Corporate Crimes And Corporate Governance To Combat Them

Corporate crimes refer to criminal practices by individuals that have the legal authority to have a word for a corporation or company. These can include presidents, managers ,directors and chairman , sales people and agent or anyone within a company that has the authority to act on behalf of the firm

Corporate crimes often seen to involve a very different set of dealings between offenders and victims, as there are less obvious direct harm or ‘blood on the streets’ (Clarke, 1990). It appears less personal as immediate victims are often ’employers’, the ‘government’, the ‘public health’ or the ‘environment’ and in many cases, such as where

Safety laws are broken, causing the death or injury of employees, there is no direct intent to harm. There are also different images of the structural dimensions of victimization. To some, all citizens are victims of this kind of crime, irrespective of age, class or gender, whereas to others the crimes of the wealthy and powerful prey on the poor and powerless. Yet at the same time, victims of some financial frauds may fail to attract sympathy as they are assumed to be wealthy and to have willingly parted with their money (Shichor et al., 2000).

Corporate crimes: scopes and definitions

As far as scope of the crime is concern this has to be noticed that

•” Many victims are unaware of any harm and cannot detect it themselves as happens, for example, with some major frauds, pollution, food adulteration and descriptions of consumer goods.

• Victimization is often indirect and impersonal, affecting entities such as ‘the government’ although there are indirect effects on individuals – tax payers, for example, have to pay more and receive fewer benefits due to tax evasion.

• Individual victims may lose very little yet the ‘illegal’ profits may be large as in cases in which a bank employee takes one penny out of thousands of accounts or a firm sells goods which weigh less than indicated.” [1] 

This term “white collar crime” was coined by Edward Sutherland in his pioneering 1949 study, “White Collar Crime”. It describes non-violent crimes committed by corporations or individuals in the course of their business activity.

Examples of criminal behaviour in most jurisdiction includes: antitrust violations ,fraud ,damage to the environment in violation of environmental legislation, exploitation of labour in violation of labour laws ,and failure to maintain a fiduciary responsibility toward shareholders.

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 that may be identified with a corporation or other business entity.

Corporate Crime is criminal activity on behalf of a business organization.” During much

of American history the primary legal stance relating to activity of business was decidedly laissez-faire (leave it alone to do as it will). Under the influence of capitalist philosophy American Courts adopted the view that governments should not interfere with businesses by attempting to regulate it. For a long period of history victims of defective and dangerous products could not sue corporations for damages because the guiding principle was caveat emperor (let the buyer beware), and unhealthy and dangerous working conditions in mines, mills and factories were excused under the freedom of contract clause of the constitution” [2] .

Although attitudes in the 20th century changed considerably, crimes of frauds, concealment, and misrepresentation continued to victimize all sorts of groups and individuals in society. Crimes such as these are actions committed during the course of fulfilling the name of corporate profits and growth. Today as corporations have been found to be involved in environmental and health and safety law violations. In the United Kingdom, following several fatal disasters on the rail network and at sea, the term is now also commonly used in reference to corporate manslaughter. In this category would also be included the culpability of Union Carbide in the 1985 accident in Bhopal, India and the current behaviour of the pharmaceutical industry which puts profits ahead of the needs of HIV and other patients worldwide. Yet a third category of “corporate crime” is “State-corporate crime”. In a globalized world where States negotiate and conclude agreements with corporations and other international parties or bodies, opportunities will arise for unjust enrichment and national laws will be broken.

The Enron Scandal:

The first major scandal of the first decade of 21st century is that Enron Corporation, which has been called ‘one of the most intricate pieces of financial chicanery in history and for investors in its stock and its employees. The Enron sandal did tremendous damage to the company created a crisis of investor’s confidence the links of which has been seen since the great depression.

