Breaking The Law: Global Corporations And Their Illegal Activities

Corporate crime is a widespread issue, with many large corporations breaking the law and getting away with it. In the US, deferred-prosecution agreements are often used as a means of deterrence, where a company acknowledges wrongdoing, pays a fine, and promises not to reoffend. However, these agreements have been criticised for not adequately deterring future misconduct and for letting corporations off the hook. To address corporate rule-breaking, it is important to hold individuals accountable, strengthen regulatory bodies, and ensure that punishments are proportional to the benefits gained from illegal behaviour.

Corporations don't break the law, people do

It is often said that corporations break the law, but this is not strictly true. Corporations are legal entities, and therefore cannot act independently of the people who control them. When a corporation is accused of breaking the law, it is the people within that organisation who are responsible.

In recent years, several large corporations have been accused of breaking the law, including Wells Fargo, General Motors, and Credit Suisse. In these cases, it was the decisions and actions of individuals within these organisations that led to illegal activity.

For example, in the case of Wells Fargo, it was found that employees had opened millions of bank and credit card accounts on behalf of customers without their consent. This was done to drive up the company's stock and enrich those at the top. As a result, the company was fined, but no individuals were criminally charged, and the CEO was allowed to resign without facing any legal consequences.

Similarly, in the case of General Motors, the company was found to have ignored complaints about faulty ignition switches, which led to multiple fatalities. Again, the company was fined, but no individuals were held accountable.

In the case of Credit Suisse, the bank helped rich Americans avoid paying taxes. Once more, the bank was fined, but no individuals were charged or held accountable.

These cases highlight a recurring issue where corporations are fined for illegal activity, but the individuals responsible escape punishment. This is often because it can be difficult to establish who within the organisation is responsible, especially in large, complex corporations where decisions are made by committees or groups of people.

However, it is important to recognise that corporations themselves cannot break the law – it is the people within them who make illegal decisions and take illegal actions. To hold corporations truly accountable, it is necessary to prosecute the individuals involved and not just impose fines on the organisation as a whole.

One suggestion to improve accountability is to require corporations to self-report any illegal activity and identify the individuals responsible. In return, they could be offered more lenient treatment, such as a deferred prosecution agreement. This would incentivise corporations to cooperate with investigations and help identify the people truly responsible for any illegal activity.

Another suggestion is to increase the use of whistleblowers and provide them with greater protection and incentives. This could encourage more people to come forward with information about illegal activity and help identify those responsible.

By focusing on prosecuting individuals, rather than just fining corporations, it may be possible to create a stronger deterrent against corporate crime and improve accountability when illegal activity occurs.

Fines are often treated as a cost of doing business

While there are no specific figures on how many corporations worldwide break the law, there are numerous examples of large corporations engaging in illegal practices and being fined for their actions. These fines, however, often seem to be treated as a cost of doing business. This is particularly true for large companies, where criminal penalties may be viewed as a reasonable cost.

For instance, Amazon was fined $31 million for two separate privacy violations. However, with $127.4 billion in revenue in the first quarter of 2023 and a net income of $3.2 billion during that same period, the fine is negligible. Similarly, Wells Fargo was fined $185 million for opening nearly two million bank and credit card accounts without customers' consent. Despite the significant amount of the fine, it pales in comparison to the company's financial assets.

The perception that corporations can simply pay their way out of trouble is not new. In the wake of the 2008 financial crisis, authorities levied an estimated $200 billion in fines on US banks for various misconducts, including rigging interest rates and laundering money for drug cartels. Yet, as evident in the Wells Fargo case, this crackdown does not seem to have deterred corporate crime.

The question of whether fines act as a deterrent or an enabler is a complex one. On the one hand, high fines can provide adequate deterrence. On the other hand, it may not be politically feasible or legally possible to impose a fine large enough to deter future incidents, especially for large corporations. Additionally, entity-level fines may not effectively hold individuals accountable, as the punishment falls on shareholders rather than the decision-makers who committed or benefited from the crime.

Furthermore, the proliferation of fines and penalties has led companies to view them as a standard cost of doing business. As Michael H. Krimminger, a partner at Cleary Gottlieb and former general counsel of the Federal Deposit Insurance Corporation, notes, these fines and penalties have become "an enormous, expensive tax" that companies must factor into their operations. This perspective underscores the need for a more effective approach to deterring corporate crime and ensuring that individuals are held accountable for their actions.

Deferred-prosecution agreements are ineffective deterrents

Deferred prosecution agreements (DPAs) are legal means, alternative to trial, for the resolution of criminal business cases. They are increasingly used in the US and are spreading to other jurisdictions. DPAs allow the government to defer prosecution for a period of time, provided that a defendant adheres to specific criteria during that period. These criteria generally involve an admission of wrongdoing, the payment of fines, and the implementation of compliance measures. Charges are dropped if the defendant complies with the requirements of the agreement.

Despite their widespread use, DPAs have been criticised as ineffective deterrents. Here are some reasons why:

Ineffective Deterrence

DPAs have been criticised for providing lenient treatment to corporations and their executives, allowing them to avoid criminal charges, convictions, and prison sentences. This leniency undermines the deterrence value of the agreements and sends a message that corporations can break the law without facing serious consequences. The lack of criminal convictions and prison sentences for corporations and their executives also communicates that they have not transgressed and retains their stamp of legitimacy.

Lack of Judicial Oversight

DPAs have been criticised for lacking judicial oversight, which can lead to increased abuse of prosecutorial discretion. Federal prosecutors have wide discretion in negotiating DPAs, and there is limited judicial scrutiny to ensure equal and consistent treatment of corporations. This lack of oversight can result in agreements that are too lenient and fail to adequately punish and deter corporate misconduct.

