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Subjecting the corporation to criminal sanctions : a review of the issues Brockman, Joan 1982

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SUBJECTING THE CORPORATION TO CRIMINAL SANCTIONS A REVIEW OF THE ISSUES by JOAN BROCKMAN LL.M., The U n i v e r s i t y of B r i t i s h Columbia, 1982 Faculty of Law A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE MASTER OF LAWS in THE FACULTY OF GRADUATE STUDIES We accept t h i s t h e s i s as conforming to the required standard Dr. John Hogarth Dr. W.T. Stanbury THE UNIVERSITY OF BRITISH COLUMBIA October, 1982 (£) Joan Brockman, 1982 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree a t the U n i v e r s i t y of B r i t i s h Columbia, I agree t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and study. I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the head o f my department or by h i s or her r e p r e s e n t a t i v e s . I t i s understood t h a t c o p y i n g or p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n ot be allowed without my w r i t t e n p e r m i s s i o n . Department of The U n i v e r s i t y of B r i t i s h Columbia 2075 Wesbrook P l a c e Vancouver, Canada V6T 1W5 AUTHORIZATION In presenting t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I f u r t h e r agree that permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my department or by h i s or her r e p r e s e n t a t i v e s . It i s understood that copying or p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l gain s h a l l not be allowed without my w r i t t e n permission. Joan Brockman ABSTRACT This t h e s i s reviews some of the issues concerning the cr i m i n a l l i a b i l i t y and s a n c t i o n i n g of corporations and i n d i v i d u a l s involved i n corporate crime. P r o h i b i t i o n s against c o n s p i r a c i e s to lessen competition and i l l e g a l mergers under the Combines I n v e s t i g a t i o n Act are used f o r i l l u s t r a t i v e purposes. The nature of these offences and the goals which they are designed t o achieve, from an economic and p o l i t i c a l point of view, are d i s c u s s e d . The l i m i t a t i o n s of the cr i m i n a l law and the cr i m i n a l j u s t i c e system, as presented by the Law Reform Commission of Canada and Prof e s s o r Packer, are used t o evaluate the appropriateness of the c r i m i n a l law and the cr i m i n a l j u s t i c e system f o r en f o r c i n g p r o h i b i t i o n s against c o n s p i r a c i e s to lessen competition and i l l e g a l mergers. It i s concluded that the system i s appropriate f o r enforcing the laws against c o n s p i r a c i e s to lessen competition and inap p r o p r i a t e f o r r e g u l a t i n g mergers. The corporate e n t i t y i s the most common v e h i c l e through which c o n s p i r a c i e s to lessen competition takes p l a c e . The nature of the c o r p o r a t i o n , how i t makes and implements d e c i s i o n s , and i t s r e l a t i o n s h i p t o i n d i v i d u a l s w i t h i n the corporate s t r u c t u r e are examined i n order to shed some l i g h t on how corporate behavior can be c o n t r o l l e d . -i i i -The present methods used to attach c r i m i n a l l i a b i l i t y to corporations and an a l t e r n a t i v e method, s t r u c t u r a l l i a b i l i t y , are discussed. The l i a b i l i t y of i n d i v i d u a l s involved in corporate crime through a i d i n g or a c q u i e s c i n g , i s a l s o considered. There i s a d i s c u s s i o n of some of the rules p e c u l i a r to c o r p o r a t i o n s . The goals which judges hope to achieve i n sentencing corporations f o r i l l e g a l c o n s p i r a c i e s and the appropriate c r i m i n a l sanctions to be used to achieve compliance from corporations and i n d i v i d u a l s i n v o l v e d in corporate crime are considered. A number of recommendations are made with regard to improving the control of coporate behavior through the crminal j u s t i c e system. Dr. John Hogarth The s i s Supervisor TABLE OF CONTENTS CHAPTER 1 INTRODUCTION I. The Exposure of Corporate Crime I I . The Range of Corporate Crime I I I . The Prevalence of Corporate Crime IV. The Problem of C o n t r o l l i n g Corporations V. The Plan of the Thesis Footnotes CHAPTER 2 GOVERNMENT INTERVENTION IN THE MARKETPLACE I. Competition and Economic E f f i c i e n c y A. A l l o c a t i v e E f f i c i e n c y B. Technical E f f i c i e n c y C. Dynamic E f f i c i e n c y I I . S o c i a l and P o l i t i c a l Reasons For Competitive Markets A. The Major Objectives i ) The maintenance of f r e e competition i i ) The prevention of economic abuse i i i ) Achieving economic e f f i c i e n c y B. The Minor Objectives i ) F i g h t i n g i n f l a t i o n i i ) Preserving the f r e e e n t e r p r i s e system i i i ) A p o l i t i c a l compromise I I I . A Model of I n d u s t r i a l Organization A. Market St r u c t u r e i ) Economies of s c a l e i i ) Other b a r r i e r s to entry B. Market Behavior i ) Conspiracies to lessen competition unduly i i ) O l i g o p o l i s t i c c o o r d i n a t i o n i i i ) Mergers IV. Government Intervention V. Conclusion Footnotes 3 LIMITING THE APPLICATION OF THE CRIMINAL LAW The Rationale f o r the Use of the Criminal Law A. A D e f i n i t i o n of Punishment B. The Purpose of Punishment C. The Requirement of G u i l t I I . The Criminal J u s t i c e Process A. The Crime Control Model B. The Due Process Model I I I . Applying Limits to the Criminal Law A. The Concept of Moral N e u t r a l i t y IV. The Use of the Criminal Law Against R e s t r i c t i v e Trade P r a c t i c e s A. Conspiracies t o Lessen Competition Unduly - v i -B. I l l e g a l Mergers V. Moral N e u t r a l i t y and the Rationale of the Criminal Law A. Conspiracies t o Lessen Competition B. I l l e g a l Mergers VI. Issues Concerning The Criminal J u s t i c e Process A. S e l f - i n c r i m i n a t i o n P r i o r t o Criminal Proceedings i ) The i n q u i s i t o r i a l powers i i ) I n q u i r i e s i i i ) A d m i s s i b i l i t y of statements at t r i a l i v ) P o l i c y c o n s i d e r a t i o n s on p r e - t r i a l d i s c l o s u r e B. S e l f - i n c r i m i n a t i o n Before the Court C . The Enforcement Record VI. Conclusion Footnotes CHAPTER 4 THE NATURE OF CORPORATIONS I. The Corporation: Real or Legal F i c t i o n ? I I . The Reasons f o r Incorporation I I I . Other Consequences of Incorporation A. The d i v i s i o n of Function and I n t e r e s t s IV. Corporate Decisions A. D e c i s i o n Making B. Transmitting Decisions C. Improvising and Implementing D e c i s i o n s - v i i -D. Corporate Norms and R a t i o n a l i z a t i o n E. The Bu f f e r From External A u t h o r i t y V. Conclusion 114 Footnotes 116 CHAPTER .5 CORPORATE CRIMINAL LIABILITY 121 I. Approaches t o Corporate Criminal L i a b i l i t y 121 A. V i c a r i o u s l i a b i l i t y B. Personal corporate l i a b i l i t y i ) Actors who bind the c o r p o r a t i o n i i ) R e s t r i c t i o n s on acts a t t r i b u t a b l e to a corporation i i i ) C o l l e c t i v e i n t e n t C. S t r u c t u r a l L i a b i l i t y I I . The R e l a t i o n s h i p Between The Corporation and The Individual 135 A. Corporations and I n d i v i d u a l s as P a r t i e s B. Admissions by I n d i v i d u a l s Which Bind the Corporation C. C o n f l i c t s of In t e r e s t Between Corporations and I n d i v i d u a l s I I I . The L i a b i l i t y of I n d i v i d u a l s Involved i n Corporate Crime 144 A. Di r e c t Actors B. Indi r e c t Actors i ) A i ding or ab e t t i n g and acqu i e s c i n g C. Extending L i a b i l i t y of I n d i r e c t Actors i ) The issue of mens rea i i ) The use of the word " g u i l t y " i i i ) Other problems 152 IV. Rules P e c u l i a r t o Corporations A. S e l f - i n c r i m i n a t i o n at T r i a l - v i i i -B. Crimes Between Corporate E n t i t i e s V. Conclusion 154 Footnotes 156 CHAPTER 6 CRIMINAL SANCTIONS 161 I. Can a Corporation Be Punished? 162 I I . A v a i l a b l e Sanctions Under the CIA 163 I I I . Sentences Imposed f o r Conspiracies t o Lessen Competition 168 IV. Sentences Imposed f o r I l l e g a l Mergers 169 V. The Primary Goals of Punishment 170 A. R e t r i b u t i o n i ) The r o l e of r e t r i b u t i o n i n sentencing corporations B. Symbolism C. Deterrence i ) The r o l e of deterrence i n sentencing corporations VI. Secondary Goals of Punishment 180 A. The Role of Secondary Goals i n Sentencing Corporations VII. The Appropriate Criminal Sanction For Corporations A. The Case For Fines B. The Problems With Fines C. Modifying F i n a n c i a l P e n a l t i e s Against Corporations D. Economic Leverage by Government E. I n c a p a c i t a t i o n and Corporate Quarantine F. P u b l i c i t y 185 G. Corporate R e h a b i l i t a t i o n and Probation H. Community Ser v i c e Orders I. Enforced S e l f - R e g u l a t i o n V I I I . S u b j e c t i n g I n d i v i d u a l s t o Criminal Sanctions A. The Case f o r Fines Against I n d i v i d u a l s B. Problems with Imposing Fines on I n d i v i d u a l s C. "Why Not Hang A P r i c e F i x e r Now and Then"? D. Other Sanctions D i r e c t e d at I n d i v i d u a l s IX. The Role of J u d i c i a l A t t i t u d e s i n Sentencing X. Conclusion Footnotes CHAPTER 7 PUTTING THE PANTS ON THE CORPORATIONS Footnotes Table I Figure 1 Figure 2 LIST OF TABLES The Number of Cases, The Number of In d i v i d u a l s and Companies Convicted, Number of P r o h i b i t i o n Orders Granted Addition to Fines, and the Largest S i n g l e Fines i n CIA C o n v i c t i o n s , 1900 1981 - x i -LIST OF FIGURES Figure 1 The P r i c e Paid by Consumers and the Quantity Produced Per Period Under a Competitive and Mo n o p o l i s t i c Industry When P r o f i t Maximization i s a Goal Figure 2 The P r i c e Paid by Consumers and the Quantity Produced per Period Under a Mono p o l i s t i c Industry When P r o f i t Maximization i s Not a Goal -xi i -ACKNOWLEDGEMENT I would l i k e to thank my committee, Dr. John Hogarth and Dr. W.T. Stanbury f o r t h e i r guidance and a s s i s t a n c e . I am e s p e c i a l l y g r a t e f u l to Dr. Stanbury f o r allowing me access to his personal l i b r a r y which included many relevant books, cases, a r t i c l e s and newspaper c l i p p i n g s . His f o r c e f u l d i r e c t i o n and unlimit e d a v a i l a b i l i t y are g r a t e f u l l y acknowledged. I am a l s o g r a t e f u l t o Michael J . Hardin, S o l i c i t o r with Cominco Ltd., f o r h i s substantive and e d i t o r i a l comments, and, f o r reminding me that the purpose of one's t h e s i s i s sometimes more c l e a r l y viewed from the top of a mountai n. CHAPTER 1 INTRODUCTION The corporation i s a l e g a l f i c t i o n with no pants t o kick or soul to damn but by God i t ought to have both. 1 I. THE EXPOSURE OF CORPORATE CRIME Following the "muckraker" e r a , i t was not u n t i l the e a r l y 1970s that the conduct of p u b l i c c o r p o r a t i o n s ^ i n North America were subjected t o widespread s c r u t i n y . ^ News media coverage was usually the r e s u l t of a l i m i t e d number of companies being prosecuted f o r various criminal o f f e n c e s . But the court process was time consuming and'the evidence was l i m i t e d t o what prosecutors could unearth. When c o n v i c t i o n s occurred, the p e n a l t i e s were generally small. The exposure of corporate crime received more p u b l i c i t y i n the United States than in Canada. In 1973, the Watergate Special Prosecutor announced a voluntary d i s c l o s u r e program of i l l e g a l domestic p o l i t i c a l c o n t r i b u t i o n s by c o r p o r a t i o n s . Hundreds of companies confessed.^ U n i n t e n t i o n a l l y , the "Bananagate" scandal was exposed. That i s , corporations a l s o confessed to making payoffs to f o r e i g n governments and businesses.^ The United States S e c u r i t i e s and Exchange Commission became i n t e r e s t e d and announced i t s own voluntary d i s c l o s u r e program.^ It discovered that corporate finance records were f a l s i f i e d so that many of the payments and the - 2 -existence of "slush" funds were l e f t u n disclosed.' In a d d i t i o n , the work of Ralph Nader and the r i s e of the consumer movement and environmental groups con t r i b u t e d t o the exposure of corporate abuses.** Given the s i m i l a r i t y i n the s t r u c t u r e of the American and Canadian economies and the extent of the American presence i n Canada's economy, i t i s not s u r p r i s i n g that corporate crime a l s o a t t r a c t e d increased p u b l i c a t t e n t i o n in Canada in recent y e a r s . While Canada did not have any voluntary d i s c l o s u r e programs and p o l i t i c a l c o n t r i b u t i o n s are a l e g i t i m a t e tax deduction in Canada, i t d i d have i t s own media coverage of p r i c e f i x i n g , p o l l u t i o n and fraud cases which drew p u b l i c a t t e n t i o n to corporate crime. Some of the major cases and news coverage exposed a number of problems inherent i n e n f o r c i n g laws against corporations and businessmen. For example, i n January, 1976, Mr. Andre O u e l l e t , the then f e d e r a l m i n i s t e r of consumer and corporate a f f a i r s , was convicted of contempt of court f o r his comments regarding Mr. J u s t i c e Mackay's v e r d i c t of a c q u i t t a l q i n a case i n v o l v i n g t h r e e sugar companies accused of p r i c e f i x i n g . Mr. O u e l l e t , i n an interview with the Canadian Broadcasting Corporation s t a t e d he was launching an appeal of the d e c i s i o n . He added, 1 0 I think i t is a s i l l y d e c i s i o n . I j u s t cannot understand how a judge who i s sane could give such a v e r d i c t . It i s a complete shock and I f i n d i t a complete disg r a c e . - 3 -When the Supreme Court of Canada upheld the d e c i s i o n , the judgment was als o c r i t i c i z e d by commentators as rendering the conspiracy section of the Combines In v e s t i g a t i o n A c t 1 1 (the "CIA") p o w e r l e s s . 1 2 In 1979, a f t e r a t r i a l which l a s t e d 15 month's and involved 197 court days and an eleven day charge to the j u r y , f i v e companies and eigh t i n d i v i d u a l s were convicted of defrauding the p u b l i c of over $4 m i l l i o n as a r e s u l t of r i g g i n g bids on government dredging c o n t r a c t s . 1 3 An unusual aspect of the case involved the sentencing of one of the accused, Harold McNamara, t o a f i v e y e a r p r i s o n term. An e d i t o r i a l i n the Montreal Gazette read as f o l l o w s : 1 4 Mr. J u s t i c e W i l l i a m Parker has gone a long way toward the r e s t o r i n g of the ordinary c i t i z e n ' s f a i t h in our system of j u s t i c e . . . he has d r a m a t i c a l l y undercut the c y n i c a l view that the system has i n f a c t one law f o r the r i c h and another, harsher law f o r the poor. However, such an impact was g r e a t l y d i l u t e d by the f o l l o w i n g f a c t s : 1. McNamara served h i s time i n Beaver Creek C o r r e c t i o n a l Camp, sometimes r e f e r r e d t o as the "Muskoka H i l t o n " ; 1 ^ and 2. he was released on parole a f t e r s e r v i n g ten months of hi s f i v e year term. The case received c r i t i c i s m from the press. For example, Mr. Les Bewley, 1^ a former B r i t i s h Columbia P r o v i n c i a l Court Judge, described the a c t i v i t i e s as f o l l o w s : - 4 -They d i v v i e d up the loot and f l e e c e d the p u b l i c t r e a s u r i e s of m i l l i o n s by the simple i l l e g a l t a c t i c of agreeing t h a t one of them would put in a j u i c y , expensive b i d , while a l l the others submitted much higher ones. That assured the low bidder of the job, but there was enough f a t in i t to provide secret kickbacks to the l o s e r s . The lo s e r s were compensated by l u c r a t i v e subcontracts, payments f o r non-existent equipment r e n t a l , or actual cash. Then they played musical c h a i r s on the next job. . . . The companies were f i n e d $6.65 m i l l i o n . . . . The d i r e c t cost to the p u b l i c was at l e a s t $11.5 m i l l i o n ($7 m i l l i o n f o r the t r i a l and $4.5 m i l l i o n the dredging companies i l l e g a l l y sucked from the t r e a s u r y ) . The f i n e s l e v i e d s t i l l l e f t the taxpayers $5 m i l l i o n out of pocket. He "also c r i t i c i z e d the Parole Board's d e c i s i o n to release' McNamara a f t e r s e r v i n g one s i x t h of his sentence. In May, 1981, the news media focused on the re s i g n a t i o n of Mr. Robert J . Bertrand, D i r e c t o r of I n v e s t i g a t i o n and Research under the CIA since 1974. Some commentators suggested t h a t Bertrand was forc e d to resign because he was too zealous and t h a t he was becoming a p o l i t i c a l l i a b i l i t y . 1 7 Other commentators mistakenly l i n k e d his re s i g n a t i o n to his i n v e s t i g a t i o n of the uranium c a r t e l . Bertrand was described as "an unguided mi s s l e , that threatened t o come down on top of the very government ' 1 ft t h a t o r i g i n a l l y launched i t " . The uranium c a r t e l i n v e s t i g a t i o n was i n s t i g a t e d by the M i n i s t e r of Consumer and Corporate A f f a i r s who, pursuant to paragraph 8(c) of the CIA, d i r e c t e d Mr. Bertrand to i n v e s t i g a t e the c a r t e l . This method of i n v e s t i g a t i o n has r a r e l y been used s i n c e i t was introduced i n t o the CIA in 1923. 1 9 - 5 -The c a r t e l was formed by the government and mining companies of Canada, A u s t r a l i a , France and South A f r i c a and an i n t e r n a t i o n a l company l o c a t e d i n England. Between 1972 and 1976 the world p r i c e of uranium inc r e a s e d more than 700%. 2 0 Not a l l of t h i s increase was a t t r i b u t e d 21 to the c a r t e l . 1 In Canada, two Crown corporations and a number of \ government o f f i c i a l s were i n v o l v e d . Newspaper reports of the hearings i n the United States suggested t h a t o f f i c i a l s in Ottawa were aware that t h e i r p r i c e s e t t i n g a c t i v i t i e s were probably in v i o l a t i o n of the C I A . 2 2 Despite Ottawa's apparent involvement i n i n s t i g a t i n g and e n f o r c i n g the c a r t e l , s i x Canadian uranium producers were c h a r g e d . 2 3 In A p r i l of 1982, the Supreme Court of Ontario ruled that the two Crown corporations could not be prosecuted because of the d o c t r i n e of Crown immunity. That i s , the Crown i s immune from l e g i s l a t i o n unless the l e g i s l a t i o n s p e c i f i c a l l y s t a t e s that the Crown i s bound by i t . This d e c i s i o n was upheld by the Ontario Court of A p p e a l . 2 5 In 1981, a 7 volume, 1700 page report released by the federal government suggested t h a t four major o i l companies had "ripped o f f " Canadian consumers to the tune of $12.1 b i l l i o n between 1958 and 1973 by f i x i n g p r i c e s and i n t e r f e r i n g with competitive companies. Ottawa's c r e a t i o n of a Crown c o r p o r a t i o n , Petro-Canada, i n 1975 was not viewed by 27 a l l as a s o l u t i o n to the o i l c r i s i s . Members of the opposition p r e d i c t e d that i t would operate l i k e the Crown corporation Atomic Energy of Canada Limited ("AECL"). 2 8 On A p r i l 23, 1974 AECL deposited $2.5 m i l l i o n U.S. in a bank i n Switzerland in connection with a sale of Candu - 6 -reac t o r s to Argentina. The kickback fees were i n v e s t i g a t e d by both the P u b l i c Accounts Committee and the Royal Canadian Mounted P o l i c e . 3 0 Some of the above cases i l l u s t r a t e the greater involvement of the Canadian government than the American counterpart in the economy as both r e g u l a t o r and p a r t i c i p a n t . 3 1 U n t i l r e c e n t l y , academics have devoted very l i t t l e e f f o r t towards the study of corporate crime. P r i o r to the l a t e 1970's, Sutherland's White  C o l l a r Crime (1949) was the most widely c i t e d work on corporate crime. The dearth of research on corporate crime was p a r t i a l l y a l l e v i a t e d i n 1979 when •30 C l i n a r d and Yeager published t h e i r comprehensive study of corporate crime i n the United S t a t e s . However, the study has been c r i t i c i z e d as an 33 "exercise in misconceived empiricism". Studies in Canada focused on v i o l a t i o n s of s p e c i f i c l e g i s l a t i o n , the most common being the CIA. Stanbury and Gorecki have focused on the adm i n i s t r a t i o n and enforcement of the C I A . 3 4 In a d d i t i o n , c o n f l i c t t h e o r i s t s studying white c o l l a r crime exposed the c l a s s bias of crime d e f i n i t i o n , enforcement and punishment. The examination of corporate crime was a l o g i c a l s tep. In Canada, the study of " s u i t e crime" by Goff and Reasons 3^ examined the CIA i n l i g h t of c o n f l i c t theory. Rosenbluth and Thorburn 3^ studied the admin i s t r a t i o n and enforcement of the CIA between 1952 and 1960 and concluded that competition p o l i c y was a product of p o l i t i c a l compromise. - 7 -At a time when the American and Canadian governments are b a i l i n g out large corporations in order to prevent f i n a n c i a l d i s a s t e r s , i t may appear out of step to be concerned with corporate crime. However, corporations have permeated our s o c i e t y , both l e g a l l y and i l l e g a l l y , and the wisdom of present government p o l i c i e s w i l l probably be t e s t e d only by h i s t o r y . S o c i a l a s s i s t a n c e to corporations might only augment the problem of corporate crime. I I . THE RANGE OF CORPORATE CRIME Under our present system, there are very few crimes of which a corp o r a t i o n cannot be convicted. Under s e c t i o n 2 of the Criminal  Code J / (the "Code") "'everyone', 'person', 'owner', and s i m i l a r expressions i n c l u d e Her Majesty and p u b l i c bodies, bodies corporate, s o c i e t i e s , p a r i s h e s , m u n i c i p a l i t i e s or other d i s t r i c t s in r e l a t i o n to the acts and things that they are capable of doing and owning r e s p e c t i v e l y " . By way of i l l u s t r a t i o n , corporations cannot commit the crime of bigamy; however there i s l i t t l e reason why they cannot be convicted of an offence such as manslaughter. On the other hand, there do not appear to be many offences which are e x c l u s i v e l y corporate, t h a t i s , offences f o r which i n d i v i d u a l s are not l i a b l e . For example, s e c t i o n 32.1 of the CIA, which deals with d i r e c t i v e s by f o r e i g n companies to companies in Canada, i s r e s t r i c t e d t o companies. - 8 -Corporate crime can be d i v i d e d i n t o two broad c a t e g o r i e s : (a) crimes which a f f e c t people p h y s i c a l l y and t h e i r p h y s i c a l environment; and (b) economic crimes. The f i r s t category, "personal crimes", includes p o l l u t i o n , the d i s t r i b u t i o n of unsafe food and drugs, manufacturing defects in products, and occupational and i n d u s t r i a l h a z a r d s . 3 9 The r e s u l t s of such crime, which can a f f e c t m i l l i o n s , include cancer, b i r t h d e f e c t s , i n j u r i e s , s i c k n e s s , disease, and d e a t h . 4 0 Economic crimes include p r i c e f i x i n g , b i d - r i g g i n g , misleading a d v e r t i s i n g , tax evasion, fraud, commercial kickbacks, b r i b e r y , crimes r e l a t e d t o s e c u r i t i e s , deceptive f i n a n c i a l r e p o r t i n g , f a l s i f i c a t i o n of records and other s i m i l a r o f fences. Economic offences which a f f e c t the marketplace can be divided i n t o those which d i r e c t l y manipulate the marketplace, f o r example, price f i x i n g and misleading a d v e r t i s i n g , and those which seek to manipulate government i n t e r v e n t i o n in the marketplace through p o l i t i c a l c o n t r i b u t i o n s and b r i b e r y . The economic payoff of the l a t t e r can be immense. Government r e g u l a t i o n of r e s t r i c t i v e trade p r a c t i c e s , t a r i f f s , patents, guaranteed loans, tax expenditures, l i c e n c e s , reduction in safety or p o l l u t i o n standards and government contracts can a l l a f f e c t s u b s t a n t i a l l y the p r o f i t s 47 41 of a company. 1 There are few aspects of l i f e which corporate crime, in theory at v l e a s t , cannot penetrate. The cost to s o c i e t y in terms of l i v e s and s a f e t y and property damage can be immense. Economic crimes can lead to a - 9 -r e d i s t r i b u t i o n of income and a waste of real resources. However, l i t t l e i s known about the actual prevalence of corporate crime. I I I . THE PREVALENCE OF CORPORATE" CR IMF. If crime i s defined as behavior which could lead to d e t e c t i o n , c o n v i c t i o n and a penalty, i t i s common knowledge that o f f i c i a l s t a t i s t i c s do not measure the amount of actual c r i m e . 4 2 C r i m i n o l o g i s t s have examined f a c t o r s which cause the amount of crime to decrease as one moves from a c t u a l crime committed t o crime which i s detected, reported and recorded by the p o l i c e . 4 3 The most popular measure of the amount of crime used by c r i m i n o l o g i s t s i s "crimes known to the p o l i c e " . 4 4 However, t h i s measure poses problems i n that not a l l crime i s reported to the p o l i c e and the p o l i c e e x e r c i s e d i s c r e t i o n in recording c r i m e . 4 5 Once the p o l i c e record the crime another set of f a c t o r s w i l l determine whether or not a suspect i s a r r e s t e d , whether a c o n v i c t i o n i s recorded and the nature of the offence f o r which a c o n v i c t i o n i s recorded as d i s t i n g u i s h e d from the nature of the crime recorded by the p o l i c e . 4 * * However the number of c o n v i c t i o n s r e f l e c t s only a small part of actual crime. It has been pointed out by Radzinowicz that "the crimes a c t u a l l y committed and the crimes l e g a l l y recorded are two fundamentally d i f f e r e n t phenomena". 4^ In order to assess the amount of actual crime, some - 10 -researchers have questioned v i c t i m s ^ 0 while others have questioned and observed o f f e n d e r s . 4 9 The problems of counting crime are compounded when corporations are i n v o l v e d . A v i c t i m of crime i s more l i k e l y to know that his wallet was s t o l e n than that h i s w a l l e t was depleted by p r i c e f i x i n g . The amount of crime reported t o the p o l i c e i s low when the p u b l i c or the government i s the v i c t i m and i n d i v i d u a l s do not s u f f e r an immediate or d i r e c t • • 50 i n j u r y . J U Corporate o f f i c i a l s are l e s s l i k e l y than j u v e n i l e delinquents to confess t h e i r crimes to i n t e r v i e w e r s . And, o f f i c i a l s t a t i s t i c s hide the incidence of corporate crime. S t a t i s t i c s Canada does not record the c o n v i c t i o n of a c o r p o r a t i o n as such but rather records i t under the category "male". 5 1 An e f f o r t was made by R o s s , 5 2 f o r Fortune magazine, to determine the amount of crime engaged in by major companies i n the United S t a t e s . Ross examined 1043 companies, a l l of which at one time appeared in Fortune's l i s t s of the 800 l a r g e s t i n d u s t r i a l and n o n - i n d u s t r i a l c o r p o r a t i o n s . Between 1970 and 1979, 11% of the companies had been e i t h e r convicted or had entered consent decrees i n at l e a s t one of the f o l l o w i n g c a t e g o r i e s of crimes: domestic charges of b r i b e r y , c r i m i n a l f r a u d , i l l e g a l p o l i t i c a l c o n t r i b u t i o n s , tax evasion, and c r i m i n a l a n t i t r u s t v i o l a t i o n s of e i t h e r p r i c e f i x i n g or b i d - r i g g i n g . During the 1970s, 188 c i t a t i o n s covered the f o l l o w i n g 163 o f f e n c e s : 98 a n t i t r u s t v i o l a t i o n s , 28 bribery charges, 21 cases of i l l e g a l p o l i t i c a l c o n t r i b u t i o n s , eleven cases of fraud and f i v e cases of tax e v a s i o n . 5 3 - 11 -No s i m i l a r survey has been done in Canada. However, there are a number of government departments which report s u f f i c i e n t information to allow one to c a l c u l a t e the number of corporations involved i n a p a r t i c u l a r crime. For example, since September, 1977 Revenue Canada has published ,the names of those prosecuted f o r tax e v a s i o n . 5 4 Between September 24, 1977 and June 27, 1981, 237 corporations were prosecuted and 228 or 96% were convicted. The average amount of tax evaded was $36,651.00 per c o n v i c t i o n . The s t a t i s t i c s do not i n d i c a t e how many c o n v i c t i o n s were the r e s u l t of g u i l t y pleas and how many were the r e s u l t of c o n v i c t i o n s at t r i a l s . It i s p o s s i b l e that n e g o t i a t i o n s may have reduced the recorded amount of tax evaded. S t a t i s t i c s are not r e a d i l y a v a i l a b l e on the number of corporations which are subjected to a d m i n i s t r a t i v e p e n a l t i e s f o r making f a l s e statements or omissions. A more d e t a i l e d a n a l y s i s of enforcement of the CIA has been done by Gorecki and S t a n b u r y . 5 5 Between 1889 and 1977 there were only 94 conspiracy and 9 merger and monopoly prosecutions. Of the 94 conspiracy prosecutions, 52 occurred between 1961 and 1977. The record of enforcement under the CIA w i l l be discussed in more d e t a i l i n Chapter 3. IV. THE PROBLEM OF CONTROLLING CORPORATIONS The corporation i s a mammoth s o c i a l i n s t i t u t i o n . 5 ' ' The problem of f i t t i n g i t i n t o the criminal law mold has had a turbulent h i s t o r y . Legal f i c t i o n s were e s t a b l i s h e d ; exceptions were c r e a t e d . 5 8 Some le g a l systems opted not to develop f i c t i o n s and instead held i n d i v i d u a l s - 12 -c r i m i n a l l y responsible f o r what might be considered corporate crime. y Advocates of t h i s approach suggest that c r i m i n a l procedure and sanctions are i n a p p r o p r i a t e f o r corporate conduct. * While criminal law t y p i c a l l y t r e a t s a corporation as a u n i t a r y e n t i t y , i t s behavior can be complex, multidimensional and, sometimes, c o n t r a d i c t o r y . If the purpose of using the criminal law against corporations i s to p r o t e c t s o c i e t y from corporate crime, an examination of how corporations make and implement d e c i s i o n s might be of a s s i s t a n c e i n a c h i e v i n g compliance from c o r p o r a t i o n s . Such an examination might suggest that the search f o r the e l u s i v e corporate soul under our present c r i m i n a l law i s f u t i l e and that a l t e r n a t i v e c r i m i n a l or non-criminal methods are in order. This t h e s i s i s concerned with the c o n t r o l of corporate crime. The p r o h i b i t i o n s e s t a b l i s h e d under the CIA against c o n s p i r a c i e s to lessen competition unduly and against mergers which are detrimental to the p u b l i c w i l l be used as the primary examples of l e g i s l a t i o n designed to control c o r p o r a t i o n s . Such an a n a l y s i s should allow one to draw conclusions on the appropriateness of using c r i m i n a l law sanctions against corporations in other areas. The CIA i s concerned with the e x e r c i s e of economic power by i n d i v i d u a l s or groups of i n d i v i d u a l s to the detriment of s o c i e t y . The l e g i s l a t i o n i s concerned with economic behavior that would be much more d i f f i c u l t to engage in i f the government had never introduced l e g i s l a t i o n - 13 -a l l o w i n g f o r the i n c o r p o r a t i o n of companies and the more e f f i c i e n t management of a large group of people's money by a few i n d i v i d u a l s . This i s not a c r i t i c i s m of such l e g i s l a t i o n . However, since governments intervened t o f a c i l i t a t e the concentration of economic power, they would be negligent i f they d i d not a l s o intervene to prevent the e x e r c i s e of that economic power to the detriment of s o c i e t y . The CIA provides a number of other features which make i t appropriate f o r e v a l u a t i n g the use of c r i m i n a l law sanctions against c o r p o r a t i o n s . I t has a h i s t o r y dating from 1889. 6 0 I t covers a wide range of behavior, some of which i s probably more s u i t e d to control by the criminal j u s t i c e system than other. For example, i t i s d i f f i c u l t to imagine what s o c i e t a l b e n e f i t s could be achieved by p r i c e f i x i n g ; whereas, the e f f e c t of a merger could be b e n e f i c i a l , detrimental or i n d i f f e r e n t to s o c i e t y ' s wellbeing. The CIA has a l s o been the subject of intense debate generated by e f f o r t s to reform the l e g i s l a t i o n since 1969. 6 1 A l t e r n a t i v e s to the c r i m i n a l sanction have been both debated and used. E f f e c t i v e January 1, 1976 a s e r i e s of c i v i l l y reviewable matters were incorporated i n t o the CIA. At the same time, a new s e c t i o n (31.1) permitted p r i v a t e damage actions stemming from v i o l a t i o n s of the CIA. Since prosecutions under the CIA are more fre q u e n t l y d i r e c t e d against c o r p o r a t i o n s than i n d i v i d u a l s , t h i s l e g i s l a t i o n provides a v e h i c l e to evaluate the p o t e n t i a l a b i l i t y of i n d i v i d u a l s involved in corporate crime t o escape l i a b i l i t y . A f t e r examining the use of p e n a l t i e s and remedies - 14 -under the CIA, Stanbury b < i concluded that t h e i r use was "grossly inadequate" f o r the purpose of deterrence. The l a r g e s t f i n e imposed on a c o r p o r a t i o n under the CIA was a $300,000 f i n e imposed i n 1976 on Canadian General E l e c t r i c Company Limited i n the Large "Lamps c a s e . ^ 3 Such a f i n e could have been absorbed by the company by r a i s i n g i t s p r i c e s by 0.19%. While the p r e c i s e impact of the conspiracy on p r i c e s i s unknown, i t can hardly have been less than one percent. V. THE PLAN OF THE THESIS This t h e s i s i s designed to r a i s e some of the issues with regard to the use of the criminal process to enforce laws against corporations. I t i s n e i t h e r a comprehensive survey of the l i t e r a t u r e nor a general t r e a t i s e on how t o achieve compliance from c o r p o r a t i o n s . The breadth of the t o p i c r e s t r i c t s one's a b i l i t y to develop any given issue in depth; however, i t allows one to present an overview of the problems involved i n the control of c o r p o r a t i o n s . It i s not always necessary to e x p l a i n why c e r t a i n behavior should be c o n t r o l l e d or p r o h i b i t e d . However, the CIA deals with economic behavior which i s not always understood. Chapter 2 w i l l o u t l i n e some of the academic and p o l i t i c a l arguments concerning the b e n e f i t s of competition in the marketplace and the types of behavior which r e s t r i c t such competition. As an i l l u s t r a t i o n , the goals designed t o be achieved by the p r o h i b i t i o n s - 15 -agains t c o n s p i r a c i e s to lessen competition and agai n s t M l legal mergers w i l l be reviewed. The criminal law i s not appropriate f o r a l l unwanted behavior. The concern with the expanded use of the cr i m i n a l law, as expressed by Profe s s o r Packer and by the Law Reform Commission of Canada, w i l l be discussed i n Chapter 3. The appropriateness of the criminal law and the crim i n a l j u s t i c e process to enforce conspiracy and merger laws w i l l also be evaluated i n t h i s chapter. Behavior p r o h i b i t e d under the CIA i s often engaged i n through c o r p o r a t i o n s . In order to control the behavior of corpo r a t i o n s , i t may be useful t o know how corporations make and implement d e c i s i o n s . Chapter 4 w i l l review some of the l i t e r a t u r e on t h i s t o p i c . r On the assumption that the c r i m i n a l law i s appropriate, at l e a s t f o r c o n t r o l l i n g some behavior under the CIA, Chapter 5 w i l l present a b r i e f review of corporate c r i m i n a l l i a b i l i t y , i t s present status i n Canada, and a p o s s i b l e a l t e r n a t i v e method of atta c h i n g l i a b i l i t y to corp o r a t i o n s . The r e l a t i o n s h i p between corporations and i n d i v i d u a l s involved in corporate crime and some of the problems a s s o c i a t e d with attaching l i a b i l i t y to i n d i v i d u a l s as well as corporations w i l l be examined. N Chapter 6 w i l l examine the goals of c r i m i n a l punishment and t h e i r c o m p a t i b i l i t y with sentencing corporations and i n d i v i d u a l s involved i n corporate crime. The unique c h a r a c t e r i s t i c s of groups and corporations may - 16 -req u i r e a new approach to the problem of how to sanction and control them. Chapter 7 w i l l present some t e n t a t i v e conclusions on problems ass o c i a t e d with s u b j e c t i n g the corporation to cr i m i n a l law sanctions and some p o s s i b l e a l t e r n a t i v e remedies. - 17 -FOOTNOTES 1. Quoted from an E n g l i s h j u r i s t i n C h r i s t o p t e r D. Stone, Where the Law Ends--The S o c i a l Control of Corporate Behavior, (1975) at 3. Another version of the quotation appears i n John C. Coffee, J r . , "No Soul To Damn: No Body to Kick": An Unscandalized Inquiry Into the Problem of Corporate Punishment, (1981) 77 Mich. L. Rev." 386. The quotation reads, "Did you ever expect a corporation to have a conscience, when i t has no soul to be damned, and no body to be kicked?" and a footnote adds, "one v e r s i o n , probably apocryphal, reports that the Lord Chancellor then added in a stage whisper, '[a]nd, by God, i t ought to have both'." 