Assess, using examples, which of the illegal activities in which Multinational Corporations are involved poses the largest threat to society?

1. Introduction

A multinational corporation can be defined as a parent company, which has many affiliates at locations around the world, through which it engages in foreign production. This means that the defining characteristic of a multinational corporation is that it functions through its affiliates that are located in different countries around the world. Another interesting definition of a corporation is given by Ambrose Bierce in The Devil’s Dictionary, as an “ingenious device for obtaining individual profit without individual responsibility.” This definition is fitting for the essay at hand because it depicts the paradoxical nature of a corporation, which allows individuals to profit by the acts of the corporation but at the same time not be personally liable for the wrongs of the corporation. In other words, the shareholders of the multinational corporations and its directors enjoy the fruits of the corporation’s business activities but may not liable for its wrongs. This creates a strong net of protection for those who control the multinational corporations, allowing them to take decisions that are sometimes unethical but profitable for the company.

A multinational corporation is geocentric in the way it exercises control over its affiliates over the world, which means that its management is centralised. This means that a multinational corporation works in different legal jurisdictions, with one jurisdiction being the home country, which is the country of origin for the corporation, and the other jurisdictions being the host countries, where the affiliates and operations of the corporation are conducted. This presents many legal challenges in controlling and punishing corporate crime because of the transnational nature of the corporations as well as their operations.

Multinational corporations have been in existence for the last two centuries but it was in the Second World War era that the liberalised environment in Western Europe allowed the multinational companies to grow at a more rapid pace. As multinational corporations have become more prevalent in the economies around the world, so has the power and influence of the multinational corporations increased. Multinational corporations have presence in countries around the world but these corporations have the sole interest in their profit maximisation. With their vast pools of resources multinational corporations are a source of power, and sometimes multinational corporations use their powers and misuse their resources for illegal activities that are aimed at maximising benefits for themselves. Such activities pose threats to the society and some of these threats are very serious in nature.

The laws which are imposed and implemented against illegal activities by multinational corporations are responses to the increasing awareness of the extent to which some of the multinational corporations can harm the society. A tendency to this effect (of law making or imposition) has been seen in the judgements of courts as well, wherein the modern tendency of the courts is noted to be the widening of the scope of criminal law so that maximum protection can be given to individuals against the powerful associations, like multinational corporations. The European Union Directive 2008/99/EC on the Protection of the Environment through Criminal Law is an important measure by the European Union under which member states are required to enact criminal law measures for punishing corporate crimes that lead to environmentally harmful activities.

2. The Nature of Corporate Crime and the Legal Challenges in Addressing it

Edwin Sutherland had multinational companies in mind when he first coined the term ‘white collar crime’. Sutherland was of the view that multinational companies commit crimes and they get away with these crimes. He understood the need to focus on the executives in companies who commit crimes in their occupations, but were rarely prosecuted for these crimes. The nature of the multinational company and the benefits of incorporation are the major reasons why it is difficult to address the challenge of corporate crime.

There are many legal challenges that act as impediments for the punishing of corporate crimes. Discussing some of these challenges will give a background of the problem of illegal activities of multinational corporations. This section will discuss some of these challenges that are also inherent in the nature of the multinational corporations. These are related to corporations and mens rea; legal personhood; and the inability to punish corporation in the same way as the natural persons.

Corporations have not conventionally been subjected to the scope of criminal law, until the early 20th century, which saw the proliferation of corporate entities in the business world. Before this time, the usual method for legal action against corporations was in the strict liability doctrine, which was a part of the civil law and not the criminal law. Criminal law was not generally applied to the corporate crime.

The growing awareness about white collar crimes and how far such crimes could also impact a larger population of people was responsible for the change in the legal landscape related to corporate crime. Corporate crime is difficult to quantify because a large number of corporate crimes do go unreported, which is why corporate crime is also considered to be a dark figure in criminal statistics. However difficult to calculate, white collar crimes do have the potential to impact a large population. In the context of environmental harms and impacts, multinational corporations have come into a lot of criticism time and again because of their contribution to increasing pollution, and corporate crimes in the context of environmental harms and toxic waste disposal.

The nature of multinational corporations being such that they are involved in business operations on a global scale, one of the major areas of concern in the literature on corporate crime is the potential of the rich and influential multinational corporations to conduct injurious or criminal activities in the Third World nations, many of which may not have laws in place to control or punish corporate criminal behaviour. Studies have pointed out that many of the illegal actions that the multinational corporations commit in some of these Third World nations, without legal consequences, would have been penal offences in their home countries. However, due to the transnational character of the corporation as well as its operations, it is sometimes difficult to pin down legal accountability on the corporations as the act may be a crime in the home country but not in the country where the act has been committed.

