Prosecution and Punishment of Corporate Criminality

LS15CH29_Laufer ARjats.
cls July 26, 2019 14:40
Annual Review of Law and Social Science

Prosecution and Punishment
of Corporate Criminality
Mihailis E. Diamantis1 and William S. Laufer2
1
College of Law, University of Iowa, Iowa City, Iowa 52242, USA
Annu. Rev. Law. Soc. Sci. 2019.15. Downloaded from www.annualreviews.org
Access provided by James Cook University on 09/09/19. For personal use only.
2
Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104, USA
Annu. Rev. Law Soc. Sci. 2019. 15:29.1–29.20 Keywords

The Annual Review of Law and Social Science is online
corporate crime, corporate criminal law, compliance, regulation, theories
at lawsocsci.annualreviews.org
of criminal punishment, criminal justice
https://doi.org/10.1146/annurev-lawsocsci-101317-
031212 Abstract
Copyright © 2019 by Annual Reviews.
This article offers an overview of and commentary on the US approach to
All rights reserved
corporate prosecution and punishment. Though the United States purports
to have a vigorous system of corporate criminal law enforcement, one could
reasonably ask whether that system actually takes corporate crime seriously.
Corporate prosecutions, convictions, and punishment continue to be rare
events. Sanctions leveraged against corporations range from those whose ef-
fectiveness remains unproved, to those that are provably ineffective, to those
that are conceptually and practically incoherent. One could also reasonably
ask to what extent the United States even has a corporate criminal law to
enforce. The recent history of corporate criminal law enforcement reflects
a discernable shift in discretion from judges to prosecutors. This period is
marked by the importance of extralegal prosecutorial guidelines, the absence
of controlling case law, large gaps in statutory law, and long-called-for law
reforms. One result is a systematic shift from reliance on public enforcement
to private self-regulation. Not only are the resulting costs to the private sec-
tor substantial and growing, but the problems with relying on corporations
to police themselves are plain to see. Amid these challenges, the thirst for
private-sector responsibility and accountability should motivate continued
debate over the prosecution and punishment of corporations.
29.1
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August 6, 2019. (Changes may still
occur before final publication.)
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1. INTRODUCTION
Corporate prosecutions and convictions are rare events under state and federal criminal law. This
is reflected in the dark figure of corporate crime, or the difference between estimates of wrong-
doing in corporations and official data. From millions of corporations and millions of reports of
individual wrongdoing come a very modest number of referrals of corporations for prosecution
and, ultimately, very few convictions (Figure 1). Lack of access to federal and state corporate crime
data, admittedly, frustrates efforts to offer more precise estimates of the dark figure. Simpson &
Yeager (2015, p. 6) capture this frustration, concluding that “regulatory enforcement data on or-
ganizations are for the most part absent, and details about offenders and victims are sparse.”
To compound gaps in our understanding of corporate victimization and the extent of the gov-
ernment’s response to corporate wrongdoing, there is no empirical or theoretical subfield of cor-
porate victimology (Laufer 2017, Whyte 2007). The study of corporate victimology would likely
reveal unrecognized or under-recognized layers of victimization across a wide spectrum of stake-
holders; reset our perception of corporate culpability in relation to possible prosecutions; better
fashion corporate punishment in relation to wrongdoing; and correct the misperception that cor-
porate wrongs are somehow less-than-serious wrongs (Cullen et al. 1982, Hagan 2012, Michel
et al. 2016, Piquero et al. 2008). In the absence of a corporate victimology, there is a far greater
likelihood that criminal justice priorities, resources, and expenditures will be mismeasured. More
important, the exercise of prosecutorial and sentencing discretion may be affected by what is not
known about the harm coming from the corporate wrong.
The costs of mismeasurement and failed discretion are discounted, at least in part, by the in-
creasingly strong commitment of public- and private-sector functionaries to effective corporate
self-regulation (Ayres & Braithwaite 1992, Baldwin & Black 2008, Black 2001, Braithwaite 1982,
Nielsen & Parker 2009, Parker 2002). This commitment is reflected in much of the doctrinal
and normative theories, laws and proposed legislation, and possible future directions of corporate
criminal law presented below.
2. CORPORATE PROSECUTION
The recent history of corporate criminal law enforcement has seen a discernable shift in discre-
tion from judges to prosecutors (Finder & McConnell 2006). This reflects the transition from
41,000,000 reports of ethical

misconduct in US companies (estimated
from survey data) in 2011 (ERC 2012)
2,171 referrals of corporations to federal

prosecution in 2014 (TracReports 2015)
237 corporate prosecutions filed in

2014 (TracReports 2015)
162 corporate convictions in 2014
(USSC 2018)
30 deferred prosecution and
nonprosecution agreements in 2014
(Gibson Dunn 2019)
Figure 1
The corporate criminal justice funnel, reminiscent of the “funnel of justice” for street offending (Vera Inst.
Justice 1977); N = 5,900,731 corporations in 2014 (US Census Bur. 2015).
29.2 Diamantis • Laufer

