'Ionia' Challenge to Corporate Criminal Liability

Mark Twain once reportedly observed that "everybody talks about the weather but nobody does anything about it." The same could be said of corporate criminal liability.

In recent years, the corporate defense bar has frequently complained about the low threshold for vicarious corporate criminal liability and the resulting imbalance of power between the government and companies under investigation. However, since potential corporate criminal defendants typically resolve such investigations without a trial, opportunities to challenge the broad scope of corporate criminal liability are rare.

But in a case now pending before the 2nd U.S. Circuit Court of Appeals, United States v. Ionia Management SA, the defendant corporation, as well as a diverse group of business and legal organizations acting as amici curiae, are asking the court to re-examine what had previously been accepted as black-letter law regarding when a corporation may properly be held vicariously liable for the acts of its employees.

While the defense bar has successfully battled some of the U.S. Justice Department's specific tactics in corporate criminal investigations (such as pressuring companies to waive attorney-client privilege or deny payment of employees' legal fees), this is the first significant direct challenge in recent years to the long-standing doctrine of corporate criminal liability. Their arguments, if accepted by the court, could have far-reaching consequences for the balance of power between the government and the targets of corporate criminal investigations.

For nearly a century, it has been accepted as well-settled law that a corporation may be held vicariously liable for the criminal conduct of its employees, where they were acting within the scope of their employment and with the intent to benefit the company, even if they were acting in violation of established corporate policy prohibiting their illegal conduct. Moreover, there is no limitation on the level of employees whose wrongful actions may be imputed to the corporation, so the conduct of even a single, low-level employee could trigger vicarious corporate liability. [Mark Godsey]

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