An Exploration of the Current Status of Corporate Crime from the Perspective of Criminal Compliance

Abstract: In recent years, the criminal compliance system has gradually gained traction in both academic circles and judicial practice in China, sparking widespread attention and discussion. Regarding the essence of criminal compliance, some scholars argue that it refers to a comprehensive set of measures—approved and incentivized by criminal law—that enterprises establish based on their own specific characteristics to mitigate the risks arising from employees’ criminal conduct. Other scholars view criminal compliance as an internal corporate mechanism designed to promptly detect and prevent criminal activities within the enterprise. Accordingly, it is necessary to reconstruct China’s theory of corporate crime by introducing the doctrine of organizational criminal liability, thereby endowing corporations with independent criteria for assessing both subjective and objective elements. This approach aims to better integrate the criminal compliance system into China’s criminal legal framework.

Keywords: Criminal Compliance; Corporate Crime; Exploration

Preface

Criminal compliance is not a statutory ground for mitigating or exempting punishment. In cases of serious corporate crimes, even if a company undertakes compliance rectification and is subsequently certified as compliant, this alone is insufficient grounds for deciding not to prosecute the company. To introduce the criminal compliance system into China, we should make it a direct ground for excluding corporate criminal liability. By establishing independent objective and subjective criteria for determining corporate criminal liability, we can reconstruct the theory of corporate crime and integrate the criminal compliance system into the theoretical framework of China’s criminal law.

I. The Important Value of the Criminal Compliance System

(1) Striking a balance between the protection of legal interests and the principle of criminal law’s modesty in the context of a risk society.

To better protect society, criminal law has significantly expanded its scope of regulation and lowered the threshold for criminal liability in response to the demands of the times. Criminal law is now adopting a proactive stance toward unlawful conduct in social life. This development has given rise to questions about whether current criminal law has become overly radical and preemptive, and whether it might violate the principle of criminal law’s modesty. The introduction of a criminal compliance system undoubtedly can help mitigate the current trend toward a more proactive approach to criminal law, effectively striking a balance between the protection of legal interests and the principle of criminal law’s modesty. This is because the criminal compliance system can produce reasonable outcomes that exempt individuals from criminal liability, thereby aligning with the broader judicial trend toward leniency.

(2) Reduce business operational risks and prevent enterprises from bearing unreasonable liabilities.

Risk is inseparable from corporate management and operation. Throughout the course of enterprise development, companies will face a wide array of risks. While these risks undoubtedly pose challenges to corporate management, as long as enterprises adopt appropriate response measures, they can effectively mitigate and avoid such risks—among which the most critical is avoiding criminal risks associated with wrongdoing. The effective implementation of a criminal compliance program can reasonably distinguish between the responsibilities of legal entities and those of natural persons, serving as evidence that the enterprise was neither subjectively nor objectively at fault, thereby achieving the goal of exoneration. The introduction of a criminal compliance system enables enterprises to avoid bearing responsibility for illegal or criminal acts committed by uncontrolled internal members, thus expanding their room for survival and growth and ensuring the steady operation of China’s socialist market economy.

(3) Implement crime prevention functions

Corporate crimes are generally economic or technological in nature. As corporate crime becomes increasingly complex and highly sophisticated, it is becoming ever more costly and difficult for external authorities to detect and curb such offenses. Consequently, there is a growing demand for enhanced investigative capabilities on the part of external regulatory agencies. Meanwhile, whether from the perspective of the state, society, victims, or offenders, the occurrence of crime—and the application of criminal law and penalties—inflicts harm on the state, society, and its members. Therefore, rather than placing excessive emphasis on post-crime punishment, it is far more effective to focus on preventive measures taken before crimes occur. By fostering a sense of respect for the law and cultivating habits of rule-abiding behavior, we can shift from negative, specific prevention to positive, general prevention. The introduction of corporate criminal compliance systems enables enterprises to establish robust self-regulatory frameworks—this approach represents the optimal means of modern governance.