Enron was a $100 billion corporate empire that had more then 200,000 employees in 40 countries and controlled about one quarter of all trading in natural gas and electricity in the United Status. The company poured millions of dollars into political campaign and lobbyists arguing of further deregulation of energy markets. The Enron hierarchy expected the never-ending innovation and growth from its executive to feed this monster enterprise. In response executives created imaginary markets, ‘paper partnerships’ and phantom growth that enabled them to report profits that did not exist and to hide debts hat did. Executives were accomplished at cooking the financial books in many ingenious ways, which kept Enron’s stock prices rising and thus their own compensation. Because much of the competition received by Enron’s executives was stock based, they had major incentives to make the company look as good as possible to investors by reporting high profits.

Indian Scenario

There are a number of corporate crimes that have come into light now days. One of the major havoc that is created in present times is because of mysterious disappearance of corporations. Of the 5,651 companies listed on Bombay Stock exchange, 2750 have vanished. It means that one out of two companies that come to the stock exchange to raise crores of rupees from investors loot and run away. Even big names like ‘Home Trade’ came up with huge publicity stunts but after raising money, vanished into the thin air. About 11 million investors have invested Rs. 10,000 crore in these 2750 companies.

We have Securities Exchange Board of India, Reserve Bank of India and Department of Companies Affairs to monitor the stock exchange transactions but none has documented the whereabouts of these 2750 odd companies suspended from the stock exchange. Many of the promoters and merchant bankers who are responsible for these are roaming scotfree

Court in Assistant Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd & Anr [3] . took the view that since an artificial person like a company could not be physically punished to a term of imprisonment, such a section, which makes it mandatory to impose minimum term of imprisonment, cannot apply to the case of artificial person. However, Supreme Court in 2005 in Standard Charted Bank v. Directorate Of Enforcement [4] in majority decision of 3:2 expressly overruled the Velliapa Textiles case [5] on this issue. K.J Balkrishanan J. in majority opinion held “We hold that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment. We overrule the views expressed by the majority in Velliappa Textiles on this point”

There is a severe need to fight this evil of corporate crime As has been belatedly recognized in many jurisdictions, corporate crime causes far greater damage than violent street crimes. It therefore deserves more attention from the law enforcement community. According to the FBI’s 2001 report, the United States reportedly lost USD17.2 billion from robbery, burglary, theft and motor-vehicle theft while the Enron fiasco alone cost investors, pensioners and employees more than three times that amount. The United

Kingdom estimates that in 2004, £78 million (USD139 million) was lost to healthcare fraud, a reduction from £171 million (USD305 million) in 1999. In 2004, Transparency International estimated that at least USD400 billion was lost per year worldwide due to bribery in government procurement alone. However due to the scarcity of consolidated and structured statistics on corporate crime, it is impossible to determine the overall cost of corporate crime to national economies worldwide.

WHERE DOES CORPORATE CRIME LIES

In the Administration Improvement Act (AIA) of 1979 the U.S. Congress defined whitecollar crime as “an illegal act or series of illegal acts committed by non-physical means and by concealment or guile, to obtain money or property or to obtain business or personal advantage.” [6] 

But still the sworn hang by this fact that the term “corporate crime” is used where the offence is committed by a corporation, usually to benefit the corporation while the term “white collar crime” is used where the offence is committed against a corporation, usually by its own executives or employees and the corporation is the victim.

As it is stated above that corporate crimes are some or how different from white-collar crimes but still in an arena Corporate crime overlaps with organized crimes and state corporate crimes along with white-collar crime

• White-collar crime: Because the majority of individuals who may act as or represent the interests of the corporation are employees or professionals of a higher social class;

• Organized crime: Because criminals can set up corporations either for the purposes of crime or as vehicles for laundering the proceeds of crime. Organized crime has become a branch of

big business and is simply the illegal sector of capital. It has been estimated that, by the middle of the 1990s, the “gross criminal product” of organized crime made it the twentieth richest organization in the world — richer than 150 sovereign states (Castells 1998: 169). 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.