a period in which judicial discretion over the application of Chapter Eight of the US Sentenc-
ing Guidelines (Sentencing Guidelines for Organizations) determined case outcomes to a series
of successive prosecutorial guidelines by which, today, discretionary charging decisions largely
determine the kind and quality of corporate punishment (Baer 2009, Nagel & Swenson 1993).
Prosecutorial guidelines, discussed below, have gained that much more importance because of the
conspicuous absence of controlling case law, statutory law, and long-called-for law reforms, e.g.,
federal recodification efforts such as the Brown Commission (Fairfax 2011, Schwartz 1977, Stolz
1984).
Even with controlling case law, the decision to proceed with a corporate criminal prosecu-
tion still turns on some very familiar considerations of a firm’s due diligence. In many cases, cor-
porations follow what is, in essence, a compliance prescription (Laufer 2017, Walsh & Pyrich
1995). The script includes active cooperation with authorities; proactive and reactive measures;
independent investigations; termination of culpable employees; some gesture to the metrics that
measure an “effective” compliance program; and, most often, a commitment to invest more in
compliance (cf. Joh & Joo 2015). The origin of this prescription may have come from the prin-
ciples first articulated in the Defense Industry Initiative (Kurland 1993). What counts for due
diligence was then modified in the Commentary associated with the US Sentencing Commis-
sion’s Guidelines for Organizations and refined in an iterative series of prosecutorial guidelines,
along with emerging governance, risk, and compliance systems and a handful of international
standards (e.g., ISO 16500 Compliance Management Systems). The cost to the private sector
of the self-regulatory burden associated with maintaining compliance is substantial and grow-
ing (Laufer 2018). Even so, concerns over cosmetic or paper compliance programs remain in the
absence of a body of evidence-based research about what features of compliance systems can actu-
ally reduce crime (Hess 2016, Krawiec 2003, Laufer 1999, Martin 2012, Soltes 2018, Warren et al.
2014).
At times, the decision to proceed against a corporate wrongdoer criminally versus civilly, or
administratively, is largely arbitrary. Whether a case becomes and remains criminal is often an
artifact of which government agency first receives evidence of wrongdoing (Clinard & Yeager
1980). Complaints of securities fraud that go directly to the Securities and Exchange Commission,
for example, are limited by the Commission’s civil jurisdiction. Questions about whether there
should be criminal versus civil liability (or both) for serious corporate wrongdoing join other
perennial questions about individual and/or entity liability (Kraakman 1984, Mueller 1957). Even
basic questions about whether it matters if corporate wrongs are considered criminal remain in
controversy (Clinard & Yeager 1980, Simpson 2019).
Finally, what should be the distinctive normative nature of the corporate criminal law is
only now getting attention. Remarkably, there is little coherence in penal philosophies that sup-
port attributions of criminal liability to corporations and, thus, prosecution of them (see infra
Section 3.1). As remarkable, the debate over corporate moral agency is still with us.
2.1. Theory
Corporate criminal law theory corresponds perfectly with the sequenced stages in the criminal
process. Threshold questions of moral agency are followed by theories of corporate culpability
and liability.
2.1.1. Corporate moral agency. History is replete with jurists, scholars, and practitioners who
question the moral agency of corporations. Threshold questions of agency remain today, with
some commentators who ask whether corporations can and should be prosecuted. According to
www.annualreviews.org • Corporate Criminality 29.3

Sepinwall (2017), corporations lack the capacity for affect, an essential ingredient of any concep-
tion of culpability. Hasnas (2009, 2017) finds the very idea of this kind of agency to be nonsensical.
And Cressey (1989) considers attributions of actions and intentions to corporations to be a simple
function of semantics. Those in this camp of agency nonbelievers do not argue against accountabil-
ity for wrongdoing—only accountability in the form of corporate criminal liability. Those believ-
ers in corporate moral agency, like Pettit (2007, 2017), French (2017), Orts (2017), and Bratman
(2017), generously allow for a criminal account of corporate wrongdoing (cf. Rönnegard &
Velasquez 2017). A third group concludes that agency and the existence of corporate personhood
are entirely incidental, if not irrelevant, to the general part of the criminal law (Walt & Laufer
1991). Finding moral agency or its irrelevance invites a full consideration of the general part of
the criminal law, with a particular focus on theories of both culpability and liability for corporate
entities.
2.1.2. Corporate culpability. Over the past several decades, scholars continue to revisit what
makes a corporation, as a corporation, criminally culpable or blameworthy. For example, should

courts focus on corporate cultures that encourage crime commission or corporate policies that
tolerate, if not promote, law violation? Should the corporation’s character matter? More than a
century after the criminal law was first applied to corporations, there is increasing interest in proac-
tive, reactive, culture-based, character-based, and corporate policy models of a firm’s culpability
(Diamantis 2018). Such approaches, called genuine fault or genuine culpability standards, aim to
locate corporate responsibility in what corporations as organizations (rather than the individual
employees within them) contribute to misconduct (Laufer 1994).
Proactive corporate fault assumes that a corporation is to blame where a firm failed to put in
place practices and procedures capable of preventing the commission of a crime. A complementary
model of corporate blame, reactive corporate fault, comes with a failure to respond reasonably to
the discovery of wrongdoing (Fisse 1983). Failure to undertake reasonable corrective or remedial
measures in reaction to an offense is evidence of corporate fault (Fisse 1983).
Where an organization’s ethos or personality encourages agents to commit criminal acts, there
is culpability or blameworthiness under a theory of corporate ethos or corporate character (Bucy
1991, Diamantis 2018, Moore 1992). Evidence of ethos or character comes from the firm’s hi-
erarchy, corporate goals and policies, efforts to ensure compliance with ethics codes and legal
regulations, and the identification and possible indemnification of guilty employees. Questions
relating to the role of the board of directors and to how the corporation has reacted to past viola-
tions, if any, are relevant (Diamantis 2018). Such variables can shed light on how deeply a defective
corporate ethos or character runs and could inform how authorities should respond.
Some commentators have posited that corporate actions and intentions may be found in deci-
sions and choices that are communicated through corporate policy (French 1984). It is argued, for
example, that the components of the corporation’s internal decision structure, consisting of the
corporation’s flowchart and procedures, define corporate intentionality. Finally, with constructive
corporate culpability, firms are said to have a culpable “mental state” attributed on the basis of
their behavior (actions or inactions) and apparent intentions (Laufer 1994). Constructive corpo-
rate culpability asks questions that require objectively reasonable attributions: Did the corporation
act “purposely”? Did the corporation act “knowingly”? These and related questions allow for a
reasonable construction of culpability and liability (Laufer 2008; cf. Diamantis 2016).
2.1.3. Theories of liability. The prevailing theory of corporate liability in the United States
comes from New York Central & Hudson River Railroad Co. v. United States (1909) (aka New York
Central), a rate discrimination case whose respondeat superior theory of liability would extend to

