In criminology, corporate crime refers to crimes committed either by a corporation (i.e., a business entity having a separate legal personality from the natural persons that manage its activities), or by individuals acting on behalf of a corporation or other business entity. For the worst corporate crimes, corporations may face judicial dissolution, sometimes called the "corporate death penalty", which is a legal procedure in which a corporation is forced to dissolve or cease to exist.
Some negative behaviours by corporations may not actually be criminal; laws vary between jurisdictions. For example, some jurisdictions allow insider trading.
Corporate crime overlaps with:
- white-collar crime, because the majority of individuals who may act as or represent the interests of the corporation are white-collar professionals;
- organized crime, because criminals may set up corporations either for the purposes of crime or as vehicles for laundering the proceeds of crime. The world's gross criminal product has been estimated at 20 percent of world trade. (de Brie 2000); and
- state-corporate crime because, in many contexts, the opportunity to commit crime emerges from the relationship between the corporation and the state.
Definitional issues
Legal person
An 1886 decision of the United States Supreme Court, in Santa Clara County v. Southern Pacific Railroad 118 U.S. 394
(1886), has been cited by various courts in the US as precedent to
maintain that a corporation can be defined legally as a "person", as
described in the Fourteenth Amendment to the U.S. Constitution. The Fourteenth Amendment stipulates that,
No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
In English law, this was matched by the decision in Salomon v Salomon & Co [1897] AC 22.
In Australian law, under the Corporations Act 2001 (Cth), a corporation is legally a "person".
Criminal capacity
United
States law currently recognizes corporate criminal capacity.
French law currently recognizes corporate criminal capacity.
German law does not recognize corporate criminal capacity: German
corporations are however subject to fining for administrative violations
(Ordnungswidrigkeiten)
International treaties governing corporate malfeasance thus tend to
permit but not require corporate criminal liability.
Enforcement policy
Corporate crime has become politically sensitive in some countries. In the United Kingdom,
for example, following wider publicity of fatal accidents on the rail
network and at sea, the term is commonly used in reference to corporate manslaughter and to involve a more general discussion about the technological hazards posed by business enterprises (see Wells: 2001).
In the United States, the Sarbanes-Oxley Act of 2002 was passed to reform business practices, including enhanced corporate responsibility, financial disclosures, and combat fraud,
following the highly publicized scandals of Enron, Worldcom, Freddie
Mac, Lehman Brothers, and Bernie Madoff. Company chief executive officer
(CEO) and company chief financial officer (CFO) are required to
personally certify financial reports to be accurate and compliant with
applicable laws, with criminal penalties for willful misconduct
including monetary fines up to $5,000,000 and prison sentence up to 20
years.
The Law Reform Commission of New South Wales offers an explanation of such criminal activities:
Corporate crime poses a significant threat to the welfare of the community. Given the pervasive presence of corporations in a wide range of activities in our society, and the impact of their actions on a much wider group of people than are affected by individual action, the potential for both economic and physical harm caused by a corporation is great (Law Reform Commission of New South Wales: 2001).
Similarly, Russell Mokhiber and Robert Weissman (1999) assert:
At one level, corporations develop new technologies and economies of scale. These may serve the economic interests of mass consumers by introducing new products and more efficient methods of mass production. On another level, given the absence of political control today, corporations serve to destroy the foundations of the civic community and the lives of people who reside in them.
Discussion
Criminalization
Behavior can be regulated by the civil law (including administrative law) or the criminal law. In deciding to criminalize particular behavior, the legislature is making the political judgment that this behavior is sufficiently culpable
to deserve the stigma of being labelled as a crime. In law,
corporations can commit the same offences as natural persons. Simpson
(2002) avers that this process should be straightforward because a state
should simply engage in victimology to identify which behavior causes the most loss and damage to its citizens, and then represent the majority view that justice
requires the intervention of the criminal law. But states depend on the
business sector to deliver a functioning economy, so the politics of
regulating the individuals and corporations which supply that stability
become more complex. For the views of Marxist criminology, see Snider (1993) and Snider & Pearce (1995), for Left realism, see Pearce & Tombs (1992) and Schulte-Bockholt (2001), and for Right Realism, see Reed & Yeager (1996). More specifically, the historical tradition of sovereign state control of prisons is ending through the process of privatisation.
Corporate profitability in these areas therefore depends on building
more prison facilities, managing their operations, and selling inmate
labor. In turn, this requires a steady stream of prisoners able to work.
