Criminally Insane Corporations

In the common telling of the corporate criminal justice parable, the law punishes criminal corporations in order to induce them to fix whatever caused them to do wrong. But there are some criminal corporations whose deep or unpredictable disfunction presents a special challenge. These corporations are much less likely to respond constructively to criminal sanctions. In a forthcoming article—The Corporate Insanity Defense—I argue that criminal law needs a different approach for these corporations, one that emphasizes compulsory expert treatment rather than standard forms of punishment. Fortunately, criminal law already has a doctrine that is up to the task—the insanity defense.

There are at least two types of scenarios where the standard conception of corporate punishment—which largely emphasizes fines—is particularly ineffective. First, there are cases where a rogue employee subverts otherwise effective corporate compliance protocols to commit a crime for his personal gain. Under the current law, the corporation could be sanctioned for the rogue’s misconduct. Assuming the corporation already has an effective compliance program, the only constructive action a fine could induce the corporation to take is to remove the rogue and to ensure no further rogue replaces him. However, if the rogue is an entrenched executive who is responsible for setting corporate policy, a fine against the corporation may not be able to provoke this change. If, on the other hand, the rogue is a lower-level employee, there may be little more the corporation can do to prevent further rogues from appearing. There are no compliance guarantees, especially against employees who are motivated to commit crimes. The multinational conglomerate Siemens offers a memorable example. After significant reforms following its prosecution for bribery, Siemens was widely hailed as one of the ‘World’s Most Ethical Corporations’. Nonetheless, a few years later, Siemens reported that it had uncovered several employees engaging in public corruption.

A second scenario where fines are predictably ineffective is where a corporation suffers from an entrenched and criminogenically defective corporate culture. Corporate culture is the touchstone by which employees gauge how to act. It relates to shared understandings, practices, and histories that bring some features of the work environment to social salience. Defective culture can silence valuable norms and normalize misconduct. Corporate fines, when they work at all, function by incentivizing individuals to behave differently. However, corporate culture has its own strong inertia. It is an essentially intangible group phenomenon that is largely beyond the power of any individual to change.

Since ordinary criminal sanctions are ineffective for the two types of criminal corporations just described, it would be helpful to divert their prosecution toward more constructive ends. That is what the insanity defense offers. The defense was developed for individual defendants whose mental disease or defect makes ordinary criminal punishment inapt or inappropriate. Though no corporation has ever asserted the insanity defense, the legal argument for its application to corporate defendants is easy to make out. Since corporations are considered legal ‘persons’ and can be convicted of most sorts of crime, criminal law must presume a fiction according to which corporations have minds capable of instantiating criminal mens rea. Statutes codifying the insanity defense make it available to any ‘person’ or ‘defendant’, terms that include corporations. The only remaining question is factual: whether corporations could ever satisfy the substantive requirements of legal insanity.

There are two main formulations of legal insanity. One, called the ‘volitional prong’, is about the important role of control as a precondition of criminal responsibility—a defendant who cannot control his actions is beyond blame. Under the American Law Institute’s formulation of the volitional prong, any defendant who ‘lacks substantial capacity . . . to conform his conduct to the requirements of the law’ is legally insane. Since corporate conduct is (according to the law) just employees’ conduct, any corporation that lacks the substantial capacity to induce some employee to obey the law should qualify as (at least temporarily) insane under the volitional prong. This would include corporations whose rogue employees actively subvert otherwise effective compliance programs.

The second formulation of legal insanity is the ‘cognitive prong’. Under this prong, a criminal defendant may be excused if he was unable, in some important respect, to understand his conduct. The thought behind the cognitive prong is that a defendant must be able to make meaningful moral judgments to qualify as a responsible agent. Once again, the American Law Institute offers a common formulation: ‘A person is not responsible for criminal conduct if . . . he lack[ed] substantial capacity . . . to appreciate the criminality [of] his conduct’. Under current law, corporations only understand or appreciate things when their employees do. This means that corporations whose employees fail to appreciate the criminality of their collective conduct may qualify as insane under the cognitive prong. If a corporation has a sufficiently defective culture that distorts the capacity of its employees to ethically assess their behavior, it may fit the bill.

Corporate criminals who satisfy the requirements of the insanity defense are precisely those for whom ordinary criminal sanctions would have the least effect! But would making the insanity defense available to such corporations have a better effect? One obvious worry is that the insanity defense would just let corporate criminals off the hook—freeing them to injure new victims with impunity and emboldening future corporate criminals. The same worry arises for individuals who successfully claim the insanity defense. For these individuals, traditional punishments (like incarceration) are ineffective and even counterproductive. However, simply releasing insanity acquittees also poses its own risks—the acquittee does not receive treatment he may need and the public is potentially endangered. Criminal law’s solution is to commit the insanity acquittee in a non-punitive treatment facility. The defendants who successfully claims insanity rarely goes free. Rather, he is usually transferred to a mental health facility, where he may be confined ‘for as long as he continues to pose a danger to himself or to others by reason of his mental illness’. An analogous consequence should hold for corporate insanity acquittees too. The state’s approach to them after acquittal should draw on a combination of non-punitive incapacitation and a compulsory rehabilitative regimen.

Of course, treatment for corporate acquittees would necessarily look different than it does for individuals. Organizational scientists and economists have identified many potential sources of corporate criminogenesis, so experts in those fields should be at the helm of diagnosis and treatment. Just as the law would need a different sort of expert to treat corporations, it would need a different method for delivering treatment. Corporations cannot be physically committed to a place of treatment. However, there are non-physical mechanisms for incapacitating corporations, which range from limited bans on certain business operations, to using corporate monitors, to implementing ‘robust receiverships or temporary nationalization’. The important point is to neutralize the public danger criminally insane corporations pose while enabling publicly appointed experts to administer the compliance reforms that traditional corporate sanctions would be unable to induce.

Mihailis E. Diamantis is an Associate Professor of Law at the College of Law, University of Iowa.