Since the last financial crisis and the resulting increased scrutiny on business entities, companies involved in suspected corporate misconduct repeatedly have paid massive fines to resolve criminal charges. Alongside high-profile announcements by the government of multi-million- and billion-dollar recoveries has been a near constant refrain from politicians and commentators that prosecutors have been lax in pursuing individuals in connection with large corporate malfeasance.

Elizabeth Warren, United States Senator from Massachusetts, often has been a leader in criticizing the lack of individual prosecutions. In her 2014 memoir, “A Fighting Chance,” she called for the “indictment” of individuals for activities resulting in the 2008 financial crisis while simultaneously admitting that she actually had no knowledge of whether corporate executives in fact had committed any crimes. She was critical of prosecutors’ efforts, expressing surprise that the financial collapse failed to result in “perp walks” and “mass indictments.” Warren pointed out that a large number of criminal prosecutions came out of the savings and loans crisis of the 1980s. She wrote, “In those days, federal officials did not take such a generous line toward errant bankers.” Warren contrasted the government’s approach to big banks in 2008 by likening it to rescue workers “foam[ing] the runway” for a giant plane (i.e., giant bank) to land safely without “seriously investigating whether the guys flying the planes were up to no good.” Now she has proposed novel legislation suggesting that executive officers should be prosecuted for negligently allowing or failing to prevent criminal and civil law violations by their company.

Warren’s promotion of the idea that negligence can rise to the level of criminality goes beyond traditional notions of individual accountability for intentional acts. Corporate criminal liability typically stems from individual wrongdoing under the traditional theory of respondeat superior which dictates that a company may be held vicariously liable for the acts of its agents. Accordingly, individual employees already are subject to prosecution where they actually commit a crime to benefit the corporation. The new law proposed by Warren lowers the bar for individual liability, making it easier for the government prosecute individuals for the acts of their subordinates.

In 2016, upon the release of documents compiled and created by the Financial Crisis Inquiry Commission (FCIC) during its investigation of the causes of the 2008 collapse, Warren requested an investigation into the Justice Department’s failure to indict or try any individuals identified and referred by the FCIC. Referring to the dearth of prosecutions, Warren wrote “This failure is outrageous and baffling, and it requires an explanation.”

Most recently, in April 2019, Warren introduced a bill titled the Corporate Executive Accountability Act. The bill, which was referred to the Committee on the Judiciary, would authorize prosecution of an executive officer of any corporation that generates more than $1 billion in annual revenue for “negligently permit[ting] or fail[ing] to prevent” either a criminal or civil violation by the company. Yes, you read that right – an executive could be criminally liable if the company he or she worked for committed a civil violation.

The bill borrows the definition of “executive officer” from federal regulations that define the role as a company’s president, vice president in charge of a principal business unit, division or function, or any other officer who performs a policy making function. The bill also expands the definition to include any individual who “by reason of the position of the individual in the corporation, has the responsibility and authority to make necessary measures to prevent or remedy violations.” This expansion may create liability for lower-level employees with supervisory functions.

The Act provides that the corporation need be either convicted of or entered into a deferred or non-prosecution agreement related to the criminal violation of federal or state law in order for the individual executive to be criminally liable. Notably, however, the proposed bill further provides that an individual executive also may be prosecuted under the Act for any civil violation of federal or state law by his or her corporation if the corporation: 1) was found liable for such civil violation or entered into a settlement agreement with any federal or state agency regarding the violation; and 2) the violation affected the health, safety, finances, or personal data of not less than 1 percent of the population of either the United States or the prosecuting state.

Warren’s proposal suggests that the penalty for a first offense is a fine and/or imprisonment for not more than one year. For a second offense, the Act proposes a fine and/or imprisonment of not more than three years. Thankfully, the proposed legislation still has a long road to travel before becoming law, but is a signal of strongly held opinions by Warren regarding which and when individuals should be liable for corporate misdeeds.

Warren’s proposed reliance on corporate settlements as a measure of when an individual can be prosecuted may lead to an unjust result. I previously have written that a corporation’s desire to resolve a criminal case either through a negotiated resolution or guilty plea does not, by itself, demonstrate that individuals deserve to be indicted. In most cases, corporate entities resolve investigations for reasons that have nothing to do with actual guilt. Instead, they may opt for settlement or a guilty plea to avoid the disruption and uncertainty (and corresponding stock decline) that comes with a trial or to maintain a good relationship with regulators. Thus, resolution of a case by a corporation does not necessarily establish that any individual committed a crime.

Further, in these situations, we can assume that the government has made a reasoned, evidence-based determination that individuals either lack the requisite criminal intent or that individual convictions are unlikely. Even though Warren herself acknowledges that she does not know whether any corporate executives engaged in criminal activity in the months leading up to the financial meltdown, she seemingly assumes that the dearth of indictments against individuals is the result of lackluster investigations by the government rather than lack of evidence. The degree to which she can garner support for the Corporate Executive Accountability Act will signal whether other senators agree with her view.