Corporate Crime Remedies

Early in the 113th Congress, Senator Elizabeth Warren of Massachusetts questioned top U.S. banking and market regulators at a February 14, 2013 Senate Banking Committee hearing titled “Wall Street Reform: Oversight of Financial Stability and Consumer and Investor Protections” (see video webcast at the 01.52.30 mark) why they have not prosecuted a single bank since the financial crisis. Warren asked why ordinary people often faced prosecution while banks do not stating that “There are district attorneys and U.S. attorneys who are out there every day squeezing ordinary citizens on sometimes very thin grounds. And taking them to trial in order to make an example, as they put it. I’m really concerned that too big to fail has become too big for trial. That just seems wrong to me.”

At a March 6, 2013 Senate Judiciary Committee hearing titled “Oversight of the U.S. Department of Justice”, Attorney General Eric Holder conceded that the economic impact of a conviction could be so significant that cases are difficult to pursue. “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them,” Mr. Holder told lawmakers. Prosecutors, he said, must confront the problem that “if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”

Brooklyn Law School Associate Professor Miriam Baer has written in Insuring Corporate Crime, published at 83 Indiana Law Journal 1035 (2008), that we get rid of corporate criminal liability and replace it with an insurance system. Under the proposal, insurance companies would “examine corporate compliance programs, estimate the risk that a corporation’s employees would commit crimes, and then charge companies for insuring those risks.” The abstract for the article reads:

Corporate criminal liability has become an important and much-talked about topic. This Article argues that entity-based liability – particularly the manner in which it is currently applied by the federal government – creates social costs in excess of its benefits. To help companies better deter employee crime, the Article suggests the abolition of entity-wide criminal liability, and in its place, the adoption of an insurance system, whereby carriers would examine corporate compliance programs, estimate the risk that a corporation’s employees would commit crimes, and then charge companies for insuring those risks. The insurance would cover the entity’s civil penalties associated with its employees’ criminal conduct. Entities that successfully procured insurance would no longer be subject to entity-wide criminal liability. Part I begins with a discussion of corporate criminal liability and the costs that accrue from the manner in which it has been implemented by the Department of Justice. Part II examines several proposals to reform corporate criminal liability and explains why they are inadequate. Part III lays out the proposal for an insurance system in lieu of entity-based criminal liability and explains, in rough form, how corporate entities might contract for insurance, how claims might be filed and how damages might be measured. Part III also addresses a number of arguments that others might raise against the proposal.