2. The term "public c o r p o r a t i o n s " i s used to connote corporations which are p r i v a t e l y owned but p u b l i c l y traded on major exchanges. It does not r e f e r to government owned c o r p o r a t i o n s , which w i l l be r e f e r r e d to as "Crown c o r p o r a t i o n s " . 3. The muckracking movement in the United States began i n 1902 and l a s t e d u n t i l -1912. "The greatest book produced by the muckracking movement, . . . i t s most enduring achievement", according t o A l l a n Nevins, author of a biography on John D. R o c k e r f e l l e r , was Ida T a r b e l l ' s The History of the Standard O i l Company, (1904): quoted i n Arthur Weinberg and L i l a Weinberg, The Muckrakers, 1902-1912, (1961) at 244. McCTure's; Magazine had described John R o c k e r f e l l e r as the "Napoleon among businessmen". 4. B o r i s Kostelanetz and David C. Musslewhite, The P u b l i c Corporation Under Attack, (1979) at 5. 5. John C o l l i n s Coffee, Beyond the Shut-Eyed Sentry: Towards a T h e o r e t i c a l View of Corporate Misconduct and An E f f e c t i v e Legal Response, (1977) 63 Va.  L. Rev". 1099. 6. Supra note 4 at 5. 7. J_d., at 5. 8. P u b l i c a t t i t u d e s are d i f f i c u l t to measure. A t t i t u d e s towards corporate crime are no exception. The October/November issue of P u b l i c Opinion, (1979) demonstrates some of the problems with capturing p u b l i c confidence i n major companies. The wording of the question, the p o s s i b l e answers in a c l o s e d q u e s t i o n n a i r e , and how the r e s u l t s are tabulated can a f f e c t the r e s u l t s . Opinions on business are reported i n 3 Public Opinion (1980) at 21. For example, a Harris survey showed a progressive d e c l i n e in the American p u b l i c ' s confidence in major companies. In 1966, 55% of the p u b l i c expressed such confidence, whereas i n 1980 only 19% expressed such confidence. The percentage of those who thought that a business was making too much p r o f i t increased between 1965 and 1979 from 24% to 51%. In 1979, 70% of the American's surveyed b e l i e v e d that when the economy goes down business keeps i t s p r o f i t s high and cuts jobs and wages. - 18 -9. R. v. A t l a n t i c Sugar R e f i n e r i e s Co. L t d . (1975), 26 C.P.R. (2d) 14 (Que. S.C.) a c q u i t t e d ; 41 C.C.C. (2d) 209 (Que. C.A.) reversed; (1980), 54 C.C.C. (2d) 373 (S.C.C.) reversed. 10. Re Ouellet (No. 1) (1976), 67 D.L.R. (3d) 73 at 76. The contempt v e r d i c t was upheld on appeal i n October, 1976: (1977), 36 C.R.N.S. 296. In March, 1976 Ouellet had resigned from c a b i n e t . 11. Combines I n v e s t i g a t i o n Act, R.S.C. 1970, C-3. 12. James P. C a i r n s , Aetna Insurance, Eastern Sugar and "Unduly" in the Combines I n v e s t i g a t i o n Act: S t i l l More Confusion, (1981) 5 Can. Bus "L.J. 231; W.T. Stanbury and 6.B. Reschenthaler, Oligopoly and Conscious P a r a l l e l i s m : Theory, P o l i c y and The Canadian Cases, (1977) Osgoode Hall  L . J . 617; D.G. McFetridge and S. Wong, Agreements t o Lessen Competition A f t e r A t l a n t i c Sugar, (1981) Can. Bus T . J . 329; and G.B. Reschenthaler and W.T. Stanbury, Recent Conspiracy Decisions i n Canada: New L e g i s l a t i o n Needed, (1981) 26 The A n t i t r u s t B u l l e t i n 839. 13. The t r i a l was unreported; R. "yj McNamara (No. 1) (1981), 56 C.C.C. (2d) 193 (Ont. C.A.). 14. Quoted i n Les Bewley, The Parole Board S t r i k e s Again, Van. Sun, Feb. 23, 1982 at A5. 15. " I f you have to do time, do i t here" Country Club P r i s o n Where the L i v i n ' i s Easy, Van. Sun, May 29, 1982 at B6. 16. Supra note 14 at A5. 17. Deborah McGregor, Behind Bertrand's E x i t , Competition Head was Becoming a P o l i t i c a l L i a b i l i t y , F i n a n c i a l Times of "Canada, May 25, 1981; see a l s o M a r j o r i e H a r r i s , Bertrand versus Business: One Man's Crusade Against too Much Corporate Power, (1981) F i n a n c i a l Post "Magazine, June 1981 at 21; James Rusk, Combines Watchdog Dismissed, Globe and M a i l , May 20, 1981 at 8. 18. Richard Gwyn, The Real Reason Robert Bertrand was F i r e d , Toronto S t a r , May 23, 1981 at B l ; see a l s o Richard Gwyn, Combines M i s s l e Went Wild, The Ottawa C i t i z e n , May 23, 1981 at 6. 19. Paul K. Gorecki and W.T. Stanbury, Canada's Combines I n v e s t i g a t i o n Act: The Record of P u b l i c Law Enforcement 1889-1876, i n J . Robert S. P r i c h a r d , W.T. Stanbury and Thomas A. Wilson, (eds.) Canadian Competition P o l i c y : Essays in Law and Economics, (1979) 135 at 140. The authors found that the M i n i s t e r had not i n s t i t u t e d any i n v e s t i g a t i o n s between 1961 and 1975. There was one request in 1932/33 and 4 between 1923 and 1953. The four reports represented one tenth of the t o t a l reports i n that time p e r i o d . The D i r e c t o r can a l s o commence an i n v e s t i g a t i o n on his own under paragraph 8(b) or at the request of an i n d i v i d u a l . He must commence an i n v e s t i g a t i o n i f he receives a complaint by s i x c i t i z e n s under s e c t i o n 7. Gorecki and Stanbury found that the most common source of i n i t i a t i o n was complaints, p a r t i c u l a r l y by businessmen. - 19 -20. E a r l e Gray, The Great Uranium C a r t e l , (1982) at 7. 21. In an interview with CTV Network on A p r i l 5, 1982, Mr. Gray, see i d . , estimated t h a t only $1.00 of the $30-$40 per pound increase could be a t t r i b u t e d t o the c a r t e l . 22. Hearings i n U.S. Uranium C a r t e l I l l e g a l ? The Ottawa C i t i z e n , May 29, 1981 at 52. 23. An Order-in-Council by the federal government required the uranium companies to fo l l o w the rules in order to be granted export permits from the Atomic Energy Control Board. See Ronald Anderson, Need f o r Guidelines Evident in C a r t e l S u i t , Globe "and M a i l , J u l y 14, 1981. 24. Kirk Makin, Two Crown Firms Immune t o Prosecution, Court Rules, Globe  and M a i l , A p r i l 24, 1982 at 1. 25. See R. v. Uranium Canada Limited and R. v. Elorado Nuclear Limited Unreported, Jul y 16, 1982 (Ontario Court of Appeal). Mr. J u s t i c e Cory found that the s p e c i f i c p r o v i s i o n s of the Atomic Energy Control Act, R.S.C. 1970, c. A-19 p r e v a i l e d over the general p r o v i s i o n s of the CIA. TTTe s p e c i f i c p r o v i s i o n s "emphasize that i t i s i n the national i n t e r e s t t o contr o l and supervise atomic energy and t o p a r t i c i p a t e i n i t s i n t e r n a t i o n a l c o n t r o l " (at 7). His Lordship a l s o r e l i e d on s e c t i o n 16 of the I n t e r p r e t a t i o n Act, R.S.C. c. 1-23 which states that "[n]o enactment i s binding on Her Majesty or a f f e c t s Her Majesty or Her Majesty's r i g h t s or prerog a t i v e s in any manner, except only as t h e r e i n mentioned or r e f e r r e d t o . " F i n a l l y , Mr. J u s t i c e Cory found that the doctrine of nece s s i t y d i d not apply to the f a c t s in the appeal. 26. D i r e c t o r of In v e s t i g a t i o n and Research, Combines I n v e s t i g a t i o n Act, The State of Competition in the Canadian Petroleum Industry, (1981); James Lorimer, Canada's O i l Monopoly: The Story of the $12 B i l l i o n Rip-Off of Canadian Consumers (1981). A s t i c k e r over the author's name, Robert J . Bertrand, D i r e c t o r of I n v e s t i g a t i o n and Research, Combines I n v e s t i g a t i o n Act, reads as fo l l o w s : "An independently s e l e c t e d , abridged e d i t i o n prepared by James Lorimer". 27. See, f o r example, Walter J . Mead, P r i v a t e E n t e r p r i s e , Regulation and Government E n t e r p r i s e in the Energy Sector, (1977) i n O i l i n the Seventies, The F r a s e r I n s t i t u t e . 28. See, f o r example, T.C. Douglas, House of Commons Debates, Feb. 2, 1977 at 2637. 29. B i l l C l a r k e , House of Commons Debates, 1977 at 6248. 30. House of Commons Debates, 1977 at 6250, 1205 and 3287. 31. In an interview with E l i z a b e t h Gray, Mr. Robert Bertrand s t a t e d that "In Canada we have always sat between two c h a i r s where competition i s concerned, exactly as i f we are not convinced that competition i s a good - 20 -t h i n g . E s s e n t i a l l y our law and h i s t o r y have developed through good cooperation between corporations and the s t a t e . . . . Unlike the Americans, we don't regard t h i s r e l a t i o n s h i p as bad. . . . And those c o r p o r a t i o n s who have t h i s r e l a t i o n s h i p with the s t a t e are d e f i n i t e l y l arge c o r p o r a t i o n s and r e l a t i v e l y immune to competition." Q and A: Robert Bertrand, A Sole Voice i n an Uncompetitive Land, Maclean's, Nov. 17, 1980. For a study of the involvement of the Canadian government in the economy see John L. Howard and W.T. Stanbury, Measuring Leviathan: The S i z e , Scope and Growth of Governments in Canada, (1982) Paper to be published by the Fraser I n s t i t u t e . 32. Marshall B. C l i n a r d , Peter C. Yeager, Jeannie B r i s s e t t e , David Petrashek and E l i z a b e t h H a r r i e s , I l l e g a l Corporate Behavior, (1979); Marshall B. C l i n a r d and Peter Yeager, Corporate Crime, (1980). 33. Leonard Orland, R e f l e c t i o n s on Corporate Crime: Law i n Search of Theory and S c h o l a r s h i p , (1980) 17 Am. Crim. " L . Rev. 501 at 506. A major c r i t i c i s m i s that the authors, f o l l o w i n g Sutherland's approach, used an expansive d e f i n i t i o n of crime which included both c i v i l and a d m i n i s t r a t i v e a c t i o n by the s t a t e . Orland concludes that the study i s one of fed e r a l a d m i n i s t r a t i v e regulation not corporate crime. 34. W.T. Stanbury, P e n a l t i e s and Remedies Under the Combines I n v e s t i g a t i o n Act 1889-1976, (1976) 14 Osgoode Hall L . J . 571; Paul K. Gorecki and W.T. Stanbury, Canada's Combines I n v e s t i g a t i o n Act: The Record of P u b l i c Law Enforcement, 1889-1976, i n P r i c h a r d , Stanbury, and Wilson (eds.) supra note 19 at 135; Paul K. Gorecki, The A d m i n i s t r a t i o n and Enforcement of Competition P o l i c y in Canada, 1960 to 1975: An A p p l i c a t i o n of Performance Measurement, (1981). 35. C o l i n H. Goff and Charles E. Reasons, Corporate Crime i n Canada, (1978). 36. G. Rosenbluth and H.G. Thorburn, Canadian Anti-Combines A d m i n i s t r a t i o n , 1952-1960, (1963). 37. Criminal Code, R.S.C. 1970, C-34. 38. A company was convicted of manslaughter on appeal from an a c q u i t t a l when a c h i l d drowned i n the company's excavation s i t e : R. v. East "Crest O i l  Company Lt d . , [1944] 3 D.L.R. 535 ( A l t a . S . C ) ; reversed on other grounds: L1945J| 2 D.L.R. 353 (S.C.C.). In R. v. Aldergroye Competition Motorcycle  A s s o c i a t i o n et a l . , [1982] B.C.D. Crim. Convic. (B.C. Co. Ct.) a motorcycle c l u b and i t s president were convicted of manslaughter under subsection 242(2) of the Code when three c h i l d r e n died as a r e s u l t of drowning in an excavation on property owned and c o n t r o l l e d by the accused. 39. Pran Manga, Robert Broyles and G i l Reschenthaler, Occupational Health and Safety: Issues and A l t e r n a t i v e s , (1981) Economic Council of Canada, Technical Report No. 6; G.B. Reschenthaler, Occupational Health and Safety i n Canada, (1979), I n s t i t u t e f o r Research on P u b l i c P o l i c y . - 21 -40. See f o r example, John Braithwaite and Barry Condon, On the Class Bias of Criminal Violence, (1978) i n Paul R. Wilson and John B r a i t h w a i t e , Two Faces of Deviance, Crimes of the Powerless and Powerful, at 234. 41. The impact of the Canadian government on the economy has been examined by Howard and Stanbury, supra note 31. In a d d i t i o n to the r a t i o of government expenditure to the Gross National Product, the authors examined government i n t e r v e n t i o n through d i r e c t expenditures, r e g u l a t i o n , Crown c o r p o r a t i o n s , tax expenditures, and d i r e c t employment. Also see Michael J . T r e b i l c o c k , Leonard Waverman and J . Robert S. P r i c h a r d , Markets f o r Regulation: Implications f o r Performance Standards and I n s t i t u t i o n a l Design, (1978) i n Government Regulation, Ontario Economic C o u n c i l . 42. Gwynn N e t t l e r , E x p l a i n i n g Crime (2d), (1978) Chapter 4; Robert A. Silverman and James J . Teevan, J r . , Crime in Canadian Society (2d), (1980) at 63-77. 43. N e t t l e r , i_d., at Chapter 4; Silverman and Teevan, j_ci., at 63-70; F.H. McClintock, The Dark F i g u r e , (1970) i n C o l l e c t e d Studies in C r i m i n o l o g i c a l Research by the Council of Europe; Thorsten S e l l i n , The S i g n i f i c a n c e of Records of Crime, (1951) 47 L. Rev. "Q. 489. 44. N e t t l e r , Id., at 57. 45. N e t t l e r , i_d., at 57 quotes from S i r J o s i a h Stamp: "the government are very keen on amassing s t a t i s t i c s . They c o l l e c t them, r a i s e them t o the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these f i g u r e s comes in the f i r s t instance from the v i l l a g e watchman, who j u s t puts down what he damn pleases". Dr. Silverman examined the variance in crime rates between Edmonton and Calgary and concluded that o f f i c i a l s t a t i s t i c s might r e f l e c t methods of recording crime rather than the amount of crime i t s e l f . See Robert A. Silverman, Measuring Crime: A Tale of Two C i t i e s , (1980) i n Silverman and Teevan, supra note 42 at 78. 46. Problems with obtaining evidence and i t s a d m i s s i b i l i t y w i l l r e s u l t i n reducing the number of recorded c o n v i c t i o n s . Plea bargaining a l s o takes i t s t o l l on the number of, and, the nature of, the offences f o r which c o n v i c t i o n s might be entered: see T.G. Hartnagel and D. Wynne, Plea Negotations i n Canada, (1975) 17 Can. J . of Criminology arid C o r r e c t i o n s 45; John K l e i n , Lets Make a Deal: Negotiated J u s t i c e , (1976); S.N. Verdun-Jones and F.D. Cousineau, Cleaning the Augean Stables: A C r i t i c a l A n a l y s i s of Recent Trends in the Plea Bargaining Debate in Canada, (1979) 17 Osgoode Hall L . J . 227; F.D. Cousineau and S.N. Verdun-Jones, Evaluating Research i n t o Plea Bargaining i n Canada and the United S t a t e s : P i t f a l l s Facing the P o l i c y Makers, (1979) 21 Can. J . Criminology 293; and papers at a Conference on Plea Bargaining h e l d i n French L i c k , IN. June 14-17, 1978, reproduced i n (1979) 13 Law and Society Rev. 47. Leon Radzinowicz, E n g l i s h Criminal S t a t i s t i c s : A C r i t i c a l A n a l y s i s , (1945) i n Leon Radzinowicz (ed.) The Modern Approach to Criminal Law at 175 quoted i n Orland, supra note 33 at 509. - 22 -48. S e l l i n , supra note 43 at 495. 49. N e t t l e r , supra note 42 at Chapter 6; John L. Evans and Gerald J . Leger, Canadian V i c t i m i z a t i o n s Surveys, (1979) 21 Can. J . of Criminology 166. 50. N e t t l e r , supra note 42 at Chapter 5 and 6; Silverman and Teevan, supra note 42 at 72-74. 51. Conversation with Dennis Wong, User Advisory S e r v i c e , S t a t i s t i c s Canada. 52. Irwin Ross, How Lawless are Big Companies? (Dec. 1, 1980) Fortune 56. 53. J_d.» at 56. 54. The data i s reported i n Information C i r c u l a r s e n t i t l e d "Prosecutions" and p u b l i s h e d by Revenue Canada. 55. Gorecki and Stanbury, supra note 34, Table 6 at 187. 56. The lack of empirical research i n the area has been noted by John J . Flynn, (1967) 45 Tex. L. Rev. 1301 at 1321 who w r i t e s , "A severe handicap t o the a n a l y s i s of criminal a n t i t r u s t sanctions generally i s the absence of empir i c a l research i n t o the criminology of white c o l l a r crime. . . U n t i l extensive research i s engaged in by the s o c i a l sciences and legal s c h o l a r s , c r i m i n a l sanctions in a n t i t r u s t enforcement w i l l be a c o n t r o v e r s i a l subject and much of the controversy w i l l be based upon myths and presumptions rather than f a c t s " . 57. The 10 l a r g e s t i n d u s t r i a l firms i n Canada i n 1981 had an average of $7,264 m i l l i o n of sales per company. The comparable f i g u r e i n the United States was $49,046 m i l l i o n . In 1981, the 50 l a r g e s t i n d u s t r i a l firms i n Canada had average sales of $1594 m i l l i o n per company and held assets worth an average of $1,581 m i l l i o n per company. This data was provided by Dr. W.T. Stanbury, Faculty of Commerce, U n i v e r s i t y of B r i t i s h Columbia from The 500, Fortune, May 3, 1982 and F i n a n c i a l Post June, 1982. G a l b r a i t h describes the modern corporation as "the greatest h i s t o r i c a l f o rce against the market". That i s , the s i z e of corporations have eroded market fo r c e s which at one time forced i n d i v i d u a l s and firms to be competitive. John Kenneth G a l b r a i t h , The Consensus, the Attack and the Prospect: The View from Below the Border, (1981) Canadian Taxation Foundation, 1981 Conference Report 6 at 11. 58. For a h i s t o r i c a l summary see L.H. Leigh, The Criminal L i a b i l i t y of Corporations in E n g l i s h Law, (1969); L.H. Leigh The Criminal L i a b i l i t y of Corporations and Other Groups, (1977) 9 Ottawa L.Rev. 247; and P.C. Heerey Corporate Criminal L i a b i l i t y — A R e a ppraisal, (1962) U. "of TasmaniaT.Rev. 677. 59. See Hamilton, Corporate Criminal L i a b i l i t y i n Texas, (1968) 47 Texas"L.  Rev. 60; and Bruce Coleman Is Corporate Criminal L i a b i l i t y R e a lly Necessary, (1975) 29 Sw. L. J . 908. - 23 -60. W.T. Stanbury, Notes on the L e g i s l a t i v e Development of Canadian Competition P o l i c y , 1888-1981, (1981) 2 Canadian Competition P o l i c y Record 1. 61. W.T. Stanbury, Business Interests and the Reform of Canadian Competition P o l i c y , 1971-1975, (1977). 62. Stanbury, supra note 34 at 571. 63. R. v. Canadian General E l e c t r i c Co. L t d . et a l . (1977), 35 C.P.R. (2d) 210 (sentence). CHAPTER 2 GOVERNMENT INTERVENTION IN THE MARKETPLACE The reasons f o r some of the p r o h i b i t i o n s under the Combines I n v e s t i g a t i o n A c t 1 (the "CIA") are not r e a d i l y understood by the p u b l i c or by some of the legal, p r o f e s s i o n i n v o l v e d i n the prosecution, defence and judgment of such offences. This chapter i s designed t o provide a modest o u t l i n e of the arguments i n favor of competition, an underlying value of the CIA. Competition i s central i n a c a p i t a l i s t i c market economy. In the absence of e f f e c t i v e competition, market power w i l l vest e i t h e r i n the government, through n a t i o n a l i z a t i o n or s o c i a l i s m , or i n i n d i v i d u a l s or groups of i n d i v i d u a l s . Market power can a l s o be delegated or assigned t o the p r i v a t e sphere by government (e.g., by patents and l i c e n c e s ) , regulated by government, or exe r c i s e d j o i n t l y by government and p r i v a t e business. The l a s t combination i s often r e f e r r e d to as corporatism. This t h e s i s i s concerned p r i m a r i l y with two methods by which corporations e x e r c i s e market power and which are also contrary to the CIA, that i s , c o n s p i r a c i e s to lessen competition unduly and mergers which operate to the detriment of the publi c. Market or economic power has been defined as "the a b i l i t y to manipulate economic r e l a t i o n s — p r i c e s , incomes, employment, lending, - 25 -volumes and kinds of p r o d u c t i o n — t o the advantage of the wielder of power". 2 The degree of economic power which any economic actor or combination of economic actors ( i n d i v i d u a l , c o r p o r a t i o n , union, or government) possesses i s d i f f i c u l t to measure. However, under competitive market c o n d i t i o n s , economic actors possess l i t t l e or no economic power. On the other hand, a monopolist behind s u b s t a n t i a l economic b a r r i e r s to entry w i l l possess market power and w i l l t h e r e f o r e be able to r e s t r i c t output and r a i s e p r i c e s above that which would p r e v a i l under competitive market c o n d i t i o n s . Without government i n t e r v e n t i o n . ( b u t sometimes because of i t ) , the concentration of economic power i n the hands of p r i v a t e i n d i v i d u a l s or cor p o r a t i o n s w i l l f r e q u e n t l y take p l a c e . 4 There are some f a c t o r s which encourage, and, in some cases n e c e s s i t a t e , the concentration of economic a c t i v i t y . However, where the concentration of economic a c t i v i t y does not r e s u l t i n economic be n e f i t s to s o c i e t y , most economists have espoused the v i r t u e s of l i t t l e or no concentration of economic power in order t o reap the benefits of competitive forces i n the marketplace. But what have we to gain by competition? What are the costs to so c i e t y when competitive forces are attenuated? This chapter w i l l , f i r s t , o u t l i n e the t h e o r e t i c a l basis f o r the argument that a competitive economy r e s u l t s in the greatest economic b e n e f i t s t o s o c i e t y . Second, i t w i l l examine the s o c i a l and p o l i t i c a l reasons f o r encouraging competitive f o r c e s . A model of i n d u s t r i a l o r g a n i z a t i o n w i l l be presented in order to examine some of the f a c t o r s - 26 -which i n f l u e n c e economic behavior and r e s u l t in noncompetitive markets. Noncompetitive market forces w i l l be discussed i n terms of those which produce an economic benefit to s o c i e t y and those which may be d e t r i m e n t a l . F i n a l l y , the r o l e government plays i n attempting to maintain competition by conspiracy and merger laws w i l l be examined. I. COMPETITION AND ECONOMIC EFFICIENCY The term "economic e f f i c i e n c y " encompasses (a) a l l o c a t i v e e f f i c i e n c y , (b) t e c h n i c a l e f f i c i e n c y , and (c) dynamic e f f i c i e n c y . A. A l l o c a t i v e E f f i c i e n c y What is a l l o c a t i v e e f f i c i e n c y ? Gorecki and Stanbury 5 d e f i n e i t as f o l l o w s : In highly s i m p l i f i e d terms, a l l o c a t i v e e f f i c i e n c y i s achieved when i t i s not p o s s i b l e to rearrange outputs or to recombine inputs to make one person in the economy b e t t e r o f f without reducing the economic welfare of another. Economic theory can demonstrate t h a t , i n the absence of e x t e r n a l i t i e s , p u b l i c goods, decreasing costs over the relevant range and imperfect information, perfect competition i n a l l markets w i l l achieve a l l o c a t i v e e f f i c i e n c y . In other words, in a competitive economy firms w i l l produce at the optimal l e v e l of output and place resources where consumers value them the most. Scherer^ demonstrates how the m i s a l l o c a t i o n of resources in a noncompetitive market leads not only to the r e d i s t r i b u t i o n of income (which - 27 -i s a n o n e f f i c i e n c y issue) but also to a "dead-weight welfare l o s s " . That i s , n e i t h e r producers nor consumers b e n e f i t from that which would have been r e a l i z e d under competitive markets. F i g u r e 1 demonstrates the p r i c e which consumers pay, the quantity produced, and the long run average t o t a l cost (LRATC) of producing goods in a competitive economy. The LRATC and the p r i c e of items in a competitive i n d u s t r y i s kept at a minimum by the t h r e a t of being driven from the i n d u s t r y by lower p r i c e s from a competitor. In a p r o f i t maximizing monopolistic i n d u s t r y or where a number of firms coordinate t h e i r a c t i v i t i e s and work to maximize t h e i r p r o f i t , the q u a n t i t y produced can be r e s t r i c t e d and the p r i c e of items increased. The e f f e c t is that an excess of p r o f i t s , represented by the rectangle PmBAPc, i n Figure 1 i s t r a n s f e r r e d from consumers to producers. Such a t r a n s f e r of wealth i s concerned with equity, not economic e f f i c i e n c y . However, t r i a n g l e BCA represents a deadweight welfare loss of consumer s u r p l u s . Consumer surplus represents the amount that some consumers are prepared t o pay f o r an item over and above i t s LRATC. In a competitive economy consumer surplus i s represented by t r i a n g l e DCPc i n Figure 1 . The r e s u l t of monopolistic p r i c i n g and output r e s t r i c t i o n s i s that consumers who would have bought a v a i l a b l e items at competitive p r i c e s must forgo such items. This deadweight welfare loss i s represented by t r i a n g l e BCA. Both producers and consumers s u f f e r a loss under monopolistic c o n d i t i o n s . ^ - 28 -B. Technical E f f i c i e n c y Technical e f f i c i e n c y i s achieved by a f i r m which, in the long run, produces at the lowest p o s s i b l e cost, given the p r i c e of inputs, such as raw m a t e r i a l s and la b o r , and a v a i l a b l e technology. Firms which continue t o use obsolete equipment are t e c h n i c a l l y i n e f f i c i e n t . The greatest v i r t u e of competitive markets i s that they force i n d i v i d u a l firms to be t e c h n i c a l l y e f f i c i e n t . q Scherer suggests two reasons why the existence of a monopoly might increase the cost of production as well as increase p r i c e s and r e s t r i c t output. F i r s t , "monopoly . . . i s a great enemy to good management".9 For example, " o r g a n i z a t i o n a l s l a c k " , too many employees and managers, and extravagent o f f i c e f u r n i s h i n g s can lead to an increase i n the cost of production. These X - i n e f f i c i e n c i e s 1 0 r e s u l t in higher costs t o produce a given l e v e l of output and t h e r e f o r e can r e s u l t i n an even greater deadweight l o s s . The second f a c t o r which can increase the cost of production i n monopolies i s what Scherer r e f e r s to as "monopoly-induced waste". Market power w i l l often lead t o wasteful sales promotion and a host of r e s t r i c t i v e trade p r a c t i c e s . Such behavior adds to the cost of production, increases p r i c e s and, i n some cases, lowers p r o f i t s . 1 1 F i g u r e 2 demonstrates the above i n e f f i c i e n c i e s . The observed LRATC which one would expect from a competitive industry i s a c t u a l l y higher than - 29 -the LRATC which could a c t u a l l y be achieved in a competitive i n d u s t r y . While there i s s t i l l a t r a n s f e r of excess p r o f i t s , represented by the rectangle PmBFPo, there i s an a d d i t i o n a l waste, represented by the rectangle PoFAPc. Such a waste i s due to t e c h n i c a l i n e f f i c i e n c y , X-i n e f f i c i e n c i e s and monopoly-induced waste. C. Dynamic E f f i c i e n c y While t e c h n i c a l e f f i c i e n c y i s a s t a t i c concept, dynamic e f f i c i e n c y focuses on (a) innovation or c r e a t i n g new b e n e f i t s and (b) t e c h n o l o g i c a l change or improved p r o d u c t i v i t y over time. Technical change operates along t h r e e dimensions: 1. new methods of production and o r g a n i z a t i o n , 2. new products and s e r v i c e s , and 3. improvements in p r o d u c t i v i t y w i t h i n e x i s t i n g methods of production or d i s t r i b u t i o n . There are two schools of thought on the question of whether competition contributes to dynamic e f f i c i e n c y . On the one hand, competition forces firms to be c r e a t i v e i n improving p r o d u c t i v i t y and c r e a t i n g new b e n e f i t s . On the other hand, a monopoly allows the f i r m t o use the excess p r o f i t s generated by i t s monopolistic p o s i t i o n f o r r i s k y v expenditures on research and development, which, i n t u r n , generate innovation and t e c h n i c a l change. The empirical evidence suggests that a rather modest degree of market power i s a s s o c i a t e d with the greatest innovation and t e c h n o l o g i c a l change. 1 2 - 30 -The importance of dynamic e f f i c i e n c y was emphasized i n the Skeoch-McDonald Report in 1976. 1 3 S k e o c h 1 4 summarizes the Report. The Report held t h a t the primary t h r u s t of p o l i c y should be the long-run encouragement of o r g a n i z a t i o n a l and -t e c h n o l o g i c a l change to meet the pressures of an i n c r e a s i n g l y i n t e r n a t i o n a l economy and to accomodate more e f f e c t i v e l y the needs and desires of a constantly changing s o c i e t y . To these ends, protected p o s i t i o n s in a l l sectors of the economy—whether protected by government, by custom, or by p r i v a t e o r g a n i z a t i o n and manipulation—have to be examined c r i t i c a l l y in the i n t e r e s t of promoting a d a p t a b i l i t y and f l e x i b i l i t y throughout the economy. The s t r a t e g i c elements i n v o l v e d i n the process of promoting such dynamic change in a mixed economy embodying b i g - u n i t elements (corporate, union, governmental, or voluntary) i n c l u d e s : (1) the p r o h i b i t i o n of a r t i f i c i a l r e s t r a i n t s , that i s , r e s t r a i n t s not based on superior economic performance; (2) government assuming much of the heavy cost of economic change rather than encouraging r e s i s t a n c e to change by p r o t e c t i o n i s t devices; and (3) i f necessary, the a l t e r a t i o n of the environmental circumstances by upgrading i n c e n t i v e s and strengthening pressures f o r adjustments so that questions of i n n o v a t i o n , economies of s c a l e , s p e c i a l i z a t i o n of f i r m s , rate of economic growth, and the l i k e , could be l a r g e l y l e f t to dynamic, market-like arrangements. . . . The p r e f e r r e d approach i s to i d e n t i f y the a r t i f i c i a l r e s t r a i n t s that control or i n h i b i t dynamic change and t o fashion environmental changes that w i l l restore so f a r as p o s s i b l e market l i k e arrangements and p r e s s u r e s — a n d stop the i n t e r v e n t i o n at that p o i n t . I I . SOCIAL AND POLITICAL REASONS FOR COMPETITIVE"MARKETS In t h e i r comprehensive survey of Canadian competition p o l i c y between 1888 and 1981 Gorecki and S t a n b u r y 1 5 i d e n t i f i e d three major and a number of minor o b j e c t i v e s of such p o l i c y . This part w i l l b r i e f l y review some of these o b j e c t i v e s in an attempt to i l l u s t r a t e the l e g i s l a t i v e i n t e n t \ - 31 -and purpose behind Canadian l e g i s l a t i o n concerning c o n s p i r a c i e s and mergers. A. The Major Objectives i ) The mai ntenance of f r e e "competition Gorecki and S t a n b u r y 1 6 found t h a t , between 1903 and the e a r l y 1970s, the Canadian j u d i c i a r y viewed the maintenance of free competition as the p r i n c i p a l o b j e c t i v e of Canadian competition p o l i c y . This o b j e c t i v e , by i t s e l f , t e l l s u s , l i t t l e about the b e n e f i t s of competition; however, the judges often a l l u d e d t o the f a c t that competition was a source of economic e f f i c i e n c y and of " j u s t " p r i c e s f o r the consumer. The judges were al s o concerned t h a t firms with market power not be allowed to r e s t r i c t or i n t e r f e r e with firms which wanted to compete. To the extent that access to competitive p r i c e s was viewed as a " r i g h t " by the j u d i c i a r y , i t r e f l e c t s an emotional value which cannot be dismissed e a s i l y . An enfringement on such a r i g h t can be seen as a cost to s o c i e t y . i i ) The prevention of economic abuse The prevention of economic abuse a s s o c i a t e d with market power was a c o n s i s t e n t o b j e c t i v e espoused i n Parliamentary debates since 1888.^ The r e d i s t r i b u t i o n of income, that i s , the t r a n s f e r income from consumers to producers, in the form of increased p r i c e s and excess p r o f i t s , was viewed as an abuse a s s o c i a t e d with noncompetitive markets. Another form of - 32 -economic abuse was the coercion of competitors to e i t h e r j o i n the e x i s t i n g c a r t e l or leave the market. Hence an o b j e c t i v e of competition p o l i c y was not to undermine the sources of market power, but only l i m i t i t s unwelcomed ma n i f e s t a t i o n s . i i i ) Achieving economic e f f i c i e n c y Economic e f f i c i e n c y did not receive a great deal of a t t e n t i o n i n Canadian competition p o l i c y u n t i l the 1950s and was not viewed as the primary o b j e c t i v e u n t i l the 1970s. 1 8 In 1969, the Economic Council of Canada recommended that economic e f f i c i e n c y be adopted as the s i n g l e o b j e c t i v e of competition p o l i c y . Competition was held t o be the "most important s i n g l e means" t o achieve t h i s o b j e c t i v e . 1 9 Economic e f f i c i e n c y , through competition, was a l s o one of the ob j e c t i v e s in the preamble of B i l l C-256 and B i l l s C-42 and C-13, introduced i n the House of Commons, in order to amend the CIA, i n 1971 and 1977, r e s p e c t i v e l y . For example, the preamble of B i l l C-13 read as fol1ows: WHERAS a central purpose of Canadian p u b l i c p o l i c y i s to promote the national i n t e r e s t and the i n t e r e s t of i n d i v i d u a l Canadians by providing an economic environment that i s conducive to the e f f i c i e n t a l l o c a t i o n and u t i l i z a t i o n of s o c i e t y ' s resources, f o s t e r s innovation i n technology and o r g a n i z a t i o n , expands o p p o r t u n i t i e s r e l a t i n g to both domestic,and export markets and encourages the transmission of those benefits to s o c i e t y i n an eq u i t a b l e manner; AND WHEREAS one of the basic c o n d i t i o n s r e q u i s i t e to the achievement of that purpose i s the c r e a t i o n and maintenance of a f l e x i b l e , adaptable and dynamic Canadian economy that - 33 -w i l l f a c i l i t a t e the movement of t a l e n t s and resources in response to market i n c e n t i v e s , that w i l l reduce or remove b a r r i e r s to such m o b i l i t y , except where such b a r r i e r s may be inherent i n economies of s c a l e or i n the achievement of other savings of resources, and that w i l l p r o t e c t freedom of economic opportunity and choice by discouraging unnecessary concentration and predatory e x e r c i s e of economic power and by reducing the need f o r d e t a i l e d p u b l i c r e g u l a t i o n of economic a c t i v i t y ; AND WHEREAS the e f f e c t i v e f u n c t i o n i n g of such a market economy may only be ensured through the rec o g n i t i o n and encouragement of the r o l e of competition i n the Canadian economy as a matter of natural p o l i c y by means of the enactment of general laws of general a p p l i c a t i o n throughout Canada and by the adm i n i s t r a t i o n of such laws in a co n s i s t e n t and uniform manner. The number of general o b j e c t i v e s covered i n the preamble i l l u s t r a t e s the strong p o l i t i c a l overtones to competition p o l i c y in Canada. B. The Minor Objectives i ) F i g h t i n g i n f l a t i o n While there has been some concern that a n t i c o m p e t i t i v e behavior c o n t r i b u t e s to i n f l a t i o n , Gorecki and Stanbury 2^ conclude that the empi r i c a l evidence of such a connection i s f a i r l y t h i n . In t h e i r view, the use of competition p o l i c y to f i g h t i n f l a t i o n i s p r i m a r i l y an exerci s e i n symbolic p o l i t i c s . 2 1 - 34 -i i ) Preserving the f r e e e n t e r p r i s e system Competition i s an impersonal way of s o l v i n g economic problems of what and how much to produce, and how to apportion and d i s t r i b u t e resources. During the Cold War of the 1950s, p o l i t i c i a n s viewed the preservation of the f r e e e n t e r p r i s e system as an o b j e c t i v e of competition p o l i c y . 