INTRODUCTION
3.1 The objectives of punishment are traditionally stated as retribution, deterrence, rehabilitation and incapacitation. The Commission’s previous work dealing with the general principles of sentencing observed that this is not a comprehensive list. It does not for example take into account other purposes which the criminal law serves, such as, being a teacher of minimal standards of morality and behaviour; as well as an agency for the expression of public indignation and condemnation. We said that “denunciation” should be added to the list of the sentencing objectives, which were discussed in detail in Discussion Paper 33.1 It is unnecessary to repeat that discussion in this Report.
3.2 In Report 79, the Commission recommended that consolidated sentencing legislation should include an express statement of the purposes for which a court may impose a sentence.2 This recommendation was recently implemented with the addition of section 3A to the Crimes (Sentencing Procedure) Act 1999 (NSW).3 This section provides that the purposes for which a court may sentence an offender include:
(a) to ensure that the offender is adequately punished for the offence,
(b) to prevent the crime by deterring the offender and other persons from committing similar offences,
(c) to protect the community from the offender,
(d) to promote the rehabilitation of the offender,
(e) to make the offender accountable for his or her actions,
(f) to denounce the conduct of the offender,
(g) to recognise the harm done to the victim of the crime and the community.
3.3 In considering the objectives or purposes of sentencing in relation to corporations it must be borne in mind that a considerable amount of corporate offending takes place in a regulatory context. Ensuring future compliance will, therefore, usually be the overarching concern when sentencing corporate offenders. In this context particular emphasis will be given to the objectives of deterrence and rehabilitation.
3.4 In this Chapter, we conclude that deterrence, retribution, denunciation, rehabilitation, incapacitation and the recognition of harm to victims and the community – the sentencing objectives conventionally applied to individual offenders – are all relevant in sentencing corporate offenders.
DETERRENCE
3.5 There are two kinds of deterrence: specific deterrence, which aims to dissuade the offender from committing further crime; and general deterrence, which aims to dissuade others who have been made aware of the punishment inflicted upon the offender from committing crime.4 One of the main purposes of punishment is the protection of the community by making it clear to the offender and others that if they violate the law they will be appropriately punished.5
3.6 Courts have long recognised deterrence as one the main purposes of criminal punishment.6 Judges have said on a number of occasions that they view corporate crime very seriously and recognise deterrence as an important consideration in the sentencing process, given that corporate offences are notoriously difficult to detect and because some will inflict substantial financial loss and other harm on the public.7
3.7 For these reasons, the New South Wales courts have on occasions expressly referred to the deterrence principle in cases involving corporate offenders.8 For example, in a case involving breach of occupational health and safety legislation by a corporate employer, the Full Bench of the Industrial Relations Commission stated that both specific and general deterrence should be given weight of some substance in the sentencing process.9 In another case where the corporate offender employed a large number of vulnerable persons (that is, young people with little or no previous work experience) the IRC gave significant weight to deterrence and imposed a sentence that would attract the attention of others employing vulnerable persons.10
3.8 The deterrent effect of criminal penalties on corporate offenders finds some support in both theoretical and empirical crime literature.11 There are a number of reasons why the criminal law can deter corporate misconduct. First, the criminal law forces corporations to take steps to avert the risk of punishment when the financial benefits of averting the risk exceed the costs.12 Secondly, it establishes the ethical and acceptable boundaries of corporate conduct:
When criminal sanctions are brought against specific offenders, the punished will learn the boundaries of appropriate behaviour and adjust future actions accordingly. Further, unsanctioned firms, by observing the punishment of others, are sensitised to the existing boundaries.13
3.9 There have been a few relatively old empirical studies that test the deterrent effects of legal sanctions on corporate offenders. The results of these studies are equivocal, with some providing strong or moderate support for the effectiveness of the deterrence model,14 while others are less supportive of traditional deterrence arguments.15 For example, one US study into price-fixing in the bread industry found that baking firms were very sensitive to changes in both the certainty and severity of punishment. The study found that the deterrent effects of legal sanctions are both general and specific. General deterrence was evidenced by the fact that price mark ups in general decreased when prosecutions increased. Specific deterrence was shown when those found guilty of collusion reduced price mark ups in the year following their prosecution.16