all corporate crimes, including those requiring proof of mens rea. The inadequacies of regulatory
law to respond to corporate wrongdoing supported the court’s reasoning in New York Central.
Agent-employees are vested with corporate powers, the court ruled, and where and when they
act on behalf of the corporate principal within their authority, it is as though the corporation
itself has acted. Individuals and organizations, the court reasoned, have few incentives to avoid
misconduct without the prospect of a corporate vicarious liability. With joint and several liability,
both the principal and its agents share a distinct risk of liability and, from it, a reciprocal incentive
for law abidance. New York Central ushered in a period of shared allocation of liability risks to both
principal and agent.
Remarkably, New York Central remains blackletter law today, and there is little competition for
the criminal law’s use of respondeat superior. Two alternative theories receiving a modest but,
nevertheless, deserved share of attention include the Collective Knowledge Doctrine and the Re-
sponsible Corporate Officer (RCO) Doctrine. In United States v. Bank of New England (1987), the
First Circuit upheld the use of a collective knowledge instruction in cases of corporate criminal lia-
bility. The Bank was presumed to have that knowledge that represents the collective knowledge of
all employees. Aggregate employee knowledge, the court ruled, constitutes corporate knowledge.
The court offered little guidance as to how much knowledge represents the collective. Critics of
collective knowledge argue that there is no necessary connection between employee knowledge
and the knowledge attributed to the entity (Parker 1996).
A second alternative to vicarious corporate criminal liability, RCO Doctrine, came from the
US Supreme Court’s decision in United States v. Dotterweich (1943). This doctrine allows for the
prosecution of executives who, even lacking a consciousness of wrongdoing by other employees,
had the authority to prevent the crime and failed to do so. Some scholars find that the RCO
conflicts with basic culpability requirements of the criminal law because it allows some individuals
(officers) to be convicted vicariously for the crimes of others (the employees beneath them) (Lerner
2018; cf. Sepinwall 2015).
The thirst for new liability rules for corporate wrongdoing is not apparent. The century-old
experiment with vicarious liability continues very much uninterrupted. Even with concerns over
the burden of regulations on the private sector, the potential for vicarious liability from New York
Central (1909) continues to promote additional compliance expenditures. As Baer (2009) notes,
we are living through a period of compliance regulation defined by an informal quasi-adjudicative
system. “Regulation-by-adjudication is the government’s preferred method of generating compli-
ance,” according to Baer (2009, p. 952). And, as discussed below, confidence that this approach
results in more compliant behavior is simply not there (Griffith 2016, Soltes 2018).
2.2. Law
The advisory guidelines that channel the discretion of federal prosecutors interpreting New York
Central are not much more than two decades old. The Filip Memorandum (Filip 2008), incorpo-
rated as the Principles of Federal Prosecution of Business Organizations, is the fifth and most recent
iteration of Department of Justice policy regarding corporate prosecutions. If New York Central is
the text of the law governing corporate liability, the Filip Memorandum may be reasonably seen
as the law’s subtext. At the same time, the kind and quality of constraint and guidance the Filip
Memorandum actually offers remain a series of unexplored empirical questions.
With the Filip Memorandum and subsequent guidance by the Department of Justice in the
Yates Memorandum (Yates 2015, Yockey 2015), immense discretion is vested in prosecutors to
bring (or not bring) criminal charges against individuals and/or corporations. This discretion
should be guided by all of the factors that accompany any proceeding against an individual, along
with the following 10 factors unique to any corporate criminal prosecution:
1. the nature and seriousness of the offense, including the risk of harm to the public, and appli-
cable policies and priorities, if any, governing the prosecution of corporations for particular
categories of crime;
2. the pervasiveness of wrongdoing within the corporation, including complicity in, or con-
doning of, the wrongdoing by corporate management;
3. the corporation’s history of similar misconduct, including prior criminal, civil, and regula-
tory enforcement actions against it;
4. the corporation’s willingness to cooperate in the investigation of its agents;
5. the existence and effectiveness of the corporation’s preexisting compliance program;
6. the corporation’s timely and voluntary disclosure of wrongdoing;
7. the corporation’s remedial actions, including any efforts to implement an effective corporate
compliance program or to improve an existing one, to replace responsible management, to
discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant
government agencies;
8. collateral consequences, including whether there is disproportionate harm to shareholders,

pension holders, employees, and others not proven personally culpable, as well as impact on
the public arising from the prosecution;
9. the adequacy of remedies such as civil or regulatory enforcement actions; and
10. the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.
Depending on the nature and kind of the prosecution, these “Filip Factors” may be combined
with other guidance from the Criminal Division of the Department of Justice, much of which is
incorporated in the US Attorney’s Manual. This includes the Evaluation of Corporate Compliance
Programs (Fraud Section, Criminal Division, Department of Justice) (US Dep. Justice, Crim. Div.
2017) and the Foreign Corrupt Practices Act Enforcement Plan and Guidance (US Dep. Justice,
Crim. Div. 2016). Recent guidance on how to best design, evaluate, and operationalize compli-
ance programs asks more than 100 “empirical” questions [Evaluation of Corporate Compliance
Programs (US Dep. Justice, Crim. Div. 2019)].
2.3. Practice
On average, over the past decade, approximately 2,000 corporations were referred to federal
prosecutors each year, resulting in between 150 and 200 convictions (Figure 1). The number of
convictions annually is quite consistent over the past several decades. This rate, though, started to
decline during the second Obama administration and remains lower during the first term of the
Trump administration [fiscal year 2016 (n = 131), fiscal year 2017 (n = 132)], in parallel with a
steep decline in white collar crime prosecutions during that same period (Figure 2) (TracReports
2015).
There are distinct tracks of corporate prosecution, determined largely by firm size. Most of
the corporations that go all the way to conviction and sentencing are small businesses with 50 or
fewer employees. Medium to large firms are generally diverted from the criminal justice system
in settlements, plea deals, or individual (nonentity) liability. A small number of deferred prosecu-
tion agreements (DPAs), nonprosecution agreements (NPAs), and corporate integrity agreements
are generally reserved for large corporations, which offer the promise of structural organizational
change (Richman 2007). A final track is reserved for corporations whose prosecution, it is deter-
mined, would bring about systemic risk to the global economy. Ultimately, settlements in these
cases preserve the company’s viability with lesser charges and significant fines.
Much has been made of the specialized pretrial diversion agreements, most of which go to cor-
porations of some scale and importance. Scholarly commentary across the board is highly critical

