Law Reform Commission, Sentencing: Penalties (Discussion Paper 30, 1987) at para 291-307; J Braithwaite and P Grabosky, Occupational Health and Safety Enforcement in Australia: A Report to the National Occupational Health and Safety Commission (Australian Institute of Criminology, Canberra, 1985) at 89-90.
17. H Croall, White Collar Crime: Criminal Justice and Criminology (Open University Press, Buckingham, 1992) at 159.
18. The Crimes (Sentencing Procedure) Act 1999 (NSW) does make general provision for courts to impose a bond on an “offender”: s 9. As noted at paragraph 2.7, “offender” could be interpreted to include corporations. However, as s 9 empowers a court to impose a bond instead of a term of imprisonment, it seems doubtful that a corporation could be brought within this provision.
19. See South Australia, Criminal Law and Penal Methods Reform Committee, The Substantive Criminal Law (Report 4, Government Printer, Adeliade, 1977) at para 5.6 (recommendation for internal discipline orders); B Fisse, Sanctions Against Corporations: Economic Efficiency or Legal Efficacy? (Occasional Paper No 13, Transnational Corporations Research Project, November 1986) at 18-22.
20. B Fisse, “Sentencing Options Against Corporations” (1990) 1 Criminal Law Forum 211 at 234-235.
21. See B Fisse, Sanctions Against Corporations: Economic Efficiency or Legal Efficacy? (Occasional Paper No 13, Transnational Corporations Research Project, November 1986) at 21.
22. See B Fisse and J Braithwaite, Corporations, Crime and Accountability (Cambridge University Press, Cambridge, 1993) at 43-44.
23. Professor Fisse used this example, drawn from the thalidomide disaster, in Sanctions Against Corporations: Economic Efficiency or Legal Efficacy? at 33.
24. B Fisse, “Sentencing Options Against Corporations” (1990) 1 Criminal Law Forum 211 at 248.
25. B Fisse, “Sentencing Options Against Corporations” (1990) 1 at 248.
26. H Croall, White Collar Crime: Criminal Justice and Criminology (Open University Press, Buckingham, 1992) at 158.
27. See Crimes (Sentencing Procedure) Act 1999 (NSW) Pt 5 Div 3, Pt 6 Div 3, Pt 7 Div 3.
28. See para 1.7 and 2.3.
29. See B Fisse, Howard’s Criminal Law (5th ed, Law Book Company Limited, Sydney, 1990) at 614.