3.10 Conversely however, a study of nursing homes in Australia tested the deterrent effects of criminal penalties on organisations (as opposed to individuals).17 The researchers sought to assess whether management perceptions of deterrence have any effect on organisational compliance, the theory being that compliance is a result of the perceived likelihood of detection and punishment and the perceived severity of available sanctions.18 The study found that sanction certainty and severity failed to produce significant deterrent effects in the corporate context.19
3.11 Written submissions universally identified deterrence as the main aim of sentencing corporate offenders.20 Deterrence also emerged in our consultation meetings as the most important consideration at sentencing for regulatory agencies. The New South Wales Department of Fair Trading stated that the purpose of prosecution is to secure future compliance with fair-trading legislation by offenders and other traders. If measures taken to achieve deterrence do not work in a particular case, incapacitation is considered a last resort.21 In another consultation meeting, the New South Wales Environment Protection Authority said that deterrence is more important than retribution when one is considering whether to prosecute, and in determining the penalty.22
3.12 The Commission affirms the view that deterrence is an essential aim of sentencing corporate offenders. The penalty to be imposed on a corporate offender and the procedures by which it is imposed should be aimed at dissuading the organisation from committing further crime, as well as ensuring that other corporations become aware of the punishment inflicted upon the offender.
RETRIBUTION AND DENUNCIATION
3.13 Retribution is the notion that the guilty ought to suffer the punishment that they deserve.23 Denunciation on the other hand, requires the imposition of a sentence that is so severe as to make a statement that the offence in question is not to be tolerated by society.24 It may be argued that denunciation is one aspect or version of retribution, sometimes referred to as “expressive”25 or “reprobative”26 retribution, which is the notion that punishment in proportion to deserts is a way of expressing the community’s degree of reprobation for the wrongdoing.
3.14 It has been argued that retribution and denunciation are not relevant when sentencing corporations because a corporation is an incorporeal entity that lacks the capacity to suffer moral condemnation.27 It is argued that corporate decisions and processes are simply the result of determinations by managers and agents within the corporation.28 That is, the corporation is nothing more than a collection of individuals and so it lacks a substantive independent identity.29 Consequently, the corporation is said to be immune from retributive concerns: “we can no more condemn the organization for a criminal act than we could the glass and steel office building its managers and agents occupy.”30
3.15 Most writers, however, prefer the view that retribution and denunciation are valid sentencing objectives for corporations because, although they are incorporeal entities, they are nevertheless blameworthy agents and the community perceives them as such.31 Some commentators argue that the modern corporation has an identifiable persona32 quite apart from that of its owners, managers and employees. The public perceives some corporations as “alive” and capable of acting through their agents. There is a perception that all corporations are not alike: each corporation has its own unique character – its own culture, method of training employees, and preferred practices. It can also be said that corporations, like individuals, can have a guilty mind. That is, they possess a certain kind of identity, namely their corporate policy, “which does not express merely the intentionality of a company’s directors, officers or employees, but projects the idea of a distinct corporate strategy”.33 Corporate policy determines the conduct and actions of the corporation: it is what encourages or allows the corporation to engage in criminal conduct through its officers and agents. The fact that corporations can change their policies and procedures further bolsters the argument in favour of holding them responsible for the outcomes of such policies and procedures.34
3.16 Hence people speak of corporations as “real” entities in ordinary language, and in moral discourse as being “good” or “bad”. Therefore it is argued that corporations can suffer moral condemnation for their wrongdoing through criminal conviction and punishment.35 Retribution can therefore be seen as a valid objective of corporate punishment. Several submissions identified retribution as an important aim of sentencing corporations.36
3.17 Some judges in Australia have also recognised the retributive and denunciatory functions of sentences for corporate offenders. While they emphasise that deterrence is the primary aim of laws that regulate corporate activity, they have also expressed the view that penalties for corporate offenders should be an expression of punishment37 and the amount of fine imposed should not suggest tolerance of violations of the law.38
REHABILITATION AND INCAPACITATION
3.18 Rehabilitation seeks to reform offenders by bringing about change in their future behaviour, both in the interests of society and of the offenders themselves.39 Incapacitation involves rendering an offender incapable of committing further offences40 in order to protect the community from offenders likely to re-engage in serious criminal conduct.41 Both objectives (arguably sub-goals of deterrence) have traditionally focused on natural persons and have played a limited role in the sentencing of corporate offenders.