11,000
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Figure 2
Criminal white collar crime prosecutions over the last 20 years. The figure for the current fiscal year is
projected. Figure reproduced with permission from TracReports (2018).
(see Paulsen 2007). Spivack & Raman (2008) speculate that this kind of pretrial diversion may
become the norm and express concerns. Greenblum (2005) raises problems with the circumven-
tion of judicial oversight over DPAs and NPAs. Uhlmann (2012) and Cunningham (2014) go
further by arguing that such agreements undermine basic principles of corporate criminal liabil-
ity. And Arlen (2016) concludes that DPAs and NPAs create and impose mandates that are not
consistent with the rule of law. Finally, Garrett’s (2014) musings in his seminal book Too Big to Jail:
How Prosecutors Compromise with Corporations run parallel with Arlen’s critical conclusion. Accord-
ing to Garrett (2014, p. 193), “Prosecutors anointed themselves as the primary decisionmakers in
organizational crime cases, almost all of which never go to trial.” Calls for federal legislation to
limit the discretion of prosecutors have not yet been answered (Bourjaily 2015, Delaney 2009).
The level of scholarly attention DPAs and NPAs receive may seem disproportionate to the rate of
such agreements, i.e., just 30 to 40 per year.
The threshold question with the notion of “too big to prosecute” is what “too big” means
(Gilchrist 2014). Is the concern exclusively with the risk of prosecution to our economy and fi-
nancial markets? Is it simply too costly to prosecute given extant resources or the concerns with
too many collateral consequences? Is it too difficult to fix and attribute fault given the size and
organizational complexity of the firm, or too heavy-handed if we want the criminal law to encour-
age self-regulation? Finally, is it simply too difficult to disturb the entrenched interests of a strong
pro-business lobby that questions resort to corporate criminal liability?
Garrett (2014) attempts to address several of these questions and focuses on whether individ-
uals are also held accountable (they often are not), and whether structural reforms required of
large corporations are working (they often are not) (cf. Baer 2016b). He details a comprehensive
database of corporate prosecutions, DPAs and NPAs, and spends much time on Foreign Corrupt
Practices Act prosecutions, as with the highly publicized corruption prosecution of the systemi-
cally important Siemens case (Stevenson & Wagoner 2011). Pontell et al. (2014) also ask foun-
dational questions about why there were so few large-scale corporate prosecutions following the
global economic crisis caused, in large part, by the collapse of mortgage-based securitization.

From the perspective of the firm, “too big” raises analogous but different questions; e.g., just
how much organizational due diligence is necessary to prove the firm’s commitment to compli-
ance? How should the firm protect against collateral consequences from use of the criminal law
(“innocent stakeholders”)? Firms complain that there should be some recognition that remain-
ing current with the compliance requirements of the criminal law already takes a huge financial
and administrative toll; voluminous administrative and regulatory requirements make the crimi-
nal law an unnecessary social control, and the direct consequences of a criminal conviction may
be the demise of the firm.
From the government’s perspective, commentators ask who is really to blame (Golumbic &
Lichy 2014). Is the public policy supporting the fiction of corporate criminal liability strong
enough? How do you encourage self-regulation with corporate criminal liability when compli-
ance is so difficult to assess? Do we have the resources to fairly exercise discretion in bringing
criminal cases? How should the government balance their interests in certain “strategically im-
portant companies” with the principles that support prosecutorial policies?
It is fair to raise the concern that the nonprosecution or deferred prosecution of corporate
wrongdoers may be seen as submission to the power of business interests that undermine per-
ceptions of the legitimacy of the state to regulate, and the fairness of our markets, domestically
and internationally (Markham 2017). Some might conclude that the government created a class
of firms that is essentially immune from prosecution.
Concerns over the creation of a class of firms for whom the criminal law does not apply
prompted proposed legislation by Senator Elizabeth Warren [Ending Too Big to Jail Act, S. 2544,
115th Cong. (2017–2018)]. Among other reforms, this legislation would require chief executive of-
ficers, chief financial officers, chief operating officers, and chief compliance officers of large banks
to certify, under penalties of false statement laws, that their institution engaged in due diligence
and that there is no financial fraud.
2.4. Critical Perspectives and Future Directions

In deliberating over corporate criminal justice, it is important to think about corporate prosecu-
tions in a broader system-wide context. One critical take on this context is that prosecutorial dis-
cretion is exercised in a well-crafted multi-stakeholder game—a compliance game (Laufer 2017).
Fortress professionals, consultants, regulators, prosecutors, ethics consultants, and outside counsel
are players in a game that seeks to protect and enhance every player’s position while minimizing
any compromise of the regulatory equilibrium. The incentives and disincentives in this game are
not actually designed to encourage changes in corporate behavior, improve the ethical culture of a
firm, or facilitate corporate decision-making (cf. Pitt & Groskufmanis 1991). This game is really a
match of institutional appearances across all functionaries—without concern for whether players
actually affect rates of offending behavior.
One possible way to counter this game is to look to the promise of both FinTech and RegTech
applications and solutions that some speculate will lead to a transformative, if not paradigmatic,
shift in the applied technology of compliance, including the digitization of compliance. Next-
generation technologies, across a wide range of business and regulatory functions, are only now
coming into focus. Advances in blockchain are producing applications for domestic and inter-
national corporate regulation. This includes, at least in theory, an era of increasingly sophisti-
cated regulator-based systems, successful coregulated systems, and even well-integrated regulator-
regulated systems that are successfully shared. Technological advancements from a “compliance
convergence” of methods, technology, global standards, and evidence-based research will likely
fuel novel private- and public-sector solutions (Laufer 2017).