2 2 Unless competition laws r e s t r a i n e d p r i v a t e a c t i o n s from undermining competitive f o r c e s , other l e s s d e s i r a b l e forms of i n t e r v e n t i o n , such as widespread government ownership or economic r e g u l a t i o n , would emerge and destroy the f r e e e n t e r p r i s e system. Competition was p r e f e r a b l e to big government or big business. A competitive economy was viewed by Canadian p o l i t i c i a n s as oneway of keeping d i r e c t government control and reg u l a t i o n to a minimum. i i i ) A p o l i t i c a l compromise Some academics have viewed Canadian competition p o l i c y as a p o l i t i c a l compromise between major business groups and farmers and small businesses po or between big business and government. The government was viewed as walking a t i g h t rope "to avoid antagonizing large blocks of voters, and at the same time to maintain the support of s u b s t a n t i a l business i n t e r e s t s " because of the i n f l u e n c e of major business groups on government. 2 4 Other academics have viewed the CIA as a piece of c l a s s l e g i s l a t i o n which favors business at the expense of consumers. 2 5 c - 35 -Parts I and II of t h i s chapter discussed the economic, s o c i a l and p o l i t i c a l reasons f o r discouraging a n t i c o m p e t i t i v e behavior. An understanding of why our s o c i e t y views competitive markets as important should a s s i s t i n deciding how to deal with unwanted a n t i c o m p e t i t i v e behavior. The next part w i l l d i s c u s s types of behavior which r e s u l t i n noncompetitive markets. I I I . A MODEL OF INDUSTRIAL ORGANIZATION This s e c t i o n w i l l present S c h e r e r ' s ^ b model f o r the a n a l y s i s of i n d u s t r i a l o r g a n i z a t i o n which i s known as the s t r u c t u r e , conduct, performance paradigm. The model w i l l be used t o examine the f a c t o r s which c o n t r i b u t e to noncompetitive markets i n terms of market s t r u c t u r e and the conduct of buyers and s e l l e r s . Scherer o u t l i n e s the f o l l o w i n g goals or standards of good performance i n the market. (a) Decisions as to what, how much, and how to produce should be e f f i c i e n t i n two r e s p e c t s : scarce resources should not be wasted o u t r i g h t , and production d e c i s i o n s should be responsive q u a l i t a t i v e l y and q u a n t i t a t i v e l y to consumer demands. (b) The operations of producers should be p r o g r e s s i v e , t a k i n g advantage of o p p o r t u n i t i e s opened up by science and technology f o r i n c r e a s i n g output per unit of input and making a v a i l a b l e to consumers s u p e r i o r new products, in both ways c o n t r i b u t i n g to the long-run growth of real income per c a p i t a . (c) The operations of producers should f a c i l i t a t e s t a b l e f u l l employment of resources, e s p e c i a l l y human resources. Or at the very minimum, they should not make maintenance of - 36 -f u l l employment through macroeconomic p o l i c y instruments e x c e s s i v e l y d i f f i c u l t . (d) The d i s t r i b u t i o n of income should be e q u i t a b l e . Equity i n economics i s a no t o r i o u s l y s l i p p e r y concept, but i t implies at l e a s t that producers do not secure rewards f a r i n excess of those needed to c a l l f o r t h the amount of services s u p p l i e d . A subfacet of t h i s goal i s the de s i r e to achieve reasonable p r i c e s t a b i l i t y , f o r rampant i n f l a t i o n d i s t o r t s the d i s t r i b u t i o n of income in ways widely disapproved. The o b j e c t i v e s r e l a t i n g to performance, i t i s argued, depend on the conduct of s e l l e r s and buyers: f o r example, p r i c i n g behavior, cooperation among f i r m s , research, a d v e r t i s i n g , and le g a l t a c t i c s such as enf o r c i n g patent r i g h t s . Conduct, i n t u r n , i s strongl y i n f l u e n c e d by aspects of market s t r u c t u r e : f o r example, the number and s i z e of buyers and s e l l e r s , product d i f f e r e n t i a t i o n , b a r r i e r s to entry by new fir m s , v e r t i c a l i n t e g r a t i o n , amount of d i v e r s i t y or "conglomerateness" and geographical concentration of buyers and s e l l e r s . Scherer argues that the basic c o n d i t i o n s of supply (such as, l o c a t i o n and ownership of raw m a t e r i a l s , technology, business a t t i t u d e s , and u n i o n i z a t i o n ) and demand (such as, rate of growth demand, a v a i l a b i l i t y and demand f o r s u b s t i t u t e products, and market c h a r a c t e r i s t i c s of products) w i l l i n f l u e n c e both market s t r u c t u r e and conduct. Other basic conditions include laws and government p o l i c i e s w i t h i n which the f i r m must o p e r a t e . 2 7 - 37 -A. Market Structure An i n d u s t r y ' s s t r u c t u r e i s s a i d to be competitive "when the number of firms s e l l i n g a homogeneous commodity i s so l a r g e , and each i n d i v i d u a l firm's share of the market i s so s m a l l , that no i n d i v i d u a l f i r m f i n d s i t s e l f able to i n f l u e n c e appreciably the commodity's p r i c e by varying the quantity of output i t s e l l s " . 2 8 In other words, no f i r m i s in possession of market power. Indeed, a l l firms are p r i c e - t a k e r s , that i s , they have no i n f l u e n c e on p r i c e s , and they behave e n t i r e l y independently of each other. As the number of firms in a market de c l i n e s and the degree of s u b s t i t u t a b i l i t y of the products d e c l i n e s , the extent of competition a l s o d e c l i n e s . When products are p e r f e c t s u b s t i t u t e s , homogeneity p r e v a i l s . To the degree a s e l l e r can r a i s e the p r i c e of an item without s a c r i f i c i n g s a l e s , he has a d i f f e r e n t i a t e d product with l e s s than p e r f e c t s u b s t i t u t a b i l i t y . S c h e r e r " gives the f o l l o w i n g examples of market s t r u c t u r e : 1. pure monopoly e x i s t s when there i s one s e l l e r ; 2. homogeneous o l i g o p o l y and d i f f e r e n t i a t e d o l i g o p o l y e x i s t when there are a few s e l l e r s and a homogeneous product or a d i f f e r e n t i a t e d product, r e s p e c t i v e l y ; and 3. a d i f f e r e n t i a t e d product with many s e l l e r s r e s u l t s in monopolistic competition. - 38 -Market power depends not on the firm's absolute s i z e but rather on i t s s i z e r e l a t i v e to the s i z e of the market. 3 0 What market forces i n t e r f e r e with a competitive market s t r u c t u r e ? As seen above the s t r u c t u r e of the market i t s e l f , i n terms of number of s e l l e r s and product d i f f e r e n t i a t i o n , can prevent a competitive market from emerging. A natural monopoly w i l l r e s u l t when there i s only room f o r one f i r m and a "natural o l i g o p o l y " when there i s room f o r only a few 31 f i r m s . The amount of "room" w i l l depend on economies of scale and other b a r r i e r s to e n t r y . A b a r r i e r to entry " i s a cost of production that o p e n t e r i n g f i r m s , but not e x i s t i n g f i r m s , must bear", i ) Economies of s c a l e Economies of scale depend on two f a c t o r s : (a) the number of e f f i c i e n t firms p o s s i b l e i n the industry in r e l a t i o n to the s i z e of the market and (b) the slope of the cost curve at less than minimum e f f i c i e n c y s c a l e . I f the slope i s gradual, the i n t r o d u c t i o n of another f i r m a f t e r minimum e f f i c i e n c y i s reached, w i l l not d r a s t i c a l l y i n c r e a s e the cost of production. A steep slope w i l l mean that the i n t r o d u c t i o n of an a d d i t i o n a l f i r m a f t e r minimum e f f i c i e n c y i s v r e a c h e d w i l l i n c r e a s e the cost of production s i g n i f i c a n t l y . 3 3 - 39 -i i ) Other B a r r i e r s to Entry B a r r i e r s to entry can be natural or induced by government p o l i c y . Economies of scale i s one natural b a r r i e r ; i t i s a f u n c t i o n of technology and f a c t o r p r i c e s . Other natural b a r r i e r s i n c l u d e the absolute c a p i t a l requirement f o r s t a r t up, consumer buying p r a c t i c e s , technology, raw m a t e r i a l s a v a i l a b l e and e n t r e p r e n e u r i a l a b i l i t y . " * 4 B a r r i e r s to entry can a l s o be created by government by the granting of patents, l i c e n c e s or f r a n c h i s e s or by the imposition of t a r i f f s . Indeed, the most d i f f i c u l t b a r r i e r s to entry to overcome are those imposed and enforced by government, often in the form of r e g u l a t i o n . A popular view i s that rates of economic return i n c r e a s e with the height of b a r r i e r s to entry. However, as with most multidimensional behavior, the r e l a t i o n s h i p i s subject to d e b a t e . 3 5 B. Market Behavior This s e c t i o n w i l l discuss the f o l l o w i n g forms of market behavior which can i n f l u e n c e market power and hence the degree of competition, i n an i n d u s t r y : (a) c o n s p i r a c i e s to lessen competition and o l i g o p o l i s t i c c o o r d i n a t i o n and (b) mergers. - 40 -i ) C onspiracies to lessen competition For those who think businessmen t h r i v e on competition some i n s i g h t may be gained from the f o l l o w i n g q u o t a t i o n : 3 6 Men go i n t o business to earn a l i v i n g . There are often circumstances which s e r i o u s l y i n t e r f e r e with t h e i r a b i l i t y t o do so. The greatest of these i s competition. H i s t o r y has shown t h a t , when l e f t to t h e i r own devices, businessmen w i l l arrange to f i x p r i c e s in order to reduce the uncertainty and v a r i a b i l i t y of t h e i r p r o f i t s . Some groups w i l l organize to the point of s e t t i n g up t h e i r own system of p o s i t i v e and negative sanctions. 37 Green provides some examples. In 1932, e i g h t manufacturers of rubber wear i n Ontario entered a w r i t t e n agreement to f i x p r i c e s and l i m i t output. The group l e v i e d f i n e s f o r exceeding quotas and paid bonuses to manufacturers who f e l l short of the quotas. Fines and bonuses were a l s o used i n the cardboard i n d u s t r y . Government enforcement of p r i c e f i x i n g laws over the years has r e s u l t e d in more d i s c r e e t types of 38 agreements. ° While there are natural f o r c e s which i n h i b i t long term c a r t e l behavior, such behavior i s e a s i e r to coordinate i n an industry which i s c h a r a c t e r i s t i c a l l y an o l i g o p o l y . i i ) O l i g o p o l i s t i c c o o r d i n a t i o n Canada has a h i g h l y concentrated i n d u s t r y . The t y p i c a l manufacturing industry i s an o l i g o p o l y in which four to e i g h t firms j o i n t l y account f o r - 41 -at l e a s t one h a l f of a l l the sales in that i n d u s t r y . 3 9 While economists have not been able t o present a s i n g l e comprehensive theory of o l i g o p o l i s t i c behavior, they p r e d i c t that i t w i l l r e s u l t in some of the same problems as monopolies to the extent that the firms involved can e f f e c t i v e l y coordinate t h e i r economic a c t i v i t i e s . O l i g o p o l i s t i c c o o r d i n a t i o n can be f a c i l i t a t e d by agreement, whether formal or in f o r m a l , overt or covert. A major problem faced by governments in c o n t r o l l i n g such a c t i v i t y i s the behavior r e f e r r e d t o as conscious p a r a l l e l i s m , the co o r d i n a t i o n of behavior without an apparent agreement. 4 0 O l i g o p o l i s t i c c o o r d i n a t i o n i s f a c i l i t a t e d by p r i c e l e a d e r s h i p , rules of thumb, such as a formula based on cost, and the use of focal poi n t s . 4 1 However, coordination can be l i m i t e d by a number of c o n d i t i o n s : '-( i ) the number and s i z e d i s t r i b u t i o n of s e l l e r s , i . e . , as the number of s e l l e r s i n c r e a s e , the p r o b a b i l i t y that i n d i v i d u a l s e l l e r s w i l l ignore t h e i r r i v a l s increases as do the odds of g e t t i n g a maverick. The presence of a competitive " f r i n g e " i n h i b i t s c o o r d i n a t i o n among the leading f i r m s ; ( i i ) product heterogeneity, i . e . , the greater the heterogeneity, the more d i f f i c u l t c o o r d i n a t i o n ; ( i i i ) the dynamic i m p l i c a t i o n s of cost s t r u c t u r e s , i . e . , where overhead costs are high, p r i c i n g d i s c i p l i n e tends to break down during r e c e s s i o n s ; ( i v ) the s i z e and frequency of orders, i . e . , c l o s e coordination i s e a s i e r i f orders are smal l , frequent and re g u l a r , and (v) the nature of the industry's s o c i a l s t r u c t u r e . Since the major purpose of p r i c e f i x i n g , whether i t be overt or achieved by more subtle forms of c o o r d i n a t i o n , i s to r e s t r i c t output, r a i s e - 42 -p r i c e s and decrease the v a r i a b i l i t y of p r o f i t s over time, i t i s d i f f i c u l t to view p r i c e f i x i n g as possessing any redeeming s o c i e t a l f e a t u r e s . The r e s u l t s are (a) the t r a n s f e r of excess p r o f i t s from consumers to producers and (b) the dead weight loss to s o c i e t y . i i i ) Mergers Mergers can be h o r i z o n t a l , conglomerate or v e r t i c a l . Thompson 4 3 summarizes the d i f f e r e n c e s among these types of mergers. If companies which are producing the same or r e l a t e d products merge, i t i s c l a s s i f i e d as h o r i z o n t a l . If companies involved i n unrelated production processes merge, i t is c l a s s i f i e d as conglomerate. Mergers between companies l i n k e d as actual or p o t e n t i a l s u p p l i e r or customer are c l a s s i f i e d as v e r t i c a l . The most serious threat to competitive markets i s the h o r i z o n t a l merger which involves companies which were, p r i o r to merger, c o m p e t i t i t o r s . In f a c t , there i s probably no s a f e r way i n Canada to gain control over a market than to merge with one's c o m p e t i t i t o r s . While the r e s u l t , i . e . , market power, may be the same i n the case of p r i c e f i x i n g and a merger the two forms of behavior can not n e c e s s a r i l y be d e a l t with by the same t o o l s . A merger does not n e c e s s a r i l y have a detrimental e f f e c t on s o c i e t y . Both the motive f o r , and the consequences of, a merger can have a * b e n e f i c i a l , detrimental or neutral e f f e c t from e i t h e r the f i r m or the p u b l i c ' s point of v i e w . 4 4 Evaluating the b e n e f i c i a l or detrimental e f f e c t s of a merger which has occurred i s not an easy t a s k . P r e d i c t i n g the - 43 -e f f e c t s of a merger p r i o r to i t taking place i s even more d i f f i c u l t . This c o n d i t i o n a l aspect of mergers poses problems with using the criminal law against such a c t i v i t y , as w i l l be discussed i n Chapter 3. IV. GOVERNMENT INTERVENTION When the market forces no longer s u s t a i n a c t i v e and e f f e c t i v e competition and mergers threaten to create unruly g i a n t s , what can a government do? Economic r e g u l a t i o n , that i s , "the imposition of rules by a government, backed by the use of p e n a l t i e s , that are intended s p e c i f i c a l l y t o modify the economic behavior of i n d i v i d u a l s and firms i n the p r i v a t e s e c t o r " , 4 5 i s one p o s s i b i l i t y . Economic r e g u l a t i o n includes such government a c t i v i t y as s e t t i n g p r i c e s and quotas and r e s t r i c t i n g e n t r y . L e g i s l a t i o n governing competition p o l i c y i s the " a n t i t h e s i s of Ac government r e g u l a t i o n " . It i s d i r e c t e d at s t r i k i n g down p r i v a t e r e s t r a i n t s of trade i n an attempt to have competition work the way i t was intended. I t i s d i r e c t e d at p r o h i b i t i n g behavior such as p r i c e f i x i n g , c o l l u s i o n , predatory p r i c i n g and misleading a d v e r t i s i n g . Other methods of government i n t e r v e n t i o n i n c l u d e d i r e c t expenditures, tax expenditures, t a x a t i o n , exhortation and p u b l i c i t y , loans and loan guarantees, the cr e a t i o n of p r i v a t e c i v i l a c t i o n r i g h t s and p u b l i c ownership. 4^ - 44 -V. CONCLUSION This chapter o u t l i n e d some of the economic, s o c i a l and p o l i t i c a l b e n e f i t s of competition. An understanding of the purpose behind p r o h i b i t i n g d i f f e r e n t types of a n t i c o m p e t i t i v e a c t i v i t y i s e s s e n t i a l i n order to recommend methods of d e a l i n g with such behavior. Conspiracies to lessen competition and i l l e g a l mergers both represent a threat to competition. However, the force of the c r i m i n a l law i s not appropriate to deal with a l l unwanted behavior and both forms of a n t i c o m p e t i t i v e behavior must be examined i n l i g h t of the nature of the c r i m i n a l law. Chapter 3 w i l l examine c o n s p i r a c i e s to lessen competition and i l l e g a l mergers i n l i g h t of the concern by some academics that the c r i m i n a l law should t o l i m i t e d t o p r o h i b i t i n g only c e r t a i n types of behavior. While t h i s t h e s i s i s concerned with the control of a n t i c o m p e t i t i v e behavior through the use of the c r i m i n a l law, i t i s important not to lose s i g h t of the a l t e r n a t i v e s . A f t e r examining the use of the criminal law against c o n s p i r a c i e s to lessen competition and i l l e g a l mergers in Chapter 3, the nature of corporations i n Chapter 4, and problems a s s o c i a t e d with using the c r i m i n a l law against c o r p o r a t i o n s , the most common v e h i c l e through which c o n s p i r a c i e s to lessen competition and i l l e g a l mergers occur, p o s s i b l e a l t e r n a t i v e s w i l l be discussed i n the concluding chapter. - 45 -FOOTNOTES 1. Combines I n v e s t i g a t i o n Act, R.S.C. 1970, C-3. 2. Donald Stevenson Watson, Economic P o l i c y , (1960) at 137. 3. F.M. Scherer, I n d u s t r i a l Market S t r u c t u r e and Economic Performance, (1980) at 11. 4. _Id., at 1. 5. Paul K. Gorecki and W.T. Stanbury, The Objectives of Canadian Competition P o l i c y , 1888-1981, (1981) Study prepared f o r the I n s t i t u t e f o r Research on P u b l i c P o l i c y . 6. Supra note 3 chapter 17. 7. The extent of t h i s loss i s d i f f i c u l t to measure and some economists would argue that i t i s not s i g n i f i c a n t . See Kenneth Clarkson, Does Monopoly Power Cause Extensive Welfare Loss, (1978) i n M. Bruce Johnson (ed.) The Attack on Corporate America, (1978) at 203. Scherer, however, sees the losses as f a r more extensive; see supra note 3. 8. Supra note 3 at 464-470. 9. Id., at 464 quoting Adam Smith, The Wealth of Nations, (1937) at 147. 10. See Harvey L e i b e n s t e i n , A l l o c a t i v e E f f i c i e n c y vs. ' X - E f f i c i e n c y , 1 (1966) 56 Am. Econ. Rev. 393; and Williams S. Comanor and Harvey L e i b e n s t e i n , A l l o c a t i v e E f f i c i e n c y , X - E f f i c i e n c y , and the Measurement of Welfare Losses, (1969) 36 Economica 304. 11. C h r i s t o p h e r Green, Canadian I n d u s t r i a l Organization and P o l i c y , (1980) at 104. These a l l e g a t i o n s have been challenged by the f o l l o w i n g authors: Roger Sherman, Do Corporations Suppress Technical Innovation? (1978) i n Johnson, supra note 7 at 198; Robert Ayanian, Does Corporate A d v e r t i s i n g Raise P r i c e s ? i n Johnson, supra note 7 at 182; Harold Demsetz, Are Large Corporations I n e f f i c i e n t , i n Johnson, supra note 7 at 245. 12. Conversation with Dr. W.T. Stanbury, Faculty of Commerce, U n i v e r s i t y of B r i t i s h Columbia. 13. Lawrence A. Skeoch and Bruce C. McDonald, Dynamic Change and A c c o u n t a b i l i t y in a Canadian Market Economy, (1976). 14. Lawrence A. Skeoch, The Dynamic Change Report and the Proposed Competition Act, (1979) i n J . Robert S. P r i c h a r d , W.T. Stanbury, and Thomas A. Wilson (eds.), Canadian Competition P o l i c y : Essays i n Law and Economics, (1979) at 80-81. See a l s o W.T. Stanbury, Dynamic Change and A c c o u n t a b i l i t y i n a Canadian Market Economy: Summary and C r i t i q u e , (1977) 15 Osgoode Hall L.J. 1. - 46 -15. Supra note 5. 16. Id. chapter 3. 17. Id. chapter 2 at 1. 18. _Id_., chapter 4. 19. Id. chapter 4 at 14-15. See a l s o David McQueen, Revising Competition Law O v e r v i e w By a P a r t i c i p a n t , (1979) i n P r i c h a r d , Stanbury and Wilson, supra, note 14 at 3. 20. Supra note 5, chapter 5 at 19. 21. See a l s o Robert L. Crouch, Are Corporate P r i c i n g P o l i c i e s a Primary Cause of I n f l a t i o n ? (1978) i n Johnson, supra note 7 at 187; Robert D. T o l l i s o n , Is I n d u s t r i a l Concentration the Cause of I n f l a t i o n ? (1978) i n Johnson, supra note 7 at 194. 22. Supra note 5, Chapter 5 at 25. 23. G. Rosenbluth and H.G. Thornburn, Canadian Anti-Combines A d m i n i s t r a t i o n , 1952-1960, (1963); C o l i n H. Goff and Charles E. Reasons, Corporate Crime i n Canada, (1978) quoted i n supra note 5, chapter 5 at 34-38. 24. Rosenbluth and Thornburn, i_d., at 96 quoted i n supra note 5 chapter 5 at 34. 25. B. Young, Corporate Interests and the S t a t e , (1974) 10 Our'Generation 70; Don M i t c h e l l , The P o l i t i c s of Food, (1975) quoted in supra note 5, chapter 5 at 37-38. 26. Supra note 3 at 3-5. 27. Id., at 4-5. 28. Id., at 10. 29. Id., at 10-12 30. Id., at 12. 31. _Id. at 91. 32. Robert D. T o l l i s o n , Can Corporations L i m i t New Entry? (1978) i n Johnson, supra note 7 at 212. 33. Conversation with Dr. W.T. Stanbury, F a c u l t y of Commerce, U n i v e r s i t y of B r i t i s h Columbia; see a l s o Paul K. Gorecki, Economies of Scale and I E f f i c i e n t Plant Size i n Canadian Manufacturing I n d u s t r i e s , (1976) and Scherer, supra note 3 at 81-118. - 47 -34. Supra note 3 at 275-276. 35. Supra" note 32; R. David Ranson, Does the Large Corporation's Access to C a p i t a l Markets Discourage Entry? (1978) i n Johnson, supra note 7 219; Harry Bloch, Is Corporate Product A d v e r t i s i n g A B a r r i e r to Entry? (1978) i n Johnson, supra note 7 at 228. 36. Canadian Grocer, 1891, i n Michael B l i s s , A L i v i n g P r o f i t , (1974). 37 Supra note 11 at 28-29. 38. W.T. Stanbury and G.B. Reschenthaler, Oligopoly and Conscious P a r a l l e l i s m : Theory, P o l i c y and The Canadian Cases, (1977) 15 Osgoode "Hall L . J . 617. 39. Information from Dr. W.T. Stanbury, Faculty of Commerce, U n i v e r s i t y of B r i t i s h Columbia. See a l s o R.S. Khemani, Concentration in the Manufacturing Industries of Canada: Analysis of Post-War Changes, (1980). 40. Supra note 38 at 619. 41. Supra note 3 chapter 6. 42. Supra note 38 at 624. 43. Donald N. Thompson, Mergers, E f f e c t s of Competition P o l i c y : Some Empirical Evidence, i n P r i c h a r d , Stanbury and Wilson, (eds.) supra note 14 at 300. 44. Supra note 3 at 118-141 and at 544-546. 45. Margot P r i e s t , W.T. Stanbury and Fred Thompson, On the D e f i n i t i o n of Economic Regulation, (1980) i n W.T. Stanbury, (ed.) Government Regulation: Scope, Growth, Process, (1980) at 5. 46. Robert J . Bertrand, The Combines I n v e s t i g a t i o n Act: What Does Competition Mean? (1977) 4 Can. "Bus. Rev. 45 at 45. 47. Economic Council of Canada, Responsible Regulation, (1979) at 43. For a study on the extent of government involvement in the Canadian economy see John L. Howard and W.T. Stanbury, Measuring Leviathan: The S i z e , Scope and Growth of Governments in Canada, (1982) Paper to be published by the Fraser I n s t i t u t e . - n -CHAPTER. 3 LIMITING THE APPLICATION OF THE CRIMINAL LAW As was pointed out i n Chapter 2, there are a v a r i e t y of ways f o r a government to respond t o unwanted behavior. The i n t r o d u c t i o n of criminal l e g i s l a t i o n i s one of them. The federal government's o r i g i n a l response to r e s t r i c t i v e trade p r a c t i c e s in 1889 was to define c e r t a i n a c t i v i t i e s as c r i m i n a l . Criminal sanctions are s t i l l a predominant method of control today. However, a concern with the l i m i t a t i o n s of the criminal law has l e d t o an e x p l o r a t i o n of a l t e r n a t i v e s . 1 Is c r i m i n a l law appropriate to the conduct p r o h i b i t e d under the Combines I n v e s t i g a t i o n Act (the "CIA")? Does the f a c t that most of the a c t i v i t y forbidden under the CIA i s c a r r i e d on through corporations a f f e c t the appropriateness of the criminal law? A major l i m i t a t i o n faced by the federal government i s that non-c r i m i n a l l e g i s l a t i o n which i t introduces may encroach upon p r o v i n c i a l j u r i s d i c t i o n and be declared u l t r a v i r e s by the c o u r t s . While t h i s i s a major concern and may r e s t r i c t the f e d e r a l government's a l t e r n a t i v e s , the evaluation of the appropriateness of the criminal law in t h i s chapter w i l l be made on the assumption that i f the c r i m i n a l law i s i n a p p r o p r i a t e f o r c o n s p i r a c i e s or i l l e g a l mergers other methods of c o n t r o l , w i t h i n the j u r i s d i c t i o n of the federal government, w i l l be found. That i s , arguments f o r the use of the c r i m i n a l law w i l l not be based on c o n s t i t u t i o n a l - 49 -reasons. The c o n s t i t u t i o n a l i t y of the CIA i s an important issue; but, i t i s beyond the scope of t h i s t h e s i s . This chapter w i l l examine the use of the cr i m i n a l law to enforce the the p r o h i b i t i o n s against c o n s p i r a c i e s to lessen competition and i l l e g a l mergers under the CIA in l i g h t of the c r i t e r i a which should be met, p r i o r to i t s use, as proposed by Packer J and the Law Reform Commission of Canada 4 (the "Commission"). Issues r a i s e d by the use of criminal law against c o r p o r a t i o n s w i l l be examined in subsequent chapters. According t o Packer, the r a t i o n a l e behind the criminal law and the cr i m i n a l j u s t i c e process i t s e l f impose r e s t r i c t i o n s on when the criminal law should be used. Selected aspects of the r a t i o n a l e and the process w i l l be discussed p r i o r to examining the l i m i t a t i o n s proposed by Packer and the Commission. L e g i s l a t i o n p r o h i b i t i n g c o n s p i r a c i e s to lessen competition and i l l e g a l merger w i l l then be examined i n l i g h t of these l i m i t a t i o n s . I. THE RATIONALE"FOR"THE"USE OF THE CRIMINAL LAW In examining the r a t i o n a l e behind the use of criminal law, Packer makes a d i s t i n c t i o n between crime and punishment. Crime i s concerned with what conduct i s to be p r o h i b i t e d , that i s , s e t t i n g standards. It addresses the primary norms of cr i m i n a l law. Punishment i s concerned with what o f f i c i a l s are authorized to do once the standards have been proven to be breached. I t provides the sanctions of c r i m i n a l law. ( - 50 -The requirement of c u l p a b i l i t y or g u i l t provides the l i n k between the crime ( p r o h i b i t e d behavior) and punishment ( s a n c t i o n s ) . 6 If no crime i s proved, punishment cannot be i n f l i c t e d . The c r i t e r i a which must be met to e s t a b l i s h g u i l t w i l l depend on the purposes seen in the concepts of crime and punishment.^ Crime i s whatever behavior s o c i e t y , through the s t a t e , defines as c r i m i n a l . Behavior i s defined as c r i m i n a l in order to announce to s o c i e t y o that the conduct i s p r o h i b i t e d . The d e f i n i t i o n and purpose of punishment are not so s t r a i g h t f o r w a r d . A. A D e f i n i t i o n of Punishment Packer borrows f i v e d e f i n a b l e c h a r a c t e r i s t i c s of punishment from Hart and adds a s i x t h . 9 (1) It must involve pain or other consequences normally considered unpleasant. (2) It must be f o r an offense against legal r u l e s . (3) It must be imposed on an actual or supposed offender f o r his offence. (4) It must be i n t e n t i o n a l l y administered by human beings other than the offender. (5) It must be imposed and administered by an a u t h o r i t y c o n s t i t u t e d by a l e g a l system aga i n s t which the offense i s committed. [6] I t must be imposed f o r the dominant purpose of preventing offenses against l e g a l rules or of exacting r e t r i b u t i o n from o f f e n d e r s , or both. - 51 -L a t e r he condenses these features to describe punishment as marked by the f o l l o w i n g : 1 0 (1) the presence of an offense; (2) the i n f l i c t i o n of pain on account of the commission of the offense; (3) a dominant purpose that i s n e i t h e r to compensate someone i n j u r e d by the offense nor to b e t t e r the offender's c o n d i t i o n but to prevent f u r t h e r offenses or to i n f l i c t what i s thought to be deserved pain on the offender. Packer d i f f e r e n t i a t e s between punishment and other sanctions such as compensation, treatment and r e g u l a t i o n . For example, the purpose of punishment i s to prevent undesired conduct and to i n f l i c t deserved pain f o r wrongdoing, while the purpose of treatment i s to b e n e f i t the i n d i v i d u a l . The former focuses on the offence, while the l a t t e r focuses on the offender. The problems encountered i n punishing corporations and the use of a l t e r n a t i v e sanctions w i l l be addressed i n Chapters 6 and 7. B. The Purpose of Punishment According t o Packer the e x t r a c t i o n of r e t r i b u t i o n and the prevention of crime are the two dominant goals of punishment. In an attempt to i n t e g r a t e these purposes he expands on the f o l l o w i n g two p r o p o s i t i o n s : 1 1 (1) It i s a necessary but not a s u f f i c i e n t c o n d i t i o n f o r punishment that i t i s designed to prevent the commission of o f f e n s e s . - 5 2 -(2) It is a necessary but not a s u f f i c i e n t c o ndition of punishment that the person on whom i t i s imposed i s found to have committed an offense under circumstances that permit his conduct to be considered as blameworthy. The prevention of crime or deterrence i s not only l i m i t e d by the requirement of c u l p a b i l i t y but i s a l s o a s s i s t e d by i t . The l i m i t i n g purpose of c u l p a b i l i t y p rotects the i n d i v i d u a l from the s t a t e . An offence, an act plus a s t a t e of mind, must be proved before an i n d i v i d u a l can be 1 ? punished. Packer continues, But i f deterrence (or prevention) i s more broadly conceived as a complex p s y c h o l o g i c a l phenomenon or meant p r i m a r i l y to create and r e i n f o r c e the conscious m o r a l i t y and the unconscious habitual c o n t r o l s of the law-abiding, then the flank of the o l d argument may be turned. Punishment of the morally innocent does not r e i n f o r c e one's sense of i d e n t i f i c a t i o n as a lawabider, but rather undermines i t . In t h i s way-deterrence i s a s s i s t e d by the requirement of c u l p a b i l i t y . Packer has used what has sometimes been r e f e r r e d to as the symbolic purpose of punishment to l i n k r e t r i b u t i o n and deterrence. These three purposes, r e t r i b u t i o n , deterrence and symbolism, w i l l be examined i n Chapter 6 i n l i g h t of arguments f o r and against corporate criminal l i a b i l i t y and the purposes judges wish to achieve when sentencing c o r p o r a t i o n s . Packer relegates i n c a p a c i t a t i o n and r e h a b i l i t a t i o n to a secondary l e v e l as f a c t o r s which should be considered when assessing the s e v e r i t y of punishment. Compensation, i . e . "making another person whole", - 53 -r e s t i t u t i o n , and doing nothing are a l t e r n a t i v e s to punishment. The role which these a l t e r n a t i v e s play in sentencing c o r p o r a t i o n s w i l l a l s o be examined i n Chapter 6. C. The Requirement of G u i l t Packer views c u l p a b i l i t y as a necessary p r e r e q u i s i t e to punishment. It serves to l i m i t the u n c o n t r o l l e d use of s t a t e power in the p u r s u i t of 13 crime prevention. L i a b i l i t y without f a u l t a l s o d i l u t e s the moral impact of c r i m i n a l law in two ways. F i r s t , i t i s often used to enforce morally neutral or p u b l i c welfare type offences. Second, i t abandons the t r a d i t i o n a l i n q u i r y i n t o the moral blameworthiness of the offender. The issue of moral n e u t r a l i t y and c u l p a b i l i t y w i l l be examined l a t e r i n t h i s chapter and the problems with a t t a c h i n g blame to corporations w i l l be addressed i n Chapter 5. I I . THE CRIMINAL JUSTICE PROCESS The second major source of r e s t r a i n t on the criminal law i s found i n the process of implementing or administering the c r i m i n a l law. Packer discusses two competing value systems which e x i s t i n the criminal j u s t i c e system: (a) the Crime Control Model and (b) the Due Process Model. The models represent values at two extremes and the actual operation of the c r i m i n a l j u s t i c e system f a l l s somewhere in between the two extremes. - 54 -A. The Crime Control Model The primary purpose of the cr i m i n a l law under the Crime Control Model i s the e f f i c i e n t suppression of crime. This goal i s achieved by a high rate of apprehension and c o n v i c t i o n , speed, and f i n a l i t y . The system "must not be c l u t t e r e d up with ceremonious r i t u a l s that do not advance the progress of a c a s e " . 1 4 The system places a high degree of confidence in the informal screening and i n v e s t i g a t i o n c a r r i e d on by the p o l i c e and t h e r e f o r e subsequent procedural safeguards are r e l a t i v e l y unimportant. Procedures are uniform and r o u t i n e . Those who are probably innocent are screened out of the system while those who are probably g u i l t y are e x p e d i t i o u s l y passed through the system and most w i l l plead g u i l t y . The Crime Control Model resembles an assembly l i n e . 1 5 B. The Due Process Model The Due Process Model i s concerned with r e l i a b i l i t y , or Type II e r r o r s , that i s , f a l s e l y c o n v i c t i n g an innocent p e r s o n . 1 6 Informal f a c t f i n d i n g , which i s a feature of the Crime Control Model, introduces an unacceptable degree of e r r o r . People have a poor r e c o l l e c t i o n of d i s t u r b i n g events; confessions may have been obtained by physical or ps y c h o l o g i c a l c o e r c i o n ; and, witnesses may be biased. P u b l i c o f f i c i a l s are not to be t r u s t e d with the task of f i n d i n g and judging the f a c t s . Maximum e f f i c i e n c y , suggested by the Crime Control Model, would lead t o maximum tyranny. - 55 -The system's aim i s not only to c o n v i c t the g u i l t y but a l s o to protect the innocent. Loss of i n d i v i d u a l l i b e r t y and the stigma of criminal c o n v i c t i o n are the reasons f o r r e s t r a i n i n g the power of the s t a t e . 1 7 The presumption of innocence d i c t a t e s which formal and a d v e r s a r i a l procedures should be followed u n t i l an accused i s found t o be l e g a l l y g u i l t y or not g u i l t y . Q u a l i t y control cuts down on q u a n t i t a t i v e output. The process resembles an obstacle c o u r s e . 1 8 The concerns with procedural e f f i c i e n c y i n the Crime Control Model and with r e l i a b i l i t y and the r i g h t s of the accused i n the Due Process Model r a i s e a number of issues in regard to using the criminal j u s t i c e system to enforce the CIA. Some of these issues w i l l be examined i n Part VI of t h i s chapter. I I I . APPLYING LIMITS TO THE CRIMINAL LAW The [ c r i m i n a l ] sanction i s at once uniquely c o e r c i v e and, in the broadest sense, uniquely expensive. It should be reserved f o r what r e a l l y m a t t e r s . 1 9 Packer^ 1 o u t l i n e s the f o l l o w i n g c r i t e r i a , f o r the use of criminal sanctions against s p e c i f i c conduct: (1) The conduct i s prominent in most people's view of s o c i a l l y threatening behavior, and i s not condoned by any s i g n i f i c a n t segment of s o c i e t y . (2) Subjecting i t t o the c r i m i n a l sanction i s not i n c o n s i s t e n t with the goals of punishment. - 56 -(3) Suppressing i t w i l l not i n h i b i t s o c i a l l y d e s i r a b l e conduct. (4) It may be dealt with through even-handed and nondiscriminatory enforcement. (5) C o n t r o l l i n g i t through the c r i m i n a l process w i l l not expose that process to severe q u a l i t a t i v e or q u a n t i t a t i v e s t r a i ns. (6) There are no reasonable a l t e r n a t i v e s to the c r i m i n a l sanction f o r dealing with i t . More recently the Law Reform Commission of Canada^ 1 expressed the view that c r i m i n a l sanctions should be used as a l a s t resort to a f f i r m fundamental values. The criminal regime bears three basic f e a t u r e s . F i r s t , c o n v i c t i o n of a crime c a r r i e s stigma: the offender i s condemned f o r doing wrong. Second, the i n q u i r y i n t o g u i l t or innocence i s a s e r i o u s , solemn m a t t e r — t h e sort of t r i a l q u i t e out of place f o r minor offences and f o r v i o l a t i o n s . T h i r d , only real crimes deserve the pre-eminently shameful punishment of imprisonment; prison should be excluded from the l i s t of p e n a l t i e s p r e s c r i b e d f o r v i o l a t i o n s . Stigma, the p o s s i b i l i t y of solemn t r i a l , imprisonment—these are the hallmarks of the c r i m i n a l regime. They have to be reserved f o r real crimes. Concerned with what i t r e f e r s to as " o v e r k i l l " by the criminal law the Commission has c a l l e d f o r the d e c r i m i n a l i z a t i o n of regulatory s t a t u t e s . Toward t h i s end, i t has summarized the c r i t e r i a which should e x i s t p r i o r to using c r i m i n a l sanctions to achieve compliance with the l a w . 