“Corporate crime” encompasses embezzlement (also known as criminal breach of trust in some countries), fraud, corruption, insider trading, unfair competition, healthcare fraud, computer crime, forgery and tax evasion. The central element of these crimes being cheating and dishonesty However, it also goes beyond these traditional boundaries. [7] 

Corporate environmental crimes

The term ‘corporate environmental crime’, which may be defined as any environmental crime that has been committed by any corporate body .the importance of the inquiry was to hear from a range of corporate bodies and their representatives on the present environmental criminal justice system, while at the same time recognising that an environmental sentence for a corporate body is at present limited to fine .the reason for commiting corporate environmental crimes are also varied.

The crime may occur because the business concerned is ignorant of its environmental obligations. It may also occur all too often as a result of negligent behaviour ,for example ,where business are poorly managed ,staff are inadequately trained or equipment and infrastructure has not been maintained to the required standard ,allowing a pollution incident to occur. But perhaps the most depressing cause is when corporate environmental crime is the result of a deliberate and intentional illegal act ,a decision taken in the full knowledge that the act is illegal and will result in environmental crime.

In our paper our main concern would be corporate environmental crimes in which we will mainly concern about the world’s worst industrial disaster and a heinous corporate crime; the leakage methyl isocyanides (MIC) and other poisonous gases from Union Carbide’s Bhopal, India, pesticide factory on December 3rd, 1984.”which killed 8000 people in first three days and poisoned more than 500000 people and at least 120000 people remain chronically ill and also 30 people die each month from long term effect of gases even today” [8] 

The question would be arisen in your mind that why we choose Bhopal disaster as specific topic for our research and view.

There are several reasons behind this ; it is only matter of time before the world is shocked and sickened by another Bhopal type industrial diasater .this is because the global economic forces that led union carbide to build and operate its ill fated factory in Bhopal have not gone away – they have only become stronger. The fact tha after 20 years of the Bhopal disaster ,survivors are forced to drink poisoned water ,contaminated by stockpiles of abandoned chemicals ,clearly reflects the apathy towards communities and the environment.

The lessons of Bhopal are still waiting to be learened. In fact, a 1000 Bhopals are happening in slow motion across india – destroying the environmental and poisoning people with impunity. Environmental disasters , both chronic and immediate , induced by irresponsible corporate practices are becoming more frequent. Transnational corporations have learned to downplay damage ,and focus attention and liability on the local company to elude full criminal and civil liability.

Bhopal corporate environmental crime

Being the most worst industrial disaster itself fulfil the need to concern about it.the brutality of the incident can be fairly stated by a “comment given by a ‘Bhopal resident that Mothers didn’t know their children had died ,children didn’t know their mothers had died and men didn’t know their whole families has died’ ” [9] simply after the unpleasant incident people said that “We were choking and our eyes were burning. We could barely see the road through the fog, and sirens were blaring.”We didn’t know which way to run. Everybody was very confused” [10] .before the occurrence Opposition legislators raised the issue in the State Assembly and the clamour surrounding these incidents culminated in a 1983 motion that urged the state government to force the company to relocate the plant to a less-populated area. Starting in 1982, a local journalist named Rajkumar Keswani had frantically tried to warn people of the dangers posed by the facility. In September of 1982, he wrote an article entitled “Please Save this City.” Other articles, written later, bore grimly prophetic titles such as “Bhopal Sitting on Top of a Volcano” and “If You Do Not Understand This You Will Be Wiped Out.” Just five months before the tragedy, he wrote his final article: “Bhopal on the Brink of a Disaster.”

Yet when the Independent speaks of “rape”, the Guardian of “disgrace” and Jon Snow of “a crime against humanity”, they are not talking about THAT NIGHT – but of what has happened since to those who survived it. Today, 25 years after the disaster, Bhopal remains a humanitarian disaster. Their breathless bodies no longer able to push handcarts and lift heavy loads, thousands have fallen into destitution and their families have learned the lessons of the abyss, binding cloths round their middles to give an illusion of fullness, giving children unable to sleep from hunger water to fill their empty bellies. [11] 

