When it comes to corporate misbehavior, singling out who is accountable is always a legal conundrum, says a story in the New York Times. Citigroup’s $7 billion settlement with the Justice Department is a prime example. Although Attorney General Eric Holder was quick to characterize the banking giant’s behavior as “egregious” following his probe of Citgroup’s suspected mortgage misdeeds, it was notable that no specific charges were filed against any Citigroup executives for the violations.

Sen. Richard Blumenthal

Sen. Richard Blumenthal

General Motors is another company that has “elevated the inability to hold senior officials accountable for corporate misdeeds to an art form,” writes the Times. That fact was clearly demonstrated after the auto maker pointed the finger at several “lower-level employees” (instead of senior managers) for an ignition switch defect that allegedly resulted in at least 13 deaths and numerous injuries.

The issue here, according to the Times, is that current criminal law mandates that the person being charged with an offense has to have played a proactive role in the crime as opposed to just allowing it to happen under his or her watch.

To help remedy this problem of accountability , Senator Richard Blumenthal, Democrat from Connecticut, has introduced a bill that would, if passed, hold individuals at a company responsible for “failing to report promptly to the federal government that a defect in a product it makes or sells poses a risk of serious injury or death.”

The bill, which Senator Blumenthal calls the Hide No Harm Act, could authorize a penalty of up to five years in prison for individuals convicted under it.

Unfortunately, in its quest to be pre-emptive, the bill offers loopholes for senior managers to avoid liability. For instance, the bill requires that there be “actual knowledge” of an offense. And, as noted by the Times, when a law requires this, very often a defendant will employ the “ostrich instruction,” meaning he or she “ignored warning signs by figuratively putting his [or her] head in the sand.”

Another problem with this bill, says the Times, is that the government carries a burden to prove that a defendant was aware that a violation was being committed and not just that he or she “turned a blind eye” to the ominous signs. In the legal context, “ignorance can negate a charge,” even if the individual clearly was negligent when it came to investigating problems and discovering the extent of a defect.

Photo: United States Senate

Source: The Difficulty in Holding Executives Accountable

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