2 2 To determine whether any act should be a real crime w i t h i n the Criminal Code we should i n q u i r e : [1] does the act s e r i o u s l y harm other people? [2] does i t in some other way so s e r i o u s l y contravene our fundamental values as to be harmful to s o c i e t y ? - 57 -[3] are we confident that the enforcement measures necessary f o r using c r i m i n a l law against the act w i l l not themselves s e r i o u s l y contravene our fundamental values? [4] given that we can answer "yes" to the above three questions, are we s a t i s f i e d t h a t c r i m i n a l law can make a s i g n i f i c a n t c o n t r i b u t i o n i n de a l i n g with the problem? Only i f a l l four questions can be answered a f f i r m a t i v e l y should an act be p r o h i b i t e d as a cri m i n a l offence w i t h i n the Criminal Code. Professor F i t z g e r a l d 2 3 of the Law Reform Commission has pointed out that the f i r s t two c r i t e r i a are a l t e r n a t i v e s . This approach i s more i n 24 l i n e with the c r i t e r i a set out by the Ouimet Committee in 1969. Packer's f i r s t three c r i t e r i a and the Commission's f i r s t , second and fourt h c r i t e r i a address the l i m i t s imposed by the r a t i o n a l e of the criminal law. They are concerned with the nature of crime and punishment and the requirement of g u i l t . Packer's fourth and f i f t h c r i t e r i a and the Commission's t h i r d c r i t e r i o n deal with the criminal j u s t i c e process. P r i o r to eva l u a t i n g the appropriateness of using criminal law to prevent c o n s p i r a c i e s and i l l e g a l mergers, the concept of moral n e u t r a l i t y w i l l be discussed. A. The Concept of Moral N e u t r a l i t y Is i t that r i c h men make the laws and so what r i c h men do i s no crime but simply shrewd business p r a c t i c e ? 2 ^ - 58 -As was stated above, the Law Reform Commission i s of the opinion that the c r i m i n a l law should be reserved to enforce "fundamental values" and that compliance with other rules can be enforced through non-criminal r e g u l a t i o n . 2 6 S i m i l a r l y , Packer i s of the opinion that "the criminal sanction should o r d i n a r i l y be l i m i t e d to conduct that i s viewed, without s i g n i f i c a n t s o c i a l d i s s e n t , as immoral". 2^ Since the criminal law i s concerned with moral condemnation, i t should be l i m i t e d to behavior which i s immoral. 2 8 The concern with fundamental values and morals i l l u s t r a t e s what K a d i s h " has l a b e l l e d the "moral n e u t r a l i t y " problem a s s o c i a t e d with criminal law. Morally neutral behavior i s that which "the stigma of moral r e p r e h e n s i b i l i t y does not n a t u r a l l y a s s o c i a t e i t s e l f " . The use of the c r i m i n a l law to enforce p r o h i b i t i o n s against morally neutral behavior w i l l d i l u t e the law's moral impact. However, a major problem with t h i s c o n c e p t u a l i z a t i o n i s that what i s morally reprehensible or morally neutral i s c u l t u r a l l y d e fined; i t i s a s o c i a l c o n s t r u c t i o n , not an absolute g i v e n . 3 0 There are two t h e o r e t i c a l approaches to the s o c i a l o r i g i n or c o n s t r u c t i o n of law. The consensus model emphasizes law as the common consciousness of a s o c i e t y while the c o n f l i c t model claims that crime i s defined and a p p l i e d by those segments of s o c i e t y which have the 0 1 power to impose t h e i r values on s o c i e t y . - 59 -Crimes against persons, such as murder, a s s a u l t and c r i m i n a l negligence, are more e a s i l y viewed as r e f l e c t i n g a consensus i n s o c i e t y than crimes against property. However, there are s t i l l circumstances under which murder, assault and c r i m i n a l negligence, by i n d u s t r i a l diseases or by the misrepresentation of the e f f e c t s of drugs, occur and the d e f i n i t i o n of such a c t i v i t y as criminal i s s t r o n g l y r e s i s t e d by those who b e n e f i t economically from i t . Property offences are more r e a d i l y viewed as the r e s u l t of c o n f l i c t amongst d i f f e r e n t s o c i a l and economic groups. However, the f a c t that some behavior i s seen as "morally n e u t r a l " may not r e f l e c t a consensus of the m a j o r i t y , but may instead r e f l e c t the a b i l i t y of one group to dominate or d i c t a t e s o c i a l values. The a s s o c i a t i o n between economic power and p o l i t i c a l power c o n t r i b u t e s to t h i s a b i l i t y . It may allow a f a i r l y small group to d i c t a t e what w i l l be defined as crime and viewed as morally reprehensible. The answer t o whether crime o r i g i n a t e s from a consensus or a c o n f l i c t model of s o c i e t y i s not an absolute. Rather, i t i s found somewhere on a continuum of c o n f l i c t to consensus and can move on that continuum over time. I t is a s o c i a l c o n s t r u c t i o n . Canadian competition laws are op i l l u s t r a t i v e of the c o n f l i c t of economic values. L i m i t i n g criminal law t o what the Law Reform Commission r e f e r s to as "fundamental values" ignores the p o l i t i c a l and s o c i a l aspect of t h i s c r i m i n a l l e g i s l a t i o n . Once the p o l i t i c a l d e c i s i o n i s made as t o which r e s t r i c t i v e trade p r a c t i c e s w i l l be p r o h i b i t e d , the way the offences are defined, i n terms of - 60 -\ the p r o h i b i t e d behavior and the required mental element, w i l l bear upon t h e i r moral r e p r e h e n s i b i 1 i t y . Moral r e p r e h e n s i b i 1 i t y w i l l not e a s i l y be attached t o behavior which i s not c l e a r l y p r o h i b i t e d . In f a c t , penal s t a t u t e s are s t r i c t l y construed; and, since any reasonable doubt w i l l r e s u l t i n an a c q u i t t a l , enforcement of imprecise p r o h i b i t i o n s i s next to i m p o s s i b l e . 3 3 The degree of f a u l t required to e s t a b l i s h criminal g u i l t , another aspect of moral n e u t r a l i t y , cannot be discussed without a reference t o the Supreme Court of Canada's d e c i s i o n i n C i t y of Sault Ste. M a r i e . 3 4 The Court o u t l i n e d three kinds of off e n c e s , one of which requires proof of mens rea. 1. Offences- in which mens rea, c o n s i s t i n g of some p o s i t i v e s t a t e of mind such as i n t e n t , knowledge or rec k l e s s n e s s , must be proved by the prosecution e i t h e r as an inference from the nature of the act committed, or by a d d i t i o n a l evidence. 2. Offences in which there i s no necessity f o r the prosecution t o prove the existence of mens rea; the doing of the p r o h i b i t e d act prima f a c i e imports the offence, l e a v i n g i t open to the accused t o avoid l i a b i l i t y by proving t h a t he took a l l reasonable care. This involves c o n s i d e r a t i o n of what a reasonable man would have done i n the circumstances. The defence w i l l be a v a i l a b l e i f the accused reasonably believed i n a mistaken set of f a c t s which, i f t r u e , would render the act or omission innocent, or i f he took a l l reasonable steps to avoid the p a r t i c u l a r events. These offences may properly be c a l l e d offences of s t r i c t l i a b i l i t y . 3. Offences of absolute l i a b i l i t y where i t i s not open t o the accused t o exculpate himself by showing that he was f r e e of f a u l t . - 61 -According t o Packer, 1" l i a b i l i t y without f a u l t d i l u t e s the moral impact of cr i m i n a l law. However, the imposition of l i a b i l i t y without f a u l t serves two important goals: 3** (a) greater a d m i n i s t r a t i v e e f f i c i e n c y and (b) improved standards of prevention. It can encourage a higher standard of care L i a b i l i t y without f a u l t i s u s u a l l y reserved f o r regulatory o f f e n c e s . The Commission argues that the purpose of a regulatory offence i s not to p r o h i b i t i s o l a t e d acts of wickedness l i k e murder, rape and robbery: i t i s to promote higher standards of care in business, trade and i n d u s t r y , higher standards of honesty i n commerce and a d v e r t i s i n g , higher standards of respect f o r the need to preserve our environment and husband i t s resources. In other words, the regulatory offence i s b a s i c a l l y and t y p i c a l l y an offence of negligence. The Commission i s also of the view that the f u l l force of the criminal law i s in a p p r o p r i a t e f o r regulatory o f f e n c e s . The d i v i s i o n by the Commission between crime and regulatory offences i s not so e a s i l y made i f one keeps in mind the Commission's question about the fundamental nature of crime, that i s , " i s i t that r i c h men make the laws and so what r i c h men do i s no crime but simply shrewd business p r a c t i c e ? " 3 8 For example, i s dishonesty in commerce l e s s wicked than s h o p l i f t i n g and robbery? A j u d g e 3 9 i n 1905 was of the opinion that robbery was l e s s o f f e n s i v e than p r i c e f i x i n g . This excursion i n t o whether mens Yea should be required in order t o e s t a b l i s h that a criminal offence has been committed i s somewhat - 62 -m i s l e a d i n g . It implies that the mental element required has been reduced under the CIA and the moral impact of the l e g i s l a t i o n d i l u t e d . Quite to the contrary; as w i l l be discussed l a t e r , the requirement of mens rea imposed by j u d i c i a l i n t e r p r e t a t i o n of the CIA has gone beyond the s t r i c t i s t requirement of mens rea. However, the e f f e c t may be the same. That i s , l e g i s l a t i o n which i s unenforceable w i l l a l s o lose i t s moral impact. In summary, moral n e u t r a l i t y i s composed of at l e a s t the f o l l o w i n g three concerns: (a) moral opprobrium, (b) c l a r i t y of d e f i n i t i o n , and (c) degree of f a u l t required to e s t a b l i s h g u i l t . The next part w i l l d i s c u s s some of the concerns with the use of the c r i m i n a l law to enforce competition p o l i c y and the l e g i s l a t i o n governing c o n s p i r a c i e s to lessen competition and i l l e g a l mergers. IV. THE USE OF THE CRIMINAL LAW AGAINST RESTRICTIVE TRADE PRACTICES The l i t a n y of concerns with the use of the c r i m i n a l law to enforce c e r t a i n elements of competition p o l i c y , such as mergers or abuse of dominant p o s i t i o n , i s lengthy and includes the f o l l o w i n g : 1. the complexity of economic behavior leads to an i n a b i l i t y to d r a f t e f f e c t i v e l a w s ; 4 0 2. the same complexity leads to imprecise p r o h i b i t i o n s which lack f a i r n o t i c e to the a c c u s e d ; 4 1 3. t h i s complexity a l s o leads t o s i t u a t i o n s where the p r o h i b i t e d behavior i s harmful only under c e r t a i n c i r c u m s t a n c e s ; 4 2 - 63 -4. the substantive and procedural compromises necessary to enforce competition p o l i c y lessen the i n t e g r i t y of the c r i m i n a l l a w ; 4 3 5. c r i m i n a l procedure i s slow, c o s t l y and cumbersome; 4 4 6. the remedies a v a i l a b l e under the c r i m i n a l law are i n e f f e c t i v e and lack a c o n s t r u c t i v e element; 4 5 7. the behavior lacks moral disapproval and weakens the moral impact of the l a w ; 4 6 and 8. lack of enforcement leads to moral n e u t r a l i z a t i o n . 4 7 Some of these concerns are more relevant t o some aspects of competition p o l i c y than others. Conspiracies to lessen competition and i l l e g a l mergers were chosen as two examples of offences, under the CIA because they r e f l e c t a contrast on a number of i s s u e s . Both offences w i l l be d e s c r i b e d . Keeping i n mind Packer and the Law Reform Commission's c r i t e r i a f o r using the criminal law, the remainder of t h i s chapter w i l l then discuss four i s s u e s , the f i r s t one i s concerned with the r a t i o n a l e of the c r i m i n a l law and the l a s t three r e l a t e to the use of the criminal j u s t i c e system to enforce such laws: 1. moral n e u t r a l i t y , 2. s e l f - i n c r i m i n a t i o n p r i o r to cr i m i n a l proceedings, 3. s e l f - i n c r i m i n a t i o n before the c o u r t , and 4. the enforcement record under the CIA. - 64 -A. Conspiracies to Lessen Competition Unduly The crime commonly r e f e r r e d to as " p r i c e f i x i n g " i s one of a number of offences under subsection 32(1) of the CIA which reads as f o l l o w s : Every one who conspires, combines, agrees or arranges with another person (a) to l i m i t unduly the f a c i l i t i e s f o r t r a n s p o r t i n g , producing, manufacturing, supplying, s t o r i n g or d e a l i n g i n any product, (b) to prevent, l i m i t or l e s s e n , unduly, the manufacture or production of a product, or to enhance unreasonably the p r i c e t h ereof, (c) t o prevent, or l e s s e n , unduly, competition i n the production, manufacture, purchase, b a r t e r , s a l e , storage, r e n t a l , t r a n s p o r t a t i o n or supply of a product, or in the p r i c e of insurance upon persons or property, or (d) t o otherwise r e s t r a i n or i n j u r e competition unduly, i s g u i l t y of an i n d i c t a b l e offence and i s l i a b l e t o imprisonment f o r f i v e years or a f i n e of one m i l l i o n d o l l a r s or both. With the exception of a few e a r l y m o d i f i c a t i o n s , the government's approach to c o n s p i r a c i e s to lessen competition has remained s u b s t a n t i a l l y the same 48 since 1889. Subsection 32(2) exempts nine types of arrangements r e l a t i n g to a c t i v i t i e s such as exchanges of s t a t i s t i c s , the s i z e and shapes of c o n t a i n e r s , and measures to protect the environment. Agreements which r e l a t e only to the export of products from Canada are completely exempt under subsection 32(4) unless they a f f e c t the volume of exports, domestic producers or the domestic market as provided by subsection 32(5). - 65 -In order to c l a r i f y subsection 32(1), subsection 32(1.1) was introduced i n 1976 and provides t h a t : For greater c e r t a i n t y , i n e s t a b l i s h i n g that a conspiracy, combination, agreement or arrangement i s in v i o l a t i o n of subsection (1), i t s h a l l not be necessary to prove that the conspiracy, combination, agreement or arrangement, i f c a r r i e d i n t o e f f e c t , would or would be l i k e l y to e l i m i n a t e , completely or v i r t u a l l y , competition i n the market t o which i t r e l a t e s or that i t was the object of any or a l l of the p a r t i e s thereto to e l i m i n a t e , completely or v i r t u a l l y , competition in that market. B. I l l e g a l Mergers In 1960, c e r t a i n mergers were made a separate offence under s e c t i o n 33. The se c t i o n provides t h a t , Every one who i s a party or p r i v y to or knowingly a s s i s t s i n , or in the formation o f , a merger or monopoly i s g u i l t y of an i n d i c t a b l e offence and i s l i a b l e to imprisonment f o r two y e a r s . Merger i s defined i n Section 2 as f o l l o w s : "merger" means the a c q u i s i t i o n by one or more persons, whether by purchase or lease of shares or assets or otherwise, of any control over or i n t e r e s t in the whole or part of the business of a competitor, s u p p l i e r , customer or any other person, whereby competition (a) i n a t r a d e , industry or p r o f e s s i o n , (b) among the sources of supply of a t r a d e , i n d u s t r y , or p r o f e s s i o n , (c) among the o u t l e t s f o r sales of a t r a d e , industry or p r o f e s s i o n , or - 66 -(d) otherwise than i n paragraphs (a), (b) and ( c ) , i s or i s l i k e l y to be lessened to the detriment or against the i n t e r e s t of the p u b l i c , whether consumers, producers or o t h e r s . P r o v i s i o n s with regard to mergers were f i r s t introduced i n 1910 in the d e f i n i t i o n of combine. 4 9 In 1935, the requirement that a combine, merger, t r u s t or monopoly "has operated or i s l i k e l y to operate to the detriment or against the i n t e r e s t of the p u b l i c . . . " was added. 5 0 V. MORAL NEUTRALITY AND THE RATIONALE OF THE CRIMINAL LAW Co n s p i r a c i e s to lessen competition and i l l e g a l mergers w i l l be examined i n l i g h t of the above aspects of moral n e u t r a l i t y , namely, moral opprobrium, c l a r i t y of d e f i n i t i o n and degree of f a u l t r equired to e s t a b l i s h g u i l t . A. Conspiracies to Lessen Competition In 1889, when An Act f o r the Prevention and Supression of Combinations in R e s t r a i n t of Trade was enacted, p o l i t i c a l opinion focused on the cr i m i n a l nature of the forbidden conduct. One p o l i t i c i a n made the f o l l o w i n g o b s e r v a t i o n : 5 1 I see very l i t t l e d i s t i n c t i o n between what i s c a l l e d i n the c r i m i n a l law, l a r c e n c y , and the r e s u l t of an arrangement which obliges the unfortunate consumer to t r a n s f e r from h i s pocket to that of the wealthy producer an unnecessary amount of money in order that he may maintain l i f e . - 67 -Another member of Parliament wanted t o imprison corporate o f f i c e r s found g u i l t y , " j u s t the same as any other porch-climber or b u r g l a r would go to gaol in case of an ordinary t h e f t " . 5 2 However, the i n t e r e s t s of business were a l s o represented. A c h i e f c r i t i c i s m of the b i l l was that " i n e f f e c t i t d e c l a r e [ d ] t o be a crime that which i s , without question, ordinary, sound business s e n s e " . 5 3 On the other hand, there were businessmen who viewed such laws as b e n e f i c i a l because r e s t r i c t i v e trade p r a c t i c e s often i n c l u d e d predatory p r a c t i c e s which might d r i v e them from the market. The c o n f l i c t s which competition laws r e f l e c t are more pronounced i n c o u n t r i e s where there i s a c l e a r d i f f e r e n c e in p o l i t i c a l p a r t i e s . For example, i n A u s t r a l i a , at both the national and s t a t e l e v e l s , p o l i t i c s i s dominated by a c l a s s dichotomy. The Labour Party has the strong support of labour unions while the L i b e r a l Party has the support of business. Sutton 54 and Wild examined the changes in competition laws over the f o l l o w i n g p o l i t i c a l p e r i o d s : Government Period Li beral 1971-72, Labour 1973-75, L i beral 1976-77. I n i t i a l l e g i s l a t i o n by the L i b e r a l s provided mostly f o r n e g o t i a t e d , 5 5 r a t h e r than c r i m i n a l , c o n t r o l s on r e s t r i c t i v e trade - 68 -p r a c t i c e s . Labour then broadened the scope of forbidden trade p r a c t i c e s and used the c r i m i n a l law to enforce the expanded p r o h i b i t i o n s . The L i b e r a l Party returned enforcement functions back to a regulatory agency and again emphasized c o n c i l i a t i o n . According to the L i b e r a l s , the p u b l i c i n t e r e s t was best served by "a co-operative e f f o r t between business and consumers". 5 6 P u b l i c perception of whether s p e c i f i c behavior i s c r i m i n a l can be found on and found t o move along a continuum from moral n e u t r a l i t y to moral opprobrium. K a d i s h 5 ^ provides tax evasion as an example of behavior which has moved towards moral opprobrium in the United S t a t e s . A s i m i l a r view was expressed by the former d i r e c t o r of compliance of Revenue Canada. 5 8 On the other hand, McCormick 5 9 makes the argument that the a n t i t r u s t laws in the United States have moved from moral opprobrium to moral n e u t r a l i t y . A trend towards moral n e u t r a l i t y in Canada was observed by McDonald, 6 0 who notes that Parliament introduced c r i m i n a l l e g i s l a t i o n i n 1889 because combines were viewed as " i n t r i n s i c a l l y wrong and morally r e p r e h e n s i b l e . " 6 1 He then presents the argument that combines l e g i s l a t i o n lacks "the s p e c i f i c i t y and the moral basis necessary f o r the d e f i n i t i o n of the point at which something t o be encouraged becomes something to be discouraged". One of the problems with some of the a n a l y s i s of combines and a n t i t r u s t l e g i s l a t i o n i s that d i s t i n c t i o n s are not made between the various - 69 -types of o f f e n c e s . One of the themes of t h i s t h e s i s i s t h a t , while mergers might be morally n e u t r a l , p r i c e f i x i n g i s morally r e p r e h e n s i b l e . However, enforcement plays an important role in s u s t a i n i n g such r e p r e h e n s i b i l i t y . L e i g h 6 2 points out that "part of the f u n c t i o n of c r i m i n a l law i s to mould values". S i m i l a r l y , B a l l and Friedman 6 3 are of the opinion that the c r i m i n a l law can be used to change p u b l i c a t t i t u d e s . However, P a c k e r 6 4 questions whether cr i m i n a l law should serve such a function cc i n a n o n t o t a l i t a r i a n s o c i e t y . Kadish suggests that the use of c r i m i n a l prosecution to shape an economic system might be more e f f e c t i v e i n a legal system s i m i l a r to the soviet penal code. It i s p o s s i b l e that n e i t h e r extreme i s necessary. If s o c i e t y i s concerned with economic power, the lack of competition and the consequences which flow from these phenomena, i t may be necessary to c r i m i n a l i z e behavior which v i o l a t e s these values in the hope that the p u b l i c w i l l make the connection between such behavior and negative consequences which they would l i k e to see e l i m i n a t e d . This educative r o l e played by the criminal law i s somewhat d i f f e r e n t than imposing values on an u n w i l l i n g p u b l i c . cc McCormick 0 0 i d e n t i f i e s lack of enforcement as a major f a c t o r which c o n t r i b u t e d to the n e u t r a l i z a t i o n or r e d e f i n i t i o n process of a n t i t r u s t laws in the United S t a t e s . A major problem with t r y i n g t o stigmatize corporate behavior as c r i m i n a l i s that corporations have the p o l i t i c a l power to f i g h t back. According t o McCormick,6? the counterattack centered on the manipulation of s o c i a l c o n s t r u c t i o n s . - 70 -With the r i s e of business combination, an i d e o l o g i c a l a l t e r n a t i v e to t r a d i t i o n a l economic and s o c i a l concepts evolved, drawing h e a v i l y upon popularized versions of S o c i a l Darwinism. In t h i s view, big business, c o r p o r a t i o n s , and t h e i r d e r i v a t i v e s o c i a l e f f e c t s represented a l o g i c a l step i n s o c i a l e v o l u t i o n and the p e r f e c t i o n of s o c i e t y . While c e r t a i n "temporary" d i s l o c a t i o n s could occur during t h i s t r a n s i t i o n , i n d u s t r i a l combination would eventually b e n e f i t a l l segments of s o c i e t y through higher wages, q u a l i t y products, increased production, lower c o s t s , and (through the e l i m i n a t i o n of c u t - t h r o a t competition) a s t a b l e economy. Further, corporate entrepreneurs, l a b e l l e d " c r i m i n a l s of greed" by t h e i r opponents, saw themselves as rugged i n d i v i d u a l i s t s , s u p e r i o r to the commoner in i n i t i a t i v e , i n d u s t r y and a b i l i t y . Hence, the concentration of wealth and power i n t h e i r hands represented the i n e v i t a b l e and deserved rewards of natural s e l e c t i o n and s u r v i v a l of the f i t t e s t . . . As the development of the corporate system was the next i n t e g r a l step in the e v o l u t i o n of s o c i e t y , not only must the system continue u n r e s t r i c t e d , but a l s o when and where necessary, i t must obtain government p r o t e c t i o n and a s s i s t a n c e . It i s a l s o d i f f i c u l t to expect uniform p u b l i c condemnation when some judges refuse to recognize the seriousness of such crime. An example of such a r e f u s a l i s found i n Mr. J u s t i c e Masten's comments i n Container  M a t e r i a l s L t d . 6 8 A f t e r upholding a c o n v i c t i o n f o r conspiracy in r e s t r a i n t of t r a d e , an offence which was then under the Criminal C o de 6 9 (the "Code") and which l a s t e d over a long p e r i o d and involved an elaborate scheme, His Lordship continued: I think i t would be a mistake f o r t h i s Court to look upon the appellants as g u i l t y of moral t u r p i t u d e or of a wicked i n t e n t i o n . T h e i r d i r e c t o r s are honourable men desirous of conducting s u c c e s s f u l l y the a f f a i r s of t h e i r r e s p e c t i v e companies, and i f in t h e i r e f f o r t s they have by mistake over-stepped the l i n e set by Parliament and have unduly lessened competition they are responsible f o r t h e i r unlawful a c t . . . . Breach of a s t a t u t e i s one t h i n g , moral t u r p i t u d e i s q u i t e another. - 71 -This quote was approved by Mr. J u s t i c e Manson in Crown Zellerbach Canada L i m i t e d " e t " a T . , 7 0 when he concluded t h a t the ten accused p r i c e f i x e r s were "not p r o f i t e e r s . . . [but] were doing t h e i r utmost to expand t h e i r e n t e r p r i s e s and keep pace with the growth of the province". E a r l i e r i n his t r i a l judgment 7 1 he described how the Paper D i s t r i b u t o r s ' Council had set p r i c e s which were " p o l i c e d " by the Council and other p a r t i c i p a n t s . A blend of j u d i c i a l a t t i t u d e s i s seen i n Mr. J u s t i c e Ferguson's . . - ,79 .. . . ........... pronouncement upon sentencing Dent a f t e r the E l e c t r i c a l Contractors .73 A s s o c i a t i o n of Ontario was found g u i l t y and confirmed on appeal. He wrote, " t h i s was not a mere combine or agreement to f i x p r i c e s . It was, i n my view a much more serious offence . . . i t verges on what one might describe as the t a c t i c s of the racketeer or the gangster". His Honor went on to describe Dent's a c t i v i t y as a "mild form of b l a c k m a i l " . However, a d i f f e r e n t point of view has been adopted by the Bench i n other cases. For example, Mr. J u s t i c e L e r n e r 7 4 condemned p r i c e f i x i n g by Armco Canada L t d . et a l . in no uncertain terms: The non-violent offender, such as the t h i e f , the embezzler, the fraudulent operator, the s h o p l i f t e r , to name a few, can understandably take a c y n i c a l view of his or her condemnation by s o c i e t y when the i n s t i t u t i t i o n a l i z e d v i r t u o s i t y of "big Business" can engage in p a i n s t a k i n g , time-consuming, devious schemes which give the appearance of l e g a l i t y to that which they must know i s not only contrary to the law but at the expense of.the too often unsuspecting p u b l i c . - 72 -S i m i l a r l y , i n 1905, harsh words had been used by Mr. J u s t i c e Clute against two corporations which f i x e d t e n d e r s . 7 5 A number of h i t h e r t o reputable f i r m s , meeting around a t a b l e , and under the pretence of sending i n i n v i t e d tenders, d e l i b e r a t e l y adopted a method by which, apparently without the s l i g h t e s t compunction, they took from the p u b l i c , t hat portion of the p u b l i c who happened t o be i n t e r e s t e d , money t o which they had no p o s s i b l e c l a i m , no more claim than any person has when meeting another i n the s t r e e t he by f o r c e robs him of h i s money. Indeed, I think of the two offences the robbery i s the l e s s o f f e n s i v e . Despite the lobbying and representations as to the nature of p r i c e f i x i n g and other c o n s p i r a c i e s to lessen competition, i t i s d i f f i c u l t to view such behavior as e i t h e r acceptable or morally n e u t r a l . If the nature of the behavior and i t s consequences are exposed t o the p u b l i c , i t s o b j e c t i o n a b i l i t y w i l l merit the use of the c r i m i n a l sanction on the basis that the behavior i s o f f e n s i v e to fundamental values. Reschenthaler and S t a n b u r y 7 6 make the f o l l o w i n g comment: Pr i c e f i x i n g and market sharing ageements are simply arrangements designed to undermine the competitive marketplace. They are a form of t a x a t i o n imposed on buyers, be they consumers or other businessmen. They provide no b e n e f i t s to the s o c i e t y as a whole. They should not be t o l e r a t e d whatever the degree of lessening of competition. This i s p a r t i c u l a r l y the case in a country l i k e Canada with a r e l a t i v e l y small domestic market which i s i n s u l a t e d by r e l a t i v e l y high t a r i f f s , c h a r a c t e r i z e d by high l e v e l s of i n d u s t r i a l c o n c e n t r a t i o n , with r e l a t i v e l y high t r a n s p o r t a t i o n costs and high l e v e l s of f o r e i g n ownership. If p r i c e f i x i n g serves no s o c i a l l y useful purpose i n terms of i n c r e a s i n g economic e f f i c i e n c y or w e l f a r e 7 7 and i t i s a reprehensible - 73 -form of behavior, i t is d i f f i c u l t to understand how a " l i t t l e b i t " of p r i c e f i x i n g i s any more acceptable. The use of the terms "unreasonably" and "unduly" i n section 32 of the CIA require the courts t o , i n a r e t r o a c t i v e sense, examine the merits of the conspiracy. The adverbs introduce an unnecessary degree of uncertainty as to what i s p r o h i b i t e d which, i n t u r n , can a f f e c t the moral opprobrium of the behavior. The United States has had a per"se approach to p r i c e f i x i n g and a number of other forms of h o r i z o n t a l agreements since 1897 which allows the courts to avoid the question of how much p r i c e f i x i n g i s acceptable. One could e a s i l y expect moral opprobrium t o be a s s o c i a t e d with agreements to lessen competition per se; however, when such p r o h i b i t i o n s a l s o require that the agreement be to enhance the p r i c e "unreasonably" or to l i m i t 78 s u p p l i e s "unduly" the p r o h i b i t i o n lacks force and c l a r i t y . The r e s u l t i s that much time and e f f o r t i s expended on the adverbial requirement of "unreasonably" and "unduly"; c o n v i c t i o n s are hard to obtain; and, the moral impact of the l e g i s l a t i o n i s n e u t r a l i z e d . Low c o n v i c t i o n rates l e d t o low l e v e l s of enforcement and the l e g i s l a t i o n losses i t s impact and becomes morally n e u t r a l . ^ 9 The most recent court decisions on c o n s p i r a c i e s to lessen competition have "severely reduced" the e f f e c t i v e n e s s of the law in preventing-80 a n t i c o m p e t i t i v e behavior. A major c r i t i c i s m of the Supreme Court of Canada's d e c i s i o n s in A e t n a 8 1 and A t l a n t i c S u g a r 8 2 i s that the i n t e n t now required to c o n v i c t someone of a conspiracy to lessen competition i s s t r i c t e r than the intent required to convict someone of - 74 -other c o n s p i r a c i e s . P r i o r to these cases i t was almost t r i t e to s t a t e that "the crime i s in the conspiracy or the agreement".**3 Now, the Crown OA i s required t o prove what has been r e f e r r e d t o as "double i n t e n t " , that i s , "the offence l i e s in the agreement made with the i n t e n t i o n to l e s s e n competition u n d u l y " . 8 5 The problem i s not that the requirement of i n t e n t has been abandoned, as is the case in s t r i c t l i a b i l i t y o f f e n c e s , but that the i n t r o d u c t i o n of an a d d i t i o n a l element of i n t e n t which d r a s t i c a l l y c u r t a i l s the e n f o r c e a b i l i t y of the l e g i s l a t i o n . Recent proposals f o r amending the CIA include adopting a per se a p p r o a c h . 8 6 Such an amendment should at l e a s t e l i m i n a t e the requirement of double i n t e n t . B. Mergers The c r i m i n a l law has been described as a " t o t a l l y i n a p p r o p r i a t e Q-J t o o l l o / f o r c o n t r o l l i n g mergers. In terms of the three elements of moral n e u t r a l i t y discussed e a r l i e r , namely, moral opprobrium, c l a r i t y of d e f i n i t i o n and the requirement of mens rea, the c r i m i n a l law should not be used to c o n t r o l unwanted mergers. Mergers are a method of r e a l l o c a t i n g the ownership of resources; i t i s h i g h l y u n l i k e l y that they are or would be regarded as morally reprehensible by the p u b l i c . Mergers are not n e c e s s a r i l y harmful to the economic ( welfare of s o c i e t y . Motives f o r mergers and t h e i r economic and s o c i a l s i g n i f i c a n c e can be b e n e f i c i a l , neutral or detrimental t o s o c i e t y . 8 8 - 75 -Mergers can a l s o present a mixed product. For example, a merger may increase economic e f f i c i e n c y i n an in d u s t r y but a l s o increase the concentration of power i n an industry thereby reducing competition. S o p h i s t i c a t e d economic a n a l y s i s i s needed to judge the merits of any given merger. The host of f a c t o r s which are needed to p r e d i c t the e f f e c t s of a merger, i f indeed such a p r e d i c t i o n i s p o s s i b l e , are numerous. When the appropriateness of behavior i s c o n d i t i o n a l upon the circumstances of the ac t o r , the s t r u c t u r e of the market and the s t a t e of the economy, i t i s not s u i t e d f o r co n t r o l by the criminal law. For e c a s t i n g the consequences of a merger i s , i n p a r t , a value judgment based "on the a b i l i t y to measure and balance the p r o b a b i l i t i e s of cost and b e n e f i t and to i d e n t i f y s t r u c t u r a l 89 market c h a r a c t e r i s t i c s and r e l a t e them t o probable behavior". The judgment i s very much an economic and p o l i t i c a l one. The cri m i n a l courts are not equipped t o make economic and p o l i t i c a l d e c i s i o n s . That i s not to say that mergers should be allowed to occur w i l l y -n i l l y , but that the control of merger a c t i v i t y should take place by a d i f f e r e n t form of i n t e r v e n t i o n . In 1969, the Economic Council of Canada 9 0 wrote that a l t e r n a t i v e s to the cri m i n a l law were d e s i r a b l e i n those areas of p o l i c y "that do not lend themselves well to r e l a t i v e l y u n q u a l i f i e d p r o h i b i t i o n s " . P r o h i b i t i o n s under the cri m i n a l law must be c l e a r l y d e f ined so that a person has f a i r n o t i c e of what i s p r o h i b i t e d . 9 1 Mens rea i s also d i f f i c u l t to prove when p r o h i b i t i o n s lack c l a r i t y . ) - 7 6 -Merger a c t i v i t y does not lend i t s e l f well t o u n q u a l i f i e d p r o h i b i t i o n s . An attempt t o s i m p l i f y the d e f i n i t i o n of unwanted mergers by using a s t r u c t u r a l or market-share t h r e s h o l d t e s t has been c r i t i c i z e d by Stanbury and R e s c h e n t h a l e r . 9 2 They p r e f e r a b e n e f i t - c o s t approach which in v o l v e s the weighing of predetermined f a c t o r s . The c r i m i n a l law a l s o has the major drawback i n that i t i s a p p l i e d a f t e r the unwanted behavior has taken p l a c e . The s o l u t i o n to unwanted mergers i s not to d i s s o l v e them or t o punish the p a r t i c i p a n t s involved i n then but to prevent them from o c c u r r i n g i n the f i r s t p l a c e . 9 3 It has been suggested that the more appropriate approach to merger p o l i c y i s to a n t i c i p a t e unwanted mergers and prevent them from o c c u r r i n g i n the f i r s t p l a c e . " I t i s d i f f i c u l t to 'unscramble the eggs' once the omelette i s made." 9 4 Mergers are u s u a l l y i r r e v e r s i b l e . In order to be a n t i c i p a t o r y , proposed mergers must be dealt with by a noncriminal body. There are at l e a s t two a l t e r n a t i v e s : (a) a c i v i l a ction in a f e d e r a l or p r o v i n c i a l court or (b) a hearing before an expert a d m i n i s t r a t i v e t r i b u n a l . The l a t t e r was recommended by Skeoch and McDonald. 9 5 The a n a l y s i s of the merits of each approach i s beyond the scope of t h i s t h e s i s . 