3.19 One view is that the courts should not consider rehabilitation and incapacitation when sentencing corporate offenders.42 Rehabilitation assumes that criminal propensities can be cured through treatment, while incapacitation assumes that some personalities need to be restrained in order to prevent future crimes. It is suggested that neither purpose translates successfully in the context of corporations because these entities do not have a human personality, and because any interventions may be inefficient and destructive in the organisational setting.43
3.20 A majority view, supported as to rehabilitation in one submission,44 is that rehabilitation and incapacitation are useful to the sentencing of corporate entities.45 Rehabilitative approaches tend to assume that the factors leading to the commission of crime can be identified, and that treatment or assistance can be prescribed to remove the causes of the undesirable behaviour. In the organisational context, it is argued that such factors are readily identifiable. A corporation’s operating procedures, policies, rules, attitudes and course of conduct, sometimes collectively called the “corporate culture”, determines how the corporation conducts its business and may, in some instances, explain how and why the corporation committed the offence. The elements that constitute a corporation’s culture must be addressed in order to change the corporation’s propensity to offend in the future. The forms of rehabilitation that may “treat” the corporate culture include revision of company policy and procedures, and the adoption of better disciplinary and accountability mechanisms.
3.21 The view that rehabilitation is a legitimate objective with respect to organisational offenders is now reflected in federal law. The Trade Practices Act 1974 (Cth) has recently been amended to allow the court to order a person (including artificial persons such as corporations) to be subject to a probation order. A probation order is defined as “an order that is made by the court for the purpose of ensuring that the person does not engage in the contravening conduct, similar conduct or related conduct during the period of the order”.46 Among other things, a court can order an offender to establish a compliance program designed to ensure that its employees and other persons involved in the business are aware of the responsibilities and obligations in relation to the contravening conduct, similar or related conduct. A court can also direct an offender to revise the internal operations that led to the offender engaging in the contravening conduct.
3.22 Incapacitation may likewise be relevant to corporate offenders. This sentencing objective is closely associated with the notion of criminal propensity, that is, the likelihood of an offender committing further crime.47 Incapacitation may be relevant to corporations that have a poor record of compliance with the law, or more seriously, where the corporation operates primarily for a criminal purpose or by criminal means.48 The ways by which this objective may be achieved include preventing the company from engaging in its business by withdrawing its licence,49 disqualifying it from contracting with the government,50 or dissolving the corporation.
OTHER MATTERS
3.23 The Commission considers that sentencing objectives should generally allow for the recognition of harm to victims, and as an adjunct to the sentencing process, for reparation (including restitution and compensation).
Recognition of victims
3.24 In recent times the law has recognised that the harm caused by crime to victims and the community is an important consideration of the criminal justice system generally, and at sentencing in particular. In New South Wales, there are statutory provisions that recognise and promote the rights of victims of crime,51 and that provide compensation to victims of certain crimes.52 At sentencing, the law allows the courts to have regard to the impact of the crime on victims through the admission of victim impact statements.53 In cases where the harm that resulted from an offence affects the wider community rather than individual victims (for example, an environmental offence) some statutes authorise a sentencing court to order the offender to undertake projects that remedy the harm to the community.54
Reparation
3.25 A related but distinct matter is reparation and its role at sentencing. Reparation requires the offender to indemnify the victim for the injury caused as a result of the offender’s criminal conduct. In the United States, the law requires the court, “in determining the particular sentence to be imposed”, to consider “the need to provide restitution to any victims of the offense”.55 The US Federal Sentencing Guidelines for Organizations provide that remedying any harm caused by the offence, including the provision of compensation to victims, is a consideration when sentencing organisational offenders.56
3.26 Reparation as an objective of sentencing would link punishment to the victim’s need for restitution or compensation, rather than to the gravity of the offender’s conduct.57 This presents a philosophical challenge to the idea that punishment is imposed because the criminal law of the State has been broken. For this reason, reparation is most commonly regarded as an adjunct to the other options available when sentencing an offender.58 In our previous work dealing with the general principles of sentencing, we expressed the view that reparation is an ancillary measure or adjunct to the sentencing process.59
APPLYING SENTENCING OBJECTIVES TO CORPORATE OFFENDERS
3.27 Having identified the sentencing objectives that should apply to corporate offenders, the issue that arises is whether or not these should be stated in legislation.
