On Dec. 1, 2018, while transferring planes at Vancouver International Airport, Huawei’s chief financial officer, Meng Wangzhou, was arrested by Canadian authorities at U.S. request pursuant to an extradition treaty between the U.S. and Canada.
The warrant was based on allegations of alleged Huawei’s conspiracy to defraud banks that had cleared money thought to be for Huawei, but was for Hong Kong-based Skycom Tech (an entity claimed to be controlled by Huawei) for the purpose of selling U.S. equipment to Iran in violation of U.S. sanction regulations.
Ngosong Fonkem, West Virginia University College of Law 2011 (JD, MBA) and Tulane Law School 2012 (LLM), is a senior advisor at Addison-Clifton LLC, Milwaukee. He assists U.S. and foreign companies with U.S. trade laws and with doing business in Asia.
Setting aside other reasons, these actions marked a significant change from traditional sanction enforcement actions where enforcement actions are carried out against the corporations itself and not its corporate officers, and where civil monetary penalties – as opposed to criminal penalties – are levied against alleged violators.
As the U.S. government considers noncompliance with U.S. sanctions law a serious threat to national security and foreign relations, Meng Wangzhou’s prosecution signals a new enforcement strategy under the Trump administration to strictly enforce U.S. sanctions regulations not only against corporations, but also corporate officers, for alleged crimes committed by their companies because of their position of authority.
In light of these facts, it is worth revisiting an obscure but relevant doctrine that could provide a legal basis for the administration’s action.
Traditional View of Criminal Liability
The theoretical objectives in prosecuting crimes are both to punish individuals who have committed a wrong against society and to deter others from engaging in similar conduct.
Traditionally in American common law jurisprudence, courts have recognized that in order to be found guilty of a crime, a person must have committed the crime with criminal intent.1 Thus, the guilty person must have acted with wrongful purpose, knowledge of a particular wrong, or in a willful or reckless manner.2
In the latter situations, courts have implied the mental state necessary to trigger criminal liability by the alleged violator’s conduct, based on the nature of that conduct under the circumstances. The rationale for incorporating the concept of “intent” – even if not specifically provided for by statutes – was not merely to criminalize conduct absent a showing of evil intent or motives, but also was based on the concept of fairness to the alleged violator.3
New View: Strict Liability
In recent years, and depending on the type of crime, the mental state necessary to trigger criminal liability has been supplemented and or replaced by statutes. Such is the case with U.S. sanction regulations, where the requisite mental state necessary to provide criminal liability is strict liability.4 Thus, ignorance of the law or facts does not excuse noncompliance.
Although the U.S. government routinely proves criminal intent when prosecuting persons and entities for alleged sanctions violation, it is significantly difficult to apply that standard to corporate officers for alleged crimes committed by their companies.
First, a corporation is a fictional entity; as such, it cannot form the requisite intent, criminal or otherwise. Rather, it can act only through its officers, employees, and agents.
Second, even if vicarious liability5 were imputed to the corporation, the responsible employee would typically not be criminally liable for the violation if it were proved that their actions fell within the scope of their employment, as they are generally only criminally liable for their alleged personal crimes.
Absent the requisite intent, whether or not implied by statute, a plausible legal basis to hold corporate officers criminally liable for noncompliance with U.S. sanctions regulations is the controversial Responsible Corporate Officer Doctrine.
The Responsible Corporate Officer Doctrine: Establishing Liability Without Intent or Personal Involvement
Under the Responsible Corporate Officer Doctrine, the U.S. government can impose criminal liability on corporate officers if they were in a position to know about or prevent the criminal act that led to the violation, but failed to do so even if the officers did not actually commit the alleged offense.
This doctrine originates from two U.S. Supreme Court cases involving violations of the food and drug laws, United States v. Dotterweich6, and United States v. Park.7
In Dotterweich, the court upheld the strict liability misdemeanor conviction of a corporate official “standing in responsible relation to a public danger.” In this case, the court recognized that there might be circumstances where injustice would result from a strict liability prosecution, but it declined to limit the reach of its holding, relying instead on “the good sense of prosecutors, the wise guidance of trial judges, and the ultimate judgment of juries . . . .”8
In Park, the court expanded on its holding in Dotterweich, explaining that it would be appropriate to hold “criminally accountable the persons whose failure to exercise the authority and supervisory responsibility reposed in them by the business organization resulted in the violation.”9 Furthermore, the court stated, “[the] law imposes not only a positive duty to seek out and remedy violations when they occur, but also … a duty to implement measures that will insure that the violations will not [re]occur.”10
In recent years, some efforts have been made by the U.S. Department of Justice (DOJ), through its memorandum on Individual Accountability for Corporate Wrongdoing or the “Yates Memo,” to direct federal prosecutors to focus on prosecuting the individuals who are personally responsible for white-collar crimes.
Under the Trump administration however, these efforts have been revised to accommodate greater efficiency.11 Yet the responsible corporate officer doctrines remain unchanged, and enforcement exposure remains a compliance risk that companies should regard as a priority.
Many scholars have reasoned that holding corporate officers criminally liable for alleged crimes is justifiable, because fines in this context have lost their deterrent effect. Such penalties could simply be considered a cost of doing business.12 Specifically, Joseph Block, former Chief of the Department of Justice Environmental Crimes Section, has notably stated that “[i]incarceration is the one cost of doing business that you can’t pass on to the consumer.”13
Although an obscure and controversial law, the Responsible Corporate Officer Doctrine is a powerful tool in the U.S. government’s toolbox as it seeks to strictly enforce U.S. Sanction laws. Any corporate officer who operate in a regulated industry is potentially vulnerable to prosecutions as the government only needs to prove that by virtue of the area of responsibility within the corporation, the officer had the power to prevent the activity that caused the crime.
1 See Morissette v. United States, 342 U.S. 246 (1952)
3 Michael Chalos and George Chalos, “The Criminalization of Maritime Accidents,” p. 4.
4 See U.S. Department of the Treasury Resource Center: United States Statutes
5 See New York Central & Hudson River R.R. Co. v. United States, 212 U.S. 481 (1990)
6 320 U.S. 277 (1943)
7 421 U.S. 658 (1975)
8 Dotterweich, at 285.
9 See Park, 671-72.
11 On Nov. 29, 2018, Deputy Attorney General Rod Rosenstein announced revisions to certain of the Justice Manual’s corporate enforcement policies regarding individual accountability. See also Tom Schoenberg, “U.S. Expands Effort to Punish Corporate Criminals in Probes,” Boomberg, Nov. 29, 2018.
12 Jack Spadaro, former director of the National Mine Safety and Health Academy, as quoted in Jeff Milchen, “The Root of Sago Mine Disaster: Corporate Crime Pays,” ReclaimDemocracy.org, Jan. 14, 2006.
13 E.J. Tomko and Peter Wahl, “Criminal Liability Concerns to the Environmental Professional: I Should Have Known Better,” July 2001, p. 2.