Failure to Prevent Recidivism

There is evidence that DPAs are ineffective in preventing corporate recidivism. Studies have shown that corporations that enter into DPAs often re-offend during or after the agreement period. This suggests that DPAs do not successfully deter future crimes or prevent corporate recidivism.

Inadequate Punishment

DPAs have been criticised for not imposing proportionate punishment on corporations and their executives. The fines and other consequences included in DPAs are often seen as insignificant compared to the profits gained from criminal activities. Additionally, DPAs typically do not involve incarceration, which can be a more effective deterrent for large corporations and their executives.

Inequality and Privilege

DPAs have been criticised for creating a system of inequality and privilege, where corporations and their executives are treated more favourably than individual criminals. This disparity reflects and reinforces the perception that corporations are legitimate organisations, while individual criminals are bad actors who deserve harsh treatment. This double standard undermines the credibility of the criminal justice system and stalls meaningful criminal justice reform.

Collusion and Capture

The process of negotiating DPAs can involve collusion and capture between federal prosecutors and corporate defence attorneys. Prosecutors rely on internal investigations conducted by corporations, creating a conflict of interest and the potential for evidence tampering. The absence of judicial oversight further enables prosecutors to offer lenient agreements to corporations, especially when there is a potential for future employment with those corporations.

In conclusion, while DPAs offer some benefits in terms of efficiency and avoiding collateral consequences, they have been widely criticised as ineffective deterrents. The lack of judicial oversight, inadequate punishment, and failure to prevent recidivism all contribute to this perception. Reforming or abolishing DPAs could help restore corporate criminal deterrence and create a more equitable criminal justice system.

Whistleblowers are under-incentivised

Whistleblowers are the first line of defence against corporate crime, fraud, and wrongdoing. They are the single most effective source of information about fraud and other illegal activities. However, despite their importance, whistleblowers are often under-incentivised to come forward. While there are laws in place to incentivise and protect whistleblowers, these vary from country to country and are often insufficient.

The original incentive for whistleblowing was the False Claims Act, created during the Civil War in 1863. The law set a high percentage for awards to incentivise people to come forward and report wrongdoing. The amended and current False Claims Act offers incentives for whistleblowers starting at 15%, and going as high as 30% when the whistleblower pursues a case that the government declines to pursue. If the government decides to pursue the case, the maximum the whistleblower can get is 25%.

In addition to the False Claims Act, there are several other laws that provide incentives for whistleblowers, including the Securities and Exchange Commission (SEC) programme, the Commodity Futures Trading Commission (CFTC) programme, the Internal Revenue Service (IRS) programme, and the Dodd-Frank Act. These laws have led to significant recoveries for the government, with the SEC and CFTC recovering over $2.8 billion and awarding more than $840 million to whistleblowers, and the government collecting more than $7.2 billion in FCPA violations.

Despite these incentives, whistleblowers often face personal and professional risks when they decide to speak out. They may lose their jobs and be ostracised by their profession. As a result, they may need to retain counsel, which can be costly. Whistleblowers may also face social and economic costs, such as the need to mortgage their homes to pay for legal costs. In almost every lawyer's experience, whistleblowers act because they are upset about wrongdoing, often without even knowing what their rights are regarding any financial incentive.

Furthermore, the incentives offered to whistleblowers may not always be enough to outweigh the risks. For example, a senior executive in finance who expects to earn millions each year may not be incentivised by a maximum award of $30 million. Additionally, the administration costs of reward programs can be high, and there may be concerns about whether the costs outweigh the benefits received in terms of information on wrongdoing.

To address these issues, some commentators have suggested that any whistleblower incentive program should also include deterrents to prevent false tips and protect whistleblowers from defamation, perjury, and information fabrication. Others have suggested that the government should focus on achieving a balance between attractive incentives and severe sanctions.

In conclusion, while there are laws and incentives in place to encourage whistleblowing, these may not always be sufficient to outweigh the personal, professional, and financial risks faced by whistleblowers. As a result, whistleblowers may be under-incentivised to come forward, which could hinder the detection and prosecution of corporate crime and wrongdoing.

Criminal liability is rarely assigned to a corporation

While there are no exact figures on how many corporations worldwide break the law, there are numerous examples of large corporations engaging in illegal activities and unethical behaviour. For instance, in 2024, Wells Fargo & Co. paid $185 million in fines for opening millions of bank and credit card accounts without their customers' consent. Other examples include General Motors covering up faulty ignition switches, Volkswagen cheating on emissions tests, and BP's Deepwater Horizon oil spill in the Gulf of Mexico, for which they paid a $20 billion settlement. These instances highlight a broader pattern of corporate crime and the challenges of holding corporations and their executives accountable.

Additionally, corporations can avoid criminal liability by demonstrating good faith and due diligence. They can also take advantage of legal loopholes and tax breaks to minimise their tax liabilities, as evident in the numerous tax avoidance strategies employed by large corporations. Furthermore, prosecutors face limitations in pursuing corporate criminal cases due to limited resources and the complexity of large corporations, making it difficult to establish clear culpability.

The application of criminal law to corporations is also complex because business activities are not inherently in conflict with societal morals or values. Behaviours that may be deemed unethical or harmful are sometimes tolerated or considered acceptable in the pursuit of profit. Additionally, the impact of punishing a corporation, such as fines or reputational damage, can have unintended consequences on innocent stakeholders like shareholders and employees.

Lastly, the prosecution of corporate crimes can be challenging due to the higher standards of evidence required in criminal courts compared to private lawsuits. This evidentiary challenge, combined with the discretion afforded to prosecutors, can result in cases being settled through deferred prosecution agreements or non-prosecution agreements, allowing corporations to escape conviction by accepting liability and paying fines.

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