Corporate Crime Explained

Corporate crime refers to criminal acts committed by a corporation or by an individual acting on behalf of that corporation. It is often confused with white-collar crime for two reasons. Those people who are part of the decision-making strata of corporations are high income earners and usually belong to a higher social status. White-collar crimes are also characterized by financial breach of trust such as embezzlement or fraud, which are major types of corporate crime. However, according to the FBI, white-collar crime does not depend on physical threat or violence, and thus almost never results in bodily harm. In contrast, corporate crime can include threat, violence, and liability causing death.

The purpose of all corporate activity is to gain a competitive benefit for the corporation and its shareholders, and thereby increase its profit. Corporate crime occurs whenever that activity breaches the law and the corporation is investigated and charged with a crime.

This distinction is an important one. Activities that might be considered breach of law happen all the time against other corporations, such as corporate espionage, which includes theft of physical and intellectual property. However, these practices are not usually considered corporate crime because for the other corporation to press charges, those and other corporate secrets might have to be revealed in court. Thus, in practice, charges of corporate criminal activity by one corporation against another are usually limited to fair market violations.

For this reason the most common targets of recognized corporate crime are the government, the general population living around corporate facilities, and the corporation’s own customers, employees, and even shareholders. This can happen because the cost of corporate crime has become an accepted cost of doing business. So long as the probable gain outweighs the risk of being caught and held accountable as well as the financial cost of any resulting penalty, the illegal practice is likely to continue. When the benefit of every corporate practice is measured against its potential cost and it is to the corporation’s financial interest to continue the practice, it is usually the individual who loses.

Corporate crimes against governments usually involve tax evasion and breach of industry regulations. Such breach can also result in a heightened risk to people living near corporate facilities or transportation, sometimes with such disastrous outcomes as the permanent loss of fisheries as a result of the Exxon Valdez spill or the massive corporate manslaughter caused by the Union Carbine leak at Bhopal. Despite their frequency, influence-peddling crimes are not commonly prosecuted, even though influence-peddling has often been tied to the ability of corporations to dodge inspection to meet industry requirements. For example, before air particulate pollution was clearly tied to health issues and the USEPA established the National Ambient Air Quality Standards, it was common practice in California for the Air Resources Board to give corporations advance notice of the timing of each downwind inspection. Prosecution of these types of crimes has been most successful when it can be shown that the proximate cause of heightened risk has become established corporate practice, despite the corporation having known that the risk existed.

Corporate crimes against the corporation’s employees always involve methods of reducing the cost of labor. These can range from allowing a hazardous work environment to persist to illegal and even violent union-busting practices. As always, prior corporate knowledge of the practice and any probable resulting risk must be proved.

Corporate crimes against the corporation’s customers are of two general types, those which reduce competition to keep prices artificially high, and those which misrepresent the product. Because so many factors are involved, fair competition breaches are difficult to prove, and thus are not often brought to court on any large scale. Misrepresentation of a product is much easier to prosecute, so long as it can be proved that the product was in fact misrepresented based on corporate knowledge. The saga of the tobacco industry is the poster child for these issues.

Corporate crimes against the corporation’s shareholders are almost always fraud resulting from misrepresentation of the corporation’s past earnings or potential for future earnings. This often results in share value and dividends much lower than shareholders have been led to expect. Where the corporation is an umbrella or otherwise invested in many different businesses, it can also artificially inflate or deflate the prices of shares through insider trading. Individual CEO’s sometimes try to use a corporation’s assets as they would those of a sole-proprietor business, with shareholders deciding whether the specific uses are appropriate to the CEO’s function. If not, the CEO may be charged with embezzlement. Extreme cases of fraud try to disguise the corporation’s shaky financial footing, with prosecution usually following implosion and corporate collapse. This is one of the few times when courts are willing to pierce the corporate veil to hold individuals responsible.

The nature of corporate crime depends heavily on the doctrine of corporate personhood. In the law of the United States, the United Kingdom, and many Commonwealth countries, a corporation has the legal status of a person. This status, known as corporate personhood, enables a corporation to enter into contracts, own property, and issue bonds, and also gives its investors some protection from personal liability. Without that protection, projects with a high risk assessment might never be undertaken in a free market. At the same time, this protection from personal liability is what encourages corporate policy to manage criminal risk against probable profit.

Prosecuting corporate crimes has been complicated by corporate personhood. Not only are individual corporate employees protected from individual prosecution, but corporate personhood also confers some individual rights on the corporation. For example, it is only through corporate personhood that a corporation has the right to due process. This is a very complex legal area, especially in the United States, where courts are often reluctant to pierce the corporate veil because every such precedent challenges the nature of the corporation itself.