3. CORPORATE PUNISHMENT
A corporation “has no soul to damn, no body to kick” (Braithwaite 1982, Coffee 1981). For most of
legal history, discussions of corporate punishment stopped there. Today the tide of public opinion
has shifted. As broad public interest in holding corporations accountable for their misconduct
grows, politicians cannot ignore it (Baer 2012).
Among scholars, however, controversy over the conceptual coherence and practicality of cor-
porate punishment remains. What should corporate punishment target? The entity itself? This
response invites a mocking comparison between corporate punishment and the ancient practice
of deodand, an effort to sanction inanimate objects (Alschuler 1991). The human beings who
compose the corporation—employees, shareholders, officers, and directors? This response seems
structurally doomed to simultaneously over- and under-punish. Most individual constituents will
have had no hand in the misconduct, yet all will bear some part of the corporate sanction’s burden
(Alschuler 2009). And those individuals who were at fault will experience only a fractional share
of the burden.
Proponents of holding corporations accountable for criminal misconduct have proposed an-
swers. After touching on the various possible purposes of corporate punishment, this section traces
them to their place in present-day law. It then discusses past and current trends in sanctioning cor-
porations, as well as lingering criticisms and possible future developments.
3.1. Theory
Assessing theories of corporate punishment must start with an understanding of what the goals
of corporate punishment are. Though some scholars maintain that all corporate punishment is
invalid (Hasnas 2009), each of the four major purposes of criminal law—deterrence, rehabilitation,
retribution, and incapacitation—has its proponents.
3.1.1. Deterrence. If there is any developing consensus as to the purpose of corporate pun-
ishment, it centers on deterrence. Many scholars take it for granted that “[c]orporate criminal
law…operates firmly in a deterrence mode” (Brown 2001, p. 1325; Fisse 1983). According to this
mode, the purpose of corporate punishment is to shift the balance of corporate economic incen-
tives away from misconduct (Alexander & Cohen 2011, Arlen 1994). Corporations may be par-
ticularly appropriate subjects for deterrence because they excel at the sort of cost–benefit analysis
on which deterrence theory relies (Silets & Brenner 1986). Although the cash fine is the cleanest
tool criminal law has for imposing economic costs, other possible sanctions entail cash-equivalent
burdens (Khanna 1996).
Deterrence faces several formidable obstacles as a framing concept for corporate punishment.
One, referred to as the deterrence trap, asks whether fines can go high enough to influence cor-
porate conduct (Coffee 1981). As the potential profit from crime increases and the chance of
detection by authorities decreases, criminal law needs to impose greater and greater fines to deter
effectively. But there is a ceiling to how high fines can go for any corporation—the value of its
assets. Beyond that figure, fines can have no additional deterrent value. So for high-stakes crime
with low detection rates, fines may prove an ineffective deterrent.
Even for lower-stakes crimes with higher detection rates, there are enduring questions about
how entity-level deterrence is supposed to work. Corporations must act through the individu-
als they employ, but individual employees’ interests tend to diverge from those of the corpora-
tion as a whole (Alchian & Demsetz 1972, Jensen & Meckling 1976). Individual corporate agents
have personal incentives—for things like promotion, personal prestige, bonuses, or short-term
profitability—that differ from those of the corporation as a whole (Arlen 1994). This dynamic

gives rise to what economists call agency costs, creating situations where the possibility of pun-
ishment may tilt corporate incentives away from criminal conduct and yet not be sufficient to
overcome the private incentives of the employees in a position to commit or avoid crime.
Finally, even where fines should be a sufficient deterrent and agency costs can be overcome,
the question remains: Why criminal fines? If the basic deterrent mechanism is financial, there
is no immediate reason that the economic sanction must be punitive rather than civil or reg-
ulatory (Coffee 1991). Indeed, prominent deterrence theorists argue that noncriminal fines are
more efficient because the civil and regulatory procedures are more streamlined than the criminal
procedure (Fischel & Sykes 1996, Khanna 1996). Furthermore, noncriminal fines and penalties
already dwarf criminal penalties in many circumstances. From 2001 to 2012, for example, criminal
corporations paid six times more in restitution, regulatory payments, and civil damages than they
paid in fines (Garrett 2014).
Deterrence theorists have several lines of response. The most elegant address all three criti-
cisms with one observation: Corporations care about reputation as well as finances (Buell 2006,
Fisse 1983, Hart 1958). If this is right, it can explain the advantage of criminal fines vis-à-vis civil
or regulatory fines (Rashkover 2004). The former are uniquely reputation impacting because of
the condemnatory message they send. Furthermore, corporate reputation may be an area where
individual and corporate interests align (Buell 2006, Karpoff & Lott 1993, Karpoff et al. 2005).
Employees seem to value the good name of their employer deeply, which may explain why crimi-
nal fines sometimes move corporations where civil fines repeatedly fail (Haslam 2001). Although
there is a point at which reputational harm could drive any corporation out of business, that point
does not fall in any straightforward way to the same deterrence trap that fines do.
Another prominent response proposes using a different sort of fine—the equity fine—which
would transfer several newly issued shares (rather than cash) to the government (Coffee 1981).
Although each new share would diminish the value of the outstanding shares, there would be no
cap on the number of shares that could be created and transferred. As such, equity fines avoid the
deterrence trap. Furthermore, equity fines would give the government (as shareholder) a hand
in corporate oversight and governance. The threat of this oversight could be another potential
force aligning corporate incentives with those of high-level personnel. Corporate managers seem
to have a particular distaste for government interference in day-to-day operations. If misbehav-
ior persists, the government (again as shareholder) would have the power to push for internal
reform.
Most recently, criminologists have scoured for evidence of corporate crime deterrence in
existing criminal justice policies. Meta reviews have revealed scant systematic evidence, e.g.,
well-designed field experimentation with randomized controlled trials (Schell-Busey et al. 2016,
Simpson et al. 2014).
3.1.2. Rehabilitation. Rehabilitation theory (which for present purposes encompasses charac-
ter theory) rests on the observation that organizational defects—such as improper internal incen-
tive structures, poisoned corporate ethos, or deficient compliance and training programs—are of-
ten the driving force behind misconduct (Bucy 1991, Diamantis 2018, Friedman 2000, Needleman
& Needleman 1979). Accordingly, proponents of corporate rehabilitation contend that the goal
of corporate punishment should be to reform those defects. The line between rehabilitation and
deterrence can sometimes become blurred in the corporate context (Fisse 1983). One way cor-
porations can respond to the deterrent impact of criminal fines is by reforming internal proce-
dures to prevent misconduct (Thompson 2010). Rehabilitation theorists, however, advocate for
mechanisms—like direct government intervention in and reform of convicted corporations—that
fine-focused deterrence theorists tend to ignore (Diamantis 2018, Moore 1992).