9 6 VI. ISSUES CONCERNING THE CRIMINAL JUSTICE PROCESS As a general r u l e , under our criminal j u s t i c e system, an accused i s under no o b l i g a t i o n to answer questions or produce documents which might - 77 -i n c r i m i n a t e him. Any statement by the accused t o a person in a u t h o r i t y must have been voluntary and relevant to be admissible at t r i a l . At t r i a l , an accused i s a competent but not a compellable witness. Powers given to the D i r e c t o r of I n v e s t i g a t i o n and Research, who i s res p o n s i b l e f o r the administration and enforcement of the CIA, and the courts s u b s t a n t i a l l y modify the above p r i n c i p l e s and change the nature of the c r i m i n a l proceedings. Reasons advanced f o r departure from the general rules governing procedure and evidence include the more e f f i c i e n t operation of the c r i m i n a l j u s t i c e system. Due process safeguards are abandonded f o r the more e f f i c i e n t operation of the system. Values espoused i n Packer's Crime Control Model are given l e g i s l a t i v e e f f e c t . Is such an approach j u s t i f i a b l e w i t h i n the context of e n f o r c i n g competition p o l i c y ? This part w i l l examine aspects of the enforcement of competition p o l i c y which digress from c r i m i n a l proceedings f o r "ordinary" offences under the Code. F i n a l l y , a b r i e f summary of the enforcement record under the CIA w i l l be presented. A. S e l f - I n c r i m i nation P r i o r to CrimihaT Proceedings i ) The i n q u i s i t o r i a l powers Subsection 9(1) of the CIA provides t h a t , Subject to subsection (2), [ r e q u i r i n g the R e s t r i c t i v e Trade P r a c t i c e s Commission's c e r t i f i c a t i o n ] the D i r e c t o r may at any time in the course of an i n q u i r y , by notice i n w r i t i n g , require any person, and in the case of a - 78 -c o r p o r a t i o n any o f f i c e r of the c o r p o r a t i o n , t o make and d e l i v e r to the D i r e c t o r , w i t h i n a time s t a t e d i n such n o t i c e , or from time to time, a w r i t t e n return under oath or a f f i r m a t i o n showing in d e t a i l such information with respect to the business of the person named i n the notice as i s by the notice required, and such person or o f f i c e r s h a l l make and d e l i v e r to the D i r e c t o r , p r e c i s e l y as required a w r i t t e n return under oath or a f f i r m a t i o n showing i n d e t a i l the information required; and, without r e s t r i c t i n g the foregoing, the D i r e c t o r may require a f u l l d i s c l o s u r e and production of a l l c o n t r a c t s or agreements which the person named in the n o t i c e may have at any time entered i n t o with any other person, touching or concerning the business of the person named i n the n o t i c e . Section 12 provides t h a t : The D i r e c t o r may, by no t i c e i n w r i t i n g , r e q u i r e evidence upon a f f i d a v i t or w r i t t e n a f f i r m a t i o n , i n every case i n which i t seems to him proper t o do so, but the D i r e c t o r s h a l l not so require u n l e s s , on the ex parte a p p l i c a t i o n of the D i r e c t o r , a member of the Commission c e r t i f i e s , as such member may, that the D i r e c t o r may make such a requiremment t o the person d i s c l o s e d i n the a p p l i c a t i o n . S i m i l a r p r o v i s i o n s e x i s t under other l e g i s l a t i o n , f o r example, paragraph 231(1)(c) of the Income Tax A c t 9 7 (the "ITA") provides as fol1ows: Any person thereunto authorized by the M i n i s t e r , f o r any purpose r e l a t e d to the a d m i n i s t r a t i o n or enforcement of t h i s Act, may (c) require the owner or manager of the property or business and any other person on the premises or place to give him a l l reasonable a s s i s t a n c e with h i s audit or examination and t o answer a l l proper questions r e l a t i n g t o the audit or examination e i t h e r o r a l l y o r, i f he so r e q u i r e s , i n w r i t i n g , on oath or by s t a t u t o r y d e c l a r a t i o n and, f o r that purpose, require the owner or manager t o attend at the premises or place with him. . . - 79 -Subsection 231(3) of the ITA provides as f o l l o w s : The M i n i s t e r may, f o r any purposes r e l a t e d t o the a d m i n i s t r a t i o n or enforcement of t h i s Act, by r e g i s t e r e d l e t t e r or by a demand served p e r s o n a l l y , require from any person (a) any information or a d d i t i o n a l information, i n c l u d i n g a return of income or a supplementary r e t u r n . . . w i t h i n such reasonable time may be s t i p u l a t e d t h e r e i n . The above sec t i o n s of the CIA and the ITA require an i n d i v i d u a l or a corporation to p a r t i c i p a t e in p r e - t r i a l d i s c l o s u r e s p r i o r to charges being l a i d . The statements made are obviously hearsay; but, they f a l l i n t o the exception to the hearsay r u l e of admissions and confessions and are t h e r e f o r e admissible at t r i a l as proof of the t r u t h of t h e i r contents. They are unsolemn admissions so the Crown must prove they were made. Since the statements are confessions they must pass the voluntary go t e s t . However, statements made under compulsion of s t a t u t e by a person whom they tend to i n c r i m i n a t e are not f o r that reason alone inadmissible in c r i m i n a l proceedings. The term "voluntary", as employed i n the summary d e s c r i p t i o n of the c l a s s of statements by accused persons which are admissible in c r i m i n a l proceedings, i s well understood by lawyers as importing an absence of f e a r of p r e j u d i c e or hope of advantage held out by persons in a u t h o r i t y and i s i n t e r p r e t e d and applied j u d i c i a l l y according to l i n e s t r a c e d by well-known decisions and by a well s e t t l e d p r a c t i c e . But there i s no rule of law that statements made by an accused under compulsion of s t a t u t e are, because of such compulsion alone, i n a d m i s s i b l e , against him i n criminal proceedings. Generally speaking, such statements are admissible unless they f a l 1 w i t h i n the scope of some s p e c i f i c enactment or rule excluding them. - 80 -Refusal t o comply with a notice in w r i t i n g which requires a w r i t t e n return under the CIA i s a hybrid offence with a maximum penalty of $5000, two years imprisonment, or both. However, subsection 42(2) provides that the offence i s open t o a "good and s u f f i c i e n t cause" defence with an onus on the accused t o e s t a b l i s h i t . i i ) I n q u i r i e s Subsection 18(2) of the CIA requires the R e s t r i c t i v e Trade P r a c t i c e s Commission" (the "RTPC") t o hold an i n q u i r y under the CIA when the D i r e c t o r o f I n v e s t i g a t i o n and Research submits a statement of evidence t o i t . Under section 21 the Commission i s given a l l the powers conferred on a commissioner appointed under Part I of the Inqui r i e s A c t . 1 0 0 i i i ) ^ A d m i s s i b i l i t y of statements at t r i a l Subsection 20(2) of the CIA provides as f o l l o w s : No person s h a l l be excused from attending and g i v i n g evidence and producing books, papers, records or other documents, i n obedience to the order of a member of the Commission, on the ground that the oral evidence or documents required of him may tend t o criminate him or subject him to any proceeding or penalty, but no oral evidence so required s h a l l be used or r e c e i v a b l e against such person i n any c r i m i n a l proceedings t h e r e a f t e r i n s t i t u t e d against him, other than a prosecution f o r perjury i n g i v i n g such evidence or a prosecution under s e c t i o n 122 or 124 of the Criminal Code [charges of f a b r i c a t i n g evidence or g i v i n g c o n t r a d i c t o r y evidence] i n respect of such evidence. - 81 -While oral evidence obtained under the i n q u i s i t o r i a l and i n q u i r y p r ovisions cannot be introduced in c r i m i n a l proceedings, the s e c t i o n allows documents obtained by such procedures to be used. However, the inad m i s s i b l e oral evidence w i l l allow the prosecutor t o pursue evidence of other o r i g i n s which he might never have uncovered i f an i n q u i r y had not been held. The s e c t i o n does not protect the accused i n d i v i d u a l or c o r p o r a t i o n from s e l f -i n c r i m i n a t i o n p r i o r to t r i a l . i v ) Pol i c y c o n s i d e r a t i o n s on p r e - t r i a l d i s c l o s u r e Ratushny summarizes the underlying p o l i c y f o r the absence of any p r e - t r i a l o b l i g a t i o n to co-operate with the p o l i c e i n "ordinary" cr i m i n a l proceedings. Most, i f not a l l , of the procedural p r o t e c t i o n s which e x i s t at t r i a l are absent at the p r e - t r i a l stage. There may not be a s p e c i f i c accusation or p a r t i c u l a r s of the a l l e g e d o f f e n c e . The suspect or accused w i l l c e r t a i n l y not know a l l of the Crown's evidence against him and may^ indeed, be t o t a l l y misled with respect to the case which he has to meet. . . C e r t a i n l y the p o l i c e could not be expected t o apply a standard of proof beyond a reasonable doubt. In other words, a legal o b l i g a t i o n to co-operate i n the p o l i c e i n v e s t i g a t i o n would deprive a person of a s p e c i f i c a c c u s a t i o n , a case to meet, the presumption of innocence and p r o t e c t i o n against double jeopardy, not to mention the independent a d j u d i c a t i o n which was described. . . as a bas i c element of the adversary process. . . Moreover, the p r e - t r i a l stage may al s o lack another important p r o t e c t i o n . That i s the p r i n c i p l e of a p u b l i c t r i a l . . . I n t e r r o g a t i o n i n a p o l i c e s t a t i o n i s obviously not in accord with t h i s b a s i c p r i n c i p l e . The author argues that while i n q u i r i e s may not provide the same opportunity f o r abuse, they s t i l l permit what the c r i m i n a l process f o r b i d s . - 82 -He recommends that we e i t h e r bring these i n q u i r e s more i n l i n e with our c r i m i n a l p r i n c i p l e s or consciously adopt an a l t e r n a t i v e method of a d j u d i c a t i o n . 1 0 2 One method of a c h i e v i n g the former, the approach which Ratushny appears to f a v o r , would be to give an i n d i v i d u a l the r i g h t to refuse to answer questions which would tend to i n c r i m i n a t e him and to f o r c e the a u t h o r i t i e s to choose between an i n q u i r y or a prosecution when a witness 103 makes an o b j e c t i o n . J The author recommends that such immunity be made formal by an amendment to the Code and that the d e c i s i o n to invoke the immunity be made by the Attorney General in order to avoid the undesirable s i t u a t i o n i n the United States where the d e c i s i o n i s made by the Federal Trade Commission. 1 0 4 And why i s Ratushny c o n c e r n e d ? 1 0 5 The problem i s one of s c a l e . Within the l a s t few years t h i s technique ( i . e . , hearings) has been i n c r e a s i n g l y i n t e g r a t e d i n t o the c r i m i n a l process in some j u r i s d i c t i o n s . Is i t not simply a matter of time before the technique w i l l be u t i l i z e d t o the f u l l extent of i t s a v a i l a b i l i t y in a l l parts of Canada? At that point we w i l l have abandoned our c r i m i n a l process completely in favor of an e s s e n t i a l l y i n q u i s i t o r i a l system. The requirement under the CIA hardly endorses the r i g h t to remain s i l e n t since i t i s an offence to refuse to answer questions. Requiring answers from persons who are being i n v e s t i g a t e d f o r c r i m i n a l a c t i v i t i e s occurs under a number of other federal and p r o v i n c i a l s t a t u t e s . Are we j u s t i f i e d i n using the i n q u i s i t o r i a l system to enforce criminal laws? - 83 -Chief J u s t i c e Laskin, i n commenting on the Quebec Commission of Inquiry i n t o Organized Crime, s a i d : 1 0 6 what we have here i s an i n q u i s i t o r i a l process, more draconian than what Parliament has p r e s c r i b e d in r e l a t i o n to the i n v e s t i g a t i o n , detection and prosecution of crime. One can only speculate how the C h i e f J u s t i c e might view more informal i n q u i s i t i o n s made by the D i r e c t o r of I n v e s t i g a t i o n and Research or the Department of National Revenue. B. S e l f - i n c r i m i n a t i o n Before the Court A f u r t h e r departure from the general r u l e that an accused i s under no o b l i g a t i o n to i n c r i m i n a t e himself e x i s t s in s e c t i o n 31 o f the CIA which makes the court both the i n v e s t i g a t o r and decider of f a c t . Notwithstanding anything contained i n Part V [the c r i m i n a l law p r o v i s i o n s ] , where any person i s convicted of an offence under Part V, the court before whom such person was convicted and sentenced may, from time to time w i t h i n t h r e e years t h e r e a f t e r , require the convicted person to submit such information with respect to the business of such person as the court deems ad v i s a b l e , and without r e s t r i c t i n g the g e n e r a l i t y of the foregoing the court may require a f u l l d i s c l o s u r e of a l l t r a n s a c t i o n s , operations or a c t i v i t i e s since the date of the offence under or with respect of any c o n t r a c t s , agreements or arrangements, actual or t a c i t , that the convicted person may at any time have entered i n t o with any other person touching or concerning the business of the person c o n v i c t e d . The above methods of i n v e s t i g a t i o n represent a s u b s t a n t i a l departure from the t r a d i t i o n a l c r i m i n a l i n v e s t i g a t i o n in which an accused i s under no - 84 -o b l i g a t i o n t o answer q u e s t i o n s or i n anyway c o n t r i b u t e t o t h e C r o w n ' s case a g a i n s t h i m . The use o f t h e c r i m i n a l c o u r t s f o r i n v e s t i g a t i v e pu rposes i s not i n a c c o r d a n c e w i t h our t r a d i t i o n a l a d v e r s a r i a l s y s t e m . 1 0 7 C . The En fo r cemen t Reco rd M c C o r m i c k 1 0 8 v - j e ws l a c k o f en fo r cement as the ma jo r f a c t o r w h i c h has n e u t r a l i z e d t h e moral i n d i g n a t i o n w h i c h was at one t i m e a s s o c i a t e d w i t h a n t i t r u s t o f f e n c e s i n t h e U n i t e d S t a t e s . A c c o r d i n g t o P a c k e r , 1 0 9 " i t t a k e s a s u b s t a n t i a l en fo r cemen t e f f o r t t o make and keep t h e d e t e r r e n t t h r e a t of t h e c r i m i n a l s a n c t i o n a p o t e n t o n e " . The l e v e l o f en fo r cemen t i s a c o n c e p t wh i ch i s d i f f i c u l t t o make o p e r a t i o n a l and t o m e a s u r e . F i r s t o f a l l , i t i s i m p o s s i b l e t o d i s c o v e r t h e number o f o f f e n c e s w h i c h e x i s t but go u n d e t e c t e d . Once o f f e n c e s come t o t h e a t t e n t i o n o f a u t h o r i t i e s i t i s p o s s i b l e t o a n a l y z e how t h e y a r e d e a l t w i t h i n t e rms o f a t t r i t i o n r a t e s . The r e c o r d o f c r i m i n a l law e n f o r c e m e n t can a l s o be examined by l o o k i n g a t a number o f a s p e c t s o f en fo r cemen t i n c l u d i n g a d m i n i s t r a t i v e e x p e n d i t u r e s and s i z e o f s t a f f , 1 1 0 e n f o r c e m e n t a c t i v i t y , and t h e s a n c t i o n s imposed on o f f e n d e r s . T h i s p a r t w i l l b r i e f l y summar ize t h e o v e r a l l e n f o r c e m e n t r e c o r d u n d e r t h e C IA as d e s c r i b e d by G o r e c k i and S t a n b u r y . 1 1 1 I t i s not i n t e n d e d t o be a c o m p r e h e n s i v e s u r v e y o r e v a l u a t i o n o f combines e n f o r c e m e n t but t o p r e s e n t an i n d i c a t i o n o f t h e amount o f a c t i v i t y i n t h e a r e a . The use o f s a n c t i o n s w i l l be d i s c u s s e d i n C h a p t e r 6. - 85 -Gorecki and Stanbury present d e t a i l e d data on the record of enforcement of the CIA between 1961 and 1975. Of the 2338 f i l e s opened by the D i r e c t o r of I n v e s t i g a t i o n and Research and which ended as preliminary i n v e s t i g a t i o n s the source of i n i t i a t i o n was determined "in 2127. S i x t y percent of the complaints came from businessmen and trade a s s o c i a t i o n s . The next l a r g e s t category, consumers, accounted f o r 20% of such complaints and research and observation by the D i r e c t o r and h i s s t a f f accounted f o r only 5 . 7 % . 1 1 2 Businessmen and trade a s s o c i a t i o n s accounted f o r 67% of the 91 complaints which r e s u l t e d i n informations being l a i d , while consumers accounted f o r 4.4% and the D i r e c t o r and h i s s t a f f accounted f o r 7.7%. 1 1 3 The a u t h o r s 1 1 4 c i t e an American report which contends that the number of complaints received "present a rough index of the v i t a l i t y of the enforcement agency", not a "barometer of actual v i o l a t i o n s " . Upon examining the 173 prosecutions brought under the CIA 115 between 1889 and 1977, Gorecki and Stanbury conclude that too few have been brought. The y e a r l y average of 1.6 does not compare favorably to the American y e a r l y average of 44.7 even when the s i z e of the two economies i s considered. During the mid-60s to mid 70s the prosecution r a t i o (the r a t i o of prosecutions to i n v e s t i g a t i o n ) was double that of the Canadian r a t i o . 1 1 6 Once charges are l a i d under the CIA, the p r o b a b i l i t y of c o n v i c t i o n or o b t a i n i n g a p r o h i b i t i o n order i s high. Between 1960 and 1976, 86.3% of the cases r e s u l t e d in a c o n v i c t i o n or a p r o h i b i t i o n order. The rate was - 86 -s i m i l a r to that in the United S t a t e s . A i / The authors are of the view that too few cases are prosecuted and that "the Department of J u s t i c e has 118 not f u l l y t e s t e d the l i m i t s of the law". In other words, the i n t e n s i t y of enforcement leaves something to be d e s i r e d . V I I I . CONCLUSION The criminal law i s not appropriate f o r the control of a l l unwanted behavior. This chapter examined the p r o h i b i t i o n s against c o n s p i r a c i e s to lessen competition and i l l e g a l mergers i n l i g h t of c r i t e r i a proposed by the Law Reform Commission of Canada and Professor Packer. The r a t i o n a l e behind the c r i m i n a l law demands that i t be used only when i t p r o h i b i t s behavior which i s c l e a r l y defined, morally reprehensible and blameworthy. It was concluded that p r o h i b i t i o n s against c o n s p i r a c i e s to lessen competition met the c r i t e r i a of c l a r i t y and moral opprobrium. While the requirement of mens rea, as set out i n the case law, i s s t r i c t e r than the requirement of mens rea i n other c o n s p i r a c i e s , i t does not detract from the moral opprobrium ass o c i a t e d with such c o n s p i r a c i e s except to the extent that laws which are unenforceable become morally n e u t r a l . Amendments are needed in order to define the offence as a per se p r o h i b i t i o n and return the offence to the status of a conspiracy which focuses on the i n t e n t i o n t o enter an agreement. The problem with enforcement i s not I on n e c e s s a r i l y solved by amending l e g i s l a t i o n . Weiler s c r i t i c i s m of the Supreme Court of Canada f o r i t s lack of c r e a t i v i t y a l s o applies to the enforcement of the the CIA. Weiler w r i t e s , - 87 -The law i s much more purposeful, e v o l u t i o n a r y and systematic than any one legal r u l e would give us cause to suspect. An a p p e l l a t e court judge must always be asking how the r u l e developed, what o b j e c t i v e s i t now serves and how does i t f i t i n t o the regulatory context of which i t i s a part ? . . . Conscious of his c r e a t i v e r o l e i n the shaping of the legal system, he w i l l always t r y to define the legal doctrines he f i n d s i n t o a more coherent and p r i n c i p l e d p a t t e r n , before using them t o j u s t i f y the r e s u l t i n the l i t i g a t i o n before him. The control of unwanted mergers i s not an appropriate task f o r the cr i m i n a l law. The consequences of mergers may be b e n e f i c i a l , detrimental or i n d i f f e r e n t to the economic well being of s o c i e t y . The f a c t o r s which determine the consequences of mergers are complex and very o f t e n u n p r e d i c t a b l e . Mergers could be more e a s i l y c o n t r o l l e d by r e q u i r i n g an a p p l i c a t i o n to be made before an expert a d m i n i s t r a t i v e t r i b u n a l which would consider the e n t i r e range of economic consequences of such a c t i v i t y , notably the e f f e c t of the merger on competition and on e f f i c i e n c y . Such an approach would al s o allow mergers to be dealt with i n advance of t h e i r occurrance. The a d m i n i s t r a t i o n of the c r i m i n a l law i s faced with a c o n f l i c t between the need f o r e f f i c i e n c y and the need t o p r o t e c t the r i g h t s of the accused. This c o n f i c t was examined in l i g h t of the i n q u i s i t o r a l and i n q u i r y powers of the D i r e c t o r of I n v e s t i g a t i o n and Research, his s t a f f and the courts under the CIA. A concern was expressed with changing the cr i m i n a l j u s t i c e system from an a d v e r s a r i a l t o an i n q u i s i t o r i a l system without examining the consequences of such a change. - 88 -F i n a l l y , t h i s chapter b r i e f l y examined the l e v e l of enforcement a c t i v i t y under the CIA. It was concluded that a higher l e v e l of enforcement may be appropriate in the case of c o n s p i r a c i e s . The same can be s a i d f o r mergers. There have veen only a handful of prosecutions despite thousands of m e r g e r s . 1 1 9 However, mergers should be dealt with by non-criminal proceedings. This chapter examined the appropriateness of the criminal law f o r c o n t r o l l i n g c e r t a i n behavior p r o h i b i t e d under the CIA. The frequent use of the c o r p o r a t i o n as a v e h i c l e through which economic a c t i v i t y takes place and the f a c t that economic power i s d i f f i c u l t to a t t a i n without the use of the corporate form means that c o n s p i r a c i e s to lessen competition and i l l e g a l mergers often occur through the use of co r p o r a t i o n s . Are there any l i m i t s t o using the criminal law because of the corporate nature of the accused? Assuming that the criminal law i s an appropriate tool f o r c o n t r o l l i n g c o n s p i r a c i e s to lessen competition, should i t be used against c o r p o r a t i o n s ? The remainder of t h i s t h e s i s w i l l address some of the issues i n v o l v e d i n answering t h i s q u estion. The next chapter w i l l discuss the nature of c o r p o r a t i o n s . It i s assumed that a better understanding of how corpora t i o n s make and implement d e c i s i o n s w i l l a s s i s t i n the control of i l l e g a l behavior by them. - 89 -FOOTNOTES 1. L e g i s l a t i o n which introduced c i v i l procedure to enforce aspects of competition p o l i c y between 1919 and 1923 and between 1935 and 1937 was ruled u l t r a v i r e s by the Supreme Court of Canada and upheld by the Privy C o u n c i l . On January 1, 1976 a number of matters, f o r example, consignment s e l l i n g , e x c l u s i v e d e a l i n g , and t i e d s e l l i n g , were opened to review by the R e s t r i c t i v e Trade P r a c t i c e s Commission, upon a p p l i c a t i o n by the D i r e c t o r . For a comprehensive o u t l i n e of l e g i s l a t i v e reform see W.T. Stanbury, The L e g i s l a t i v e Development of Canadian Competition P o l i c y , 1888-1981, (1981) 2 Canadian Competition P o l i c y Record 1. 2. Combines I n v e s t i g a t i o n Act, R.S.C. 1970, C-3. 3. Herbert L. Packer, The Limits of the Criminal Sanction, (1968). 4. Law Reform Commission, Our Criminal Law, (1977). 5. Supra note 3 at 17. 6. I_d., at 68. 7. I_d., at 18. 8. Ld., at 19. 9. _Id., at 21 and 31. 10. J_d., at 33-34. 11. _Id., at 62. 12. j_d., at 65. 13. Id., at 77-78. 14. _kU, at 159. Note that an economist would say that the o b j e c t i v e of the c r i m i n a l j u s t i c e system i s to minimize the t o t a l cost to s o c i e t y of crime and i t s c o n t r o l . Hence, the optimal amount of crime i s not zero. 15. _Id., 159. 16. Id_., at 163-170. -17. _Id., at 65-66. 18. i d . , at 165. 19. Id., at 250. 20. Id., at 296. - 90 -21. Supra note 4 at 20. 22. Id. at 33-34. 23. Personal l e t t e r from P r o f e s s o r F i t z g e r a l d . 24. Roger Ouimet, Report of the Canadian Committee on C o r r e c t i o n s , (1969). 25. Supra note 4 at 12. 26. Id., at 17. 27. Supra note 3 at 264. 28. Ld., at 262. 29. Sanford H. Kadish, Some Observations of the Use of the Criminal Sanction in E n f o r c i n g Economic Regulations, (1963) 30 U. of Chic. L. Rev. 423 at 425-426. 30. Peter Berger and Thomas Luckmann, The S o c i a l Construction of R e a l i t y , (1967); Richard Quinney, The S o c i a l R e a l i t y of Crime, (1970) at 32. 31. Quinney, j_d., at 32 and 16-17. 32. See f o r example, G. Rosenbluth and H.G. Thorburn, Canadian A n t i -Combines A d m i n i s t r a t i o n , 1952-1963, (1963). 33. See f o r example, R. v. K.C. Irving Ltd. et a l . (1976), 32 C.C.C. (2d) 1 and the f o l l o w i n g comments: James P. C a i r n s , Monopoly, Detriment to the P u b l i c and the K.C. I r v i n g Case, (1981) 30 U.N.B.L.J. 167 and G.B. Reschenthaler and W.T. Stanbury, Benign Monopoly: Canadian Merger P o l i c y and the K.C. I r v i n g Case, (1977) 2 Can. Bus. L . J . 135 at 136-137. 34. R. v. C i t y of SauTt"Ste. Marie (1978), D.L.R. (3d) 161 at 181. 35. Supra note 3 at 13. 36. A l l a n C. Hutchinson, SauTt Ste. Marie, Mens Rea and the Halfway House: P u b l i c Welfare Offences Get A Home of T h e i r Own, (1979) 17 Osgoode Hall  L . J . 415 at 427. 37. Law Reform Commissions, The Meaning of G u i l t , (1974). 38. Supra note 4 at 12. 39. See d i s c u s s i o n , i n f r a , footnote 75. 40 Lawrence A. Skoech and Bruce C. McDonald, Dynamic Change and A c c o u n t a b i l i t y in a Canadian Market Economy, (1976) at 40. - 91 -41. Id., at 39. 42. J d . , at 39. 43. _Id., at 39. 44. Id., at 40. 45. Id., at 40. 46. Id., at 40. 47. A l b e r t E. McCormick, Rule Enforcement and Moral Indignation: Some Observations on the E f f e c t s of Criminal A n t i t r u s t Convictions upon S o c i e t a l Reaction Processes, (1977) 25 Social Problems 30. 48. See Stanbury, supra note 1. 49. Combine was defined under s e c t i o n 2 as meaning "any c o n t r a c t , agreement, or combination which has, or i s designed t o have, the e f f e c t of i n c r e a s i n g or f i x i n g the p r i c e or rental of any a r t i c l e of tra d e . . . and a l s o includes what i s known as a t r u s t , monopoly or merger. . ." 50. Reschethaler and Stanbury, supra note 33 at 136-137. 51. Paul K. Gorecki and W.T. Stanbury, The Objectives o f Canadian Competition P o l i c y , 1888-1981, (1981) (Unpublished Manuscript), Chapter 2 at 5. 52. _Id., at 16. 53. Id., at 22. 54. Adam Sutton and Ron Wild, Corporate Crime and S o c i e t a l S t r u c t u r e , (1978) i n Paul R. Wilson and John B r a i t h w a i t e , Two Faces of Deviance, (1978) 176 at 181. 55. In the majority of cases an agreement could only be re j e c t e d by the ad m i n i s t r a t i v e t r i b u n a l a f t e r c o n s u l t a t i o n with the p a r t i e s . "The purpose . . . [being] ... to secure undertakings or a c t i o n s . . . which [would] render the proceedings unnecessary"; see j r j , at 182. 56. _[d., at 183. 57. Supra note 29 at 439. 58. Personal conversation with Mr. James L. Gourlay. 59. A l b e r t E. McCormick, J r . , Rule Enforcement and Moral Indignation: Some Observations on the E f f e c t s of Criminal A n t i t r u s t Convictions Upon S o c i e t a l Reaction Processes, (1977) 25 Social Problems 30. - 92 -60. Bruce C. McDonald, C r i m i n a l i t y and the Canadian Anti-Combines Laws, (1965) 4 A l t a . L. Rev. 67 at 73-75. 61. McDonald i s of the view t h a t Canada chose to deal with combines through the c r i m i n a l law t o avoid " c l a s s l e g i s l a t i o n " . Criminal l e g i s l a t i o n already e x i s t e d to co n t r o l labour unions and so i t was only equitable that i t a l s o be used t o control business o r g a n i z a t i o n s . However, Dr. W.T. Stanbury, who did a comprehensive survey of parliamentary debates and reports concerning the i n t r o d u c t i o n of the l e g i s l a t i o n in 1889, did not f i n d t h i s reason expressed. 62. L.H. Leigh, The Criminal L i a b i l i t y of Corporations and Other Groups, (1977) 9 Ottawa L. Rev. 247 at 297. 63. Harry V. B a l l and Lawrence M. Friedman, The Use of Criminal Sanctions i n the Enforcement of Economic L e g i s l a t i o n : A S o c i o l o g i c a l View, (1965) 17 Stanford L.R. 197. 64. Supra note 3. 65. Supra note 29. 66. Supra note 59. 67. Ld., at 31. 68. R. v. Container M a t e r i a l s L t d . [1941], 3 D.L.R. 145 (Ont. C.A.) at 183. 69. Criminal Code, R.S.C. 1970, C-34. 70. R. v. Crown ZeTTerbach Limited "et al." (1955), B.C.P. 422 (B.C.S.C.) at 7 (sentence). 71. R. v. Crown Z e l l e r b a c h Limited et a l . (1955), 15 W.W.R. 563 (B.C.S.C.) at 570.. 72. R. v. Dent (1961), B.C.P. 57-4 (S.C. Ont.). 73. R. v. E l e c t r i c a l Contractors A s s o c i a t i o n of Ontario "and "Dent (1961), 27 D.L.R. (2d) 193 (Ont. C.A.). 74. R. v. Armco Canada Ltd. et a l . (1975), B.C.P. 221-2 at 2 (S.C. Ont.). 75. R. v. Master Plumbers and Steam F i t t e r s Cooperative A s s o c i a t i o n Limited  et a l . (1907), 14 O.L.R. 195 at 304. 76. G.B. Reschenthaler and W.T. Stanbury, Recent Conspiracy Decisions i n Canada: New L e g i s l a t i o n Needed, (1981) 26 The A n t i t r u s t B u l l . 839 at 867. 77. Richard Posner, A n t i t r u s t : Cases: Economic Notes and Other M a t e r i a l s , (1974) at 331 writes that p r i c e f i x i n g agreements are " p e r n i c i o u s at worst, - 93 -innocuous at best; so f a r as economic science has been able to determine they are r a r e l y i f ever b e n e f i c i a l i n the sense of i n c r e a s i n g economic e f f i c i e n c y or we l f a r e " . 78. Supra note 76 at 841. 79. Supra note 47. 80. James P. C a i r n s , Commentary, Aetna Insurance, Eastern Sugar and "Unduly" i n the Combines I n v e s t i g a t i o n Act: S t i l l More Confusion, (1980-81) 5 Can. Bus. L . J . 231; see a l s o supra note 76 f o r a comprehensive a n a l y s i s of the d e c i s i o n s . 81. Aetna Insurance Company et a l . v. The Queen, [1978] 1 S.C.R. 731. 82. A t l a n t i c Sugar R e f i n e r i e s v. The Attorney General of "Canada (1981), 54 C.C.C. (2d) 373. 83. See, f o r example, Clay M. Powell, Conspiracy Prosecutions, (1970-71) 13 Crim. L.Q. 34. 84. Supra note 76 at 864. 85. A t l a n t i c Sugar, quoted in j_d., at 865. Other c r i t i c i s m s of the cases include the evidence needed t o prove an agreement and the i n t e r p r e t a t i o n of the word "unduly"; see f o r example,-Reschenthaler and Stanbury, supra note 76; C a i r n s , supra note 80 and W.T. Stanbury and G.B. Reschenthaler, Oligopoly and Conscious P a r a l l e l i s m : Theory, P o l i c y and The Canadian Cases, (1977) 15 Osgoode Hall L . J . 618. 86. W.T. Stanbury and G.B. Reschenthaler, Reforming Canadian Competition P o l i c y : Once More Unto the Breach, (1980-81) 5 Can. Bus. L . J . 381. 87. Id., at 394. This s e c t i o n draws on information provided by Dr. W.T. StanD~u~ry, Faculty of Commerce, U n i v e r s i t y of B r i t i s h Columbia. 88. Donald N. Thompson, Mergers, E f f e c t s and Competition P o l i c y : Some Empirical Evidence, i n J . Robert P r i c h a r d , W.T. Stanbury and Thomas A. Wilson, (eds.), (1979) Canadian Competition P o l i c y : Essays i n Law and Economics 297 at 305-325; Peter 0. S t e i n e r , Mergers: Motives, E f f e c t s , P o l i c i e s , (1975). 89. Thompson, i_d, at 326. 90. Economic Council of Canada, Interim Report on Competition P o l i c y , (1969) at 109. 91. Supra note 40 at 39. 92. Supra note 86. - 94 -93. See Reschenthaler and Stanbury, supra note 33. 94. Supra note 86 at 411. It should be noted that there are some ob j e c t i o n s to a pre-merger screening procedure. For example, the Royal Commission on Corporate Concentration (1978) at 160 suggested that mergers be evaluated a f t e r they occurred so as not to i n c u r the expense of a screening agency or to deter b e n e f i c i a l mergers. 95. Supra note 40 at 279-293. 96. For a review of the two a l t e r n a t i v e s see Warren Grover, The Competition B i l l : The Courts or a S p e c i a l i z e d A d m i n i s t r a t i v e Tribunal in P r i c h a r d , Stanbury and Wilson (eds.) supra note 88 at 97. 97. Income Tax Act, S.C. 1970-71-72, c. 63. 9 8- Walker v. R. (1939), S.C.R. 214 at 216. 99. The RTPC, created i n 1952, i s an a d m i n i s t r a t i v e t r i b u n a l , of not more than four members, appointed by the Governor in C o u n c i l . I n i t i a l l y i t s powers were l i m i t e d to i n v e s t i g a t i n g and making recommendations. Today i t s powers extend t o a d j u d i c a t i n g and making orders under Part IV.I of the CIA. 100. Inquires Act, R.S., c. 314. 101. Ed Ratushny, S e l f - i n c r i m i n a t i o n i n the Canadian Criminal Process, (1979) at 186-7. 102. Id., at 352. 103. Id., at 395. 104. John M. Magwood, Competition Law of Canada, (1981) at 96. 105. Supra note 101 at 404. 106. Pi I o r i a and Fontaihe v. Montreal J a i l Warden and Brunet (1976), 35 C.R.N.S. b/. 107. For a comparison of e v i d e n t i a r y rules i n adversary and non-adversary proceedings see Mirjan Damaska, E v i d e n t i a r y B a r r i e r s to C o n v i c t i o n and Two Models of Criminal Procedure: A Comparative Study, (1972-73) 121 u. of Pa.  L. Rev. 506. 108. Supra note 47. 109. Supra note 3 at 357. 110. G. Rosenbluth and H. Thorburn, Canadian Anti-Combines L e g i s l a t i o n , 1952-1960, (1963); C o l l i n Goff and Charles E. Reasons, Corporations In Canada: A Study of Crime and Punishment, (1975-76) 18 Crim. L.Q. 468 at 484-486. Good and Reasons conclude that expenditures between 1936 and 1972 - 95 -were inadequate. For example, i n 1972, 60 times as much money was spent on c o n t r o l l i n g s t r e e t crime as was spent on the enforcement of the CIA. 111. Paul K. Gorecki and W.T. Stanbury, Canada's Combines I n v e s t i g a t i o n Act: The Record of Enforcement, 1889-1976, i n P r i c h a r d , Stanbury and Wilson (eds.), supra note 86 at 135; f o r an a p p l i c a t i o n of performance measures see: Paul Gorecki, The Administration and Enforcement of Competition P o l i c y i n Canada, 1960 to 1975: An A p p l i c a t i o n of Performance Measures, (1979), Consumer and Corporate A f f a i r s , Canada. 112. Gorecki and Stanbury, i_d., Table 1 at 183. 113. Id. 114. j_d., at 143-144. 115. Id., at 159. 116. 6d., at 162. 117. Id., at 163. 118. Id., at 163. 119. The number of mergers and the s i z e of mergers have increased in recent y e a r s . Between 1977-81 there was an average of 452 mergers per year in Canada. In the 1960s the average was 253 per y e a r . The average s i z e of the merged e n t i t y i n terms of assets was $42 m i l l i o n i n 1970 and i t was $94 m i l l i o n i s 1971. This information was provided by Dr. W.T. Stanbury, Faculty of Commerce, U n i v e r s i t y of B r i t i s h Columbia. 120. Paul Weiler, In the Last Resort: A C r i t i c a l Study of the Supreme Court of Canada, (1974) at 229. - 9U ~ CHAPTER 4 THE NATURE OF CORPORATIONS Knowledge of why the corporate form i s used, what the corporation i s , i n law and i n f a c t , and how i t functions i s necessary in order to hold i t accountable. Is the cor p o r a t i o n only a l e g a l f i c t i o n ? Does i t have, i n f a c t , any unique c h a r a c t e r i s t i c s ? Does i t s use r e s u l t in any unique consequences? Or i s i t simply the mode through which i n d i v i d u a l s known as shareholders j o i n t l y carry on business? This chapter w i l l examine two t r a d i t i o n a l t h e o r i e s of corporate p e r s o n a l i t y which were developed by the courts when faced with t r e a t i n g corporations as le g a l a c t o r s . The reasons f o r , and the consequences o f, in c o r p o r a t i o n w i l l a l s o be explored. Some of the l i t e r a t u r e on how corporations make, transmit and implement d e c i s i o n s w i l l be reviewed i n order to shed some l i g h t on how corporate behavior can be c o n t r o l l e d . I. THE CORPORATION: REAL OR LEGAL FICTION? There are two t h e o r i e s of the legal p e r s o n a l i t y of c o r p o r a t i o n s : the r e a l i s t or organic and the f i c t i o n theory. The organic theory views an organized group as possessing a p e r s o n a l i t y and legal r i g h t s regardless of sta t e r e c o g n i t i o n . 