Bill Proposal—Corporate Executives Criminally Accountable for Negligent Conduct

Lev L. Dassin and Jennifer Kennedy Park are partners, and David E. Wagner is an associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary memorandum.

On April 3, 2019, Senator (and Democratic Presidential contender) Elizabeth Warren announced proposed legislation—dubbed the “Corporate Executive Accountability Act”—that would effect a dramatic change in white collar criminal law by permitting prosecution of corporate executives for negligent conduct. Under traditional criminal law principles, defendants must typically have at least knowledge with respect to the conduct that constitutes the crime. However, under Senator Warren’s proposed law, executives of large companies could be criminally prosecuted (and fined and/or jailed if convicted) if they are found to have acted negligently in failing to prevent criminal acts committed by the companies they supervise. The bill is unlikely to be enacted, but it nonetheless represents a significant policy indication from a Presidential candidate.

In an op-ed published in The Washington Post in parallel to the bill’s announcement, Senator Warren expressed the view that “[i]t’s time to reform our laws to make sure that corporate executives face jail time for overseeing massive scams.” [1] In her words, the bill would “expand[] criminal liability to any corporate executive who negligently oversees a giant company causing severe harm to U.S. families.” She predicts that “[i]f top executives knew they would be hauled out in handcuffs for failing to reasonably oversee the companies they run, they would have a real incentive to better monitor their operations and snuff out any wrongdoing before it got out of hand.”

The Corporate Executive Accountability Act would apply to executives of companies with annual revenue exceeding $1 billion. Specifically, the bill would apply to such a company’s president, vice presidents, and any other officer or person who performs a policy making function, [2] so long as “by reason of the position of the individual in the corporation, [he or she] has the responsibility and authority to take necessary measures to prevent or remedy violations.”

The bill would make it unlawful for such an executive “to negligently permit or fail to prevent” one or more of three types of violations:

  1. any federal or state crime for which the company is convicted or enters into a deferred prosecution agreement (“DPA”) or a non-prosecution agreement (“NPA”);
  2. any federal or state civil violation for which the company is found liable or settles and that “affects the health, safety, finances, or personal data of” at least 1 percent of the United States population or at least 1 percent of the population of any state; or
  3. any federal or state criminal or civil violation for which the company is convicted or found liable and which was committed while the company was operating under any judgment, DPA or NPA relating to a different criminal or civil violation.

Senator Warren’s proposal includes penalties of a fine and/or imprisonment for up to 1 year for a first offense, and a fine and/or imprisonment for up to 3 years for a second offense. The full text of the Corporate Executive Accountability Act is available here.

If enacted, the bill would constitute a dramatic departure from the typical requirements for a criminal conviction. Traditionally, crimes require both a wrongful action and a particular mental state—the mens rea, or guilty mind. The required mental state is usually (at a minimum) knowledge with respect to the actions that constitute the crime. The Supreme Court has observed that “[t]he contention that an injury can amount to a crime only when inflicted by intention . . . is as universal and persistent in mature systems of law as belief in freedom of the human will and a consequent ability and duty of the normal individual to choose between good and evil.” [3] Negligence—which is the mental state required for conviction under the Corporate Executive Accountability Act—is a much lower threshold, requiring only that a person act unreasonably, and is usually reserved for the context of civil liability.

Imposing criminal liability on corporate executives not personally involved in or aware of wrongdoing is not, however, unprecedented. In fact, Senator Warren has cited the Food, Drug, and Cosmetic Act and the Clean Air Act as examples of other laws that do this. The legal doctrine is known as the Responsible Corporate Officer Doctrine (or the Park doctrine, after a 1975 Supreme Court decision [4]). The Responsible Corporate Officer Doctrine extends criminal liability to executives whose subordinates engage in criminal activity, even if the executives are not aware of it, so long as the executives can be deemed responsible for the actors who commit the crime. However, historically this doctrine has been applied narrowly in the context of offenses against the public health and welfare. The Corporate Executive Accountability Act would expand the Responsible Corporate Officer Doctrine to any crime committed by a company, regardless of whether the crime affects the public health or welfare or impacts the general public at all. Moreover, the Responsible Corporate Officer Doctrine extends liability only to “those who by virtue of their managerial positions or other similar relation to the [wrongdoer] could be deemed responsible for [the criminal act].” [5] But the Corporate Executive Accountability Act would focus on negligence, not on whether the executive was responsible for the part of the company that committed the crime. Conceivably, the Corporate Executive Accountability Act could expand the scope of liability to sweep in managers not responsible for the part of the company that engaged in the criminal conduct, so long as the managers could be said to have been negligent in failing to prevent the criminal activity.

In addition to the Corporate Executive Accountability Act, Senator Warren has also announced another bill called the “Ending Too Big to Jail Act.” The Ending Too Big to Jail Act would effect three primary changes in the law relating to corporate wrongdoing. First, the bill would reconstitute the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) to create a permanent law enforcement agency within the Treasury Department charged with investigating fraud committed by financial institutions. Second, the bill would require certain executives of financial institutions with assets greater than $10 billion to annually certify that they “have conducted due diligence and found that there is no criminal conduct or civil fraud in the financial institution . . . that has not been disclosed in full to the Department of Justice or the applicable regulator.” Third, the Ending Too Big to Jail Act would require courts to make a determination that DPAs are in the public interest before approving them. Senator Warren previously introduced the Ending Too Big to Jail Act in March 2018, but the bill died in committee. The full text of the Ending Too Big to Jail Act is available here.

If enacted, Senator Warren’s bills would accomplish a radical re-working of white collar criminal law. Enactment of these bills seems unlikely in the near future. However, the bills are an important indication of how at least one major Presidential candidate would propose to shift the direction of white collar criminal law.

Endnotes

1Elizabeth Warren, “Corporate executives must face jail time for overseeing massive scams,” The Washington Post (April 3, 2019), https://www.washingtonpost.com/opinions/elizabeth-warren-its-time-to-scare-corporate-america-straight/2019/04/02/ca464ab0-5559-11e9-8ef3-fbd41a2ce4d5_story.html?utm_term=.d41130dcc928.(go back)

2The bill incorporates the definition of “executive officer” from 17 C.F.R. § 240.3b-7.(go back)

3Morissette v. United States, 342 U.S. 246, 250 (1952).(go back)

4United States v. Park, 421 U.S. 658 (1975).(go back)

5Park, 421 U.S. at 670.(go back)

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