What is Criminal Law?
At their worst, business people's actions may be so unethical and so wrong that the government will respond by criminalizing their activities. Examples include fraud, embezzlement, Ponzi schemes, tax evasion, or insider trading. While we could spend substantial time discussing the philosophical underpinnings of criminal law, we will focus instead on intent and responsibility.
It is important to keep in mind that we distinguish between civil and criminal wrongs. An individual that is harmed may bring a civil lawsuit against the person or entity that caused the harm. Civil plaintiffs usually seek monetary damages. On the other hand, it is a governmental entity (usually the state) that brings criminal charges against someone that has violated the relevant criminal statute. Rather than simply seeking monetary damages, criminal charges may also include jail time.
Because the penalties for criminal infractions are so severe, the legal system requires a higher level (or burden) of proof in order to prevail in court. In a criminal case, the prosecutor has the burden of proving beyond a reasonable doubt that the defendant committed the alleged crime. This is a high standard. If any jury member has reasonable doubt that the defendant committed the crime (i.e., perhaps it was someone else?), then it is unlikely that the prosecution will prevail. Civil cases, on the other hand, only require a preponderance of the evidence, meaning that the plaintiff need only show that it is more likely than not that the defendant acted wrongfully.
Crimes are usually defined in the state's criminal code. For example, you can view the Idaho criminal code here.
In order to be fair and equitable, citizens must have notice of what is criminally prohibited. Ex post facto laws - laws that are created after the fact to punish an act that was legal at the time it was committed - are prohibited by the U.S. Constitution.
The Constitution also prohibits "cruel and unusual punishment" for crimes committed. The hope is that the punishment will fit the crime, but what constitutes cruel and unusual is a somewhat subjective standard. For example, if you were to be convicted of theft, you may face a prison sentence of 12 years, which has been found not to be cruel or unusual. Yet anciently, the punishment for similar theft was to have your hand cut off. As a society, we feel that severing someone's hand is cruel, but if you had a choice between losing your hand or losing 12 years of your life in jail, which would you choose?
You may have heard that ignorance of the law is no excuse, yet there are too many criminal laws in the United States for us to know them all. Interestingly, the twitter account @crimeaday exists to help inform us of the many (and sometimes completely absurd) laws out there. For example, 16 USC 551 makes it a federal crime to be publicly nude in the Allegheny National Forest, but not if you have a nudity permit or you're naked in the course of official firefighting duties. More on that later.
A crime, therefore, consists of both the criminal act, known as actus reus, and the requisite criminal intent, known as mens rea. Someone may have a strong desire to kill another person, but if that person does not follow through with the killing, he or she cannot be charged with a crime. Although the individual has a guilty mind, the law does not prosecute those who do not commit the actual criminal act.
Likewise, someone may commit the criminal act, but lack the criminal intent. A person that is forced to commit a crime at gunpoint is not guilty of the crime. The U.S. does not criminally charge those who were forced to commit crimes they did not want to commit. A similar situation would be those that commit crimes by mistake or other reasons out of their control. For example, I may find myself naked in the Allegheny National Forest, but only because a bear mauled me, ripping my clothes off. My defense would be that I did not intend to be naked. Or perhaps that I intended to fight a fire...
Classification of Crimes
Crimes are classified according to the seriousness of the offense. Treason is a major crime defined by the Constitution as follows: "Treason against the United States shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort."
A felony is a serious crime against society, such as murder, arson, larceny, bribery, and embezzlement. It may be punished by execution, by a prison sentence of more than a year, or by a fine. A misdemeanor is a less serious crime and is usually punished by a fine and/or imprisonment for no more than a year. Examples include traffic tickets, thefts of small amounts of money, or other relatively minor infractions.
Crimes in the Business World
Corporate Criminal Liability
Today, corporations are usually liable for the crimes committed by their agents and employees so long as the crime was committed during the course and scope of employment. In order to be liable, a supervisor within the business must have had knowledge of or authorized the act or the corporation must have been able to prevent the act. Corporations can be criminally liable for failing to perform specific duties required by law. This includes, but is not limited to, duties required by securities and environmental law. Obviously a corporation can’t be imprisoned, but it can be fined or denied certain privileges, such as licenses.
White Collar Crime
White-collar crime generally refers to non-violent crimes committed by and against businesses. By way of example, robbing a bank is not a white-collar crime, but a bank teller secretly stealing the bank's money would be considered a white-collar crime. These crimes may violate both state and federal laws. Many of the crimes discussed here are white-collar crimes.
The Racketeer Influenced and Corrupt Organizations Act (RICO) is one of the most successful laws used to combat white-collar crimes. RICO prohibits an organization's employees from engaging in crimes involving extortion or coercion. Examples include securities fraud, bribery, embezzlement, and wire or mail fraud.
Mail and Wire Fraud
Created using the Commerce Clause, this federal law prohibits the use of mail or interstate electronic communications (wires) for the purpose of furthering a "scheme or artifice to defraud." This is a very broad federal law that makes it easy for federal agencies (usually the FBI) to investigate abuses. The law also bans attempts to defraud, so the federal prosecutor doesn't even need to show that the scheme worked or that anyone actually lost money.
Securities fraud occurs when a person or company provides false information to potential investors to influence their decisions to buy or sell securities, such as stocks. You've likely already studied the securities fraud committed by Enron and how its accounting firm, Arthur Anderson, attempted to conceal compromising documents by shredding them once the fraud was discovered.
A Ponzi scheme is a type of securities fraud in which large amounts of money are promised to investors. However, rather than paying investors using proceeds or gains from the investment, money from new investors is used to pay off investors that started earlier. These schemes almost always fall apart when they can't get enough new investors to pay off the older accounts. Bernie Madoff, former chairman of NASDAQ and owner of a large investment firm, was prosecuted for his role in running one of the largest Ponzi schemes of all time. If interested, you can find more information here.
Larceny is a broad term that includes most forms of theft. This includes robbery, which is defined as the taking of property of another person against that person's will and under the threat of bodily harm. It also includes burglary, which is the illegal entering of another person's home or place of business for the purpose of committing a crime.
Embezzlement is another form of larceny that involves the wrongful taking of money or other property that has been entrusted to a person as part of his or her job. Some jobs, such as accountants, lawyers, or bank employees give more opportunities to embezzle money...as opposed to university professors that don't really come in contact with money or other property.
Extortion involves taking or demanding money or other property from someone by using force, threats of force, or economic harm. The difference between extortion and bribery is that in bribery, both parties are voluntary participants. With extortion, one party is unwilling.
The crime of false pretenses describes a broad category of crimes that involve obtaining ownership of another's property by making untrue representations of fact with intent to defraud. For example, a person who makes false statements to a bank to get a loan could be prosecuted under the crime of false pretenses. Donald Trump's personal attorney, Michael Cohen, pled guilty to false pretenses in such a scheme.
Forgery involves wrongfully making or altering the writings of another with the intent to defraud. It includes making a false document or altering an existing one. Documents commonly subject to forgery are checks, deeds, contracts, etc.