3.28 It is not immediately clear that the sentencing objectives identified in section 3A of the Crimes (Sentencing Procedure) Act 1999 (NSW) apply to corporate offenders. The Act defines an “offender” as a person whom a court has found guilty of an offence.60 This term covers corporate offenders since the word “person” may generally be interpreted as including a corporation.61 On the other hand, the Act appears to be written with natural persons in mind. It deals mainly with imprisonment, as well as its alternatives, and consequently assumes for the most part that an offender is a natural person.62 The Commission is of the view that the legislation should expressly state that the objectives of sentencing set out in section 3A of the Crimes (Sentencing Procedure) Act 1999 (NSW) apply equally to cases involving corporate offenders.
RECOMMENDATION 2
The Crimes (Sentencing Procedure) Act 1999 (NSW) should expressly provide that the objectives of sentencing in section 3A apply to corporate offenders.
FOOTNOTES
1. NSW Law Reform Commission, Sentencing (Report 79, 1996) at para 14.10-14.13; (Discussion Paper 33, 1996) (“NSWLRC DP 33”) at 3.2-3.24. See also J M Barry, The courts and criminal punishment (1969) at 14-15.
2. NSWLRC Report 79, Recommendation 85.
3. This section, which became effective on 1 February 2003, was added by the Crimes (Sentencing Procedure) Amendment (Standard Minimum Sentencing) Act 2002 (NSW).
4. NSWLRC DP 33 at para 3.2.
5. NSWLRC DP 33 at para 3.6.
6. R v Corner (NSWCCA, No 602119/97, 19 December 1997, unreported) at 16. See also R v Radich [1954] NZLR 86 at 87; R v Rushby [1977] 1 NSWLR 594 at 597 (Street CJ); Director of Public Prosecutions (Cth) v El Karahni (1990) 21 NSWLR 310 at 377-378.
7. R v Corner (NSWCCA, No 602119/97, 19 December 1997, unreported); R v Mato [1999] NSWCCA 395; R v Szeto [1999] NSWCCA 296; R v Boskovitz [1999] NSWCCA 437; R v Pont (2000) 121 A Crim R 302; R v Hawker [2001] NSWCCA 148; R v Woodman [2002] NSWCCA 310; R v Finn [2002] NSWCCA 86; Capral Aluminium Ltd v WorkCover Authority of NSW (2000) 49 NSWLR 610; Fisher v Samaras Industries Pty Ltd (1996) 82 IR 384.
8. See WorkCover Authority of NSW (Inspector Stewart) v Siemans Dematic Pty Ltd (No 2) [2003] NSWIRComm 45 at para 48; Workcover Authority of NSW (Inspector Mansell) v Hayman Industries Pty Ltd [2003] NSWIRComm 154 at para 47; WorkCover Authority of NSW (Inspector Vierow) v J Gardner (NSW) Contractors Pty Ltd [2003] NSWIRComm 19 at para 15; WorkCover Authority of NSW (Inspector Suliman) v Favelle Favco Cranes Pty Ltd [2003] NSWIRComm 150 at para 52, 53; WorkCover Authority of NSW (Inspector Blume) v TMP Worldwide eResourcing [2003] NSWIRComm 37 at para 19; Patton v Fletcher Construction Australia Limited (No 2) [2003] NSWIRComm 94 at para 4; WorkCover Authority of NSW (Inspector Patton) v P & M Denton Building Constructions Pty Ltd [2003] NSWIRComm 17 at para 75; Capral Aluminium Ltd v WorkCover Authority of NSW (2000) 49 NSWLR 610; Fisher v Samaras Industries Pty Ltd (1996) 82 IR 384 at 388 (Hungerford J).