Jurisdictional issues can therefore present challenges in controlling or punishing the crime. An example of this can be seen in the infamous Bhopal Gas Tragedy, which took place in India in December 1984. More than 16000 people were killed in an industrial disaster caused by a gas leak in a plant owned by the American corporation, the Union Carbide Corporation. The leak was caused by lax management at the chemical plant and the non-observance of industrial security and safety norms by the Union Carbide Corporation, which it would have been bound to follow in the United States, but not bound to follow in India. The Indian government’s suit against the corporation in the United States, failed on jurisdictional issues as the disaster had happened in India. On the other hand, the American government has refused to extradite the American officials including the CEO of the company to India to face criminal proceedings. This case exemplifies the difficulties that are involved in prosecuting corporate leaders for corporate crimes and the low rate of conviction for white collar crimes. The European Union has taken stringent steps for criminal prosecution of those who commit environmental crimes.

Corporate crime by itself is of a nature that is distinct from ordinary crime, therefore, the legal measures that are created to control corporate crime are also distinct from those that are designed to control crimes by individuals and even certain categories of white collar crime, such as embezzling. In effect, corporate crimes are committed in the name of the corporation but the actual decisions are taken by the individuals who control the corporation. This gives rise to the most fundamental challenge in punishing corporate crime, as the corporation is a separate legal personality as per the doctrine of separate corporate personality also propounded in Salomon v Salomon. On the other hand, the doctrine of the lifting of corporate veil provides that under certain circumstances, the fiction of the corporate veil or corporate personality has to be pierced. The doctrine of lifting of the corporate veil was developed due to the possibility of abuse of corporate structure by the members and directors of the company. In context of corporate crime and the law, both the doctrines of corporate personality as well as the doctrine of lifting of the corporate veil present challenges in determining the application of law in case of a corporate crime. The English judges who had to first decide upon the punishing of corporate crime, faced the dilemma in punishing corporate crime when the existing criminal law related to natural persons and they had to apply the law to corporate persons.

Corporate crime can be controlled by legal measures provided there are measures that are deterrent or penal in nature that are used against the corporations or those who manage the corporations. However, these measures are not satisfactorily provided in national as well as international laws. An example can be seen in the UK in the inability of the law to provide remedies against corporations that were responsible for a number of train crashes in Southall, Potters Bar and Hartfield.

International law does not recognise the complicit liability of corporations and this creates a challenge in dealing with multinational corporations’ crimes that may be of a transnational nature. Within municipal jurisdictions, where these kinds of crimes occur, criminal sanctions against culpable persons – both legal as well as natural persons, are not effectively enforced. The nature of the crimes and the nature of the multinational corporations is such that these issues are more appropriately addressed in international forums.

Multinational corporations have the advantage of a superior access to capital, technology and resources, making some of the corporations more powerful and rich than many countries in the world. For instance, EXXONMOBIl’s 2001 profit was 15 billion dollars, while, the GDP of Chad was 1.4 billion dollars. Such power and influence allows the corporations to also commit illegal activities without facing legal repercussions for the same.

3. International Corporate Crime and Multi-National Corporations: Threat to the Society

The crimes that are the most threatening to the social order, in which multinational corporations are also complicit are crimes against humanity, war crimes, and genocide. This has been pointed out by Mary Robinson, who is the former United Nations Commissioner for Human Rights. She has said that:

“The role of non-state actors such as multinational enterprises has increasingly been acknowledged. The footprint of a multinational company on society can be enormous, both in a positive and in a negative sense.”

This section will consider the ways in which corporations can aid and abet in the crimes against humanity, war crimes, and genocide. Examples will be used to illustrate the arguments in this section.

(a) Illegal Financial Activities (Financial Crimes)

A common financial crime that is committed by major corporations is related to tax avoidance. As such it is an illegal activity by the company, which poses a threat to the society. Companies can avoid tax in the home countries as well as in the host countries through such illegal activities. In fact, many multinational companies are known to use their undue influence over host governments for wrangling tax benefits from the host state. An early case in English law relating to punishing the company for tax avoidance was Moore v Bresler Ltd., in which case, the company was made to face criminal liability under the Finance (No 2) Act 1940. In the United States, the Securities and Exchange Commission is responsible for bringing actions against such tax defaulters corporations. This body has been sometimes used as an example on which British regulatory authorities can be structured for the prevention and punishment of financial crimes. In the UK, since 2013, the Financial Services Act 2012 has created the regulatory mechanism for controlling corporate crimes. The Prudential Regulation Authority is responsible for keeping a check on the banks, investment firms and building societies.

