Question

Are all corporate crimes preventable? Explain why?

Answer 1

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 (see vicarious liability and corporate liability). 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.

• Business has on many occasions underlined the fundamental importance of compliance, which should be understood not just as adherence to the law and internal company rules, but as a key component of business integrity. It is true that a corporation may in certain cases create an environment that encourages employees, officers, and agents to pay bribes to secure business. Yes, but the corporation can also do the opposite. It can establish an effective compliance system. Effective compliance increases the likelihood of detection of offenses in the company and thus has a positive impact not only on detection and prosecution but also on prevention.

  This is because compliance systems have a strong potential for deterrence within the company. Companies should therefore be urged to carry out effective compliance work in order to prevent white-collar crimes, shed light on internally detected misconduct, and disclose it to the authorities. In return, the compliance measures should be taken into consideration when setting the amount of the financial penalty in the event of a violation of the law, even to the extent of waiving a sanction on the company.

  When imposing sanctions, the conduct of the company (on which the financial penalty is to be imposed) both before and after the offense must be taken into consideration. This includes the company’s unreserved assistance in clarifying the facts of the case but also the implementation or subsequent introduction of compliance measures, which can be understood as a clear indication of the company management’s commitment to acting in accordance with the law.

  The fact that bribes were detected – and that needs to be emphasised – does not necessarily mean the established compliance system failed. In fact, it shows that the compliance system worked: Bribes were detected.

  With regard to the 2010 UK Bribery Act, which – like anti-bribery law in some other countries – contains a compliance defence rule, Kenneth Clarke, Secretary of State for Justice highlights: “The objective of the Act is not to bring the full force of the criminal law to bear upon well run commercial organizations that experience an isolated incident of bribery on their behalf. So in order to achieve an appropriate balance, section 7 provides a full defence. This is in recognition of the fact that no bribery prevention regime will be capable of preventing bribery at all times.“

  In our view, when it comes to the level of sanctions, different and adequate types of sanctions for legal persons are already in place, either criminal or non-criminal ones. These include fines, confiscation disgorgement, debarment from public procurement and other penalties like dissolution and publication.

  While some focus mainly on the liability of companies, the ‘role’ the individual may have must not be disregarded. in In September 2015, the US Department of Justice (DoJ) released its policy on Individual Accountability for Corporate Wrongdoing (“Yates memorandum”), which correctly signalled a priority of pursuing, punishing and deterring individual (executives, manager) wrongdoers. According to the Yates approach, “the most effective way to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” The policy and its six key steps to guide prosecutors and civil attorneys at DoJ in conducting and evaluating corporate investigations clearly show the need to focus on individual wrongdoers in addition to companies. Individuals, not only companies are accountable.

• One of the best ways to develop policies and procedures that are effective in prevention corporate fraud is with the assistance of an experienced anti-fraud professional who has investigated hundreds of frauds to develop the most relevant and most effective anti-fraud controls including:

• Establish clear and easy to understand standards from the top down. Have an employee manual that clearly outlines these standards and keeps the rules from becoming arbitrary.
• Always check references and perform background checks that include employment, credit, licensing and criminal history for all new hires.
• Secure physical assets, access to data, and money at all levels including monitoring and using pre-numbered checks, keep checks locked up, have a “voided check” procedure and never sign blank checks. Review all disbursements regularly.
• Segregation of duties of employees. Divide activities so one employee doesn’t have too much control over an area or duty. Separate important accounting and account payable functions. Small-business owners and managers should review every payroll check personally. The person who has custody of the checks should never have check signing authority. The person opening the mail should not record the receivables and reconcile the accounts.
• Proper authorization of transactions, ensuring that employees aren’t exceeding their authority.
• Independent checks on performance, using audits, surprise check-ups, inventory counts, or other procedures to verify compliance with policies and procedures, as well as accuracy.
• Instill an anonymous reporting mechanism, such as an employee fraud hotline.
• Small-business owners should control who first receives the bank statements and other sensitive documents. Consider a separate post office box for the purpose of receiving bank statements, customer receipts or any other sensitive documents.
• All account reconciliations and general ledger balances should have an independent review by a person outside the responsibility area such as an outside accountant. This allows for reviews, better ensuring nothing is amiss and providing a deterrent for fraudulent activities.
• Conduct annual audits to motivate all bookkeeping-related staff to keep things honest because they can never be sure what questions an auditor is going to ask or what documents an auditor may request to review.