II. Reconstructing China’s Theory of Corporate Crime from the Perspective of Criminal Compliance

(1) The Dilemma of Introducing Criminal Compliance Systems to Corporate Crimes

By examining the necessity of criminal compliance, this article concludes that introducing criminal compliance into China’s criminal law system represents the direction of future development. The article supports the view that the criminal compliance system should serve as a standard for determining whether a legal entity meets the elements required for criminal liability. If a legal entity formulates and implements an effective criminal compliance program, it can significantly reduce the risk of the enterprise being held criminally liable. To introduce the criminal compliance system effectively, it is essential to integrate it into the theoretical framework of corporate crime in China. To achieve this goal, we must address the conflicts between the criminal compliance system and China’s traditional theory of criminal responsibility for corporate crime. In China’s criminal law, the determination of corporate crime typically hinges on the intent and actions of senior management personnel, thereby defining the objective and subjective illegality of the entity—a practice that clearly violates the principle of individual culpability. If we could incorporate the theory of organizational responsibility into China’s doctrine of corporate crime and grant legal entities independent legal personality, this would enable the theory to align seamlessly with the criminal compliance system. The following article will demonstrate the advantages of the theory of organizational responsibility over other existing theories by systematically reviewing several key theoretical perspectives related to the identification of corporate crime, and will also elaborate on how the theory of organizational responsibility can be integrated with the criminal compliance system.

(2) Theory of Subrogation Liability – The Theory of Subrogation Liability

The concept first appeared in the 1908 case of New York Central and Hudson River Railroad Co. v. United States, in which it was held that the will of an agent authorized by a legal entity could represent the will of the entity itself, and that the organization lacked an independent legal personality of its own. Scholars who support this view argue that an entity has a duty to exercise supervisory and managerial control over the conduct of its internal personnel; these two aspects are inseparable. Consequently, the will of the entity’s members can be regarded as representing the entity’s own will, meaning that the entity must bear responsibility for the actions of its employees. This article contends that the doctrine of vicarious liability faces the following problems: First, vicarious liability is a special type of tort liability that does not require consideration of whether the ultimate responsible party was subjectively at fault. This distinctive feature of vicarious liability typically leads it to be regulated under civil law. By contrast, criminal law operates on the principle of individual culpability; according to criminal law theory, the commission of a crime requires both subjective fault and the objective commission of an unlawful act. Therefore, individuals who are not subjectively at fault cannot be subjected to criminal punishment. As a result, vicarious liability has no place within the theoretical framework of criminal law. Second, vicarious liability not only may lead enterprises to bear unreasonable criminal responsibility for the actions of their internal employees but may also create loopholes in the pursuit of corporate liability. The essence of vicarious liability lies in attributing the subjective intentions and objective actions of internal employees to the company itself. However, in practice, only the intentions and actions of middle- and high-level managers can generally be attributed to the enterprise. Thus, the larger the scale of an enterprise and the more finely divided its organizational structure, the more likely it is to escape criminal liability—ultimately resulting in a situation where large corporations with complex hierarchies and specialized divisions are able to avoid criminal sanctions. Lead to Under the principle of vicarious liability, only small businesses are required to bear responsibility for the actions of their internal employees.