One major theoretical advantage of rehabilitation theory is that, by focusing on organizational

features, it can coherently mark out the corporation as a distinct target for punishment. It also
sidesteps the concern over agency costs that plagues deterrence theory. By encouraging the gov-
ernment to reform corporations directly, rehabilitation theory need not juggle the gap between
corporate incentives and the incentives of employees who would implement reform.
Perhaps the greatest vulnerability of rehabilitation theory is the present ignorance about how
to reform corporations and what effective compliance looks like. Although the base of knowledge
among organizational scientists and business scholars is expanding rapidly, it is far from complete
(Geis & Dimento 2002, Laufer 2017, Mueller 1957). Still less complete is the segment of that
knowledge that has filtered through to the prosecutors and judges who design corporate sanctions
(Hasnas 2014).
3.1.3. Retribution. Retribution plays a larger role in public and political rhetoric about
corporate crime than it does in legal scholarship (Baer 2012). Retributivists generally think the
law should give criminals what they deserve and that they deserve punishment in proportion to
the severity of their crimes [Kant 1887 (1797), 1996 (1797); Moore 1987]. The chief challenge
for retributivism in corporate punishment is to find a way to make sense of moral desert for
corporations. Corporations, after all, are collective entities that are “people” only in a fictional,
or at best secondary, sense. Without minds capable of supporting the sorts of guilty mental states
that are the hallmark of criminal culpability, retributivism may seem a nonstarter for corporations
(Anon. 1979).
Some scholars, primarily philosophers, face this worry head on, arguing that corporations,
though not natural people, still have enough of the hallmarks of moral agency to deserve pun-
ishment. One prominent strand locates collective agency in corporations’ “internal decision
structure”—their organizational flowcharts and procedures (French 1975, 1984). Another strand
places it in corporations’ capacity to respond to various kinds of reasons, moral and otherwise
(Pettit 2001). These accounts, although well-respected in philosophical circles, have yet to move
legal scholars.
Retributivists working on corporate criminal law prefer expressive forms of retributivism, ac-
cording to which the purpose of punishment is to allow society to express its moral condemnation
of corporate misdeeds (Kahan 1998, Laufer & Strudler 2000, Robinson 2013). This approach is
bolstered by recent discoveries in cognitive science explaining why people feel condemnatory im-
pulses toward the misdeeds of groups like corporations (Diamantis 2016). Researchers presented
subjects with scenarios describing either a group or an individual engaging in some behavior and
asked what mental state was animating the behavior. They found that people are as likely to at-
tribute intentions, including bad intentions, to groups as they are to an individual (Bloom & Veres
1999, Knobe & Prinz 2008, Malle 2010). Once bad intentions enter the picture, retributive emo-
tions like blame and resentment toward groups become psychologically sustainable (Sherman
& Percy 2010). Expressive retributivists applaud government officials who channel retributive
rhetoric. Some scholars worry, however, that this official rhetoric is often disingenuous (Laufer
2014).
Another challenge for retributivists is to justify the fact that corporate sanctions inevitably
burden innocent corporate constituents (Alschuler 2009). Just as retributivists think the guilty
should be punished, they also think the innocent should not. With respect to shareholders (one
significant corporate constituency), retributivists have a response. Shareholders theoretically have
the power to influence corporate affairs, which may be enough to implicate them in corporate
misconduct (Beal 2009). Furthermore, the burden corporate sanctions impose on shareholders
is primarily financial and therefore lacks the most worrying stigmatic implications of criminal

punishment (Brickey 1988). This reasoning, however, even if successful as applied to shareholders,
applies with less force to other innocent corporate constituents, like employees, creditors, and
consumers (Coffee 1981).
3.1.4. Incapacitation. Incapacitation rarely arises explicitly in discussions of corporation pun-

