Thursday, February 12, 2015

Prosecuting Corporations - HSBC (2/12/15)

Most readers of this blog will already be aware that HSBC is again in the IRS / DOJ sites in a big way because of recent disclosures at it's Suiss Branch, HSBC Private Bank (Suisse) SA.  Today has another article on the potential for UK prosecution of HSBC.  Tom Bergin, UK may follow U.S. lead if pursues HSBC over tax (Reuters 2/11/15), here.  I write here to excerpt only one comment on prosecution of corporations:
    While establishing jurisdiction over HSBC Private Bank (Suisse) SA could allow UK authorities to pursue HSBC, they would still face a tougher challenge than U.S. peers in bringing a case against the bank rather than individuals. 
    Tax lawyer Harry Travis said successful prosecutions against HSBC staff were more likely than against HSBC itself because under UK law, in order to convict a company of a crime, a prosecutor must usually show the highest levels of management were aware of wrongdoing and condoned it. 
    "In U.S. law, you have a very different test, a much lower test. In the U.S., companies can be prosecuted for crimes committed for their benefit by their employees or their agents."
Just yesterday, I was working on a draft of publication on U.S. tax crimes and included the following in a footnote in the draft:
At common law, breathless, lifeless corporations could not be charged with crimes.  In N.Y. Cent. & Hudson River R.R. Co. v. United States, 212 US 481, 494 (1909), the Supreme Court held that corporations could be criminally liable for the acts of agents.  see also United States v. Sun-Diamond Growers of Cal., 138 F3d 961, 970-71 (D.C. Cir. 1998), aff'd on other grounds, 526 US 398 (1999) (citing cases). For modern expansion of this concept to collective knowledge of the entity in the Bank Secrecy Act context, see United States v. Bank of New England, 821 F2d 844, 856 (1st Cir. 1987).   Generally, if an agent acts within the scope of employment in a way that reflects some intent to benefit the organization, the organization may face criminal liability.  One of the former Enron prosecutors summed it up nicely: “The legal rule is that if an agent of the organization committed a crime within the scope of employment, meaning basically while doing his job, and acted with even a partial intent to benefit the organization - in other words, not exclusively for self-interest, then the organization is criminally liable, full stop,”  Samuel Buell quoted in Jonathan D. Glater and Lynnley Browning, Deal Likely to Let KPMG Avoid Charge in Tax Case, New York Times (8/11/05).  Notwithstanding this general rule of criminal prosecution for corporations, corporations cannot be tried for some crimes.  For example, general perjury (18 USC § 1621, here) requires a false statement under oath.  Corporations cannot make statements under oath; people do.  Accordingly, the corporation cannot be tried for perjury, but the corporate agent (officer or director) so testifying can be tried for perjury.  But, tax crimes enthusiasts should be aware that, somewhat inconsistently, a corporation can be charged and convicted for tax perjury, § 7206(1) because it permits conviction of a person which the Code defines in § 7701(a)(1) to include a corporation.  See United States v. Ingredient Technology Corporation, 698 F2d 88 (2d Cir. 1984), cert. denied 462 US 1131 (1983) (Section 7206(1), here, tax perjury, prosecution). 

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