(3) Unit-Organizational Determinism

Unlike the aforementioned approach, which imposes the will of natural persons onto legal entities, this view holds that legal entities possess independent legal personality and thus bear criminal responsibility as a whole entity itself. This perspective represents a clear advancement over the theory of vicarious liability, because the theory of personality-based social-system responsibility recognizes that legal entities have their own independent legal personality. Consequently, legal entities are no longer merely tools for bearing vicarious liability for the criminal acts committed by their internal members; rather, they independently assume criminal responsibility based on the complexity of their organizational structure. However, although this view ostensibly acknowledges the independent status of legal entities, it still relies on the will and actions of individual members when defining the entity’s intent and its objective external conduct. As a result, it does not fully achieve the independence of the entity’s legal personality. The subordination of individual members to the entity is evident in the fact that the performance of their duties within the entity depends on the objective material conditions provided by the entity itself, and the will of individual members in carrying out their official duties is determined by their positions within the entity. The independence of individual members manifests itself in their legal status as subjects separate from the entity itself. Under this view, therefore, both the entity and its members can be held jointly liable for criminal offenses. If, in the future, a criminal compliance system is to be introduced, it is essential first to grant legal entities independent legal personality—rather than uniformly relying on the will and external conduct of senior management personnel as the basis for determining whether an entity has committed a crime. To this end, the theory of organizational criminal responsibility must serve as the theoretical foundation for identifying criminal offenses committed by legal entities, enabling the criminal compliance system, under the framework of organizational responsibility theory, to fully realize its intended effectiveness.

Following the theory of personalized social system responsibility, the unit-specific crime theory—also known as the “corporate criminal responsibility theory”—has emerged. This perspective holds that in modern society, a legal entity is no longer merely a collection of persons or objects in the traditional sense. Rather, it has its own intrinsic operational mechanisms and, through such elements as its scope of business, policy guidelines, preventive measures, profit objectives, and organizational structure, transforms the natural persons who comprise it into mere, insignificant components within the entity’s operational processes, effectively stripping them of their individuality. Within such an organizational entity, a dynamic interactive relationship exists between individual members and the entity itself: On the one hand, individual members can use the entity as a tool to manipulate, dominate, or influence its business activities in order to achieve their own personal goals—including criminal ones. On the other hand, members embedded within the entity are inevitably subject to the overall objectives and policies of the organization in their actions and thought processes. Consequently, corporate crime arises from the complex interplay of the entity’s institutional framework, its underlying purposes, and the collective actions of its constituent members.

Conclusion

In summary, the introduction of a criminal compliance system helps achieve the valuable objectives of effectively protecting legal interests and safeguarding human rights in the current context of a risk society. It also prevents enterprises from bearing an excessive and unreasonable burden of criminal liability, shifting the focus from the passive prevention through punishment to proactive general prevention. At the same time, this system fosters a two-way cooperative governance model between the state and enterprises, thereby alleviating the state’s burden in combating illegal and criminal activities and, more fundamentally, minimizing at the root the very occurrence of criminal behavior. Such is the intrinsic value of introducing a criminal compliance system. To better integrate the criminal compliance system with China’s criminal law theory, this article advocates treating it as a basis for exempting entities from criminal liability. By establishing independent subjective and objective criteria for determining corporate criminal liability grounded in the theory of organizational responsibility, and by leveraging the formulation and implementation of criminal compliance programs to assess both the subjective intent and objective conduct of the entity, we can effectively preclude corporate criminal liability at the level of conformity with the elements of the crime. Therefore, the localization of criminal compliance in China must proceed along the path of independently identifying corporate responsibility.

References:

[1] Peng Xinyue. The Logic and Path for Exculpating Corporate Responsible Persons under the Context of Criminal Compliance [J/OL]. Journal of Beijing Police College: 1–18 [2023-03-20].

[2] Chen Ruihua. The Theory of Compliance Relevance—On the Legitimacy of Lenient Treatment for Corporate Officers Who Comply with Regulations [J]. Forum of Law, 2023(02):5-15.

[3] Mao Lingling. The Localization Evolution of Corporate Compliance—From Corporate Criminal Compliance to a Comprehensive “Grand Compliance” System[J/OL]. Journal of Shanghai University of Political Science and Law (Studies in the Rule of Law): 1–17 [2023-03-20].

[4] Zhuang Aifan. The Impact of the Criminal Compliance System on Traditional Theories of Corporate Crime [J/OL]. Journal of Jiaxing University: 1–5 [2023-03-20].