ishment, except to be set aside: Corporations, lacking bodies, cannot be jailed (Moore 1992). That
dismissal, despite its rhetorical force, is too quick. The law sometimes incapacitates criminals by
placing physical barriers between them and the possibility of reoffense. For individual criminals,
that barrier is often the concrete wall of a jail cell. But there are also subtler methods, such as cur-
fews, restraining orders, and limitations on computer access. In the corporate context, too, inca-
pacitative sanctions are available—such as restrictions on business opportunities and the appoint-
ment of corporate monitors—that do not rely on physical impediments (Thomas 2019). Though
incapacitation imposes costs on corporate constituents, these costs are easy to justify if tailored
to the purpose of preventing reoffense. Though no one advances incapacitation as a stand-alone
purpose of corporate punishment, incapacitative sanctions can be a crucial resource for furthering
criminal law’s other goals (Walt & Laufer 1992).
3.1.4. Miscellaneous. There are numerous other subgoals of corporate punishment, some of
which are familiar from other areas of criminal law and some of which are unique to the corporate
context. Examples include making victims whole and inducing corporations to monitor employees
(DiMento et al. 2001, Yates 2015).
3.2. Law
The Organizational Sentencing Guidelines, developed by the Sentencing Commission in 1991,
tell judges how to punish corporate criminals. Though the Guidelines are the most important body
of law on corporate punishment, two developments in the past 20 years threatened their relevance.
The first is the rise of DPAs and NPAs (see supra Section 2.3), which allow prosecutors, rather
than judges, to resolve corporate criminal cases. The other is a series of Supreme Court cases
holding that the Guidelines are just advisory.
As a matter of practice, though, the Guidelines continue to play an important role in corpo-
rate punishment. Fines imposed through DPAs and NPAs are usually within the range dictated
by the Guidelines, albeit at the lower end (Garrett 2014). When judges sentence corporations,
they too do so with reference to the Guidelines. As a matter of law, sentencing judges must start
their sentencing deliberations within the Guidelines range. Though they then have wide discre-
tion to move away from the Guidelines, approximately 80% of all sentences remain within the
recommended range (or deviate from it only at the government’s request) (O’Sullivan 2009).
One goal of the Guidelines was to increase the severity of corporate punishment. Prior to the
Guidelines, judges punished corporations using the same rules that applied to individuals (Nagel &
Swenson 1993). These failed to account for the more serious social harm and greater private profits
corporate crime entails. Furthermore, corporations received only the financial portion of any sanc-
tion; jail time could not be imposed and so was forgiven (Coleman 1975). The widespread percep-
tion was that these sanctions were too low to deter or justly punish corporate crime (Gruner 1994).
Rather than adhering to any single goal, the Guidelines state numerous goals: “to provide just
punishment, adequate deterrence, and incentives for organizations to maintain internal mecha-
nisms for preventing, detecting, and reporting criminal conduct” (Chapter 8). Some provisions
of the Guidelines also ensure that criminal corporations pay restitution to their victims. Others
disgorge corporations of criminal profits.

The centerpiece of the Guidelines is the rubric for calculating fines. The Guidelines authorize
judges to impose a financial death sentence (a fine exceeding corporate assets) on any corporation
“operated primarily for a criminal purpose” (§ 8C1.1). For other corporations, the calculation is
more complex, balancing the seriousness of the crime with case-specific considerations.
1. Judges begin by calculating the “base fine,” which is the greatest of three numbers: the loss
caused by the corporate crime, the gain realized by the corporation, or the fine listed on a
table.
2. They then determine the “culpability score,” which incorporates several factors, including
the size of the corporation, pervasiveness of the misconduct, involvement of senior per-
sonnel, prior history of misconduct, and presence or absence of an effective compliance
program, as well as whether the corporation cooperated with authorities.
3. The base fine and the culpability score give judges a “fine range,” which can go as low as
5% of the base fine and as high as 400%.
4. After calculating the fine range, judges select a fine within the range. In doing so, they
balance factors such as the need to fulfill the purposes of criminal law, the collateral conse-
quences of conviction, and whether the offense targeted vulnerable victims.
5. Finally, judges consider whether to depart above or below the fine range. Relevant con-
siderations include whether the corporation provided substantial assistance to authorities
(depart down) or whether the criminal conduct involved substantial risk of death or bodily
injury (depart up).
The Organizational Sentencing Guidelines close with provisions for placing corporate convicts
on probation. The Guidelines direct courts to impose a one- to five-year term of probation when
needed to ensure payment of penalties, to implement compliance enhancements, or “to accomplish
one or more of the purposes of sentencing” (§ 8D1.1). The Guidelines give judges wide latitude
to impose any condition “reasonably related to the nature and circumstances of the offense or
the history and characteristics of the organization” (§ 8D1.4). In some circumstances, courts may
appoint a monitor to implement the probation conditions.
In addition to the Sentencing Guidelines, a series of other statutes and regulations impose
“collateral consequences” on convicted corporations. These consequences can disqualify corpo-
rations from receiving licenses or other business privileges, like contracting with the government.
In many sectors—like accounting and healthcare—collateral consequences can be fatal (Barkow
2011, Boozang & Handler-Hutchinson 2009).
3.3. Practice
The Sentencing Commission intended the Organizational Sentencing Guidelines to raise cor-
porate fines, and they have had this effect. Before the Guidelines, average corporate crimi-
nal fines were below $50,000, and the annual sum of all corporate criminal fines was well be-
low $100,000,000 (Garrett 2014, Gruner 1981). In recent years, average criminal fines are over
$20,000,000, with annual totals well into the billions (USSC 2015).
These encouragingly higher figures mask some potentially troubling trends. For example, the
higher averages and totals are driven largely by a handful of blockbuster corporate prosecutions
rather than by increased sanctions across the board. Further, the distribution of higher fines is not
consistent across industries: Suits against pharmaceutical companies or for public corruption and
antitrust top the list. Although that imbalance may not seem inherently concerning, it is hard to
square with a broad criminal justice commitment to taking all corporate crime seriously. The fact

that average fines leveraged against foreign firms are many times higher than average domestic
fines should raise eyebrows (Garrett 2011).
Questions also remain about whether corporate fines have increased enough. The average cor-
porate fine is still just a paltry 0.04% of market capitalization, and almost half of all corporate
DPAs and one-fifth of corporate sentences impose no fine at all (Garrett 2014, USSC 2015). This
raises serious questions about whether current corporate fines are sufficient to deter corporate
misconduct (Alexander et al. 1999). Very few corporations have actually faced financial ruin as a
result of conviction (Markoff 2013).
Alternative penalties do not seem to be filling the gaps left by inadequate fines. Judges do not
take full advantage of the diverse and creative sanctions that the Guidelines authorize. Courts
rarely require corporate criminals to apologize to their victims and impose community service
obligations in only 12% of cases (Markoff 2013). These numbers will disappoint scholars of
corporate social responsibility or restorative justice who think these sorts of responses bene-
fit both corporate criminals and the communities they have harmed (Laufer & Strudler 2007,
Runnels 2011). Judges are more willing to sentence corporations to terms of probation (75% of
the time) (USSC 2015) but are disinclined to require an outside monitor (Garrett 2014). Per-
haps more troubling still, though judges nearly always find that guilty corporations lack effective
compliance programs, they order fewer than 30% of corporate convicts to implement one (USSC
2015).
3.4. Critical Perspectives and Future Directions