In the midst of this clamour, in May 1982, Union Carbide sent a team of U.S. experts to inspect the Bhopal plant as part of its periodic safety audits. This report, which was forwarded to Union Carbide’s management in the United States, speaks unequivocally of a “potential for the release of toxic materials” and a consequent “runaway reaction” due to “equipment failure, operating problems, or maintenance problems.” In fact, the report goes on to state rather specifically: “Deficiencies in safety valve and instrument maintenance programs…. Filter cleaning operations are performed without slip blinding process. Leaking valves could create serious exposure during this process.” In its report, the safety audit team noted a total of 61 hazards, 30 of them major and 11 in the dangerous phosgene/MIC units. It had warned of a “higher potential for a serious incident or more serious consequences if an accident should occur.” Though the report was available to senior U.S. officials of the company, nothing was done [12] . In fact, according to Carbide’s internal documents, a major cost-cutting effort (including a reduction of 335 men) was undertaken in 1983, saving the company $1.25 million that year

DOW’s liability under corporate crimes

Liabilty which is related to the 1984 Bhopal disaster – was originally filed in 1987, and reinstated in 1991. Both Warren Anderson, the former CEO of Union Carbide, and the Union Carbide Corporation itself face criminal charges in India of “culpable homicide” (or manslaughter). Both Anderson and Carbide have repeatedly ignored summons to appear in India for trial, and are officially considered “absconders” (fugitives from justice) by the Indian Government. While Anderson, if extradited and convicted, would face ten years in prison, Carbide faces a fine which has no upper limit.

Along with above mentioned liability DOW also owes environmental liability because keen to distance itself from disaster Union Carbide fled India leaving behind tons of toxic wastes strewn in and around the factory site. According to former workers of the Union Carbide factory in Bhopal, while the factory was in operation, massive amounts of chemicals – including pesticides, solvents, catalysts and wastes – were routinely dumped in and around the factory grounds. These include deadly substances such as aldicarb, carbaryl, mercury, and several chlorinated chemicals and organic poisons. In 1977, Carbide constructed Solar Evaporation Ponds (SEPs) over 14 hectares 400 meters north of its factory. Toxic effluents and toxic wastes were routinely dumped there. Two tube wells dug in the vicinity of the SEPs were abandoned because of the noxious smell and taste of the water.

Environmental criminal liability of DOW and Union Carbide

A preliminary study of soil and groundwater pollution inside the plant, conducted in 1989 by Carbide, found plenty to be worried about. Some water samples produced a 100% death rate among fish placed in them. Nevertheless Carbide issued no warning. An internal memo refers to the need for secrecy, suggesting that the information should be kept “for our own understanding”. Not only did it fail to warn people living nearby, it vociferously denied that there was a problem and, incredibly, wrote to the Gas Relief Minister criticizing those who were trying to make people aware of the danger, suggesting that they were “mischievous” agitators. Carbide in the US meanwhile tried to portray Bhopal activists and their supporters as”communists” who aimed “to restructure US society into something unrecognizable and probably unworkable”.

Carbide and Dow later relied on a report from a government organization called NEERI [13] which in 1997 published a report which found that water outside the factory was not contaminated. Consultant Arthur D Little had beenappointed in 1989 by Union Carbide US to work privately with NEERI. ADL believed itself to be working with UCC in Danbury, but all reference to UCC was to be deleted. ADL was to pretend to be working with UCIL alone. But a memo of 1993 shows the US Carbide executives in the driving seat. ADL eventually reported back to Carbide suggesting that NEERI had failed to find contamination because its sampling methods were flawed. In particular ADL suggested it was imprudent to claim that local water was safe for drinking and warned that groundwater contamination could happen far more swiftly and seriously than envisaged. ADL was unclear at one point as to whether NEERI was claiming that labourers were or were not exposed to contaminated groundwater. ADL’s suggested changes ran to 17 pages, but none of them were incorporated in NEERI’s published report, which is what Dow and Carbide still quote, knowing it to be worthless.

Carbide’s own documents reveal that they knew for decades that their disposal practices in Bhopal were leading to massive contamination of the soil and groundwater, and that their sole concern was how to evade responsibility and cover it up.

