Technology will soon force broad changes in how we conceive of corporate liability. The law’s doctrines for evaluating corporate misconduct date from a time when human beings ran corporations. Today, breakthroughs in artificial intelligence and big data allow automated systems to make many business decisions like which loans to approve,[1] how high to set prices,[2] and when to trade stock. [3] As corporate operations become increasingly automated, algorithms will come to replace employees as the leading cause of corporate harm. The law is not equipped for this development. Rooted in an antiquated paradigm, the law presently identifies corporate misconduct with employee misconduct. If it continues to do so, the inevitable march of technological progress will increasingly immunize corporations from most civil and criminal liability. Continue reading
Tag Archives: Mihailis E. Diamantis
Getting Comfortable with Collective Knowledge
Doctrines for attributing knowledge to corporations seem to be stuck between doing far too little and the risk of doing far too much. Respondeat superior forces plaintiffs and prosecutors to find a single corporate employee with all the relevant knowledge.[1] This means corporations automatically win against knowledge-based allegations when, as will predictably happen, knowledge is dispersed across corporate personnel. The familiar solution is to introduce some way to aggregate knowledge. But the doctrine that does just that—the collective knowledge doctrine—has met with widespread skepticism.[2] The worry is that the collective knowledge doctrine treats corporations as knowing too much by triggering knowledge-based penalties for mere negligence in maintaining lines of communication.[3] As a result, few courts have adopted the collective knowledge doctrine since it was introduced more than thirty years ago.[4]
If judges and scholars are ever going to get comfortable with moving beyond respondeat superior, they need to think hard about the informational logic of the collective knowledge doctrine. As I argue in a working paper, The Corporation and the Epistemologist,[5] that logic is poorly understood. Discussions vacillate without warning between two versions of the doctrine: one of which is entirely toothless, the other of which is worryingly permissive. Once these two versions are distinguished, the search for a happy compromise can begin. Continue reading
Ditching Deterrence: Preventing Crime by Reforming Corporations Rather than Fining Them
“Corporate criminal law . . . operates firmly in a deterrence mode.”[1] The ultimate goal of that deterrence is prevention. But recent evidence suggests that deterrence—and in particular, the corporate fine (the favorite tool of deterrence theorists)[2]—is not particularly good at the job.[3] For a host of structural and practical reasons, corporate fines do not influence corporate behavior as we might have hoped. In a forthcoming article, Clockwork Corporations: A Character Theory of Corporate Punishment, I propose abolishing the corporate fine and offer an alternative framework for structuring corporate punishment.[4] The proposal expands on a strategy prosecutors already employ, albeit imperfectly, as part of corporate deferred prosecution agreements: mandating corporate reform.[5] On this new approach, such government-directed reform would be the exclusive means of corporate punishment, and judges and judge-appointed monitors, rather than prosecutors, would be in the driver’s seat. This “character” theory of punishing corporations could beat deterrence theory at its own game by preventing more corporate crime. Continue reading
Sentencing Fraud
Imagine a class of criminals that is growing year over year, whose members have higher than average recidivism rates, and for whom the public has very little sympathy.[1] They would seem an unlikely group for judges and scholars to think are punished too severely. This, though, is the fortunate position of the white-collar fraudster.
To be sure, federal penalties for fraud can be quite burdensome.[2] The base offense level for most frauds is 6, but this can climb as the loss caused by the fraud increases from $6,501 (add 2 levels) up to $550,000,001 (add 30 levels). The number of victims can also have a significant impact, ranging from an additional 2 levels if there are at least ten victims to an additional 6 levels if there are more than twenty-five. A first-time fraudster who causes more than $550,000,001 in losses to at least twenty-five victims is looking at a recommended sentence of thirty years to life.[3] For most judges and scholars, that kind of punishment sounds disproportionate.[4] Continue reading