(Kicenski: 2002)
Bribery and corruption
are problems in the developed world, and the corruption of public
officials is thought to be a serious problem in developing countries,
and an obstacle to development.
Edwin Sutherland's
definition of white collar crime also is related to notions of
corporate crime. In his landmark definition of white collar crime he
offered these categories of crime:
- Misrepresentation in financial statements of corporations
- Manipulation in the stock market
- Commercial bribery
- Bribery of public officials directly or indirectly
- Misrepresentation in advertisement and salesmanship
- Embezzlement and misappropriation of funds
- Misapplication of funds in receiverships and bankruptcies (O'Grady: 2011).
Corruption and the private sector review
One
paper discusses some of the issues that arise in the relationship
between private sector and corruption. The findings can be summarized as
follows:
- They present evidence that corruption induces informality by acting as a barrier to entry into the formal sector. Firms that are forced to go underground operate at a smaller scale and are less productive.
- Corruption also affects the growth of firms in the private sector. This result seems to be independent of the size of the firm. A channel through which corruption may affect the growth prospects of firms is through its negative impact on product innovation.
- SMEs pay higher bribes as percentage of revenue compared with large companies and bribery seems to be the main form of corruption affecting SMEs.
- Bribery is not the only form of corruption affecting large firms. Embezzlement by a company's own employees, corporate fraud, and insider trading can be very damaging to enterprises too.
- There is evidence that the private sector has as much responsibility in generating corruption as the public sector. Particular situations such as state capture can be very damaging for the economy.
- Corruption is a symptom of poor governance. Governance can only be improved via coordinated efforts among governments, businesses, civil society.
Organi-cultural deviance
Cesare Beccaria (1738-1794) pioneered the study of crime
Organi-cultural deviance is a recent philosophical model used
in academia and corporate criminology that views corporate crime as a
body of social, behavioral, and environmental processes leading to
deviant acts. This view of corporate crime differs from that of Edwin
Sutherland (1949), who referred to corporate crime as white-collar crime,
in that Sutherland viewed corporate crime as something done by an
individual as an isolated end unto itself. With the Organi-cultural
deviance view, corporate crime can be engaged in by individuals, groups,
organizations, and groups of organizations, all within an
organizational context. This view also takes into account micro and
macro social, environmental, and personality factors, using a holistic
systems approach to understanding the causation of corporate crime.
The term derives its meaning from the words organization (a structured unit) and culture
(the set of shared attitudes, values, goals, and practices). This
reflects the view that corporate cultures may encourage or accept
deviant behaviors that differ from what is normal or accepted in the
broader society.
Organi-cultural deviance explains the deviant behaviors (defined by
societal norms) engaged in by individuals or groups of individuals.
Because corporate crime has often been seen as an understudy of
common crime and criminology, it is only recently that the study of
corporate crime been included in coursework and degree programs directly
related to criminal justice, business management, and organizational
psychology. This is partly due to a lack of an official definition for
crimes committed in the context of organizations and corporations.
The social philosophical study of common crime gained recognition through Cesare Beccaria during the 18th century, when Beccaria was heralded as the Father of the Classical School of Criminology.
However, corporate crime was not officially recognized as an independent area of study until Edwin Sutherland provided a definition of white collar crime
in 1949. Sutherland in 1949, argued to the American Sociological
Society the need to expand the boundaries of the study of crime to
include the criminal act of respectable individuals in the course of
their occupation.
In 2008, Christie Husted found corporate crime to be a complex
dynamic of system-level processes, personality traits,
macro-environmental, and social influences, requiring a holistic
approach to studying corporate crime. Husted, in her 2008 doctoral
thesis, Systematic Differentiation Between Dark and Light Leaders: Is a Corporate Criminal Profile Possible?, coined the term organi-cultural deviance to explain these social, situational and environmental factors giving rise to corporate crime.
Application
Renée
Gendron and Christie Husted, through their research conducted in
2008-2012, expanded the concept of organi-cultural deviance, in papers
presented the Academy of Criminal Justice Sciences conference Toronto,
Canada, the American Association of Behavioral and Social Sciences
Annual Conference, Las Vegas, NV, the General Meeting of the
Administrative Sciences Association of Canada, in Regina, Saskatchewan,
Canada, and The Humanities conference in Montréal, Canada.
The term organi-cultural deviance incorporated the terms group think,
and yes-men, to explain decision-related cognitive impairments inherent
of corporations engaging in corporate crime. The researchers have found
several interconnected dynamics that increase the likelihood of
white-collar crime. The researchers have found specific group dynamics
involved in white collar crime are similar to the group dynamics present
in gangs, organized crime organizations as well as cults. Moreover, the
researchers have found that there are systems-level forces influencing
the behaviors and cognitions of individuals.