1 The group i s analogous to a natural person and has a w i l l of i t s own which i s c a r r i e d out by human agency. In c o n t r a s t , the f i c t i o n theory views corporations as personae f i e f a e , created - 97 -f o r l egal and business convenience. 3 The corporation has no r i g h t s other than those granted to i t . It i s a r t i f i c i a l and has no w i l l . At the more p r a c t i c a l l e v e l , these two t h e o r i e s r e f l e c t two fundamentally d i f f e r e n t approaches to the role which government takes in • 4 c o n t r o l l i n g a c t i v i t i e s engaged i n by c o r p o r a t i o n s . In one view, use of the corporate form i s a p r i v i l e g e accorded by the s t a t e . Because i n c o r p o r a t i o n i s not p o s s i b l e without the s t a t e ' s permission, the government i s u l t i m a t e l y responsible f o r overseeing the e x e r c i s e of corporate powers and ensuring t h a t they are employed f o r ends approved by the s t a t e . . . The counter view i s that the corporate form i s e s s e n t i a l l y a matter of contract between p r i v a t e p a r t i e s . Here the s t a t e has no more r e s p o n s i b i l i t y or a u t h o r i t y than with any other c o n t r a c t . . . According t o t h i s view, the f u n c t i o n of general corporation codes i s not to grant a p r i v i l e g e but merely to reduce the t r a n s a c t i o n costs of p r i v a t e bargaining by p r o v i d i n g a code of standard legal arrangement. The f i r s t view i s analogous to the f i c t i o n theory; the second i s analogous to the organic theory. In England, p r i o r t o 1720, "common law c o r p o r a t i o n s " , recognized by continuous existence or by corporate charters granted by the Crown, possessed a l l the powers of a natural p e r s o n . 5 However, i n 1720, as a r e s u l t of the f i n a n c i a l d i s a s t e r of the South Sea Company, the "Bubble Act" was passed. Under the Act, new companies could only be formed by the passing of an i n d i v i d u a l s t a t u t e which was then s t r i c t l y i n t e r p r e t e d to l i m i t the powers of the company to the express powers granted to i t . 6 - 98 -The demand f o r an i n c r e a s i n g number of s p e c i a l act companies during the i n d u s t r i a l r e v o l u t i o n l e d to a r e g i s t r a t i o n system accompanied by the f i l i n g of a memorandum o f a s s o c i a t i o n . The courts s t r i c t l y construed the objects in the memorandum as they had the l e g i s l a t i o n which e s t a b l i s h e d the s p e c i a l act companies. 7 Companies formed by r e g i s t r a t i o n d i d not have the contractual capacity of a natural person, but were l i m i t e d to the objects set out in the i n c o r p o r a t i o n documents. The corporation was e s s e n t i a l l y a l e g a l f i c t i o n . In the United S t a t e s , corporate c h a r t e r s granted by i n d i v i d u a l s t a t e s are more enabling than regulatory in nature; that i s , t h e i r primary Q f u n c t i o n i s to f a c i l i t a t e business rather than r e s t r i c t i t . This i s l a r g e l y the r e s u l t of s t a t e governments, p a r t i c u l a r l y Delaware, competing g f o r the revenue generated by the granting of corporate c h a r t e r s . In Canada, the p r o v i n c i a l and federal companies l e g i s l a t i o n developed i n two d i r e c t i o n s : (a) the l e t t e r s patent system and (b) the r e g i s t r a t i o n or memorandum of a s s o c i a t i o n system. The former i s s i m i l a r to the organic theory and the l a t t e r i s s i m i l a r to the f i c t i o n theory. The l e t t e r s patent system was used o r i g i n a l l y by Ontario, Manitoba, Quebec, New Brunswick, Prince Edward Is l a n d , and by the f e d e r a l government. A company formed by the m i n i s t e r i a l i s s u i n g of l e t t e r s patent has "a c a p a c i t y analogous to that of a natural person," and i s only r e s t r i c t e d by s p e c i f i c l e g i s l a t i o n . 1 0 This capacity i s s i m i l a r to the pre-South Sea common law companies. - 99 -B r i t i s h Columbia, A l b e r t a , Saskatchewan, Nova S c o t i a and Newfoundland o r i g i n a l l y used the r e g i s t r a t i o n system. Such a company i s , l i k e that created by s t a t u t e in the post South Sea Bubble era, l i m i t e d t o the powers set out i n the documents of i n c o r p o r a t i o n . Contracts entered i n t o which are not w i t h i n i t s objects are u l t r a v i res and v o i d . 1 1 However, today, widely d r a f t e d clauses have almost e l i m i n a t e d the issue of u l t r a 12 v i r e s . The trend in law reform f o r r e g i s t r a t i o n companies i n Canada has been to a b o l i s h the d o c t r i n e of u l t r a v i r e s and t o grant a corporation a l l the powers of a natural person. B r i t i s h Columbia i n 1973, and A l b e r t a i n 1982, 1 -3 moved i n t h i s d i r e c t i o n . However, given the extent of government i n t e r v e n t i o n and r e g u l a t i o n i n the Canadian economy, 1 4 i t would be inaccurate t o envisage these reforms as a reduction in s t a t e i n t e r v e n t i o n . Rather, the changes are more a p p r o p r i a t e l y viewed as f a c i l i a t i n g the day to day business operations of c o r p o r a t i o n s . In the United States there e x i s t s a continuing debate over the issue of federal c h a r t e r i n g and s t r i c t e r 1 c government c o n t r o l s over corporate a c t i v i t i e s . I I . THE REASONS FOR INCORPORATION According to some commentaries, the purpose of laws governing corporations i s to f a c i l i t a t e the management of economic g r o u p s . 1 6 The primary purpose of corporation laws i s not r e g u l a t o r y . They are enabling a c t s , to authorize businessmen to organize and t o operate t h e i r business, large or s m a l l , with the advantages of the corporate mechanism. - 100 -They are drawn with a view to f a c i l i t a t e e f f i c i e n t management of business and adjustment to the needs of change. They provide the l e g a l frame and f i n a n c i a l s t r u c t u r e of the i n t r i c a t e corporate device by which business can be c a r r i e d on and i n which the combined energies and the c a p i t a l of the managers and of many in v e s t o r s may work together. T h e o r e t i c a l l y , i t would be p o s s i b l e to carry on a l l group business through the use of d e t a i l e d c o n t r a c t s . However, as the s i z e of the group i n c r e a s e s , i t i s obvious that the corporate form becomes more p r a c t i c a l . There i s l i t t l e doubt that mammoth national and i n t e r n a t i o n a l corporations could not f u n c t i o n without the a s s i s t a n c e of enabling l e g i s l a t i o n . The s t a t e plays a fundamental r o l e in e s t a b l i s h i n g the system of property r i g h t s which e x i s t s in a c a p i t a l i s t i c economy. Other standard reasons f o r i n c o r p o r a t i o n include l i m i t e d l i a b i l i t y , s i m p l i f i e d t r a n s f e r a b i l i t y of ownership, perpetual existence and, i n some cases, tax advantages.^ I I I . OTHER CONSEQUENCES OF INCORPORATION The ease with which the corporate form allows groups to c a r r y on business leads to other consequences. Rather than d i v i d i n g property, the 18 concept of a share in a company d i v i d e s an i n t e r e s t in property. Shares become even more abstract and d i s t a n t from s p e c i f i c corporate property as they are negotiated and a s s i g n e d . 1 9 Most property i s accompanied by r i g h t s and d u t i e s ; however, i t i s questionable whether any duties are attached t o shares. This d e p e r s o n a l i z a t i o n of ownership - 101 -c o n t r i b u t e s to the o b j e c t i f i c a t i o n of the c o r p o r a t i o n ; that i s , i t assumes a separate e x i s t e n c e . 2 0 Incorporation has f u r t h e r consequences. Limited l i a b i l i t y changes the nature of the r i s k in which shareholders are i n v o l v e d . In a d d i t i o n , l i m i t e d l i a b i l i t y f u r t h e r removes them from the consequences of corporate behavior. The perpetual existence of a corporation a s s i s t s in the i n s t i t u t i o n a l i z a t i o n of behavior p a t t e r n s . Roles are defined so that corporate behavior can continue a f t e r a p a r t i c u l a r i n d i v i d u a l leaves. A. The D i v i s i o n of Function and I n t e r e s t s In 1932, Berle and Means 2 1 published t h e i r c l a s s i c study on the s h i f t of the control of corporations from owners to managers. They i d e n t i f i e d t h r e e functions performed by i n d i v i d u a l s involved in c o r p o r a t i o n s : 1. owning i n t e r e s t s , 2. having power, and 3. a c t i n g i n respect to the e n t e r p r i s e . The h i r i n g of a manager in a small e n t e r p r i s e w i l l separate the f i r s t two f u n c t i o n s from the t h i r d . However, the formation of l a r g e r e n t e r p r i s e s w i l l r e s u l t in the f i r s t f u n c t i o n being separated from the l a s t two. The outcome i s to have "ownership of wealth without appreciable control and c o n t r o l of wealth without appreciable ownership". 2 2 This management cont r o l theory i s often r e f e r r e d to as managerial ism. - 102 -Managerialism poses questions regarding the goals of a c o r p o r a t i o n . W i l l i t s t r i v e t o achieve the goals of the owners or of the managers? Are there basic c o n f l i c t s in the goals of owners and managers? Berle and Mean i d e n t i f i e d three major i n t e r e s t s held by the owners or s h a r e h o l d e r s : 2 3 1. "to earn maximum p r o f i t compatible with a reasonable degree of r i s k , " 2. to d i s t r i b u t e to shareholders as large a proportion of the p r o f i t s as business i n t e r e s t s permit, and 3. t o maintain,the m a r k e t a b i l i t y of shares at a f a i r p r i c e . However, the i n t e r e s t s of those who have de fa c t o control may d i f f e r . I f the i n d i v i d u a l i n control i s concerned with personal p r o f i t , his OA i n t e r e s t s are "often r a d i c a l l y opposed t o those of ownership." The authors speculate that there may be other i n t e r e s t s which managers s t r i v e t o achieve, such as " p r e s t i g e , power, or the g r a t i f i c a t i o n of p r o f e s s i o n a l z e a l . " 2 5 While the existence of manageralism i n many large corporations i s widely accepted, the nature of managerial goals and performance i s more c o n t r o v e r s i a l . 2 6 The concern i s us u a l l y with the extent to which managers depart from the goal of p r o f i t maximization. For example, Simon, 71 Cyert and March*1' suggest that managers seek s a t i s f a c t o r y r a t h e r than maximum p r o f i t s . G a l b r a i t h , 2 8 i s of the opinion that the technostructure or the or g a n i z a t i o n of corporate managers have the - 103 -f o l l o w i n g t h r e e goals: (a) j o b s a t i s f a c t i o n , (b) s e c u r i t y of employment, and (c) growth of the f i r m . A s u b s t a n t i a l departure from p r o f i t goals c a l l s i n t o question s o c i e t y ' s a b i l i t y to achieve economic e f f i c i e n c i e s , e s p e c i a l l y t e c h n i c a l e f f i c i e n c y , through competitive market f o r c e s . 2 9 on In 1981, Herman u reassessed Berle and Means's study of corporate power. He i s of the opinion that the "unswervingly p r o f i t - o r i e n t e d OI e n t r e p r e n e u r i a l c o r p o r a t i o n " never e x i s t e d and that the " p r o f i t motive has s u f f e r e d no d i s c e r n i b l e e c l i p s e as a r e s u l t of the r i s e of management c o n t r o l " . 3 2 Rather, corporations today, as well as in Berle and Means's e r a , are concerned with p r o f i t a b l e growth. P r o f i t a b l e growth s t r e s s e s the dynamic nature of the quest f o r p r o f i t s . The quest may be s a t i s f i c i n g or maximizing depending on a number of circumstances such as "ownership i n t e r e s t s represented on the board, market-based and s o c i a l pressures, and s t r u c t u r a l / o r g a n i z a t i o n a l changes [which a r e ] grounded u l t i m a t e l y in the i n t e r e s t s and power of 33 ownership." The author concludes that managerialism has not led t o a neutral technocracy, with managers d i s i n t e r e s t e d i n p r o f i t s , but that p r o f i t a b l e growth remains a goal of managers and owner control c o r p o r a t i o n s . IV. CORPORATE DECISIONS Complex systems behave c o u n t e r - i n t u i t i v e l y , the p l a u s i b l e tends to be wrong. 4 - 104 -It i s common knowledge that i n d i v i d u a l s behave d i f f e r e n t l y in groups than they do on t h e i r own. Group behavior has been the object of study by s o c i o l o g i s t s and p s y c h o l o g i s t s f o r some time. In 1954, Lord Denning recognized the nature of a group when he quoted D i c e y . 3 5 When a body of twenty, or two thousand, or two hundred thousand men, bind themselves together to act in a p a r t i c u l a r way f o r some common purpose, they c r e a t e a body, which by no f i c t i o n of law, but by the very nature of t h i n g s , d i f f e r s from the i n d i v i d u a l s of whom i t is c o n s t i t u t e d . The removal of shareholder d u t i e s , the d i v i s i o n between ownership and management, the i n s t i t u t i o n a l i z a t i o n of behavior patterns and the c o n f l i c t i n g i n t e r e s t s of management and shareholders can a l l i n f l u e n c e how corporations make d e c i s i o n s . The option of p i e r c i n g the corporate v e i l and prosecuting i n d i v i d u a l s i s l i m i t e d by the f a c t that one s t i l l has to deal with group behavior. There are a number of models of how these d e c i s i o n s are made. Such models w i l l i n f l u e n c e the methods chosen to control c o r p o r a t i o n s . This part w i l l examine how cor p o r a t i o n s make d e c i s i o n s , and how the d e c i s i o n s , once made, are transmitted and implemented. A. Decision Making K r e i s b e r g , 3 6 borrowing from A l l i s o n ' s 3 7 a n a l y s i s of the Cuban m i s s i l e c r i s i s , o u t l i n e s three models of corporate d e c i s i o n making: - 105 -I. Rational Actor Model, I I . O r g a n i z a t i o n a l Process Model, and I I I . Bureaucratic P o l i t i c s Model. The Rational Actor Model (I) views corporate a c t i o n s as u n i t a r y and r a t i o n a l . Corporate d e c i s i o n s are unitary in the sense that i n d i v i d u a l s ' a c t i o n s are s u f f i c i e n t l y concerted to view corporate d e c i s i o n s as i f they were made by one a c t o r , the c o r p o r a t i o n . The corporation i s a l s o viewed as choosing the course of a c t i o n which w i l l best achieve i t s goals; that i s , i t i s r a t i o n a l . While small firms are more l i k e l y to reach d e c i s i o n s i n t h i s manner than large f i r m s , i t i s often viewed as the predominate d e c i s i o n making model of a l l corporations by courts and l e g i s l a t o r s . Corporations are a l s o seen as more unit a r y in competitive, as opposed t o monopolistic, markets. K r e i s b e r g 3 8 suggests that "competition threatens i n e f f i c i e n t firms with economic f a i l u r e and thus f o r c e s value-maximizing [more s p e c i f i c a l l y , p r o f i t maximizing] d i s c i p l i n e on c o r p o r a t i o n s " . The Organizational Process Model (II) views the c o r p o r a t i o n "as a c o n s t e l l a t i o n of l o o s e l y a l l i e d decisionmaking u n i t s . . . each with primary r e s p o n s i b i l i t y f o r a narrow range of problems." 3 9 Each u n i t has a c e r t a i n degree of autonomy in s e t t i n g p r i o r i t i e s . A m u l t i d i v i s i o n a l or d e c e n t r a l i z e d corporation can pursue c o n f l i c t i n g goals. C o f f e e 4 0 gives the example of two wholly owned s u b s i d i a r i e s of U.S. Steel lobbying with regard t o proposed l e g i s l a t i o n , one f o r i t and one against i t . The - 106 -theory of "subgoal p u r s u i t " suggests that managers at lower l e v e l s w i l l act to maximize the goals of t h e i r own d i v i s i o n rather than the f i r m as a w h ole. 4 1 However, K r e i s b e r g ^ views corporate action in Model II as f a l l i n g w i t h i n the standard operating procedures' (SOPs) of the p a r t i c u l a r c o r p o r a t i o n . Decisions follow o r g a n i z a t i o n a l r o u t i n e s . R o u t i n i z a t i o n may o r i g i n a t e from oral or w r i t t e n d i r e c t i v e s or by force of h a b i t . Not a l l SOPs are easy to a s c e r t a i n . Some are found i n management manuals; 43 however, not a l l d i r e c t i v e s found in manuals are to be followed. The B u r e a u c r a t i c P o l i t i c s Model ( I I I ) views corporate a c t i o n as the r e s u l t of p o l i t i c a l n e g o tiations and bargains among various corporate personnel who possess d i f f e r e n t amounts of power or i n f l u e n c e . The d e c i s i o n may r e f l e c t a compromise among i n d i v i d u a l s rather than a r a t i o n a l goal as i n Model I or a r o u t i n i z e d procedure as i n Model I I . Decisions may 44 be i r r a t i o n a l under Model I I I . Since separate i n d i v i d u a l s with d i f f e r e n t i n t e n t i o n s c o n t r i b u t e to the p o l i t i c a l outcome, actual corporate a c t i o n may not be the p r e f e r r e d course of any p a r t i c u l a r p l a y e r or team. It may be an amalgam of independent d e c i s i o n s , a compromise among the views of several teams, or the r e l a t i v e l y unalloyed preference of a c e r t a i n subset of p l a y e r s . Moreover, even i f the d e c i s i o n i s unanimously supported, the suport may stem from d i s s i m i l a r i n t e r p r e t a t i o n s of the proposed a c t i o n . Indeed, the pace and pressures of bureaucratic bargaining make misunderstandings among players common—and often c r u c i a l to reaching a consensus. F i n a l l y , what i s planned may not correspond t o what i s implemented. The need f o r vagueness in order to b u i l d consensus i n the formulation stage may be e x p l o i t e d by subsequent maneuvers in the implementation stage. - 107 -The r e s u l t of the Model III decisionmaking process i s only by coincidence, i f at a l l , the course of a c t i o n t h a t maximizes the values of the e n t i t y as a whole. Furthermore, the Model III process i t s e l f lacks the q u a l i t i e s of purposefulness and consistency that are basic to Model I decisionmaking. The i r r a t i o n a l i t y of Model III decisionmaking thus i s due not to any mental q u i r k s of the decisionmakers but rather to the o r g a n i z a t i o n a l system i n which they i n t e r a c t . The above models have p r a c t i c a l i m p l i c a t i o n s f o r the control of corporate crime. Model I would endorse imposing sanctions on the corporate e n t i t y rather than i n d i v i d u a l s . For example, a f i n e which c a n c e l l e d p r o f i t s and was adjusted f o r the p r o b a b i l i t y of d e t e c t i o n and c o n v i c t i o n should deter the r a t i o n a l c o r p o r a t i o n which pursues p r o f i t maximization i t s main g o a l . 4 5 This perception of corporations as u n i t a r y actors was viewed by A r n o l d 4 6 i n 1937 as one of the reasons f o r the i n e f f e c t i v e n e s s of attaching c r i m i n a l l i a b i l i t y to corporations f o r v i o l a t i n g a n t i t r u s t laws. However, Model I cannot be dismissed so e a s i l y . It i s p o s s i b l e , and has been suggested many,times, that the s i z e of the f i n e s imposed against a n t i t r u s t law v i o l a t o r s would not deter a r a t i o n a l a c t o r . The t h r e a t of p a r a l y z i n g f i n e s might motivate the most d e c e n t r a l i z e d c o r p o r a t i o n to be r a t i o n a l and u n i t a r y in i t s d e c i s i o n making. 4 7 The e f f e c t i v e n e s s of p e n a l t i e s i s a l s o dependent on the values and p r i o r i t i e s of the offending c o r p o r a t i o n . Values other than p r o f i t maximization include corporate image, s a l e s volume, government c o n t r a c t s and f r a n c h i s e s , and r e t a i n e d earnings. P r o f i t s may be s a c r i f i c e d f o r - 108 -expressions of corporate power. K r e i s b e r g ^ 0 suggests that information regarding corporate goals could be acquired through p r o s e c u t o r i a l i n v e s t i g a t i o n or i n t e r r o g a t i o n at t r i a l . Model II c a l l s f o r imposing l i a b i l i t y on those who are responsible f o r 4Q i n s t i g a t i n g and overseeing SOPs. These are often r e f e r r e d t o as the " i n d i r e c t a c t o r s " . L e g i s l a t i o n should impose an a f f i r m a t i v e duty on such i n d i v i d u a l s to c o r r e c t SOPs which have flaws and t o ensure that proper SOPs 50 are followed. Stanbury presents the f o l l o w i n g argument f o r i n d i v i d u a l l i a b i l i t y : The corporate v e i l must be torn away and r e c o g n i t i o n given to the f a c t t h a t men, not legal e n t i t i e s , f i x p r i c e s , d i v i d e markets, negotiate mergers and administer r e s a l e p r i c e maintenance schemes. The time has come to stop denial of i n d i v i d u a l r e s p o n s i b i l i t y . Model III favors l i a b i l i t y of i n d i v i d u a l lawbreakers ( i . e . d i r e c t a c t o r s ) , whether p a r t i c i p a t i n g by action or acquiescence, and corporate d e c i s i o n makers and overseers ( i . e . i n d i r e c t a c t o r s ) . 5 1 The l a t t e r have an a f f i r m a t i v e duty to become in v o l v e d i n t h e i r areas of r e s p o n s i b i l i t y . Such r e s p o n s i b i l i t y might force the corporate d e c i s i o n makers to "reduce the f l u i d i t y of t h e i r d e c i s i o n making process through r o u t i n i z a t i o n " ; that i s to i n s t i t u t e SOPs as are found in Model I I . According to K r e i s b e r g , Model I assumes that the c o r p o r a t i o n w i l l act as a r a t i o n a l i n d i v i d u a l and i s t h e r e f o r e swayed by the deterrent e f f e c t of f i n e s ( i f i t . v a l u e s p r o f i t maximization) or other p e n a l t i e s i t wishes to - 109 -avoid. The corporation i s a c a l c u l a t i n g animal, weighing the ben e f i t s of v i o l a t i n g the law against the c o s t s . Models II and III favor l i a b i l i t y of d i r e c t actors in the hope that corporate o f f i c i a l s w i l l be forc e d t o p o l i c e t h e i r lower l e v e l employees. Model III a l s o suggests l i a b i l i t y of d i r e c t a c t o r s . These models w i l l be discussed f u r t h e r in Chapter 6 on Criminal Sanctions. B. Transmitting Decisions The above models examine the o r g a n i z a t i o n a l complexity of corpor a t i o n s i n terms of the d e c i s i o n making process. However, once the d e c i s i o n i s made i t must be t r a n s m i t t e d w i t h i n the cor p o r a t i o n from the makers to the implementers. A Note i n the Yale Law J o u r n a l 5 2 discusses the transmission of decisions in l i g h t of what i t c a l l s " s t r u c t u r a l crime", defined as "instances i n which a corporation commits a cr i m i n a l offence but no c r i m i n a l l y culpable i n d i v i d u a l can be i d e n t i f i e d " , at l e a s t according t o t r a d i t i o n a l l e g a l approaches. Two information processes play a r o l e in d i f f u s i n g i n d i v i d u a l r e s p o n s i b i l i t y . Information i s channelled from the senior o f f i c i a l s who design p o l i c y to those who are i n s t r u c t e d to carry i t out and from those who carry out the p o l i c y back to the planners. Gaps in e i t h e r can make i t d i f f i c u l t to a s c r i b e l i a b i l i t y to i n d i v i d u a l s . 5 3 Information blockage, so that information does not reach the p o l i c y makers, can take place f o r a number of reasons. For example, the - 110 -American i n v e s t i g a t i o n i n t o improper payoffs provides a number of reasons 54 f o r information blockage. (a) a shared f e e l i n g on the part of subordinate o f f i c i a l s that they owe t h e i r l o y a l t y c h i e f l y to senior management and not t o the board [ of d i r e c t o r s ] ; (b) a b e l i e f that the board i s i n t e r e s t e d only i n "hard" q u a n t i t a t i v e information, such as c a p i t a l c o s t s , f i n a n c i a l r a t i o s , and expected rates of r e t u r n ; (c) a sense that "everybody knows anyway," coupled with the perception that the board would rather not be put on formal n o t i c e as to the ugly "facts of l i f e " of doing business abroad; and (d) a "lack of congruence" between the i n t e r e s t s of the corporation and the career a s p i r a t i o n s of i n d i v i d u a l corporate o f f i c i a l s . The two way channel of information i s exposed to f u r t h e r sabotage. Downs formalizes T u l l o c k ' s d e s c r i p t i o n of "aut h o r i t y leakage" by the f o l l o w i n g p r o p o s i t i o n which he c a l l e d the "Law of Diminishing C o n t r o l " : "The l a r g e r any o r g a n i z a t i o n becomes, the weaker i s the con t r o l over i t s 55 a c t i o n s exercised by those at the top". Transmission of adverse information to the top of the corporate heirarchy faces f u r t h e r problems. The theory of c o g n i t i v e dissonance states the much observed phenomenon that " r e c i p i e n t s of information unconsciously focus on and re l a y only the information that r e i n f o r c e s t h e i r p r e e x i s t i n g a t t i t u d e s , while f i l t e r i n g out c o n f l i c t i n g i n f o r m a t i o n . " 5 6 - I l l -Communication of information i s a l s o a f f e c t e d by what i s commonly r e f e r r e d to as the "grapevine e f f e c t " . Studies of the e f f e c t of r e l a y i n g information show t h a t , 5 7 opinions and conclusions are r e v e r s e d — n e a r l y every p o s s i b l e v a r i a t i o n seems as i f i t can take p l a c e , even in a r e l a t i v e l y short s e r i e s . At the same time the subjects may be very well s a t i s f i e d with t h e i r e f f o r t s , b e l i e v i n g themselves to have passed on a l l important features with l i t t l e or no change. C. Improvising and Implementing Decisions Decisions can be viewed on a continuum of a b s t r a c t i o n . For example, d e c i s i o n s on production quotas, p r o f i t goals and new product developments are more a b s t r a c t than a d e c i s i o n to cut corners to meet those goals. The l a t t e r may never be made o f f i c i a l l y "by the c o r p o r a t i o n " or transmitted to i n d i v i d u a l s . However, i l l e g a l means may be the only way of achieving the more abstract g o a l s . The f a c t that the "lower l e v e l personnel often know what the boss wants without a s k i n g " 5 8 demonstrates the o r g a n i z a t i o n a l pressures to deviate without a corporate d e c i s i o n having been made or t r a n s m i t t e d . 5 9 Gross J a s s e r t s that a l l organizations are i n h e r e n t l y c r i m i n a l because of t h e i r emphasis on performance. Evidence i n d i c a t e s a d i r e c t r e l a t i o n s h i p between i n a b i l i t y to meet goals and i l l e g a l a c t i v i t y . 6 0 In some cases i l l e g a l behavior i s the only way to meet o r g a n i z a t i o n a l ft i goals. The emphasis on goals i s r e i n f o r c e d by numerous accounting and monitoring a c t i v i t i e s . According to G r o s s 6 2 these procedures - 112 -r e i n f o r c e deviance or i l l e g a l means to a t t a i n goals. Improvising or f i n d i n g i l l e g a l means to achieve goals i s f u r t h e r enhanced by the d e c e n t r a l i z a t i o n of a c o r p o r a t i o n and the establishment of subgoals. Each u n i t must meet i t s t a r g e t and account to the l a r g e r body in terms of performance. While law breaking a c t i v i t i e s can become e s t a b l i s h e d patterns in some cor p o r a t i o n s , i t is probably more accurate to view corporations as capable of s u s t a i n i n g and supporting c r i m i n a l a c t i v i t y rather than as i n h e r e n t l y c r i m i n a l . An overemphasis on goals can lead to c r i m i n a l a c t i v i t i e s by those whose job performance i s measured i n terms of performance. D. Corporate Norms and R a t i o n a l i z a t i o n s I n d i v i d u a l actors receive support from the " c u l t u r e of the CO c o r p o r a t i o n " which i s often in c o n f l i c t with e t h i c a l and l e g a l norms. Managers and executives are s o c i a l i z e d to accept corporate goals and norms. C l i n a r d and Y e a g e r 6 4 w r i t e : Studies have been made in d e t a i l of how corporations lead new managers through an i n i t i a t i o n period designed t o weaken t h e i r t i e s with external groups, i n c l u d i n g t h e i r own f a m i l i e s , and encourage a f e e l i n g of dependence on and attachment to the c o r p o r a t i o n , outside connections are reduced, and a club mentality i s bred through overwork, frequent t r a n s f e r s , which i n h i b i t attachment to l o c a l communities, and p r o v i s i o n s f o r r e c r e a t i o n a l and educational needs during l e i s u r e time. Co-workers and higher-ups, become " s i g n i f i c a n t others" in the i n d i v i d u a l ' s work and s o c i a l l i f e . - 113 -It should not come as a s u r p r i s e that deviant or c r i m i n a l behavior i s i e a s i l y r a t i o n a l i z e d and n e u t r a l i z e d by the c r i m i n a l executive or manager. 6 5 However, severer external p e n a l t i e s , discussed i n Chapter 6, might help overcome the i n t e r n a l pressures. For example, would an i n d i v i d u a l r i s k going t o j a i l f o r the corporation? If the a n t i c i p a t e d penalty of p r i s o n was widely believed to follow a detected i l l e g a l a c t , i t may help i n d i v i d u a l s to counteract pressure by more senior corporate o f f i c i a l s . E. The B u f f e r From External A u t h o r i t y cc K a t z D O i d e n t i f i e s three ways in which formal o r g a n i z a t i o n s b u i l d i n t e r n a l a u t h o r i t y over t h e i r members by s h i e l d i n g them from external a u t h o r i t y . F i r s t , o r g a n i z a t i o n s obscure o u t s i d e r s ' perception of i n t e r n a l c o n t r o l s by s h i e l d i n g t h e i r members from exposure to external i n d i v i d u a l s . The i n t e g r i t y of the o r g a n i z a t i o n i s maintained by d i s c r e e t punishment, f o r example, the voluntary r e s i g n a t i o n of a member as opposed to a d i s m i s s a l . Discharged embezzlers are often not charged by managers' of defrauded corporations in order to p r o t e c t t h e i r image with s t o c k h o l d e r s . 6 7 The c a l l i n g i n of outside a u t h o r i t y or the exposure of i n t e r n a l deviance i l l u s t r a t e s that the o r g a n i z a t i o n i s not in c o n t r o l . However, the lack of outside a u t h o r i t y can give way to a weakening of i n t e r n a l c o n t r o l s . K a t z 6 8 suggests that [1 l e g i t i m a t e reasons f o r the use of a d i s c r e e t method of enforcement can s u b t l y give way to i l l i c i t forms of - 114 -o r g a n i z a t i o n a l s e l f - i n t e r e s t . Internal deviance may be punished so d i s c r e e t l y that i t condones rather than d e t e r s . The otherwise j u s t i f i a b l e deception of outsiders becomes part of a c o l l e c t i v e fraud. The second method of b u i l d i n g i n t e r n a l a u t h o r i t y i s by s h i e l d i n g and defending members from outside c r i t i c i s m . The o r g a n i z a t i o n , not the subordinate, deals d i r e c t l y with c r i t i c a l o u t s i d e r s . The development of p u b l i c r e l a t i o n s or " s o c i a l r e s p o n s i b i l i t y departments" a s s i s t corporations i n defending members from o u t s i d e r s . 6 9 T h i r d , o r g a n i z a t i o n s b u i l d a u t h o r i t y by emphasizing non-control goals. The emphasis on more p o s i t i v e c o l l e c t i v e goals undermines the orga n i z a t i o n ' s r e s p o n s i b i l i t y . For example, members are allowed some leeway i n how they achieve these more p o s i t i v e goals. V. CONCLUSION The importance of corporate s t r u c t u r e on the behavior of i n d i v i d u a l s should not be underestimated. Studies of o r g a n i z a t i o n a l behavior and gang delinquencies have i l l u s t r a t e d the impact of o r g a n i z a t i o n a l s t r u c t u r e and group norms on the behavior of i n d i v i d u a l s . 7 0 This chapter discussed only some of the aspects of o r g a n i z a t i o n a l and, t h e r e f o r e , corporate behavior. The complexity of the org a n i z a t i o n and the number of i n t e r a c t i n g v a r i a b l e s leaves l i t t l e doubt about the appropriateness of the t i t l e of Stone's book on the s o c i a l control of corporate behavior: Where the Law E n d s . 7 1 - 115 -The corporation i s a most important s o c i a l i n s t i t u t i o n ; but so i s the criminal j u s t i c e system. How has the criminal j u s t i c e system been used t o control c o r p o r a t i o n s ? What are some of the problems i t has encountered? The next chapter w i l l discuss corporate c r i m i n a l l i a b i l i t y and how the cr i m i n a l j u s t i c e system has attempted t o subject the corporation to i t s c o n t r o l . Chapter 6 w i l l use the above d i s c u s s i o n i n order t o evaluate the nature and appropriateness of c r i m i n a l sanctions against corporations and i n d i v i d u a l s involved in corporate crime. - 116 -FOOTNOTES 1. David H. Bonham and Daniel Soberman, The Nature of Corporate P e r s o n a l i t y , (1967) in Jacob S. Ziegel (ed.), Studies i n Canadian Company Law, Volume 1 at 6; Witt J a r v i s , Corporate Criminal L i a b i l i t y : Legal Agnosticism, (1961) 1 Western" L. Rev. 1. 2. J a r v i s , i d . , at 15. 3. Bonham and Soberman, supra note 1 at 5; J a r v i s , i_d., at 10-15. 4. Ralph K. Winter, Government and the Corporation, (1978) at 1. 5. Bonham and Soberman, supra note 1 at 7. 6. Id., at 8-9. 7. _Id., at 10. 8. Supra note 4 at 3. 9. Id., at 8. 10. Bonanza Creek Gold Mining v. The King, [1966] 1 A.C. 566 (P.C.) i n Frank Iacobucci, Marilyn L. P i l k i n g t o n and J . Robert S. P r i c h a r d , Canadian Business Corporations, (1977). 11. M e l v i l l e Neuman, L e t t e r s Patent and Memorandum of A s s o c i a t i o n Companies, (1967) i n Z i e g e l , supra note 1 at 77. 12. _I_d., at 79. For f u r t h e r d i s t i n c t i o n s between the two systems see Neuman, id, 13. Company Act, R.S.B.C. 1979 C.59, s e c t i o n 21; Business Corporations Act, R.S.A. 1980, C. B-15, s e c t i o n 15. 14. Carman D. Baggaley, The Emergence of the Regulatory State i n Canada, 1867-1939, (1981) Economic Council of Canada; John L. Howard and W.T. Stanbury, Measuring Leviathan: The S i z e , Scope and Growth of Government i n Canada, (1982) Paper to be published by the Fraser I n s t i t u t e . 15. See supra note 4. 16. B a l l a n t i n e , B a l l a n t i n e on Corporations, (1946) at 41. 17. Richard W. B i r d , Incorporation and the Reasons Therefor, (1974) 23 N.B.L. Rev. 89. 18. J.E. Smyth, The S o c i a l Implications of Incorporations, (1967), i n Z i e g e l , supra note 1 at 651. - 117 -19. Id., at 654-5. 20. Adolf A. B e r l e , J r . and Gardiner D. Means, The Modern Corporation and P r i v a t e Property, (1939) at 352. 21. _Id., at 121. 22. _Id., at 69. 23. J^d., at 122. 24. _Id., at 122; see Note, The C o n f l i c t Between Managers and Shareholders i n D i v e r s i f y i n g A c q u i s i t i o n s : A P o r t f o l i o Theory Approach, (1979) 88 Yale  L . J . 1238. However, i t i s p o s s i b l e , by the use of stock o p t i o n s , to bring managers' goals more in l i n e with those of shareholders. Firms using t h i s i n c e n t i v e have better long term performance than firms which r e l y on p r o f i t , or sales i n c e n t i v e s . See Robert Tempest Masson, Executive M o t i v a t i o n s , Earnings, and Consequent Equity Performance, (1971) 79 J . of P o l . Economy 1278. 25. Supra note 20 at 122. 26. O l i v e r E. Williamson, Markets and H i e r a r c h i e s : A n a l y s i s and A n t i t r u s t I m p l i c a t i o n s , (1975). 27. Richard M. Cyert and James G. March, A Behavioral Theory of the Firm, (1963); James G. March and Herbert A. Simon, Or g a n i z a t i o n s , (1959). See a l s o F.M. Scherer, I n d u s t r i a l Market S t r u c t u r e and Economic Performance, (1980) at 29-38. Scherer considers the i n f l u e n c e of u n c e r t a i n t y , the complexity of organizations and the v a r i e t y of managerial goals as three f a c t o r s which can a f f e c t the goal of p r o f i t maximization. However, he concludes that p r o f i t maximization i s promoted in two ways. " F i r s t , firms departing too f a r from the optimum, e i t h e r d e l i b e r a t e l y or unknowingly, w i l l disappear. . . Second, knowledge that only the f i t w i l l s u r v i v e provides a p o t e n t i a l i n c e n t i v e f o r a l l firms to adapt t h e i r behavior in profit-maximizing d i r e c t i o n s , l e a r n i n g whatever s k i l l s they need and emulating o r g a n i z a t i o n s that succeed i n the s u r v i v a l game." Scherer was obviously w r i t i n g p r i o r to the massive economic b a i l o u t s of large companies by the American and Canadian governments. 