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«University of Richmond UR Scholarship Repository Law Faculty Publications School of Law Restorative Justice for Multinational Corporations Andrew B. ...»

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University of Richmond

UR Scholarship Repository

Law Faculty Publications School of Law

Restorative Justice for Multinational Corporations

Andrew B. Spalding

University of Richmond, aspaldin@richmond.edu

Follow this and additional works at: http://scholarship.richmond.edu/law-faculty-publications

Part of the Comparative and Foreign Law Commons, and the Criminal Procedure Commons Recommended Citation Andrew B. Spalding, Restorative Justice for Multinational Corporations, 76 Ohio St. L.J. __ (forthcoming 2015).

This Article is brought to you for free and open access by the School of Law at UR Scholarship Repository. It has been accepted for inclusion in Law Faculty Publications by an authorized administrator of UR Scholarship Repository. For more information, please contact scholarshiprepository@richmond.edu.

RESTORATIVE JUSTICE FOR MULTINATIONAL CORPORATIONS

By Andrew Brady Spalding* ABSTRACT Deterrence theory, rooted in the methodology of law and economics, continues to dominate both the theory and practice of white-collar crime. By manipulating the disincentives of prospective wrongdoers, deterrence aims to efficiently reduce crime and maximize taxpayers’ utility. However, the rise of international commerce presents a challenge it cannot meet. Using a combination of empirical evidence and quantitative modeling, this Article shows that deterrence will tend to increase, rather than decrease, net levels of corporate crime in developing countries.

The ever-increasing power of multinational corporations thus calls for a new theory of punishment, one that uses criminal enforcement to address the systemic causes of crime. That theory, quite ironically, is restorative justice. By involving the perpetrator, victim, and community in the sentencing process, restorative justice does not merely punish the wrongdoer, but remedies the harm caused by the crime, prevents future harm, and reintegrates the defendant into the very community it violated. Though generally thought to apply only to the traditional crimes of natural persons, this Article demonstrates that the U.S.

Constitution and Sentencing Guidelines already authorize corporate sentencing practices rooted in restorative justice principles. More to the point, for two decades the U.S. Department of Justice has quietly been implementing restorative justice principles in domestic white-collar environmental sentencing. Drawing on those precedents, this Article builds a model for extraterritorial white-collar criminalpunishment that advances the interests of U.S. corporations and enforcement agencies alike, benefits the overseas victims of corporate crime, and requires no new legal authorization to implement.

–  –  –

INTRODUCTION

I. DETERRENCE THEORY, PURE AND PROUD

A. Law and Economics’ Rational Enforcement Authority

B. A Case Study in Extraterritorial Deterrence: Anti-Bribery Law.................. 8 II. DETERRENCE DETERIORATES

A. Subrational Governments in Inefficient Markets

B. Crimogenics Exposed

C. Am I My Brother’s Utility Maximizer?

III. RESTORATIVE JUSTICE FOR CORPORATIONS AND THEIR VICTIMS

A. The Corporate Criminal as Social Healer

B. Authorization in the U.S. Constitution

C. Authorization in the Sentencing Guidelines

D. A New Proposal

CONCLUSION

RESTORATIVE JUSTICE FOR MULTINATIONAL CORPORATIONS 3

INTRODUCTION

A multinational corporation with a U.S. nexus commits a white-collar crime overseas. Perhaps it bribes foreign officials for business purposes, or willfully violates trade sanctions; either way, it knowingly profits from the illegal exploitation of relatively weak foreign governments. The U.S. Department of Justice imposes a criminal fine in the tens or hundreds of millions of dollars, and publicly touts the achievement.1 But where does that money go?

Those millions are deposited directly in the U.S. Treasury,2 where they finance U.S. government programs and reduce the federal deficit. But the principal victims of that crime – the citizens of the government whose weakness the MNC exploited for personal gain – are scarcely helped at all. Owing to a peculiar but inherent quirk in extraterritorial white-collar criminal law, enforcement revenues accrue only to the perpetrator’s public fisc.

We may seek consolation in the doctrine of general deterrence, the supposed “holy grail” of criminal punishment.3 By this logic, though the penalty money sits in U.S. coffers, it deters prospective violators from further criminal conduct.4 The problem is that it will not work.