9. Capral Aluminium Ltd v WorkCover Authority of NSW (2000) 49 NSWLR 610 at 644. There are cases when specific deterrence need not be given much weight. For example, in WorkCover Authority of NSW (Inspector Gilbert) v Kayuu Pty Ltd [2000] NSWIRComm 3, the court acknowledged that where a liquidator is appointed or the defendant company has ceased trading, a penalty may not have its desired effect of specific deterrence.
10. WorkCover Authority of NSW (Inspector Ankucic) v McDonald’s Australia Ltd (2000) 95 IR 383.
11. See for example W J Chambliss, “Types of deviance and the effectiveness of legal sanctions” (1967) 25 Wisconsin Law Review 703.
12. S Simpson, Corporate crime, law, and social control (Cambridge University Press, New York, 2002) at 36, citing F Cullen, W J Maakstad and G Cavender, Corporate crime under attack: the Ford Pinto case and beyond (Anderson Publishing, Cincinnati, 1987).
13. S Simpson, Corporate crime, law, and social control (Cambridge University Press, New York, 2002) at 36 citing Corporate crime under attack: The Ford Pinto case and beyond (Anderson Publishing, Cincinnati, 1987).
14. K Block, F Nold and J Sidak, “The deterrent effect of antitrust enforcement” (1981) 89 Journal of Political Economy 429; S Simpson and C Koper “Deterring corporate crime” (1992) 30 Criminology 201; M Lewis-Beck and J Alford “Can government regulate safety?” (1980) 74 American Political Science Review 745.
15. P Jesilow, G Geis and M J O’Brien, “Experimental evidence that publicity has no effect in suppressing auto repair fraud” (1986) 70 Sociology and Social Research 222; P Jesilow, G Geis and M J O’Brien, “‘Is my battery any good?’ A field test of fraud in the auto repair business” (1985) 8 Crime and Justice 1; J Braithwaite and T Makkai, “Testing an expected utility model of corporate deterrence” (1991) 25 Law and Society Review 7; J Braithwaite and T Makkai, “The dialectics of corporate deterrence” (1994) 31 Journal of Research in Crime Delinquency 360.
16. K Block, F Nold and J Sidak, “The deterrent effect of antitrust enforcement” (1981) 89 Journal of Political Economy 429.
17. J Braithwaite and T Makkai, “Testing an expected utility model of corporate deterrence” (1991) 25 Law and Society Review 7.
18. This is based on the so-called perceptual deterrence model.
19. J Braithwaite and T Makkai, “Testing an expected utility model of corporate deterrence” (1991) 25 Law and Society Review 7 at 35.
20. Australian Stock Exchange, Submission at 2; NSW Department of Fair Trading, Submission at 2; NSW Land and Environment Court, Submission at 1.
21. Regulation and Prosecution Agencies, Consultation.
22. Ms Kerry Palmer, Principal Legal Officer (Legal Services Branch), NSW Environment Protection Authority, Consultation.
23. NSWLRC DP 33 at para 3.3. A Alschuler, “The changing purposes of criminal punishment: a retrospective on the past century and some thoughts about the next” (2003) 70 University of Chicago Law Review 1, argues that retribution, disparaged for much of the twentieth century, now merits recognition as the criminal law’s central objective.
24. NSWLRC DP 33 at para 3.9.
25. L Friedman, “In defense of corporate criminal liability” (2000) 23 Harvard Journal of Law and Public Policy 833 at 844-845. Friedman did not agree with this view.
26. B Fisse and J Braithwaite, Corporations, crime and accountability (Cambridge University Press, 1993) at 44-50.
27. See A W Alschuler, “Introduction comment, ancient law and the punishment of corporations: of Frankpledge and Deodand” (1991) 71 Boston University Law Review 307 at 311-12.