At last we would like to conclude about their liabilities by sayingthat the disaster was caused because Union Carbide had under-invested in an inherently hazardous facility located in a crowded neighborhood, used admittedly unproven designs, stored lethal MIC in reckless quantities, dismantled safety systems and cut down on safety staff and training in an effort to cut costs [14] 

The severity is not hidden now so further we would like to suggest “10 Bhopal principles on corporate liability” [15] We have chosen to call them the ‘Bhopal’ Principles because this disaster, more than any other, highlights the current failure of governments to protect public welfare and the failure of corporations to observe basic standards e.g. the avoidance of liability by parent corporations, and the avoidance of responsibility for compensation and environmental cleanup. And further question would is there any need for this kind of principles than we say yes why not because At the Johannesburg Earth Summit, Government looked at what has and has not been done to implement the Rio commitments. The Bhopal case shows that it is important to hold corporations liable and to provide compensation for victims of pollution and other environmental damage, that responsibility for liability and cleanup should be enforceable not only against the local corporate entity, but also against the multinational parent.

The Ten Bhopal Principles on Corporate Accountability

Implement Rio Principle 13. States shall as a matter of priority enter into negotiations for a legal international instrument, and adopt national laws to operationalise and implement Principle 13 of the Rio Declaration, to address liability and Compensation for the victims of pollution and other environmental damage.

Extend Corporate Liability. Corporations must be held strictly liable without requirement of fault for any and all damage arising from any of their activities that cause Environmental or property damage or personal injury, including site remediation. Parent companies as well as subsidiaries and affiliated local corporations must be held liable for compensation and restitution. Corporations must bear cradle to grave responsibility for manufactured products. States must implement individual liability for directors and officers for actions or omissions of the corporation, including for those of subsidiaries.

Ensure Corporate Liability for Damage beyond National Jurisdictions. States shall ensure that corporations are liable for injury to persons and damage to property, biological diversity and the environment beyond the limits of national jurisdiction, and to the global commons such as atmosphere and oceans. Liability must include responsibility for environmental cleanup and restoration.

Protect Human rights. Economic activity shall not infringe upon basic human and social rights. States have the responsibility to safeguard the basic human and social rights of citizens, in particular the right to life; the right to safe and healthy working conditions; the right to a safe and healthy environment; the right to medical treatment and to compensation for injury and damage; the right to information and the right of access to justice by individuals and by groups promoting these rights. Corporations must respect and uphold these rights. States must ensure effective compliance by all corporations of these rights and provide for legal implementation and enforcement.

Provide for Public Participation and the Right to Know. States shall require companies routinely to disclose to the public all information concerning releases to the environment from their respective facilities as well as product composition. Commercial confidentiality must not outweigh the interest of the public to know the dangers and liabilities associated with corporate outputs, whether in the form of pollution by-products or the product itself. Once a product enters the public domain there should be no restrictions on public access to information relevant to environment and health on the basis of commercial secrecy. Corporate responsibility and accountability shall be promoted through environmental management accounting and environmental reporting which gives a clear, comprehensive and public report of environmental and social impacts of corporate activities.

Adhere to the Highest Standards. States shall ensure that corporations adhere to the highest standards for protecting basic human and social rights including health and the environment. Consistent with Rio Declaration Principle 14, States shall not permit multinational corporations to deliberately apply lower standards of operation and safety in places where health and environmental protection regimes, or their implementation, are weaker.

Avoid Excessive Corporate Influence over Governance. States shall co-operate

to combat bribery in all its forms, promote transparent political financing mechanisms and eliminate corporate influence on public policy through election campaign contributions, and/or non-transparent corporate-led lobby practices.

Protect Food Sovereignty over Corporations. States shall ensure that individual States and their people maintain sovereignty over their own food supply, including through laws and measures to prevent genetic pollution of agricultural biological diversity by genetically engineered organisms and to prevent the patenting of genetic resources by corporations.

