Trapped

When Acting Ethically Is Against the Law

John Hasnas

• Publisher: Cato Institute
• Year: 2006
• ISBN:
  9781933995403
• Topic: Diritto
• Subtopic: Conflitto di leggi

Since Enron's collapse in 2002, the federal government has stepped up its campaign against white-collar crime. In doing so, contemporary federal criminal law has created a "Catch-22," in which businesspeople are forced to act either unethically or illegally. In Trapped: When Acting Ethically is Against the Law, Cato Institute senior fellow and Georgetown University business professor John Hasnas examines the ethical dilemmas raised by over-criminalization. "Because there is an increasing divergence between the demands of the law and the demands of ethics," Hasnas explains, "current federal criminal law incentivizes and in some cases mandates unethical behavior by businesspeople."

In creating white-collar criminal law, the federal government has eviscerated the liberal safeguards of the traditional criminal law to permit conviction for merely negligent or innocent actions and to circumvent the presumption of innocence, the 5th Amendment privilege against self-incrimination, and the attorney-client privilege. Thus, federal criminal law creates serious problems for businesses that wish to respect their employees. According to Hasnas: "It gives corporations strong incentives to invade employees' privacy, deny them the presumption of innocence, and breach promises of confidentiality." Hasnas concludes that the solution to the problem of white collar crime does not rest with more vigorous federal enforcement efforts: "With regard to the offenses that can adequately be handled by civil liability, the proper solution may be abstaining from any efforts at criminal enforcement at all."

PART I
THE EVOLUTION OF WHITE- COLLAR CRIME

2. The Nature of White-Collar Crime

White-collar crime can be defined in many ways. It has been defined as crime committed by a person of respectable or high social status ¹ or in the course of one’s occupation, ² as crime that involves deceit or a breach of trust, ³ as nonviolent crime undertaken for personal gain, ⁴ as crime that involves a combination of these factors, ⁵ and simply as business crime. ⁶ None of these definitions specifies the class of offenses that I wish to address in this book, however. I intend to restrict my focus to federal law, and then even more narrowly to the particular subset of federal law that is designed to police the behavior of those engaged in business for honest dealing and compliance with regulatory requirements. Because all of the above definitions include state offenses, and many include nonbusiness-related crime as well, none of them correspond to the class of offense that I am interested in. Accordingly, for purposes of this book, I will employ the phrase ‘‘white-collar crime’’ in a somewhat idiosyncratic manner to refer exclusively to behavior that is the object of federal efforts to ensure honest dealing and regulatory compliance in business.

Under this stipulative definition, white-collar criminal law constitutes a discrete subset of American criminal law. It is distinct from state criminal law, which is directed against actions that either directly harm or violate the rights of others or constitute what is regarded as inherently immoral activity—the so-called morals offenses or victimless crimes. This traditional understanding of crime, which is the subject of the typical first-year law school course in criminal law, covers offenses such as murder, rape, kidnapping, and theft, as well as prostitution, the use of illegal narcotics, and, somewhat famously, taking a girl under the age of 16 out of the care of her parents without their consent. White-collar crime is also distinct from much of federal criminal law, which, in addition to prohibiting offenses of purely national concern such as treason or counterfeiting, prohibits ‘‘traditional’’ criminal activity when that activity transcends state boundaries. As used in this book, the term white-collar crime refers exclusively to the class of federal offenses designed to police business behavior that do not fit within those categories.

The distinction between ordinary and white-collar criminal law is perhaps best illustrated by a comparison of what constitutes fraudulent behavior under each. State law criminalizes fraudulent conduct when it amounts to larceny by false pretenses. ⁷ To establish the offense of false pretenses, ‘‘the prosecutor was required to prove that [the] defendant obtained title or possession of money or personal property of another by means of an intentional false statement concerning a material fact upon which the victim relied in parting with the property.’’ ⁸ False pretenses criminalizes dishonest behavior only when it is intended to obtain and is effective in obtaining property on the basis of a representation of fact that is known to be false and that the other party actually relies upon. ⁹ This interpretation depends on a fairly strict set of requirements that punishes dishonesty only when it causes significant harm to others.