The subject of organi-cultural deviance was first taught in business management, leadership classes, and in a class titled Corporate Misconduct
in America, at Casper College during 2008-2009. Organi-cultural
deviance was introduced to students as a social philosophical term used
to help describe, explain, and understand the complex social,
behavioral, and environmental forces, that lead organizations to engage
in corporate crime.
Social Dynamics
The term organi-cultural deviance was later expanded and published in a 2011 paper titled Socialization of Individuals into Deviant Corporate Culture.
Organi-cultural deviance was used to describe how processes of
individual and group socialization, within deviant corporate cultures,
serve to invert Abraham Maslow's (1954) Hierarchy of Needs into a theoretical “Hierarchical Funnel of Individual Needs”.
Organi-cultural deviance was further explored by Gendron and Husted,
using a micro-environmental approach, identifying social dynamics
within deviant organizations believed to lure and capture individuals.
However, through the social processes inherent of organi-cultural
deviance, social pressures and influences force the individual to vacate
aspirations to reach self-actualization and become complacent on
satisfying lower needs, such as belongingness. In organi-cultural
deviance, social dynamics and micro-environmental forces are believed,
by Gendron and Husted, to result in the individual's dependence upon the
organization for their basic needs.
Organizations engaging in organi-cultural deviance use
manipulation and a façade of honesty, with promises of meeting the
individual's needs of self-actualization. The social forces such as the
use of physical and psychological violence to maintain compliance with
organizational goals within deviant organizations secure the
individual's dependence upon the organization for satisfaction of their
basic needs. As the process of organi-cultural deviance escalates, the
complacency to meet mid-level needs becomes a dependency on the
organization to satisfy the lower needs of the pyramid, the individual's
basic needs. In the paper Using Gang and Cult Typologies to Understand Corporate Crimes, Gendron and Husted
found organizations engaging in organi-cultural deviance used coercive
power, monetary, physical and/or psychological threats, to maintain
their gravitational hold on the individual.
In the 2011 paper, Using Gang and Cult Typologies to Understand Corporate Crimes,
organi-cultural deviance was used to compare the cultures of: mafias,
cults, gangs and deviant corporations, each of which was assumed to be a
type of deviant organization. In these types of organizations,
organi-cultural deviance was found to be present. In engaging in
organi-cultural deviance, these organizations leverage four resources:
information, violence, reputation and publicity. These types of
organizations engaging in organi-cultural deviance were found to contain
toxic leadership. Deviant organizations, engaging in organi-cultural
deviance, were found to leverage their reputation through publicity to
attract members. The combination of adverse psychological forces,
combined with the real need for its employees to survive (earn a living,
avoid bullying) act as a type of organizational gravitational pull. The
concept of organi-cultural deviance includes both micro (personal,
psychological or otherwise internal forces exercising influence over an
individual's behavior) and macro influences (group dynamics,
organizational culture, inter-organizational forces as well as system
pressures and constraints, such as a legal system or overall economic
environment).
Environmental Influences
In a 2012 paper titled Organi-cultural Deviance: Economic Cycles Predicting Corporate Misconduct?, Gendron and Husted found economic cycles result in strain, seen as a precipitating factor in organi-cultural deviance.
Organi-cultural deviance is based on the premise social pressure and
economic forces exert strain on organizations to engage in corporate
crime. Strain creates motivating tension in organi-cultural deviance.
Robert Merton championed strain theorists in the field of criminology,
believing there to be “a universal set of goals toward which all
Americans, regardless of background and position, strive, chief among
these is monetary success”. Economic cycles result in observable patterns which are indicative of organi-cultural deviance.
Organi-cultural deviance is likely to occur at different points
in an economic cycle and system. The specific location of an economy in
the economic cycle tends to generate specific kinds of leaders.
Entrepreneurial leaders tend to be most visible at the bottom of an
economic cycle, during a depression or recession. Entrepreneurial
leaders are able to motivate their employees to innovate and develop new
products. As the economy strengthens, there is a marked increased of
bureaucratic leaders who standardise and operationalise the successes of
entrepreneurial leaders. As the economy reaches the apex of the
economic cycle, pseudo-transformational leaders are likely to emerge,
promising the same, if not higher, rates of return in a booming or
peaking economy. Often, these pseudo-transformational leaders engage in
deviant practices to maintain the illusion of rising rates of return.