Implement the Precautionary Principle and Require Environmental Impact Assessments. States shall fully implement the Precautionary Principle in national and international law. Accordingly, States shall require corporations to take preventative action before environmental damage or heath effects are incurred, when there is a threat of serious or irreversible harm to the environment or health from an activity, a practice or a product. Governments shall require companies to undertake environmental impact assessments with public participation for activities that may cause significant adverse environmental impacts.

Promote Clean and Sustainable Development. States shall promote clean and sustainable development, and shall establish national legislation to phase out the use, discharge and emission of hazardous substances and greenhouse gases, and other sources of pollution, to use their resources in a sustainable manner, and to conserve their biological diversity.

HOW TO HANDLE AND CONTROL CORPORATE CRIMES

There are many ways for law enforcement authorities to combat corporate crime. Firstly, prevention. This can be achieved by encouraging awareness of the moral compass within corporations and among their employees and the promotion of self-regulation. This should be complemented by an effective corporate oversight regime through internal compliance programmes as well as regulation by the Companies Commission and Securities Commissions or its equivalent. For the latter purpose, it will be necessary to put in place effective laws and regulations in a timely manner. In turn, these laws will also have to be actively enforced by well-trained law enforcement agencies and prosecutors if they are to be a realistic deterrent. In this regard it is noted that although sustained enforcement against corporate crime is required as a strong deterrent and to maintain public confidence in the financial markets, enforcement should be seen as a measure to augment internal vigilance and not as a substitute for it. Thus corporations must also play their role as responsible corporate citizens in the national and global communities. With regard to the investigation and prosecution of corporate crimes with a transnational flavour, be it through the multinational nature of the corporation or the elements of the crime, the importance of international cooperation to gather evidence and recover the ill-gotten gains cannot be overstated.

States should therefore put in place a comprehensive domestic legal framework that includes laws to criminalize the relevant criminal acts and impose corporate and individual liability for them. Another crucial element will be effective whistleblower and witness protection laws. A network of bilateral and regional treaties on mutual assistance in criminal matters and extradition together with bilateral treaties on asset sharing is also indispensable. These instruments would complement the stand-alone framework provided under the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. In this regard, countries in the ASEAN region are also able to utilize the Treaty on Mutual Legal Assistance in Criminal Matters which was concluded in November 2004 among the ten like-minded ASEAN Member States and is currently in force among Brunei, Lao PDR, Malaysia, Singapore and Vietnam.

Suggestions from our side

Amendment to section 62 of the Indian penal code by adding the following lines: –

In every case in which the offence is only punishable with imprisonment or imprisonment and fine and the offender is the company or other body corporate or an association of individuals, it shall be competent to the court to sentence such offender to fine only.

In many of the acts relating to economic offences, imprisonment is mandatory. Where the convicted person is corporation, this provision becomes unworkable and it is desirable to provide that in such cases, it shall be competent to the court to impose a fine. This difficulty can arise under the penal code also, but it is likely to arise more frequently in the case of economic laws. There fore it is recommended that the following provision should be inserted in the penal code as, say,

Section 62:

(1) In every case in which the offence is punishable with imprisonment only or with

imprisonment and fine, and the offender is the corporation, it shall be competent to the court to sentence such offender to fine only.

(2) In every case in which the offence is punishable with imprisonment and any other

punishment not being fine, and the offender is a corporation, it shall be competent to the court to sentence such offender to fine.

(3) In this section, corporation means an incorporated company or other body corporate, and includes a firm and other association of individuals

In a WTO led world the corporate world will dilute all national sovereign laws and make conditions where such disasters( like Bhopal ) will be more frequent. Dow in USA is already lobbying to raise Dioxin emission standards to 10 times the current levels so as to be deemed safe. Such behavior is proof that corporates cannot be trusted to do what is good or humans and environment. It militates against their core profit-at-any-cost credo. Governments are often powerless or worse facades for corporations. Case in point is the USA. Expecting better behaviour and self-regulation from corporate considering their existing criminal record is an act of chronic denial that is beginning to increasingly pervade all aspects of civic life. In today’s world an environmentally safe corporation is an oxymoron.