28. V Khanna, “Corporate criminal liability: what purpose does it serve?” (1996) 109 Harvard Law Review 1477.
29. D Fischel and A Sykes, “Corporate crime” (1996) 25 Journal of Legal Studies. 319.
30. L Friedman, “In defense of corporate criminal liability” (2000) 23 Harvard Journal of Law and Public Policy 833 at 844.
31. B Fisse and J Braithwaite, Corporations, crime and accountability (Cambridge University Press, 1993) at 44-50; L Friedman, “In defense of corporate criminal liability” (2000) 23 Harvard Journal of Law and Public Policy 833.
32. See Friedman at 847.
33. Fisse and Braithwaite at 26.
34. Fisse and Braithwaite at 29.
35. Friedman at 847, 852.
36. Australian Stock Exchange, Submission at 2; NSW Department of Fair Trading, Submission at 2.
37. ACCC v Australian Safeway Stores Pty Ltd (1997) ATPR ¶41-562 at 43,811 (1997) 145 ALR 36. See also ACCC v J McPhee & Son (Australia) Pty Ltd (1998) ATPR ¶41-628.
38. Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR ¶41-375.
39. NSWLRC DP 33 at para 3.14.
40. NSWLRC DP 33 at para 3.18.
41. NSWLRC DP 33 at para 3.18 citing J Floud and W Young, Dangerousness and criminal justice (Heinemann, London, 1981) at xvii, 60; N Morris, “On ‘dangerousness’ in the judicial process” (1982) 39 Record of the Association of the Bar of the City of New York 102; J Q Wilson, “Dealing with the high-rate offender” (1983) 72 The Public Interest 52; N Walker, Sentencing: theory, law and practice (Butterworths, London, 1985); N Walker, “Ethical aspects of detaining dangerous people” in Hamilton and Freeman (ed), Dangerousness: psychiatric assessment and management (Gaskill, London, 1982) at 24.
42. B Fisse and J Braithwaite, Corporations, crime and accountability (Cambridge University Press, 1993) at 44-50.
43. J Parker, “Criminal sentencing policy for organizations: the unifying approach of optimal penalties” (1989) 26 American Criminal Law Review 513 at 567.
44. NSW Department of Fair Trading, Submission at 2.
45. B Fisse, “Reconstructing corporate criminal law: deterrence, retribution, fault, and sanctions” (1983) 56 Southern California Law Review 1141 at 1159-1160.
46. Trade Practices Act 1974 (Cth) s 86C(2)(b).
47. NSWLRC DP 33 at para 3.19.
48. See United States Sentencing Commission, Guidelines manual (2002) §8C1.1.
49. For example, the Director General may suspend licences under the Fair Trading Act 1987 (NSW) s 64A.
50. In the United States, a corporation can be disqualified from contracting with the United States Government as a result of indictment or conviction and health care providers may be excluded from participation in the Medicare and Medicaid programs: Medicare and Medicaid Patients and Program Protection Act, 42 USC §1320a-7 (1994).
51. Victims Rights Act 1996 (NSW).
52. Victims Support and Rehabilitation Act 1996 (NSW) Pt 4.
53. Crimes (Sentencing Procedure) Act 1999 (NSW) s 26-30.
54. Protection of the Environment Operations Act 1997 (NSW) s 250(c); Environment Protection Act 1979 (Vic) s 67AC(2)(c); Environment Protection Act 1993 (SA) s 133(b).
55. 18 USC §3553(a)(7).
56. United States Sentencing Commission, Guidelines manual (2002) at 423.
57. See generally Chapter 12.
58. See Criminal Procedure Act 1986 (NSW) s 126; Crimes Act 1914 (Cth) s 21B; Penalties and Sentences Act 1992 (Qld) s 35(2); Sentencing Act 1995 (WA) s 110(1).
59. NSWLRC DP 33 at para 3.21.
60. See Crimes (Sentencing Procedure) Act 1999 (NSW) s 3(1).
61. See Interpretation Act 1987 (NSW) s 21.
62. The fine provisions of the Act refer to bodies corporate: Crimes (Sentencing Procedure) Act 1999 (NSW) s 16.
