Organized criminal groups have been known to use corporations, businesses, charitable organizations or other entities to commit serious and sophisticated crimes. They might use these organizations to mask individual involvement in these offences as companies may be particularly useful for hiding clients and transactions as well as for preserving ownership of the proceeds of crime. The criminal law has procedures to account for this kind of conduct under the guise of an organization. These are based on the distinction between natural persons (i.e. individuals) and legal persons, such as corporations.
Natural versus legal persons
The law recognizes two type of persons: natural persons and legal persons. Natural persons are human beings, responsible for their actions according to law. Legal persons are creations of the law, usually business or corporations, which are not individuals but have some capacity to take actions that affect others.
Complex corporate structures can effectively hide true ownership, clients, or transactions. The concept of legal person can also be used to shield natural persons from liability, and complex structures may be used to conceal illegal activity. The role of legal persons in illegal activity may span the whole range of organized transnational crimes, from trafficking in persons, drugs, falsified medical products or arms, to corruption and money-laundering. Ensuring the liability of legal persons is therefore an important component in combating transnational organized crime.
Article 10 of the Organized Crime Convention on the liability of legal persons is an important recognition of the role that legal persons might play in the commission or facilitation of transnational organized crime. It requires that States parties establish the liability of legal persons, while also providing that, subject to the legal principles of the State party, this liability may be criminal, civil or administrative. National legal regimes remain quite diverse in the ways in which they address liability of legal persons, how they attribute responsibility or guilt and determine sanctions, with some States resorting to criminal penalties against the organization itself, such as fines, forfeiture of property or deprivation of legal rights, whereas others employ non-criminal or quasi-criminal measures.
Article 10. Liability of legal persons
Each State Party shall, in particular, ensure that legal persons held liable in accordance with this article are subject to effective, proportionate and dissuasive criminal or non-criminal sanctions, including monetary sanctions.
Notably, under article 10 (3) the liability of legal entities must be established without prejudice to the criminal liability of the natural persons who have committed the offences. The liability of natural persons who perpetrated the acts, therefore, is in addition to any corporate liability and must not be affected by it. In other words, when an individual commits crimes on behalf of a legal entity, it must be possible to prosecute and sanction both the individual and the legal entity.
Some key questions can be identified in the process of establishing the liability of legal persons. For instance: What does a legal person mean in a particular legal context? Can a legal person (e.g., a business) be held legally responsible for a crime committed by some of its members? How is that responsibility attributed to the legal entity? If a country recognizes criminal liability of legal persons, how does the legislator attribute the mental element of a crime to an artificial entity?
The attribution of responsibility to an artificial entity is a particularly complex challenge for many jurisdictions, because most legal systems base their criminal laws on a combination of physical conduct and mental states. Whereas the element of physical conduct is relatively straightforward, the attribution of mental states, such as "intention" or "knowledge", to a legal person is more complex. In this context, some countries decided to make the liability of the entity dependent upon the liability of individuals. Thus, in jurisdictions that adopted this approach, a company may be held liable for a criminal offence committed by an officer or employee of the organization. Other countries, sought to reflect the culpability of the organization itself and for instance, identified the responsibility of the organization in the way in which it is structured, its policies and its failure to supervise its employees or agents.
As with crimes committed by natural persons, defences to liability may be available to legal persons. An example is the defence of "due diligence." Due diligence is, in essence, the opposite of negligence. That is, the defendant may reduce or escape liability if it is able to prove that it took all reasonable steps to ensure compliance with the relevant law.
As article 10(4) specifies, State also have to ensure that legal persons are held liable, and thus that effective, proportionate and dissuasive sanctions are imposed on legal persons. The most frequently used sanction against a legal entity is a fine, which can be characterized as a criminal sanction, a non-criminal sanction, or a hybrid one. Other sanctions include confiscation, restitution, or even closing down of legal entities. In addition, States may wish to consider non-monetary sanctions available in some jurisdictions, such as withdrawal of certain advantages or prohibition of certain activities.
The establishment of the liability of legal persons increases the difficulty for those in the legitimate business sector of acting as a facilitator for organized crime activity. In addition, it might also have a deterrent effect, considering that reputational damage can be very costly for the organization and that it may act as a catalyst for more effective management and supervisory structures to ensure compliance.