Ethics Resource Center

Published: February 18, 2009

The Policy Report
By Paula J. Desio, ERC Chair on Ethics Policy

Criminal Liability: What�s on the Horizon?

A case just decided on appeal in New York – although it involved dumping oily waste at sea –could some day be seen as a catalyst in determining whether corporations can invoke ethics and compliance programs as a defense against criminal liability.

During oral argument, the federal three-judge panel listened, briefly, to a “friend of the court” coalition, which contended that companies should be able to cite an effective ethics and compliance program as a defense against alleged criminal acts by their employees.
The case, U.S. v. Ionia Management Systems, S.A., involved a Greek shipping management company whose employees illegally dumped oily waste off the coast of the United States. A jury convicted Ionia in 2007 of conspiracy, falsifying records and obstruction of a U.S. Coast Guard investigation.  Ionia appealed.

The friends of the court argued that the strict criminal liability standard applied by U.S. courts for the past century is out of date and out of sync with U.S. Supreme Court rulings in other, similar civil punitive damages cases.  Congress, they maintained, has provided little guidance. They wanted the courts to step in.

The judges hearing Ionia seemed intrigued, but expressed doubt about the propriety of the judiciary deciding such a far-reaching policy question.  On January 21, the judges upheld Ionia’s conviction. The court observed that  it was not obligated to consider the “friend of the court” argument, but added that, in any event, precedents in its jurisdiction were “unavailing.”

Still, the court’s willingness to listen to the ethics and compliance argument was a step forward in broadening awareness beyond academic debate. The coalition may keep its argument alive in the courts if Ionia pursues an appeal to the U.S. Supreme Court. Congress is also a potential target. 

Three developments also are helping propel the cause of an overhaul of the criminal liability standard, which holds that a corporation is liable for the acts of its employees or agents.

• U.S. courts and Congress both have endorsed the concept of ethics and compliance programs as mitigating factors at sentencing;
• Regulators and businesses, both nationally and internationally, have adopted such programs as sound risk management tools;
• Research has led to sound empirical methods to measure their effects.

These advances should serve as a foundation for the evolution of federal legal standards – a change that could get more serious consideration thanks to the efforts in Ionia.

 

In This Issue

• The Policy Report By Paula J. Desio, ERC Chair on Ethics Policy
  - New Rules for Federal Contractors: You Must Disclose Wrongdoing
  - Federal Whistleblower Rights Increase Under the Stimulus Law
  - Criminal Liability: What’s on the Horizon?
  
• Guest Column By Andrea Bonime-Blanc
  Governance, Risk, Ethics and Compliance: Time for a Seat at the Executive Table
• Column By Patricia J. Harned, Ph.D. President, ERC
• One Vision of Ethics by Phillip B. Goldberg, ERC Vice President/Development
• January 2009 Fellows Meeting