28. John Kenneth G a l b r a i t h , The New I n d u s t r i a l S t a t e , (1967); f o r an a n a l y s i s of G a l b r a i t h ' s work see David Reisman, G a l b r a i t h and Market C a p i t a l i s m , (1980). 29. G a l b r a i t h views t h i s as the major misconception of market c a p i t a l i s m ; he b e l i e v e s that in a s o c i e t y dominated by a te c h n o s t r u c t u r e , c a p i t a l i s m w i l l not produce an e f f i c i e n t economy. 30. Edward S. Herman, Corporate C o n t r o l , Corporate Power, (1981). 31. i d . , at 113. - 118 -32. _Id., at 15. 33. _Id., at 86; see g e n e r a l l y i_d., chapter 3. 34. John C o l l i n s Coffee, Beyond the Shut-Eyed Sentry: Towards a T h e o r e t i c a l View of Corporate Misconduct and an E f f e c t i v e Legal Response, (1977) 63 Va.  L. Rev. 1099 at 1101. 35. Bonsor v. Musicians' Union, [1954] CH. 479 at 507 (C.A.) quoted i n Bonham and Soberman, supra note 1 at 20. 36. Simeon M. K r e i s b e r g , D e c i s i o n Models and the Control of Corporate Crime, (1976) 85 The Yale Law J . 1091. 37. G. A l l i s o n , Essence of D e c i s i o n : E x p l a i n i n g the Cuban M i s s l e C r i s i s , (1971). 38. Supra note 36 at 1111. 39. _Id. t at 1101. 40. Supra note 34 at 1135. 41. _I_d., at 1135. 42. Supra note 36 at 1102. 43. Supra note 34 at 1129-30. 44. Supra note 36 at 1104-5. Such i r r a t i o n a l i t y may r e s u l t from "a d i s o r d e r l y and i n c o n s i s t e n t value system, f a u l t y c a l c u l a t i o n , an i n a b i l i t y to receive messages or to communicate e f f i c i e n t l y ; i t can imply random or haphazard i n f l u e n c e s in the reaching of d e c i s i o n s or the transmission of them, or i n the r e c e i p t or conveyance of information; and i t sometimes merely r e f l e c t s the c o l l e c t i v e nature of a d e c i s i o n among i n d i v d u a l s who do not have i d e n t i c a l value systems and whose o r g a n i z a t i o n a l arrangement and communication systems do not cause them t o act l i k e a s i n g l e e n t i t y . " Quoted at 1105 from T. S c h e l l i n g , The Strategy of C o n f l i c t , (I960) at 16. See a l s o , Morton H. H a l p e r i n , Bureaucratic P o l i t i c s and Foreign P o l i c y , (1974). Halperin s t u d i e d the United States government's d e c i s i o n making patterns on national s e c u r i t y issues and found that the government i s not a " s i n g l e i n d i v i d u a l with a s i n g l e purpose and an a b i l i t y to c o n t r o l completely his a c t i o n s . " The d e c i s i o n of how to act i s often the r e s u l t of compromises and the implementers of decisions are not l i k e l y to f u l l y understand the was d e c i s i o n s that were made. 45. Supra note 36 at 1107. 46. T. Arnold, The F o l k l o r e of C a p i t a l i s m , (1937) at 185-229 c i t e d in supra note 36 at 1112. - 119 -47. I n f r a , Chapter 6. 48. Supra note 36 at 1107. ,49. i d . , at 1112. 50. W.T. Stanbury, P e n a l t i e s and Remedies Under the Combines I n v e s t i g a t i o n  Act, 1889-1976, (1976) 14 Osgoode Hall L . J. 571 at 6Tn 51. Supra note 36 at 1121-1121. 52. Note, S t r u c t u r a l Crime and I n s t i t u t i o n a l R e h a b i l i t a t i o n : A New Approach to Corporate Sentencing, (1979) 89 Yale L. J . 353 at 358. 53. i d . , at 357-8. 54. Supra note 34 at 1131. 55. Quoted i n . i _ d . , at 1136-7. 56. _Id^, at 1137. 57. F. B a r t l e t t , Remembered, (1932) at 175-81 quoted in i_d., at 1138. 58. Marshall B. C l i n a r d and Peter Yeager, Corporate Crime, (1980) at 281; see a l s o : Earl S h o r r i s , The Oppressed Middle P o l i t i c s of Middle Management: Scenes From Corporate L i f e , (1981). The author describes some of the t o t a l i t a r i a n methods of management used w i t h i n c o r p o r a t i o n s . 59. Edward Gross, Organizations as Criminal A c t o r s , (1978) i n Paul R. Wilson and John Braithwaite (eds.) Two Faces of Deviance, at 199. 60. Barry M. Staw and Eugene Szwajkowski, The S c a r c i t y - M u n i f i c e n c e Component of Organizational Environments and the Commission of I l l e g a l Acts, (1975) 29 Adm. S c i . Q. 345. • 61. Joseph Bensman and I s r a e l Gerver, Crime and Punishment in the Factory: The Function of Deviancy in Maintaining the S o c i a l System, (1963) 28 Am. Soc. Rev. 588; see a l s o Harvey A. Farberman, A Criminogenic Market S t r u c t u r e : The Automobile Industry, (1975) 16 Soc. Q. 438. 62. Supra note 59 at 201-2. 63. Christopher D. Stone, Where the Law Ends, (1975) at 236. 64. Supra note 58 at 63. 65. Id., at 67-73 f o r methods of r a t i o n a l i z i n g i l l e g a l behavior. See a l s o GresTiam M. Sykes and David Matza, Techniques of N e u t r a l i z a t i o n : A Theory of Delinquency, (1957) 22 Am. Soc. Rev. 664. - 1 2 0 -6 6 . Jack Katz, Cover-up and C o l l e c t i v e I n t e g r i t y : on the Natural Antagonisms of A u t h o r i t y Internal and External to O r g a n i z a t i o n s , ( 1 9 7 7 ) 2 5 Soc. Prob. 3 6 7 . Jd^., at 7 . 6 8 . i d . , at 6 . 6 9 . i d . ' , at 7 . 7 0 . See f o r example, Diane Vaughan, Towards Understanding Unlawful Organizational Behavior, ( 1 9 8 2 ) 8 0 Mich. L . Rev. 1 3 7 7 . 7 1 Supra note 6 3 . - 42/ -CHAPTER 5 CORPORATE CRIMINAL LIABILITY Corporate criminal l i a b i l i t y developed through the common law by the extension of cr i m i n a l law concepts as they r e l a t e d t o i n d i v i d u a l s . This chapter w i l l examine two t r a d i t i o n a l approaches to atta c h i n g l i a b i l i t y t o corporations and a more recent approach which looks at the role that corporate s t r u c t u r e plays i n corporate crime. The r e l a t i o n s h i p between corporations and i n d i v i d u a l s involved i n corporate crime as p a r t i e s w i l l then be examined. The l i a b i l i t y of such i n d i v i d u a l s and those who authorize or counsel the crime w i l l be discussed, as well as the problems with extending l i a b i l i t y to those who are i n d i r e c t l y involved i n corporate crime. F i n a l l y , a number of rules which are p e c u l i a r to corporate criminal l i a b i l i t y w i l l be examined in l i g h t of the concern that the moral impact of the criminal law i s being d i l u t e d . I. APPROACHES TO CORPORATE CRIMINAL LIABILITY Corporate criminal l i a b i l i t y developed along two t h e o r e t i c a l l i n e s . V i c a r i o u s l i a b i l i t y held a corporation responsible f o r the acts of i t s o f f i c e r s , agents and employees while a c t i n g w i t h i n the scope of t h e i r employment. The doct r i n e of i d e n t i f i c a t i o n , or personal corporate l i a b i l i t y , a t t r i b u t e d acts of c e r t a i n persons wi t h i n the corporation t o i t , and thereby held the corporation l i a b l e f o r such a c t s . - 122 -H i s t o r i c a l l y , n e i t h e r i n d i v i d u a l s nor corporations could be held v i c a r i o u s l y l i a b l e f o r c r i m i n a l o f f e n c e s . 1 In order to hold corporations l i a b l e f o r such offences, the courts had to decide that the rules applying t o corporations d i f f e r e d from those applying t o natural • employers (an extension of v i c a r i o u s l i a b i l i t y ) ; o r, that the acts of some i n d i v i d u a l s could be a t t r i b u t e d t o the company as i t s own (personal corporate l i a b i l i t y ) . The two concepts are sometimes b l u r r e d and i t i s often d i f f i c u l t t o determine which t h e o r e t i c a l base the court i s using to e s t a b l i s h criminal r e s p o n s i b i l i t y . A. V i c a r i o u s L i a b i l i t y V i c a r i o u s l i a b i l i t y imposes l i a b i l i t y on employers f o r the actions of t h e i r employees or other agents. Such actions can be i n the course of employment (respondeat s u p e r i o r , that i s , a master i s responsible f o r a c t i o n s of his servant) or as a r e s u l t of delegated powers. 3 H i s t o r i c a l l y , masters were re s p o n s i b l e f o r the actions of t h e i r servants other than t h e i r criminal a c t i o n s . 4 However, there were some exceptions: p u b l i c nuisance, c r i m i n a l l i b e l , contempt of court and s t a t u t o r y offences c o n t a i n i n g absolute p r o h i b i t i o n s . 5 Transposed to c o r p o r a t i o n s , v i c a r i o u s l i a b i l i t y puts the c o r p o r a t i o n i n the same p o s i t i o n as any other employer. Both i n d i v i d u a l s and corporations could be held c r i m i n a l l y l i a b l e f o r the above of f e n c e s . - 123 -According t o L e i g h , 0 the United States federal courts have extended v i c a r i o u s l i a b i l i t y and a s s i m i l a t e d i t with corporate l i a b i l i t y . The fundamental r u l e , a r t i c u l a t e d i n Egari v. United States [137 F. 2d 369 (8th C i r . 1943)J, i s that a corporation i s c r i m i n a l l y l i a b l e f o r the acts of i t s o f f i c e r s , agents or servants who, i n doing the acts complained of, were engaged i n e x e r c i s i n g corporate powers f o r the b e n e f i t of the c o r p o r a t i o n while a c t i n g i n the scope of t h e i r employment. Therefore, a corporation i s l i a b l e i f the agent who commits the crime i s a c t i n g (a) w i t h i n the scope of employment and (b) with the i n t e n t to b e n e f i t the company. However, a corporation i s not excused i f an a c t i o n was performed contrary to company p o l i c y or i n s t r u c t i o n s 7 or i f the q agent acted beyond h i s o f f i c i a l a u t h o r i t y . Under both circumstances the court can view the behavior as w i t h i n the scope of employment. Scope of employment i s i n t e r p r e t e d broadly to mean " l i t t l e more than that the act occurred while the offending employee was c a r r y i n g out a j o b - r e l a t e d q a c t i v i t y " . The c o r p o r a t i o n i s s t i l l r e sponsible i f no b e n e f i t accrues to the company so long as there was an i n t e n t i o n to b e n e f i t the company or such an i n t e n t i o n was i r r e l e v e n t , f o r example, l e a v i n g an e x p l o s i v e laden v e h i c l e unattended contrary to l a w . 1 0 B e n e f i t i s not a "touchstone of corporate criminal l i a b i l i t y ; b e n e f i t , at best, i s an e v i d e n t i a l , not an o p e r a t i v e , f a c t . " 1 1 - 124 -In the absence of e i t h e r c r i t e r i a , within the scope of employment or i n t e n t to b e n e f i t the company, the c o r p o r a t i o n can s t i l l be l i a b l e i f i t r a t i f i e s the conduct. "A c o r p o r a t i o n r a t i f i e s conduct when a s u p e r i o r adopts an act of a subordinate by approving i t a f t e r i t has occurred." While criminal l i a b i l i t y has g e n e r a l l y been imposed on co r p o r a t i o n s 1 o f o r the actions of middle-range managers, i t can be imposed under the v i c a r i o u s l i a b i l i t y d o c t r i n e f o r the actions of employees l o c a t e d in the lower echelons of the c o r p o r a t i o n . However, the American Model Penal  Code puts r e s t r i c t i o n s on the actors who can i n c r i m i n a t e a c o r p o r a t i o n . 1 4 Only a high managerial agent's actions can i n c r i m i n a t e a corporation f o r offences, such as mail fraud and manslaughter, where corporate l i a b i l i t y i s not a p l a i n l e g i s l a t i v e purpose. For offences d i r e c t e d at corporations and other corporate v i o l a t i o n s , any agent can i n c r i m i n a t e the c o r p o r a t i o n . However, the corporation can escape l i a b i l i t y by proving that a high managerial agent acted with due d i l i g e n c e to prevent the offence. A t h i r d category, s t r i c t l i a b i l i t y o f fences, depends on corporate a c t i o n or i n a c t i o n and there i s no defence a v a i l a b l e . While the Canadian courts acknowledge that v i c a r i o u s l i a b i l i t y e x i s t s , they have not extended i t beyond i t s o r i g i n a l f u n c t i o n . For example, Mr. J u s t i c e Schroeder i n S t . Lawrence Corporaffori L i m i t e d 1 5 s t a t e s that "criminal l i a b i l i t y i s not attached to a corporation f o r c r i m i n a l acts of i t s servants or agents upon the d o c t r i n e of respondeat s u p e r i o r [except i n cases o f ] criminal l i b e l , c r i m i n a l contempt of c o u r t , p u b l i c nuisance and - 125 -s t a t u t o r y offences of s t r i c t l i a b i l i t y " . Instead the Canadian courts have generally opted f o r personal corporate c r i m i n a l l i a b i l i t y . B. Personal Corporate L i a b i l i t y Personal corporate l i a b i l i t y was f i r s t adopted i n Canada i n 1941 by the A l b e r t a Court "of Appeal i n Fane Robinson L i d . 1 6 Ford, J.A., borrowed the p r i n c i p l e from a House of Lords d e c i s i o n in a c i v i l a c t i o n , Lennard's Carrying Company v. A s i a t i c Petroleum C o . 1 7 His Lordship reversed the t r i a l court's d e c i s i o n and convicted the corporation of conspiracy to defraud and t o obtain money by f a l s e pretences. He found that the d i r e c t o r s were "the a c t i n g and d i r e c t i n g " w i l l of the company, and t h e r e f o r e t h e i r acts and i n t e n t i o n s were those of the company. Personal corporate l i a b i l i t y r a i s e s three r e l a t e d i s s u e s : 1. Which ac t o r s ' a c t i o n s can be a t t r i b u t e d to the corporation? 2. Are there any r e s t r i c t i o n s on the acts which can be a t t r i b u t e d t o the corporation? and 3. Is a corporation l i a b l e f o r the c o l l e c t i v e action or i n t e n t of a group where no i n d i v i d u a l can be i d e n t i f i e d ? i ) Actors who bind the c o r p o r a t i o n I Q In the Fane R o b i n s o n 1 0 case, the d i r e c t o r s met the c r i t e r i a f o r both f u n c t i o n and form necessary f o r a s c r i b i n g l i a b i l i t y to a company. \ - 126 -That i s , they had the power and the p o s i t i o n w i t h i n the corporation to allow t h e i r acts and i n t e n t i o n s to be a t t r i b u t e d to the c o r p o r a t i o n . A s t r i c t a p p l i c a t i o n of the personal corporate l i a b i l i t y d o c t r i n e would require that only the governing organs of the company ( i . e . , those in a formal p o s i t i o n of power) could i n c r i m i n a t e the company. Such a requirement would severely r e s t r i c t the a t t r i b u t i o n of c r i m i n a l conduct to a c o r p o r a t i o n which delegated a u t h o r i t y to a v a r i e t y of employees, i n c l u d i n g those in the lower echelons. Canadian courts have opted f o r the f u n c t i o n a l approach and emphasize the power exercised by the employee in question. For example, in St. Lawrence C o r p o r a t i o n , 1 9 Schroeder, J.A. held that i f the agent f a l l s w ithin a category which e n t i t l e s the Court to hold that he i s a v i t a l organ of the body corporate and v i r t u a l l y i t s d i r e c t i n g mind and w i l l i n the sphere of duty and r e s p o n s i b i l i t y assigned to him so that his a c t i o n and i n t e n t are the very a c t i o n and i n t e n t of the company i t s e l f , then his conduct i s s u f f i c i e n t to render the company i n d i c t a b l e by reason t h e r e o f . It should be added that both on p r i n c i p l e and a u t h o r i t y t h i s p r o p o s i t i o n i s subject to the proviso that in performing the acts in question the agent was a c t i n g w i t h i n the scope of his a u t h o r i t y e i t h e r express or i m p l i e d . In using the words "in the sphere of duty and r e s p o n s i b i l i t y assigned to him", Mr. J u s t i c e Schroeder was acknowledging that the person to whom duties are delegated can be viewed as a v i t a l organ or d i r e c t i n g mind of a company. - 127 -His Lordship elaborated on the need t o expand r e s p o n s i b i l i t y f o r corporate a c t s : The h i s t o r y of the treatment accorded to corporations in the sphere of both c i v i l and c r i m i n a l law points to a r e j e c t i o n of the e a r l i e r narrow conception in favor of a very broad conception of a much wider f i e l d of p o t e n t i a l corporate r e s p o n s i b i l i t y . This trend has a v a l i d basis to support i t since corporations are at once more powerful and more m a t e r i a l l y endowed and equipped than are i n d i v i d u a l s and, i f allowed to roam unchecked in the f i e l d of industry and commerce, they are p o t e n t i a l l y more dangerous and can i n f l i c t greater harm upon the p u b l i c than can t h e i r weaker competitors. . . . It follows from the cases which I have discussed that a company can have more than one d i r e c t i n g mind or a l t e r ego. A company with branch o f f i c e s i n t e r r i t o r i e s widely separated from i t s head o f f i c e can have d i r e c t i n g minds in those several t e r r i t o r i e s . i i ) R e s t r i c t i o n s oh acts; a t f r i b u t a b T e to a c o r p o r a t i o n One of the problems with expanding the d e f i n i t i o n of d i r e c t i n g mind to include a number of people and those at lower l e v e l s of a u t h o r i t y i s that the corporation takes on a s c h i z o p h r e n i c nature. Can a corporation be l i a b l e i f a d i r e c t i n g mind or manager i s a c t i n g contrary to i n s t r u c t i o n s given by the Board of D i r e c t o r s ? The question i t s e l f i l l u s t r a t e s the s c h i z o p h r e n i c problem. In Waterloo Mercury Sales L t d . 2 1 Legg, D.C.J, of A l b e r t a convicted a corporation of fraud (turning back odometers) on the basis that the used car sales manager, who was n e i t h e r an o f f i c e r nor d i r e c t o r , had \ - 128 -s u f f i c i e n t power to allow the court to a t t r i b u t e his acts to the company. The manager could not w r i t e cheques, but he could authorize payments and i n c u r debts. The court found that he was "not a l e s s e r employee" but "the sole a c t i v e and d i r e c t i n g w i l l " of the company in matters r e l a t i n g to used car operations. The f a c t that the company's president had c i r c u l a t e d w r i t t e n i n s t r u c t i o n s to a l l employees not to tamper with odometers and that he had no knowledge of the circumstances was not a defence. This extension of the notion of " d i r e c t i n g w i l l " has not gone u n c r i t i c i z e d . Professor S c h m e i s e r 2 2 made the f o l l o w i n g comment on the case: Although the employee Golinowski was running the used car operation, i t i s d i f f i c u l t to look on his acts as the acts of the company, much l e s s to look on him as the d i r e c t i n g mind or w i l l of the company. It a l s o seems somewhat u n f a i r to impose cr i m i n a l l i a b i l i t y on a corporation f o r c r i m i n a l acts of an employee who did not even have aut h o r i t y to sign cheques. In an e a r l i e r case, Canadian" Al 1 is-Chalmers L t d . , 2 3 the Ontario Court of Appeal overturned a c o n v i c t i o n on a charge of c r i m i n a l negligence against a corporate accused on the basis that the negligence of a foreman, "a minor servant of the company . . . invested with some a u t h o r i t y " , did not possess s u f f i c i e n t a u t h o r i t y to hold the corporation l i a b l e . While the court was not prepared to say where the l i n e of a u t h o r i t y should be drawn, i t d i d s t a t e that i t would depend on "the circumstances of each case, the c h a r a c t e r and the magnitude of the company's business and the a u t h o r i t y delegated by the d i r e c t o r s to the managing o f f i c e r s of the company". - 129 -It i s u n l i k e l y that the courts would convict a company i f i t was the company that was defrauded. However, a company i s not excused when the d i r e c t i n g mind i s defrauding the company and a t h i r d p a r t y . In McNamara, 2 4 a case i n v o l v i n g f i v e corporations and eight i n d i v i d u a l s convicted of defrauding the p u b l i c as a r e s u l t of r i g g i n g bids on government dredging c o n t r a c t s , the Ontario Court of Appeal wrote: where supe r i o r o f f i c e r s of the company who are i t s d i r e c t i n g minds act dishonestly i n the functions delegated to them, i t seems co n s i s t e n t with p u b l i c p o l i c y to hold the corporation c r i m i n a l l y l i a b l e . . . . . .Although three of the Crown witnesses . . . defrauded or intended to defraud t h e i r r e s p e c t i v e companies they a l s o entered i n t o b i d - r i g g i n g schemes which, at l e a s t i n p a r t , enured to the b e n e f i t of t h e i r r e s p e c t i v e companies and which were intended to do so. . . Accordingly, . . . i t i s not necessary i n t h i s case to hold that the companies would be c r i m i n a l l y l i a b l e even i f the d i r e c t i n g minds were a c t i n g e n t i r e l y in fraud of t h e i r r e s p e c t i v e companies. To summarize, Canadian judges w i l l hold corporations p e r s o n a l l y l i a b l e when an o f f i c e r or agent of the corporation i s given and abuses the power to make d e c i s i o n s - w i t h i n the company. On the basis of Waterloo, there appears to be l i t t l e r e s t r i c t i o n on how f a r down the hierarchy the agent can be. However, i t appears as though h i s ac t i o n s must somehow r e l a t e t o his p a r t i c u l a r job r e s p o n s i b i l i t i e s as required under the American c r i t e r i a of "scope of employment". L i a b i l i t y w i l l attach to the corporation even i f the agent i s a c t i n g contrary to company p o l i c y or i n s t r u c t i o n s . The Waterloo case, which has not been appealed or j u d i c i a l l y considered, leaves one wondering whether there i s anything a company can do to escape l i a b i l i t y . - 130 -The approach prevents a corporation from escaping c r i m i n a l l i a b i l i t y by g i v i n g a blanket d i r e c t i v e p r o h i b i t i n g i l l e g a l c o n d u c t . 2 5 However, i f the approach i s to ensure that the company w i l l p o l i c e i t s e l f rather than assume the "shut-eyed s e n t r y " p o s i t i o n , 2 6 i t may be e q u i t a b l e f o r the company to be allowed to present a due d i l i g e n c e defence f o r a c t i o n s by l e s s e r employees, i . e . , those which by Professor Schmeiser's standards, would not be considered " d i r e c t i n g minds" in the f i r s t p l a c e . 27 In 1969, Leigh wrote that there was "no j u d i c i a l i n d i c a t i o n of the underlying p o l i c y bases r e q u i r i n g a d i s t i n c t i o n between the two modes of l i a b i l i t y " ( i . e . , v i c a r i o u s and personal corporate l i a b i l i t y ) . The broad i n t e r p r e t a t i o n given to " d i r e c t i n g mind" i n the Waterloo case appears to have extinguished even the t h e o r e t i c a l d i f f e r e n c e . Rather than e x t i n g u i s h i n g the d i f f e r e n c e i t may be more appropriate to use aspects of both approaches. For example, when a " d i r e c t i n g mind" commits an offence on behalf of the company, his ac t i o n s and i n t e n t could be imputed t o the c o r p o r a t i o n , as i s the approach under personal corporate l i a b i l i t y . Rather than endowing the lower l e v e l employee with a d i r e c t i n g mind, a company could be held v i c a r i o u s l y l i a b l e f o r his behavior. It may be appropriate, i n such a case, to allow the corporation a due d i l i g e n c e defence. - 131 -i i i ) C o l l e c t i v e i n t e n t V i c a r i o u s l i a b i l i t y and personal corporate l i a b i l i t y require that one or more i n d i v i d u a l s be i d e n t i f i e d i n order to e s t a b l i s h i n t e n t . Is i t p o s s i b l e f o r i n t e n t to be c o l l e c t i v e , that i s , no i n d i v i d u a l has the p r e r e q u i s i t e i n t e n t but a c o l l e c t i o n of i n d i v i d u a l s independently possess i n t e n t ? Such an approach has been used i n the United S t a t e s . In T.I.M.E., oft D.C, Inc., a d i s t r i c t court found that a t r u c k i n g company had acquired the c o l l e c t i v e knowledge of i t s employees and i t could not excuse i t s conduct by a s s e r t i n g "that the information obtained by several employees was not acquired by any one i n d i v i d u a l employee who then would have comprehended i t s f u l l impact". The o f f i c e r s of the company knew that t h e i r new absentee p o l i c y would encourage employees to d r i v e while ill, an offence under fed e r a l t r u c k i n g r e g u l a t i o n s . This knowledge, together with a dispatcher's knowledge that a t r u c k e r changed h i s mind about being i l l a f t e r he heard of the new absentee p o l i c y , was s u f f i c i e n t to hold the pq c o r p o r a t i o n l i a b l e . C o l l e c t i v e i n t e n t has so f a r been r e j e c t e d by E n g l i s h judges. L e i g h 3 0 has concluded that "despite American a u t h o r i t y to the c o n t r a r y , ... a dishonest purpose cannot be a s c r i b e d to a company where no responsible o f f i c e r has knowledge of dishonesty, but where several such o f f i c e r s have elements of knowledge which, i f blended together, would - 132 -d i s c l o s e dishonesty". The E n g l i s h Law Reform Commission31 came to the same c o n c l u s i o n . op Leigh c i t e s Armstrong v. S t r a i n J C as an a u t h o r i t y against c o l l e c t i v e i n t e n t . The case, which i s "not e a s i l y analyzed nor understood", has not been followed i n Canada. Instead Howse v. 3 d Quinnell Motors L t d . , which held a company l i a b l e f o r damages caused by the innocent misrepresentation by an agent, when the true f a c t s were oc known to the company, has been followed. The cases have been decided on the d o c t r i n e of agency but i n essence the court i s using c o l l e c t i v e knowledge to hold the p r i n c i p a l or company l i a b l e . If the c o r p o r a t i o n i s unaware that the agent i s misrepresenting f a c t s which the corporation knows are not true and the agent i s ignorant of the misrepresentation the company i s s t i l l l i a b l e . C o l l e c t i v e i n t e n t , however, has not been used i n Canada to hold a corporation l i a b l e f o r criminal conduct. The notion of c o l l e c t i v e i n t e n t exposes the s t r u c t u r a l or i n t e r n a l operating elements of a c o r p o r a t i o n . For example, i n the T.I.M.E., case there was no communication between the o f f i c e r s and the d i s p a t c h e r . The d e c i s i o n implies that perhaps there should have been. S i m i l a r l y , i n the Canadian cases, corporations w i l l not escape c i v i l l i a b i l i t y because they have neglected t o communicate information to t h e i r agents who then innocently misrepresent the f a c t s . - 133 -C. S t r u c t u r a l L i a b i l i t y 3 0 A more recent theory of l i a b i l i t y suggests that r e s p o n s i b i l i t y ought to attach to a corporation when i t s i n t e r n a l operating procedures unreasonably f a i l t o prevent corporate c r i m e . 3 7 S t r u c t u r a l l i a b i l i t y views " i l l e g a l conduct by a cor p o r a t i o n as a consequence of corporate processes such as standard operating procedures and h i e r a r c h i a l 38 decisionmaking". Blame i s t h e r e f o r e attached to a corporation f o r f a u l t y o r g a n i z a t i o n a l s t r u c t u r e or procedures which expose the p u b l i c t o corporate crime. A c o r p o r a t i o n would be l i a b l e when an agent, a c t i n g w i t h i n the scope of his employment, commits an offence on behalf of the co r p o r a t i o n . The cor p o r a t i o n would not be l i a b l e i f i t demonstrated the f o l l o w i n g procedures 39 to prevent such an offence: f i r s t , that the i l l e g a l conduct had been c l e a r l y and con v i n c i n g l y f o r b i d d e n , and second, that reasonable safeguards designed t o prevent corporate crimes had been developed and implemented, i n c l u d i n g regular procedures f o r e v a l u a t i o n , detection and remedy. Any offence committed by d i r e c t o r s or top o f f i c e r s would "almost always ref u t e a due d i l i g e n c e d e f e n c e " . 4 0 Adopting a negligence standard f o r holding corporations c r i m i n a l l y responsible f o r t h e i r conduct, r a t h e r than one of i n t e n t , has been j u s t i f i e d on three grounds: 4 1 - 134 -1. a corporation cannot act with i n t e n t so i t i s more appropriate to examine the standard of care e x h i b i t e d by corporate processes; 2. a corporation w i l l not be overdeterred as e a s i l y as an i n d i v i d u a l because "the fear of corporate c r i m i n a l l i a b i l i t y provokes l e s s caution than the t h r e a t of c r i m i n a l p e n a l t i e s " ; and 3. corporate c r i m i n a l sanctions do not i n v o l v e the loss of i n d i v i d u a l l i b e r t y . The negligence standard with the reverse onus i s s i m i l a r to the reasonable care standard imposed by s t r i c t l i a b i l i t y offences according to AO the Sault Ste. Marie ^ case. A corporation which takes reasonable steps to avoid an offence w i l l escape l i a b i l i t y . In a d d i t i o n , the s t r u c t u r a l approach s p e l l s out what those steps should be. There are c e r t a i n advantages to the s t r u c t u r a l approach with an onus on the accused c o r p o r a t i o n . I t imposes a p o l i c i n g f u n c t i o n on the corporation and puts i t under an o b l i g a t i o n to e s t a b l i s h procedures which reduce the amount of i l l e g a l i t y . An onus on the corporation to show that i t has developed adequate procedures w i l l f o r c e i t to examine i t s d e c i s i o n making process and i t s methods of t r a n s m i t t i n g and implementing d e c i s i o n s . As corporate criminal l i a b i l i t y now stands, the onus i s on the Crown to e s t a b l i s h the l i a b i l i t y of the corporation through the a t t r i b u t i o n of the g u i l t of an i n d i v i d u a l to the c o r p o r a t i o n . Such an approach encourages a corporation to obscure rather than c l a r i f y i t s i n t e r n a l dynamics and puts - 135 -an onerous burden on the Crown. The s t r u c t u r a l l i a b i l i t y approach forces a corporation to c l a r i f y i t s i n t e r n a l dynamics and creates an i n s t i t u t i o n a l pressure f o r compliance. To some extent, corporations are already being encouraged to develop compliance programs. At a National Conference of Corporate C o u n s e l , 4 3 the Legal Education S o c i e t i e s of A l b e r t a and B r i t i s h Columbia presented a seminar on developing an e f f e c t i v e compliance programme under the Combines  I n v e s t i g a t i o n A c t 4 4 (the "CIA"). Topics included: 1. the use of writt e n company p o l i c y statements; 2. the presentation of the law to management and sales personnel; 3. the review of documents by legal counsel; 4. review of p a r t i c i p a t i o n i n trade a s s o c i a t i o n s ; and 5. the commitment of senior management to ensure success of the programme. Such a commitment might be a s s i s t e d by the imposition of s t r u c t u r a l l i a b i l i t y . It may be appropriate to deny corporations some of the r i g h t s granted t o i n d i v i d u a l s i n order to more e f f i c i e n t l y bring c o r p o r a t i o n s under the control of l e g i s l a t i o n . I I . THE RELATIONSHIP BETWEEN THE CORPORATION AND THE INDIVIDUAL Group a c t i o n notwithstanding, c o r p o r a t i o n s must act through i n d i v i d u a l s . The f a c t that the acts of an i n d i v i d u a l are imputed to the - 136 -corporation and the corporation i s held c r i m i n a l l y l i a b l e does not excuse that i n d i v i d u a l from c r i m i n a l r e s p o n s i b i l i t y . This s e c t i o n w i l l address the r e l a t i o n s h i p between the corporation and the i n d i v i d u a l as p a r t i e s , admissions by i n d i v i d u a l s which bind the c o r p o r a t i o n , and the p o s s i b l e c o n f l i c t of i n t e r e s t between corporate and i n d i v i d u a l co-accused. A. Corporations and I n d i v i d u a l s as P a r t i e s There are a number of sections in the Criminal C o d e 4 5 (the "Code") which apply to the CIA and widen i t s scope. The Code i s made a p p l i c a b l e to the CIA by subsection 27(2) of the I n t e r p r e t a t i o n A c t 4 6 which provides that the p r o v i s i o n s of the Code are a p p l i c a b l e to f e d e r a l l e g i s l a t i o n except to the extent that the l e g i s l a t i o n otherwise provides. The a p p l i c a t i o n of s e c t i o n 21 of the Code to s e c t i o n 34 of the CIA was confirmed i n C a m p b e l l 4 7 by the Ontario Court of Appeal which, followed the Supreme Court of Canada d e c i s i o n i n S i m c o v i t c h . 4 8 Section 21 of the Code provides that 21(1) Every one i s a party to an offence who (a) a c t u a l l y commits i t , (b) does or omits to do anything f o r the purpose of a i d i n g any person to commit i t , or - 137 -(c) abets any person in committing i t . (2) Where two or more persons form an i n t e n t i o n i n common to carry out an unlawful purpose and to a s s i s t each other t h e r e i n and any one of them, in c a r r y i n g out the common purpose, commits an offence, each of them who knew or ought to have known that the Commission of the offence would be a probable consequence of c a r r y i n g out the common purpose i s a party to that offence. To be l i a b l e under subsection 21(1) a party does not have to agree with the perp e t r a t o r of the offence to commit the offence. He need only intend t o a s s i s t the pe r p e t r a t o r and then to act on that i n t e n t i o n . Any i n d i v i d u a l who intends to a s s i s t a corporation i n committing a crime under the CIA and acts upon that i n t e n t i o n would be a party t o the offence. Subsection 21(2) extends l i a b i l i t y t o p a r t i e s who may not have intended s p e c i f i c consequences. They are l i a b l e i f they "knew or ought to have known that the commission of the offence would be a probable consequence" of c a r r y i n g out an unlawful purpose. There must be (a) an i n t e n t i o n i n common (not n e c e s s a r i l y an agreement) and (b) an offence, but not n e c e s s a r i l y the intended offence, committed. I f i n d i v i d u a l s A and B form an i n t e n t i o n i n common to v i o l a t e a p a r t i c u l a r s e c t i o n of the CIA, A w i l l be a party to any offence committed by B which A ought to have known would be a probable consequence of c a r r y i n g out t h e i r common purpose. The Code se c t i o n extends l i a b i l i t y to i n d i v i d u a l s who might not view t h e i r behavior as f a l l i n g w ithin the CIA. A party t o an offence may be convicted on the basis that he p e r s o n a l l y committed the offence or that he was an ai d e r or a b e t t e r . 4 9 In f a c t , - 138 -both the corporation and the i n d i v i d u a l are t r e a t e d as p r i n c i p a l s and any averments to the f a c t that the i n d i v i d u a l was an aider or an abetter i s accurate but unnecessary in a c h a r g e . 5 0 An offence could a l s o be committed under the CIA by v i r t u e of s e c t i o n 22(1) of the Code: Where a person counsels or procures another person to be a party to an offence and that other person i s afterwards a party to that offence, the person who counselled or procured i s a party to that o f f e n c e , n o t w i t h s t a n d i n g that the offence was committed i n a way d i f f e r e n t from that which was cou n s e l l e d or procured. Subsection 22(2) provides that the person who counsels the offence i s a party to every offence which he knew or should have known would be a consequence of his c o u n s e l l i n g . It i s als o an offence under paragraph 422(a) of the Code to counsel an offence even i f the offence i s not committed. 