However effective deterrence may (or may not) be in reducing crime domestically,5 in extraterritorial white-collar enforcement it is doomed to fail: it will tend to increase net crime levels in the very countries whose social conditions we seek to improve. If our goal is to reduce crime – and it often is6 – we therefore need an alternative theory of criminal punishment, one that can better address the conditions of international commerce than deterrence ever could.

This Article provides that theory. Quite ironically, it is restorative justice:

an approach to criminal punishment whereby the victims, community, and perpetrator all participate in diagnosing the causes of the criminal act, determining the appropriate punishment, and seeking the defendant’s reintegration into the See, e.g., Press Release, U.S. Department of Justice, Alcoa World Alumina Agrees to Plead Guilty to Foreign Bribery and Pay $223 Million in Fines and Forfeiture, (Jan. 9, 2014) available at http://www.justice.gov/opa/pr/2014/January/14-crm-019.html (“The law does not permit companies to avoid responsibility for foreign corruption by outsourcing bribery to their agents, and, as today’s prosecution demonstrates, neither will the Department of Justice”); Press Release, U.S. Department of Justice, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 15,





2008) available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html (“The [government] will continue to... ensure that the corporate and business communities are not tarnished with violations of the kind we are presenting here today.”).

31 U.S.C. § 3302(b).

Patrick J. Keenan, The New Deterrence: Crime and Policy in the Age of Globalization, 91 IOWA L. REV. 505 (2006).

See, e.g., John Bronsteen, Christopher Buccafusco & Jonathan Masur, Happiness and Punishment, 76 U. CHI. L. REV. 1037 (2009); Neal Kumar Katyal, Deterrence’s Difficulty, 95 MICH. L. REV. 2385 (1997); George J. Stigler, The Optimum Enforcement of Laws, 78 J. POL.

ECON. 526 (1970); A. Mitchell Polinsky & Steven Shavell, The Economic Theory of Public Enforcement of Law, 38 J. ECON. LIT. 45 (2000).

See, e.g., Raymond Paternoster, How Much Do We Really Know About Criminal Deterrence?, 100 J. CRIM. L. & CRIMINOLOGY 765, 766 (2010).

See infra Part I.B.

RESTORATIVE JUSTICE FOR MULTINATIONAL CORPORATIONS 4

very community whose norms it once violated.7 And to those who may retort that restorative justice does not and could not apply to large-scale corporate crime, my answer may be surprising: it already does. The Organizational section of the U.S. Sentencing Guidelines8 authorizes, if not encourages, sentencing procedures founded on restorative justice principles. Moreover, federal sentencing practices do now, and have for several decades, applied those principles to a specific area of federal white-collar enforcement: domestic environmental law.9 The only remaining task is to adapt this practice to extraterritorial white-collar enforcement.10 Accordingly, Part I explains deterrence theory, its grounding in the methodology of law and economics, and its status as the dominant contemporary theory of criminal punishment. It then proposes using anti-bribery law, particularly the U.S. Foreign Corrupt Practices Act,11 as a kind of case study in federal extraterritorial deterrence, and explains why the FCPA serves this purpose well.12 Using empirical evidence on the FCPA’s impact overseas, Part II builds a model to show why deterrence will tend to fail more generally in extraterritorial white-collar enforcement. It explains the unique conditions of international business and illustrates how these conditions will often produce an increase, rather than a decrease, in overseas crime. Part III then shows restorative justice to be a superior, if counterintuitive, paradigm for extraterritorial white-collar enforcement. It develops a new sentencing procedure that would promote the interests of the federal enforcement agencies, help the overseas victims of corporate crime, and requires no new legal authorization to implement.

I. DETERRENCE THEORY, PURE AND PROUD

Modern deterrence theory, with its underpinnings in law and economics, posits a rational enforcement authority that manipulates the cost-benefit trade-offs See, e.g., JOHN BRAITHWAITE, RESTORATIVE JUSTICE & RESPONSIVE REGULATION 11 (2002);

UNITED NATIONS OFFICE ON DRUGS AND CRIME, HANDBOOK ON RESTORATIVE JUSTICE

PROGRAMMES 6 (2006) available at http://www.unodc.org/pdf/criminal_justice/06Ebook.pdf.