Very few commentators are satisfied with the present law and practice of corporate punishment.
As some have pointed out, the primary beneficiaries of the present system seem to be prosecu-
tors (who resolve cases with minimal political fallout), corporate defendants (who exit the pro-
cess with relatively light sanctions), and members of the corporate defense bar and compliance
industry (who charge by the hour throughout the process) (Laufer 1999, 2017). One persistent
and very serious concern is whether the sanctions presently levied against corporations are suffi-
cient to prevent future corporate crime. No one seriously argues that they are. When, in addition
to fines, corporate punishments call for corporate reform, there is little evidence that the struc-
tures put in place are more than expensive window dressing (Bowman 2004, Laufer 1999, Stevens
1994).
Another perennial line of criticism draws attention to the interaction between punishing crimi-
nal corporations and punishing the responsible individuals within them. Punishing individuals has
proven difficult in part because of evidentiary problems; piecing together who did what within a
complex organization is no easy task (Holder 1999). In approximately two out of every three cases
resolved by DPAs, prosecutors pursue no charges against individual employees (Garrett 2014).
This has led to the perception that prosecutors are, at best, ineffective or, at worst, in cahoots with
corporate executives (Eisinger 2017). Negotiations over corporate sanctions would be a natural
leverage point for prosecutors to encourage corporations to hand over responsible individuals.
The Department of Justice has recognized this and recently ordered its line prosecutors to secure
full cooperation from corporate defendants before approving DPAs (Yates 2015). Commentators
so far are skeptical about whether this policy will have any real impact (Baer 2016a).
The Organizational Sentencing Guidelines also have an important role to play in helping
authorities discover and investigate misconduct. As mentioned above, the Guidelines offer sen-
tencing reductions to corporations that cooperate with investigators [§ 8C2.5(g)]. One measure
of cooperation is whether a corporate criminal provides information “sufficient for law enforce-
ment personnel to identify…the individual(s) responsible for the criminal conduct” [(§ 8C2.5(g)

comment 13]. Relatively few corporations receive this credit. In recent statistics, no convicted
corporations self-reported to governmental authorities, and nearly 40% failed to cooperate with
investigations once suspected of criminal activity (USSC 2015). These numbers support schol-
ars’ forceful criticism that the Guidelines fail to sufficiently incentivize corporations to monitor
misconduct internally and share information publicly (Arlen 2012).
4. CONCLUSION
The overall tenor of this review is, admittedly, somber. The vast majority of corporate crime is
not referred for prosecution, the vast majority of corporations referred for prosecution are not
convicted, and substantially all convicted corporations are sanctioned in ways that continue to
raise fundamental questions. Even so, the shortcomings and challenges with the prosecution and
punishment of corporate criminality are not baked into the logic or practice of this corner of
criminal law. Games between and among stakeholders can be frustrated. The use of sophisticated
evaluation science and experimental methods in considering compliance effectiveness is not only
possible, it is inevitable.
New technologies and fresh perspectives are now coming into focus and hold the promise of
challenging well-worn dialectics. Big data and artificial intelligence are powerful tools that could
transform not only how compliance works and how it is measured, but what it means. Enthusiasm
for novel approaches to punishment—from character theory to restorative justice—also may
promote a corporate criminal justice. Regardless, the thirst for private-sector responsibility and
accountability should support the continued debate over the prosecution and punishment of
corporations.
DISCLOSURE STATEMENT
The authors are not aware of any affiliations, memberships, funding, or financial holdings that
might be perceived as affecting the objectivity of this review.
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cls July 26, 2019 14:40

Annual Review of Law and Social Science

Annu. Rev. Law Soc. Sci. 2019. 15:29.1–29.20 Keywords

41,000,000 reports of ethical

2,171 referrals of corporations to federal

237 corporate prosecutions filed in

29.2 Diamantis • Laufer

www.annualreviews.org • Corporate Criminality 29.3

makes a corporation, as a corporation, criminally culpable or blameworthy. For example, should

29.4 Diamantis • Laufer

8. collateral consequences, including whether there is disproportionate harm to shareholders,

29.6 Diamantis • Laufer

www.annualreviews.org • Corporate Criminality 29.7

2.4. Critical Perspectives and Future Directions

29.8 Diamantis • Laufer

www.annualreviews.org • Corporate Criminality 29.9

29.10 Diamantis • Laufer

One major theoretical advantage of rehabilitation theory is that, by focusing on organizational

www.annualreviews.org • Corporate Criminality 29.11

3.1.4. Incapacitation. Incapacitation rarely arises explicitly in discussions of corporation pun-

29.12 Diamantis • Laufer

www.annualreviews.org • Corporate Criminality 29.13

3.4. Critical Perspectives and Future Directions

29.14 Diamantis • Laufer

www.annualreviews.org • Corporate Criminality 29.15

agreements in corporate criminal prosecutions. Harvard J. Legis. 52:543–69

29.16 Diamantis • Laufer

www.annualreviews.org • Corporate Criminality 29.17

29.18 Diamantis • Laufer

Smith 2017, pp. 123–42

www.annualreviews.org • Corporate Criminality 29.19

save its soul? Rutgers Law Rev. 47:605–91

29.20 Diamantis • Laufer

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