(b) Illegal Environmental Activities (Environmental Crimes)

In the past few decades, multinational corporations have come under criticism for their contribution to environmental crimes. These crimes may include oil spills in natural water resources such as oceans and rivers, production of hazardous wastes, breach of environmental law and standards, etc.

An example of a case involving corporate environmental crime can be seen in the case of Exxon Shipping Co. v Baker, decided by the United States Supreme Court. The case was concerning Exxon Shipping Company, which was responsible for an oil spill in Alaska. The case involved both punitive and compensatory damages with the court ruling that the punitive damages could not exceed the compensatory damages given to victims or their families. As a consequence of that, the damages were brought down from 2 billion dollars to 500 million dollars, which was also the amount of compensatory damages. The Oil Pollution Liability and Compensation Act 1990 was enacted later as a response to the disaster and its after effects. The law allows the levying of fines and penalties against the companies or responsible persons. The law provides for strict liability for the damage and loss caused by oil pollution. The law is an example of a strict criminal legislation to control or punish industrial disasters. It is to be noted that the lack of such laws in many Third World jurisdictions allows responsible parties to escape liability. An example can be taken of one of the worst industrial disasters of modern times, the Bhopal Gas tragedy in 1984. The Union Carbide Corporation and the perpetrators of the crime were never prosecuted or received any punishment for the criminal negligence which led to the deaths of more than 16000 people in India. The nature of the criminal negligence involved is such that although it can be argued that it would have never happened in the home country, the facts point to similar events in developed countries as well.

(c) Human rights violation

Human rights violations by the multinational corporations include crimes against humanity, war crimes and genocide. These are very serious crimes and the impact of these crimes on the society is grave. However, it is difficult to prosecute corporations under international law. For instance, the International Criminal Court’s possible prosecution of corporations that had participated in the ‘blood diamonds’ trade was criticised as being contrary to the principles of criminal law.

The fact that corporations are involved in a host of activities that lead to the facilitation of crimes against humanity is well established in literature and studies.

South Africa allows prosecution of companies for violation of human rights under its domestic laws. This means that domestic criminal courts in South Africa can prosecute companies for violations of human rights that they are responsible for. This places South Africa in a unique position as generally states and state actors are prosecuted for human rights violations. In the EU, the case of Guerra v Italy, the state was held liable for not protecting the rights of its citizens that were being violated by pollution being caused by a fertilizer plant.

(d) Labour Rights violation

Multinational corporations may also be involved in workers’ rights violations. There is significant labour rights violations in the affiliates of multinationals in Third World countries where the law relating to labour rights may be lax. In particular, multinationals invest in developing nations to access cheap labour. In absence of stricter norms and oversight by host governments, multinationals exploit the labour and do not provide basic facilities.

4. Recommendations and conclusion

International law and bodies such as International Criminal Court can take stronger measures against corporations that commit crimes. The European Union has already issued some strict measures to deal with corporations that commit environmental crimes but there are many crimes that corporations may be complicit in without any criminal law repercussions. Domestic laws also must be strengthened for prosecuting corporations. For this purpose, established criminal law principles such as mens rea and their applicability in context of corporations must be clarified by legislation.

Human rights impact assessment and environmental impact assessments done at the level of the corporation must become an integral and reported activity of the corporations.

The essay has discussed the different corporate crimes that are committed by the multinational corporations. These corporate crimes are the ones that are the most dangerous from the perspective of the society, due to the impact of these crimes on the people. Basically, corporate crimes have the potential to impact a much large population base as compared to other crimes in the society. A case in point is the Bhopal Gas Tragedy, which killed thousands of people.

The multinational corporations are influential and powerful entities that have the motive of profit maximisation. It is essential that profit maximisation does not take centre stage and that corporate social responsibility is taken seriously by corporations around the world. Laws, both domestic as well as international also have to be strengthened so as to prosecute corporations for corporate crimes.

Annotated Bibliography

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• This article considers the practical difficulties that are seen in the criminalizing or prosecuting of corporations or their leaders for the commission of crimes. The problems associated with transnational operations, jurisdictional issues and criminal law are discussed in this article at length.
• Mullier E, ‘The emergence of criminal competence to enforce EC Environmental Law: Directive 2008/99 in the context of the case-law of the European Court of Justice (2010) 6 Cambridge Student L. Rev. 94
• This article examines the case law and jurisprudence that has developed by the European Court of Justice under the European Union Directive 2008/99/EC. The article also sheds light on the scale and scope of environmental crime and the role of multinational corporations in the commission of these crimes.
• Mullins CW, and Rothe DL, ‘Gold, diamonds and blood: International state‐corporate crime in the Democratic Republic of the Congo’ (2008) 11 (2) Contemporary Justice Review 81
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