The epitome of white-collar criminal law is the federal mail fraud statute. ¹⁰ To establish the offense of mail fraud, the prosecution must show only that the defendant intentionally participated in a scheme or artifice to defraud that involves use of the mail or a private carrier service. ¹¹ This statute criminalizes dishonest behavior intended to deprive others of property or of the intangible right to another person’s honest services ¹² on the basis of a false representation or promise, regardless of whether anyone actually relies on the representation or promise or is deprived of property or honest services. ¹³These broad provisions authorize the punishment of almost any kind of dishonest or deceptive behavior, even when no other party has suffered any harm. Thus, mail fraud charges have been brought against a developer for attempting to sell homes by falsely claiming that they were good investments ¹⁴ and against a physician for referring patients to a hospital without disclosing to the patients that the hospital paid him a fee for the referrals. ¹⁵

The mail fraud statute is typical of white-collar crime in that it empowers the federal government to police dishonest conduct that is otherwise beyond the scope of traditional criminal law. Other offenses that share this feature and thus fall within the white-collar crime category are general offenses such as wire, bank, and securities fraud, as well as violations of the Racketeer Influenced and Corrupt Organizations Act, specific offenses that involve a violation of federal regulations, and subsidiary offenses such as money laundering, making false statements to federal investigators, and obstruction of justice. For purposes of this book, those offenses constitute the realm of white-collar crime.

3. Problems of Enforcement

Both the substantive and procedural rules of traditional Anglo-American criminal law have evolved over the course of centuries in the crucible of the conflict between Parliament and the Crown for power and the struggle to preserve the ‘‘rights of Englishmen’’ against the prerogatives of the king. This is not the place to retell this tale other than to observe that by the beginning of the 20th century, the process had produced a body of criminal law that contained many civil libertarian features. Three such features that resided within the substantive criminal law were the mens rea requirement, the absence of vicarious criminal liability, and the principle of legality.

The mens rea requirement limited the state to punishing those individuals who acted with a ‘‘guilty’’ mind—that is, those who intentionally or recklessly engaged in prohibited conduct or produced a prohibited consequence. ¹ This limitation provided significant protection for individual liberty in two ways. First, although ‘‘[a]cts can occur accidentally...the state of mind that accompanies one’s act is entirely within the individual’s control. Thus, by recognizing mens rea as an indispensable element of crimes, we substantially increase the individual’s power to control his freedom from punishment.’’ ² Second, the burden of establishing what was in a defendant’s mind is often a significant hurdle for the prosecution to overcome. ³

Additional protection for individual liberty arose from permitting punishment only for an individual’s own actions. ⁴ In the words of a contemporary commentator, vicarious criminal liability, ‘‘by departing from the ordinary principles of causation and from the fundamental, intensely personal, basis of criminal liability, violates the most deep-rooted traditions of criminal law. Vicarious liability is a conception repugnant to every instinct of the criminal jurist.’’ ⁵ As a result, ‘‘[w]hile the civil courts were . . . evolving [ respondeat superior ] during the eighteenth and nineteenth centuries . . . in the law of torts, no such development took place in the criminal law.’’ ⁶

Another significant substantive protection for liberty was embodied in the principle of legality. Frequently encapsulated in the Latin phrase nullum crimen sine lege, nulla poena sine lege (no crime or punishment without law), the principle of legality holds that ‘‘conduct is not criminal unless forbidden by law which gives advance warning that such conduct is criminal.’’ ⁷ The principle is operationalized in the form of four corollaries: (1) a ban on retroactive criminal lawmaking; (2) a ban on the judicial creation of new common law crimes; (3) a requirement that criminal offenses be clearly enough defined to give citizens adequate notice of what conduct is prohibited and to establish clear guidelines governing law enforcement; and (4) a requirement that the language of a criminal offense be strictly construed in favor of the defendant (the rule of lenity). ⁸ All four corollaries ‘‘are reflective of the central values of liberal societies’’ ⁹ in that they serve to ensure that ‘‘people are entitled to know what they are forbidden to do so that they may shape their conduct accordingly . . . [and] to eliminate the oppressive and arbitrary exercise of official discretion.’’ ¹⁰ The latter two corollaries, which are the ones of concern in the present context, place significant limits on both the breadth of the criminal statutes that the legislature may enact and the range of application of those that are duly enacted.