U.S. SENTENCING GUIDELINES MANUAL § 8.

See infra Part III.A.

See infra Part III.C.

Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494 (1977) (codified as amended at 15 U.S.C. §§ 78m(b), (d)(1), (g)–(h), 78dd(1)–(3), 78ff (2006)), amended by Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 Stat. 1107 (1988) (codified as amended at 15 U.S.C. §§ 78dd(1)–(3), 78ff); International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 105-366, 112 Stat. 3302 (1998) (codified as amended at 15 U.S.C.

§§ 78dd(1)–(3), 78ff) [hereinafter “FCPA”] This article is the culmination of a long-term research project exploring the impact of federal business law generally, and anti-bribery law specifically, on developing countries. Previous installments include Andrew Brady Spalding, Corruption, Corporations, and the New Human Right, 89 WASH. L. REV. (forthcoming Feb. 2014), available at http://papers.ssrn.com/sol3/papers.cfm?-abstract_id=2232670; Andrew Brady Spalding, The Irony of International Business Law, 59 UCLA L. REV. 354 (2011); Andrew Brady Spalding, Unwitting Sanctions: Understanding Anti-Bribery Legislation as Economic Sanctions against Emerging Markets, 62 FLA. L. REV. 351 (2010).

RESTORATIVE JUSTICE FOR MULTINATIONAL CORPORATIONS 5

for prospective offenders to efficiently reduce crime. This section shows how the theory has remained largely unscathed despite two lines of potential criticism. It then introduces anti-bribery law as a case study in extraterritorial white-collar deterrence that illustrates deterrence’s unintended and troubling consequences in foreign jurisdictions.

A. Law and Economics’ Rational Enforcement Authority

The watershed work on public law enforcement in the law and economics paradigm is Polinsky and Shavell’s The Economic Theory of the Public Enforcement of Law.13 They explain that to the law and economics way of thinking, social welfare generally is presumed to equal the sum of individuals’ expected utilities. An individual’s expected utility essentially depends on four variables: whether she commits a harmful act, on whether she is sanctioned (by fine, imprisonment, or both), whether she is a victim of someone else’s harmful act, and on her tax payment (which will reflect the costs of law enforcement, less any fine revenue collected).14 The individual thus wears two hats in the utility calculation: as potential wrongdoer, and as potential victim. The potential victim’s two variables – whether she is a victim, and the extent of her taxes – are of course closely interconnected. Recognizing her potential victimization, she pays taxes to prevent it. The purpose funding crime enforcement with her own taxes, then, is to prevent the disutility of victimization. The paradigm thus assumes that we pay taxes to increase our individual utility; were there no threat of victimization, the individual would have no reason to pay taxes. There’d be no utility in it; not faced with the threatened disutility of falling victim, her utility would not be maximized by paying taxes to finance public criminal law enforcement. The potential victims are taxpayers; the taxpayers are potential victims.

The “enforcement authority’s problem” then is to maximize social welfare by finding the most efficient combination of the four key enforcement variables mentioned above: enforcement expenditures, the level of the fine, the length of imprisonment, and the standard for imposing liability.15 The disutility of crime is weighed against the cost of prevention, and the aim is to reduce crime with maximal cost-efficiency. The enforcement authority should expend only so much on enforcement as is necessary to reduce the disutility for the taxpayer.

Following Beccaria’s admonition that it is “better to prevent crimes than to punish them,”16 law and economics seeks to deter crime by ensuring that the cost of punishment to a potential wrongdoer exceeds the rewards.17 The core assumption of deterrence is that potential wrongdoers will decide against the Polinsky & Shavell, supra note 4.

Id.

Id. at 48.

CESARE BECCARIA, ON CRIMES AND PUNISHMENTS (Henry Paolucci trans., Pearson Education 1963) (1764).

THOMAS J. BERNARD, JEFFREY B. SNIPES & GEORGE B. VOLD, THEORETICAL CRIMINOLOGY 196

(5th ed. 2002).

RESTORATIVE JUSTICE FOR MULTINATIONAL CORPORATIONS 6



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