Many procedural protections for liberty also evolved. The most famous of these are the twin requirements that the accused must be presumed to be innocent until proven guilty and that the state must establish the accused’s guilt beyond reasonable doubt. The presumption of innocence means that the innocence of the defendant is assumed and that the state bears the burden of introducing evidence sufficient to establish every element of a criminal offense. ¹¹ The requirement of proof beyond reasonable doubt sets the bar that the state must surmount to establish those elements exceedingly high. Taken together, these requirements make it quite difficult for the state to deprive a citizen of his or her liberty or property.

This thinking reflects the inherent liberalism of Anglo-American criminal law that was captured by Sir William Blackstone in his oft-quoted statement that ‘‘the law holds, that it is better that ten guilty persons escape, than that one innocent suffer,’’ ¹² and that is echoed in the U.S. Supreme Court’s declarations that ‘‘[t]he principle that there is a presumption of innocence in favor of the accused is the undoubted law, axiomatic and elementary, and its enforcement lies at the foundation of the administration of our criminal law’’ ¹³ and that

use of the reasonable-doubt standard is indispensable to command the respect and confidence of the community in applications of the criminal law. It is critical that the moral force of the criminal law not be diluted by a standard of proof that leaves people in doubt whether innocent men are being condemned. It is also important in our free society that every individual going about his ordinary affairs have confidence that his government cannot adjudge him guilty of a criminal offense without convincing a proper fact finder of his guilt with utmost certainty. ¹⁴

Other procedural safeguards evolved as well, two of which—the common law attorney-client privilege, ¹⁵ and the Fifth Amendment right not to be compelled to be a witness against oneself ¹⁶—are particularly relevant to the present consideration. Both of these provisions protect individual liberty by creating obstacles to criminal conviction. Both place accurate and potentially incriminating information beyond the reach of the prosecutor. The former creates a zone of privacy within which individuals may impart information to their counsel for the purpose of receiving legal advice without thereby manufacturing evidence against themselves. The latter ensures that the state honor the requirement of the presumption of innocence by ‘‘forc[ing] the government not only to establish its case, but to do so by its own resources. It prohibits the state from easing its burden of proof by simply calling the defendant as its witness and forcing him to make the prosecution’s case.’’ ¹⁷ By placing the techniques of the Inquisition and the Star Chamber beyond the reach of the state, the right against self-incrimination embodies the most significant protection of individual liberty bequeathed to us by the common law. ¹⁸

These seven features—(1) the mens rea requirement, (2) the absence of vicarious criminal liability, (3) the principle of legality, (4) the presumption of innocence, (5) the requirement of proof beyond reasonable doubt, (6) the attorney-client privilege, and (7) the privilege against self-incrimination—reflect the inherent liberalism of American criminal law at the dawn of the 20th century. This liberalism, which bestowed the benefit of protection against governmental overreaching upon individuals, was not without cost, however. By making it more difficult for the prosecution to obtain convictions, the liberal features of the criminal law reduced its deterrent value and thereby reduced its effectiveness in suppressing crime. Thus, Anglo-American criminal law purchased individuals’ protection against erroneous or abusive governmental action at the cost of individuals’ reduced protection against the criminal activity of their fellows.

In the context of white-collar crime, the cost imposed by the liberal features of the criminal law is especially high. To see why, imagine what the position of a federal prosecutor charged with combating white-collar crime would be if he or she were burdened with the substantive and procedural safeguards of the traditional criminal law. First, consider the effect that the presumption of innocence and the requirement of proof beyond reasonable doubt would have on the prosecutor’s efforts. Like all real-world prosecutors, our imaginary one would be acutely aware of the limitations on his or her investigative and prosecutorial resources. Policing all of the business concerns in the United States not only for honest dealing but also for compliance with the myriad regulations that carry criminal penalties is a truly monumental task. No matter how large the Department of Justice’s budget for white-collar crime may be, it would still be insufficient to address anything beyond the tip of the iceberg of potential offenses. Furthermore, ...