5 1 Again, i n t r a or i n t e r corporate communications can r e s u l t in criminal l i a b i l i t y without d i r e c t involvement i n c a r r y i n g out the substantive offence. When a corporation i s l i a b l e , the agent through which the co r p o r a t i o n acted w i l l be a party to the offence. A problem a r i s e s when the i n d i v i d u a l d i r e c t o r , o f f i c e r or agent of the company i s the only a c t o r who commits the of f e n c e . Can an i n d i v i d u a l a i d and abet himself as d i r e c t o r ? Can he form an i n t e n t i o n i n common with himself as d i r e c t o r ? Can he counsel himself as d i r e c t o r ? The sections themselves make a d i s t i n c t i o n . Section 21(1) of the Code r e f e r s to a i d i n g or abe t t i n g "any person" whereas s e c t i o n 21(2) - 139 -r e f e r s to "two or more persons" and s e c t i o n 22 r e f e r s to c o u n s e l l i n g "another person". The courts have paid l i t t l e a t t e n t i o n to t h i s corporate i d e n t i t y c r i s i s except in conspiracy cases. Subsection 32(1) of the CIA makes i t an offence to c o n s p i r e , combine or agree with "another person". Subsection 423(2) of the Code states that "every one who conspires with any one (a) to a f f e c t an unlawful purpose, or (b) to e f f e c t a lawful purpose by unlawful means, i s g u i l t y of an i n d i c t a b l e o f f e n c e " . There i s no requirement i n the subsection 423(2) of the Code that a person must conspire with another person. The exact phrasing of the s t a t u t e may not be relevant because the c o r p o r a t i o n i s a separate e n t i t y and i s therefore capable of c o n s p i r i n g with another i n d i v i d u a l or another c o r p o r a t i o n . As discussed below, the cases go in both d i r e c t i o n s . co In Martin, c a company, two of i t s employees and i t s d i r e c t o r were charged with conspiracy to defraud the p u b l i c and c r e d i t o r s of the company. A f t e r a c q u i t t i n g the two employees, Mr. J u s t i c e Dennistoun found i t "unnecessary" to c o n v i c t the d i r e c t o r "when he was the sole actor in the management and c o n t r o l of the company". A f t e r the charges against the employees were dismissed, "the charges [against the company] disappeared, f o r the company could have no mens rea apart from that of the [ D i r e c t o r ] h i m s e l f " . Charges w i l l not disappear so r e a d i l y f o l l o w i n g the Supreme Court of Canada d e c i s i o n i n Guimond 5 3 which held that the a c q u i t t a l of one of two c o n s p i r a t o r s does not n e c e s s i t a t e the a c q u i t t a l of the second. - 140 -In contrast to Mr. J u s t i c e Dennistoun's d e c i s i o n in Martin, Mr. J u s t i c e Laidlaw of the Ontario Court of Appeal i n E l e c t r i c a l  C o n t r a c t o r s 5 4 found that a person could act in more than one legal capacity and could be "regarded as though he were two separate persons and two separate minds". Therefore, a corporation could conspire with any one of i t s c o n t r o l l i n g o f f i c e r s . In McDonnel1, 5 5 N i e l d , J . r e j e c t e d the E l e c t r i c a l Contractors d e c i s i on. Here, where the sole responsible person in the company i s the defendant h i m s e l f , i t would not be r i g h t to say that there were two persons or two minds. I f i t were otherwise, I f e e l that i t would offend against the basic concept of a conspiracy, namely an agreement of two or more to do an unlawful a c t , and I think that i t would be a r t i f i c i a l t o take the view that each of these companies can be regarded as a separate person or a separate mind, in view of the admitted f a c t that t h i s defendant acts alone so f a r as these companies are concerned. Further conceptual problems a r i s e when a corporation i s viewed as having more than one d i r e c t i n g mind as was observed i n a passage quoted from Mr. J u s t i c e Schroeder in S t . Lawrence "Corporation Ltd., s u p r a . 5 6 Rather than f o r c i n g the court to deal with the paradox of the corporate e n t i t y within the confines of common law p r i n c i p l e s , there may be some merit to l e g i s l a t i o n which r e f l e c t s the goals one i s attempting t o achieve. On the one hand, i f the use of a corporation to commit a crime i s to be discouraged, l e g i s l a t i o n could allow the c o n v i c t i o n of a c o r p o r a t i o n and an i n d i v i d u a l even in "one man" companies. On the other hand, some - 141 -American courts grant immunity to i n t r a c o r p o r a t e agreements (agreements among o f f i c e r s , employees and the co r p o r a t i o n ) and some commentators view t h i s approach as compatible with competition p o l i c y . For example, i t has been argued that a cor p o r a t i o n must be allowed to communicate wi t h i n i t s e l f and s u b j e c t i n g i n t r a communication to conspiracy charges might discourage . . 57 competition. B. Admissions'by I n d i v i d u a l s Which Bind the Corporation Who can make an admission which would be considered an admission by the corporation? There i s very l i t t l e jurisprudence i n t h i s area. Mr. J u s t i c e L a s k i n , (as he then was) i n a d i s s e n t i n g judgment, o u t l i n e d the C O p r i n c i p l e s in Strand E l e c t r i c L t d . ° Two p r o p o s i t i o n s u n d e r l i e the reception of an agent's admission against h i s p r i n c i p a l . There must, f i r s t be proof of agency. . . Second, the admissions of the agent tendered against the p r i n c i p a l must have been made to a t h i r d party w i t h i n the scope of his a u t h o r i t y during the subsistence of the agency. . . [T]here need not be evidence of express a u t h o r i t y of an agent of the accused t o make admissions to t h i r d persons importing l i a b i l i t y , i f what he says i s connected with the scope of his employment or may reasonably be r e l a t e d t o the discharge of h i s duties f o r h i s p r i n c i p a l . While there are no cases on p o i n t , i t appears l o g i c a l that a person who i s the d i r e c t i n g w i l l and mind of a co r p o r a t i o n , and capable of i n c r i m i n a t i n g a corporation by his a c t s , could also do the same by h i s admi s s i o n s . - 142 -As a general r u l e , admissions can only be received against the party who makes them. However, there i s an agency exception to t h i s i 59 r u l e . 3 [The] exception to t h i s rule involves s i t u a t i o n s where d i f f e r e n t p a r t i e s act in co n c e r t . If so, any acts done or words spoken i n furtherance of common design may be given i n evidence and are admissible against a l l p a r t i e s to that conspiracy. . . Furthermore, i t a p p l i e s to a l l indictments f o r crimes i f there i s a common design and not only when the indictment i s f o r conspiracy. . . Also, c o n s p i r a t o r i a l acts and d e c l a r a t i o n s i n furtherance of that end are l i k e w i s e admissible against a l l p a r t i e s even i f the c o n s p i r a t o r whose words or acts are tendered as evidence has not been i n d i c t e d . Since corporations often can be viewed as a c t i n g i n concert with i n d i v i d u a l s , these p r i n c i p l e s could conceivably be used t o admit evidence against a corporation or any i n d i v i d u a l involved i n the common design. For example, once i t i s e s t a b l i s h e d that A and B have formed a common design statements or acts by A, i n furtherance of the common design, are admissible against B. However, f o l l o w i n g the Supreme Court of Canada d e c i s i o n i n C o n t r o n i , 6 0 where the accused were charged with a conspiracy to have possession of extor t e d funds, judges may be more cautious i n using t h i s rule of evidence. Mr. J u s t i c e D i c k s o n 6 1 w r i t e s : Conspiracy i s an inchoate or preliminary crime, dating from the time of Edward I, but much r e f i n e d i n the Court of Star Chamber in the 17th century. Notwitstanding i t s a n t i q u i t y the law of conspiracy i s s t i l l u n c e r t a i n . It can, however, be s a i d that the indictment f o r conspiracy i s a formidable weapon in the armoury of the prosecutor. According t o the cases, i t permits a vague d e f i n i t i o n of the offence; broader standards of a d m i s s i b i l i t y of evidence apply; i t may provide the s o l u t i o n to p r o s e c u t o r i a l problems - 143 -as to s i t u s and j u r i s d i c t i o n : see D i r e c t o r of P u b l i c Prosecutions v. Doot, [1973] A.C. WT. But the very looseness g e n e r a l l y allowed f o r s p e c i f y i n g the offence, f o r r e c e i v i n g proof, and generally in the conduct of the t r i a l , imposes upon a t r i a l Judge an added duty to ensure against the p o s s i b i l i t y of improper transference of g u i l t from one accused t o another. C. C o n f l i c t s of Interest Between Corporations and I n d i v i d u a l s The duties owed by d i r e c t o r s and o f f i c e r s to t h e i r corporation are s p e l l e d out f o r corporations e s t a b l i s h e d under the Canadian Business  Corporation A c t 6 2 (the "CBCA"): 117(1) Every d i r e c t o r and o f f i c e r of a corporation i n e x e r c i s i n g h i s powers and d i s c h a r g i n g h i s duties s h a l l i a) act honestly and in good f a i t h with a view to the best i n t e r e s t s of the c o r p o r a t i o n ; and b) e x e r c i s e the care, d i l i g e n c e and s k i l l that a reasonably prudent person would e x e r c i s e i n comparable circumstances. -S i m i l a r l e g i s l a t i o n e x i s t s f o r p r o v i n c i a l l y incorporated companies. The f i r s t duty i s often r e f e r r e d to as a f i d u c i a r y duty. C o n f l i c t s of i n t e r e s t u sually a r i s e when d i r e c t o r s contract with the company or use i n s i d e information and opportunties to t h e i r own advantage. However, a d e c i s i o n to plead the corporation g u i l t y in exchange f o r no charges being l a i d or pursued against o f f i c e r s or d i r e c t o r s involved in a crime could lead t o a c o n f l i c t of i n t e r e s t . - 144 -I I I . THE LIABILITY OF"INDIVIDUALS INVOLVED IN CORPORATE"CRIME In d i v i d u a l s can assume a v a r i e t y of r o l e s in r e l a t i o n to a c o r p o r a t i o n involved i n crime. The l i a b i l i t y of the i n d i v i d u a l s w i l l depend on which r o l e s they play and the extent t o which l e g i s l a t i o n has expanded t h e i r l i a b i l i t y . This section w i l l address the l i a b i l i t y of d i r e c t a c t o r s , i . e . , those who are the primary p e r p e t r a t o r s of the crime and i n d i r e c t a c t o r s , i . e . , those who play a secondary r o l e in the crime. L e g i s l a t i o n which i s used to expand the l i a b i l i t y of i n d i r e c t actors and problems with imposing sanctions on i n d i v i d u a l s w i l l a l s o be discussed. A. D i r e c t Actors The i n d i v i d u a l who commits a crime i s not excused i f the c o r p o r a t i o n i s found g u i l t y ; g u i l t i s cumulative, not s u b s t i t u t i o n a l . 6 3 The f a c t that the a c t o r was i n s t r u c t e d or coached to enter i l l e g a l a c t i v i t y on behalf of a corporation does not excuse his behavior but makes him j o i n t l y l i a b l e with the i n d i v i d u a l or i n d i v i d u a l s who i n s t r u c t e d him. The p r a c t i c a l problem with only prosecuting the d i r e c t actor i s that i t may invoke sympathy f o r him so that he receives more l e n i e n t treatment before the courts than that accorded t o the uncoached i n d i v i d u a l . The impact of group norms and corporate s o c i a l i z a t i o n 6 4 are not l e g i t i m a t e reasons f o r allowing i n d i v i d u a l s to escape l i a b i l i t y . Group norms and s o c i a l i z a t i o n have long been viewed as c o n t r i b u t i n g t o gang delinquencies and other c r i m i n a l group behavior. Such group processes - 145 -cannot be accorded any weight when we are not prepared t o grant the same concessions t o those under pressures imposed by gangs, syndicates or other s o c i a l groups. Holding i n d i v i d u a l s responsible f o r the cumulative e f f e c t of group behavior poses problems. When the question of "who d i d i t " cannot be answered i n the context of gang delinquency, everyone "goes f r e e " . The gang cannot be punished. However, when the a c t i v i t y has been c a r r i e d on by a group recognized as a legal e n t i t y , c o n t r o l s and punishments are much more f e a s i b l e . There i s no reason f o r everyone to "go f r e e " . The imposition of legal sanctions on groups, such as c o r p o r a t i o n s , which have been given legal duties and r i g h t s could have some merit. To the extent that c o n t r o l s on corporations are more e f f e c t i v e than c o n t r o l s on i n d i v i d u a l s , t h e i r use could be j u s t i f i e d , not as a s u b s t i t u t e f o r i n d i v i d u a l l i a b i l i t y , but i n a d d i t i o n to i t . Even where the cor p o r a t i o n has been punished, there i s no reason why the i n d i v i d u a l who has als o committed an offence should escape l i a b i l i t y . B. I n d i r e c t Actors I n d i r e c t actors are l i a b l e under the co m p l i c i t y sections of the Code discussed supra. Some l e g i s l a t i o n which s p e c i f i c a l l y imposes l i a b i l i t y on i n d i v i d u a l s f o r corporate crime probably does not add any a d d i t i o n a l l i a b i l i t y than that already e s t a b l i s h e d by c o m p l i c i t y l a w s . 6 5 For example, subsection 42(3) of the CIA provides that where a corporation - 146 -commits an offence under subsection 10(2) ( f a i l u r e to permit the D i r e c t o r or his authorized agent to enter premises and take away documents) or s e c t i o n 9 or subsection 22(2) ( f a i l u r e to comply with a notice in w r i t i n g r e q u i r i n g a w r i t t e n return under oath), "any d i r e c t o r or o f f i c e r of such corporation who assents to or acquiesces in the offence committed by the corporation i s g u i l t y of that offence p e r s o n a l l y and cumulatively with the corporation and with his c o - d i r e c t o r s or a s s o c i a t e o f f i c e r s . " This s e c t i o n may narrow the c o m p l i c i t y sections of the Code. The Code sect i o n s do not apply to s i t u a t i o n s covered by the CIA. Since the s e c t i o n s p e c i f i c a l l y states that d i r e c t o r s and o f f i c e r s are l i a b l e , any i n d i v i d u a l , who i s n e i t h e r a d i r e c t o r not an o f f i c e r and who would have been l i a b l e under the Code s e c t i o n s , might argue that he i s not l i a b l e under subsection 42(3). The CIA does not define d i r e c t o r or o f f i c e r but under the i n c o r p o r a t i n g l e g i s l a t i o n d i r e c t o r s are persons who occupy a p o s i t i o n on the Board of D i r e c t o r s and o f f i c e r s are appointed by the Board of D i r e c t o r s . One could present the argument that the term " o f f i c e r " i s l i m i t e d to o f f i c e r s appointed by the Board and that any other manager who was not appointed by the Board would not be l i a b l e under subsections 42(3) and 10(2). s - 147 -i ) Aiding or a b e t t i n g and acquiescing Passive acquiescence i s not s u f f i c i e n t t o support a charge of a i d i n g and a b e t t i n g . 6 6 However, there i s some case law which supports the added r e s p o n s i b i l i t y of those i n a u t h o r i t y or those who have some con t r o l over the d i r e c t a c t o r . In Hal mo, 6 7 the owner of a car was convicted of r e c k l e s s d r i v i n g because he had con t r o l over the drunk d r i v e r he had employed t o drive his car. In the corporate s e t t i n g , the act of encouraging may take on a d i f f e r e n t meaning between a supervisor or manager and an employee. C. Extending L i a b i l i t y of I n d i r e c t Actors There are a number of ways of extending l i a b i l i t y to i n d i r e c t a c t o r s . ftPx For example, s e c t i o n 242 of the Income Tax Act (the "ITA") provides as f o l l o w s : Where a corporation i s g u i l t y of an offence under t h i s Act, an o f f i c e r , d i r e c t o r or agent of the cor p o r a t i o n who d i r e c t e d , authorized, assented t o , acquiesced i n , or p a r t i c i p a t e d i n , the commission of the offence i s a party to and g u i l t y of the offence and i s l i a b l e on c o n v i c t i o n to the punishment provided f o r the offence whether or not the corporation has been prosecuted or convicted. L e i g h 6 9 i s of the opinion that a s i m i l a r p r o v i s i o n under the A g r i c u l t u r a l Products "Board A c t 7 0 extends l i a b i l i t y to an o f f i c e r , d i r e c t o r or agent who "knew of the offence and f a i l e d t o prevent i t " . The s e c t i o n poses a number of problems which w i l l now be discussed. - 148 -i ) The issue of mens rea C o n f l i c t i n g j u d i c i a l opinions e x i s t on the question of whether mens rea i s an e s s e n t i a l ingredient under sections such as 242 of the ITA or i f the mens rea element i s found i n the substantive offence s e c t i o n . In 0'Dare 7 1 Hardinge, Co. Ct. J . found that the f a i l u r e to remit employee deductions under subsection 153(1) of the ITA was an offence of absolute l i a b i l i t y as described by the Supreme Court of Canada in SauTt Ste. 17 Marie; that i s , a) mens rea i s not e s s e n t i a l and b) moreover, i t i s not open to the accused to exculpate himself on the basis of " a l l due d i l i g e n c e " t o avoid commission of the offence. However, his reasons are somewhat confusing. His Honor had d i f f i c u l t y understanding why the t r i a l judge found that the respondent accused, a major shareholder, d i r e c t o r and s e c r e t a r y - t r e a s u r e r of the company, had no defence to the charge i n h i s capacity as an i n d i v i d u a l but had a c q u i t t e d him i n his capacity as an o f f i c e r of the company. His honor allowed the appeal and convicted the respondent. He based the mens rea" requirement on se c t i o n 153, an absolute l i a b i l i t y offence, rather than s e c t i o n 242 and found that since the respondent had f a i l e d t o ex e r c i s e due d i l i g e n c e in his capacity as d i r e c t o r and s e c r e t a r y - t r e a s u r e r he was g u i l t y . However, since the "due d i l i g e n c e " defence i s a v a i l a b l e f o r a s t r i c t , not an absolute l i a b i l i t y o f f ence, the case adds l i t t l e to c l a r i f y the law. P r o v i n c i a l Court Judge Vanek of Ontario i n Rogo Forming L t d . , Corona T O and Maione' 0 found that subsection 153(1) of the ITA creates an offence of s t r i c t , rather than absolute, l i a b i l i t y . That i s , there e x i s t s a - 149 -due d i l i g e n c e defence to the offence of f a i l u r e to withhold and remit tax to the Receiver General of Canada. 7 4 However, as to the l i a b i l i t y under s. 242 of an o f f i c e r , d i r e c t o r or agent as a party t o the substantive offence committed by a c o r p o r a t i o n , the ingredient of mens rea i s imported or implied by the very words "who d i r e c t e d , authorized, assented t o , acquiesced i n , or p a r t i c i p a t e d i n " the commission of the of f e n c e . These words include i n themselves a mental element. It has not been proved by the Crown that e i t h e r of the i n d i v i d u a l accused d i r e c t e d , authorized, assented t o or p a r t i c i p a t e d i n the commission of the offence. The only remaining i s s u e i s whether they acquiesced t h e r e i n . The ordinary d i c t i o n a r y meaning of "acquiesce" i s "to accept or consent q u i e t l y without p r o t e s t i n g " . The words of the sta t u t e have been s a i d to in c l u d e both a c t i v e and passive p a r t i c i p a t i o n i n the offence committed by the company. I f i n d no a c t i v e p a r t i c i p a t i o n . To my mind passive p a r t i c i p a t i o n r e f e r s to the conduct of an i n d i v i d u a l who, having knowledge of the circumstances surrounding the de f a u l t of the company and being i n a p o s i t i o n to i n f l u e n c e the conduct of the company, stands by and allows the i n f r a c t i o n to occur without taking any steps to prevent i t . His Honor found that the Crown had not proved a c t i v e or passive p a r t i c i p a t i o n . The two accused o f f i c e r s and d i r e c t o r s d i d not have knowledge of the circumstances which r e s u l t e d i n def a u l t and were not in a p o s i t i o n to prevent i t . Accordingly they were, a c q u i t t e d . i i ) The use of the word " g u i l t y " The use of the phrase "where a co r p o r a t i o n i s g u i l t y " appears i n many other f e d e r a l s t a t u t e s . The use of the word " g u i l t y " i n the f o l l o w i n g s e c t i o n under The Wartime Industries Control Board Regulations was held to - 150 -' \ , require a c o n v i c t i o n by a competent court as a p r e r e q u i s i t e f o r f i n d i n g an o f f i c e r or d i r e c t o r g u i l t y . 7 5 Where the person g u i l t y of an offence against any order i s a company or c o r p o r a t i o n , every person who at the time of the commission of the offence was a d i r e c t o r or o f f i c e r of the company or c o r p o r a t i o n s h a l l be g u i l t y of the l i k e offence unless he proves that the act or omission c o n s t i t u t i n g the offence took place without h i s knowledge or consent or that he e x e r c i s e d a l l due d i l i g e n c e to prevent the commission of the offence. Section 242 of the ITA attempts to exclude such a p r e r e q u i s i t e by p r o v i d i n g t h a t the corporation does not have to be prosecuted or c o n v i c t e d . Could a court be convinced that the c o r p o r a t i o n was " g u i l t y " (an obvious p r e r e q u i s i t e ) i f i t were prosecuted but acquitted? One d r a f t s m a n 7 6 has pointed out that the wording i n s e c t i o n 242 of the ITA i s standard in many p r o v i n c i a l and f e d e r a l s t a t u t e s . The " g u i l t " of the corporation i s "proved" on a balance of p r o b a b i l i t i e s at the t r i a l of the i n d i v i d u a l in order to meet the p r e r e q u i s i t e . A more r e c e n t l y d r a f t e d s e c t i o n under the Transportation of  Dangerous Goods A c t 7 8 does not require proof of the g u i l t of the corporate accused. Instead i t imposes l i a b i l i t y on "any o f f i c e r , d i r e c t o r or agent of the corporation who d i r e c t e d , authorized, assented t o , acquisced in or p a r t i c i p a t e d i n the commission of an offence . . . whether or not the corporation has been prosecuted or c o n v i c t e d " . - 151 -i i i ) Other problems The s e c t i o n i n the wartime Industries Control Board Regulations, supra, i s an example of an a f f i r m a t i v e duty imposed on d i r e c t o r s and o f f i c e r s . A s i m i l a r p r o v i s i o n under the o r i g i n a l B i l l i n 1971 to amend the CIA added a reverse onus to the a f f i r m a t i v e duty. O f f i c e r s , d i r e c t o r s and employees would have been p a r t i e s to an offence unless they s a t i s f i e d the court that they had no knowledge of the a l l e g e d offence, could not reasonably be expected to have such knowledge, and e x e r c i s e d reasonable d i l i g e n c e to prevent the o f f e n c e . 7 9 A stronger onus i s imposed on the • •- - - - 80 accused under the O f f i c i a l Secrets Act i n which the d i r e c t o r or o f f i c e r must "prove that the act or ommission . . . took place without h i s consent or knowledge". Federal l e g i s l a t i o n which imposes duties on d i r e c t o r s , o f f i c e r s , agents and sometimes employees, lacks uniformity and c l a r i t y . The l e g i s l a t i o n should c l e a r l y s p e l l out (a) what form of p a r t i c i p a t i o n w i l l be considered an offence, (b) the nature of a f f i r m a t i v e d u t i e s , i f any, and (c) whether or not there i s a reverse onus or only the n e c e s s i t y of r a i s i n g a reasonable doubt. Uniform language throughout the f e d e r a l s t a t u t e s would a s s i s t in c l a r i f y i n g the duties of d i r e c t o r s , o f f i c e r s and agents. The purpose of extending l i a b i l i t y t o i n d i r e c t actors i s s i m i l a r t o that of imposing s t r u c t u r a l l i a b i l i t y combined with a negligence standard on c o r p o r a t i o n s ; i t allows f o r the more e f f i c i e n t a d m i n i s t r a t i o n of the c r i m i n a l j u s t i c e system. The i s s u e remains, how f a r are we prepared t o - 152 -extend l i a b i l i t y and how much are we prepared to erode c r i m i n a l law p r i n c i p l e s f o r the sake of e f f i c i e n c y . 8 1 IV. RULES PECULIAR TO CORPORATIONS A. S e l f - i n c r i m i n a t i o n at T r i a l At common law, a person could not be compelled to give evidence at h i s own t r i a l or to answer i n c r i m i n a t i n g questions. In Canada, these rules are now replaced by the Canada Evidence A c t 8 2 and p r o v i n c i a l l e g i s l a t i o n . A corporation's r i g h t to refuse to t e s t i f y at t r i a l through i t s d i r e c t i n g mind and w i l l has a h i s t o r y of u n c e r t a i n t y . However, the Supreme Q O Court of Canada, i n N.M. Paterson and Sons L i m i t e d , 0 , 3 summarized the two l i n e s of cases and followed the jurisprudence of the courts i n Ontario, Quebec, and B r i t i s h Columbia and the Supreme Court of the United States; that i s , o f f i c e r s and employees of the accused corporation are compellable as witnesses. In w r i t i n g f o r the unanimous Court, Mr. J u s t i c e Chouinard OA r e l i e d h e a v i l y on Mr. J u s t i c e Arnup's d e c i s i o n i n Corning Glass and approved of the f o l l o w i n g statement. At the t r i a l , a witness subpoenaed t o give evidence, who happens to be a servant, o f f i c e r or even president and c o n t r o l l i n g shareholder of a corporate accused, i s not c a l l e d upon to speak ' f o r ' the c o r p o r a t i o n . He i s not i t s 'mouthpiece'. He i s required t o t e s t i f y as to a l l relevant f a c t s within his knowledge, whether those f a c t s were acquired by him during h i s employment or term of o f f i c e or were acquired in circumstances completely unrelated to the - 153 -c o r p o r a t i o n . He i s in no d i f f e r e n t p o s i t i o n from a witness who had been i n complete charge of the c o r p o r a t i o n s ' s a f f a i r s f o r many years, but has r e t i r e d before the charge against i t was l a i d . Both must t e l l what they know, so f a r as i t i s relevant and admissible. Both are e n t i t l e d t o a l l the p r o t e c t i o n against s e l f - i n c r i m i n a t i o n found in both the Canada Evidence Act and the Ontario Evidence Act. At t r i a l the c o r p o r a t i o n i s not a witness. It i s not being " s e l f - i n c r i m i n a t e d " because one of i t s managers i s g i v i n g damaging evidence in the witness-box. Chouinard, J . f u r t h e r supports h i s f i n d i n g that ,the manager i n the case was a person d i s t i n c t from the corporate accused by r e f e r r i n g t o the s e c t i o n of the Canada Grain Act which makes a manager a party to the offence i f he "does any act or t h i n g d i r e c t e d t o the commission of an offence under [the A c t ] . " 8 6 This approach c l e a r l y s p e l l s out d i f f e r e n t rules f o r c o r p o r a t i o n s . However the courts r a t i o n a l i z e t h e i r d e c i s i o n s , the e f f e c t i s that corporations are competent and compellable witnesses at t h e i r own t r i a l s . The legal f i c t i o n of the corporate e n t i t y has not been allowed to run the f u l l course. B. Crimes Between Corporate E n t i t i e s Can wholly owned s u b s i d i a r i e s conspire with each other and t h e i r 87 parent? In Dominion Steel & Coal Corp., the defence argued that one of the accused, a wholly owned s u b s i d i a r y of another accused could not be found g u i l t y because i t "had no independent v o l i t i o n of i t s own". In r e j e c t i n g t h i s submission, Mr. J u s t i c e J u d s o n 8 8 noted that the - 154 -s u b s i d i a r y had i t s own o f f i c i a l s and representatives and that he could see no reason f o r excusing i t because i t acted under the control of i t s parent company. The companies, along with a number of other companies, were found g u i l t y of c o n s p i r i n g to lessen competition. Such a case would be decided the same way today, despite subsection 32(7) of the CIA which came i n t o e f f e c t January 1, 1976. The subsection provides that companies a f f i l i a t e d with one another cannot be convicted of c o n s p i r i n g s o l e l y with one another under s e c t i o n 32. An a f f i l i a t e d company is defined in subsection 38(7) to i n c l u d e parent and s u b s i d i a r y companies. The exception, which app l i e s to agreements between a f f i l i a t e d companies, does not exempt i n d i v i d u a l s w i t h i n corporations or between s u b s i d i a r i e s from the p r o h i b i t i o n against c o n s p i r i n g t o lessen competition. V. CONCLUSION A corporation can act only through the use of agents. This chapter reviewed the methods of, and some of the problems a s s o c i a t e d with, a t t a c h i n g c r i m i n a l l i a b i l i t y t o c o r p o r a t i o n s as the r e s u l t of a c t i o n s c a r r i e d out by i n d i v i d u a l s . It was suggested that a negligence standard accompanied by a reverse onus may be more s u i t a b l e to a t t a c h i n g c r i m i n a l l i a b i l i t y to a corporation than a standard which requires the i n t e n t of an i n d i v i d u a l to be imputed t o the c o r p o r a t i o n . Such an approach would put an onus on corporations to - 155 -e s t a b l i s h o p e r a t i n g and d e c i s i o n mak ing p r o c e d u r e s wh i ch wou ld reduce t h e l i k e l i h o o d o f c o r p o r a t e c r i m e . The c h a p t e r a l s o l o o k e d a t t h e l i a b i l i t y o f i n d i v i d u a l s i n v o l v e d i n c o r p o r a t e c r i m e and c o n c l u d e d t h a t such i n d i v i d u a l s s h o u l d not escape l i a b i l i t y . I t a l s o s u g g e s t e d t h a t l i a b i l i t y s h o u l d be e x t e n d e d t o t h o s e i n d i v i d u a l s i n a p o s i t i o n t o c o n t r o l o r s u p e r v i s e t h e a c t i o n s of o t h e r e m p l o y e e s . L a s t l y , t he c h a p t e r r e v i e w e d two p rob l ems p e c u l i a r t o c o r p o r a t i o n s : s e l f i n c r i m i n a t i o n and c r i m e s between c o r p o r a t i o n s . However l i a b l i t y i s a t t a c h e d t o c o r p o r a t i o n s and i n d i v i d u a l s , such l i a b i l i t y w i l l o n l y be e f f e c t i v e t o t h e e x t e n t t h a t t h e consequences f o l l o w i n g such l i a b i l i t y a c h i e v e what t h e y a r e d e s i g n e d t o a c h i e v e . C h a p t e r 6 w i l l d i s c u s s t h e use o f c r i m i n a l s a n c t i o n s a g a i n s t c o r p o r a t i o n s and i n d i v i d u a l s i n v o l v e d i n c o r p o r a t e c r i m e . - 156 -FOOTNOTES 1. J . J . Beamish Construction Company, [1966] 1 C.C.C. 301 at 319 (Ont. H.CTJ: 2. L.H. Leigh, The Criminal L i a b i l i t y of Corporations and Other Groups, (1977) Ottawa L. Rev. 247 at 248. 3. L.H. Leigh, The Criminal L i a b i l i t y o f Corporations i n E n g l i s h Law, (1969) at 75. -4. Rex v. Higgins, i n Leigh supra note 2 at 247. 5. Supra note 1. 6. Supra note 2 at 266. 7. Supra note 2 at 269; see a l s o Simeon M. K r e i s b e r g , D e c i s i o n Models and the Control of Corporate Crime, (1976) 85 The Yale L.J. 1091. 8. K r e i s b e r g , K J . , at 1095. 9. Developments i n the Law, Corporate Crime: Regulating Corporate Behavior Through Criminal Sanctions, (1979) 92 Har. L. Rev. 1227 at 1250. 10. Supra note 2 at 268. 11. Supra, note 9 at 1250 footnote 35 quoting Old Monastery Co. v. United States, 147 F. 2d 905 at 908 (4th C i r . ) . 12. Id., at 1250. 13. Supra note 2 at 268. 14. Supra note 9 at 1251-3. 15. R. v. St. Lawrence Corporation L i m i t e d , [1969] 7 C.R.N.S. 265. 16. R. v. Fane Robinson Ltd. (1941), 76 C.C.C. 196 ( A l t a . C.A.). 17. Lennard's Carrying Co. v. A s i a t i c Petroleum Co., [1915] A.C. 705; [1914-15] A l l E. R. Rep. 280 (H.L.). 18. Supra note 16. 19. Supra note 15. The delegation d o c t r i n e from St. Lawrence was ap p l i e d i n R. v. H.G. Mcintosh (1980), 51 C.C.C. (2d) 185 (B.C.C.A.). Mr. J u s t i c e Nemetz upheld the c o n v i c t i o n of the company and the employee involved on the basis that the employee had been assigned the r e s p o n s i b i l i t y of ne g o t i a t i n g car sales with p r o s p e c t i v e customers. St. Lawrence was a l s o a p p l i e d i n R. v. Spot Supermarket Inc. (1970), 50 C.C.C. (2d) 239 (Que. C.A.) where a c o n v i c t i o n f o r t h e f t was affirmed on the basis that the - 157 -company's auditors were given l a t i t u d e to decide accounting questions with the company's s u p e r v i s o r . 20. Supra note 15 at 272. 21. R. v. Waterloo Mercury Sales L t d . , [1974] 4 W.W.R. 516; 18 C.C.C. (2d) 248. 22. Douglas A. Schmeiser, Canadian Criminal Law: Cases and Comments, (1981) at 632-3. 23. R. v. Canadian ATT is-Chalmers L t d . (1927)', 48 C.C.C. 63 (Ont. C.A.) at 82. 24. R. v. McNamara et al (No. 1) (1981), 56 C.C.C. (2d) 193. 25. Note, S t r u c t u r a l Crime and I n s t i t u t i o n a l R e h a b i l i t a t i o n : A New Approach to Corporate Sentencing, (1979) 89 Yale L.J. 353 at 358. 26. John C o l l i n s Coffee, Beyond the Shut-Eyed Sentry: Towards a Th e o r e t i c a l View of Corporate Misconduct and An E f f e c t i v e Legal Response, (1977) 63 Va.  L. Rev. 1099. 27. Supra note 3 at 83. 28. United States v. T.I.M.E.-D.C. Inc., F. Supp. 730 at 738 (W.D. Va. 1974) quoted i n Kreisberg supra note 7 at 1110. 29. Supra note 9 at 1248. 30. Supra note 2 at 256. 31. The Law Reform Commission, Working Paper, (1972) 44 para. 39(d). 32. Armstrong v. S t r a i n , [1952] 1 A l l . E.R. 139 (C.A.). 33. A l T e s s i o v. Jovica (1974), 42 D.L.R. (3d) 242 at 260 ( A l t a . S.C.) at 260. 34. Howse v. QuinneTT Motors L t d . , [1952] 2 D.L.R. 425 (B.C.C.A.). 35. Supra note 41; T o l l and T o l l v. Rogers and Richey (1959), 29 W.W.R. 84 (B .C .S .C.). 36. This approach to l i a b i l i t y was not given a d e s c r i p t i v e t i t l e , however, " s t r u c t u r a l l i a b i l i t y " appears to encompass what i s described. 37. Supra note 9 at 1243. 38. ^ d . , at 1243. - 158 -39. ^Id., at 1258. 40. I d . , at 1258. 41. _Id., at 1243. 42. R. v. C i t y of Sault Ste. Marie (1978), 40 C.C.C. (2d) 353 (S.C.C.). 43. Legal Education S o c i e t y o f A l b e r t a and The Continuing Legal Education Society of B r i t i s h Columbia i n Conjunction with the Corporate Counsel Section of the Canadian Bar A s s o c i a t i o n , A National Conference of Corporate Counsel, (1981). 44. Combines I n v e s t i g a t i o n Act, R.S.C. 1970, C-30. 45. Criminal Code, R.S.C. 1970, C-34. 46. I n t e r p r e t a t i o n Act, R.S.C. 1970 1-23. 47. R. v. Campbell, [1964] 3 C.C.C. 112 (Ont. C.A.); appeal t o Supreme Court of Canada dismissed, [1966] 4 C.C.C. 333. 48. Simcovitch v. The King, [1935] 63 C.C.C. 70 ( s e c t i o n 21 of the Code i s a p p l i c a b l e to the federal Bankruptcy A c t ) . 49. R. v. F e l l (1982), 34 O.R. (2d) 665. 50. R. v. Harder (1956), 114 C.C.C. 129 (S.C.C.). 51. R. v. Brousseau (1917), 56 S.C.R. 22. 52. R. v. Martin, [1933] 1 D.L.R. 434 (Man. C.A.). 53. R. v. Guimond (1979), 44 C.C.C. (2d) 481. 54. R. v. E l e c t r i c a l " C o n t r a c t o r s A s s o c i a t i o n of Ontario arid Dent (1961), 27 D.L.R. (2d) 193 (Ont. C.A.). ' 55. R. v. McDonnell, [1966] 1 A l l E.R. 193 ( B r i s t o l A s s i z e s ) at 201. 56. Text at supra footnote 15. 57. Note, "Conspiring E n t i t i e s " Under Se c t i o n 1 of the Sherman Act, (1982) 95 Har. L.Rev. 661. 58. R. v. Strand E l e c t r i c L t d . , [1969] 2 C.C.C. 264 (Ont.C.A.). 59. E.G. Ewaschuk, Corporate Criminal L i a b i l i t y , (1965) 29 C.R.N.S. 44 at 67. - 159 -60. R. v. Cotroni et a l . (1979), 45 C.C.C. (2d) 1. 61. Jd^, at 17. 62. Canadian Business Corporation Act, S.C. 1974-75 c.33 as amended. 63. Supra note 2 at 275. 64. See Chapter 4, Part IV on "Corporate norms and r a t i o n a l i z a t i o n s " . 65. Supra note 2 at 277. 66. R. v. Salajko (1970), 9 C.R.N.S. 145 (Ont. C.A.). 67. R. v. Halmo (1941), 76 C.C.C. 116 (Ont. C.A.). 68. Income Tax Act, S . C , 1070-71-72, C. 63 as amended. 69. Supra note 2 at 278. 70. A g r i c u l t u r a l Products Board Act, R.S.C. 1970, c. A-5. 71. R. v. O'Dare, [1979] 3 W.W.R. 284 (B.C. Co. C t . ) . 72. Supra note 42. 73. R. v. Rogo Forming Ltd., Corona and "Mai one (1980), 56 C.C.C. (2d) 31. 74. j ^ . , at 40-41. 75. Rex v. Hawthorne, [1944] O.W.N. 237 (Ont. C.A.). 76. C l a i r e Young, L e g i s l a t i v e draftsman from Edmonton. 78. Transportation of Dangerous Goods Act, S.C. 1980-81, c.36. 79. W.T. Stanbury, Monopoly, Monopolization and J o i n t Monopolization: P o l i c y Development and B i l l C-13, (1978) in J.W. Rowley and W.T. Stanbury (eds.), Competition P o l i c y i n Canada: Stage I I , B i l l C-13 at 147. 80. O f f i c i a l Secrets Act, R.S.C. 1970, c. 0-3, s e c t i o n 14(3). 81. One l i m i t a t i o n on both extensions might be the Canadian Charter-of  Rights and Freedoms. However, the l e g a l r i g h t s guaranteed under the Charter w i l l not apply where l e g i s l a t i o n provides that the Charter does not apply to the l e g i s l a t i o n . In R. v. Colgate Pal motive (1972), 8 C.C.C (2d) 40 (Ont. Co. Ct.) the court found that the p r o v i s i o n s of the Canadian  B i l l of Rights which guaranteed an " i n d i v i d u a l " c e r t a i n r i g h t s d i d not apply to c o r p o r a t i o n s . However, the wording of the Charter i s s u f f i c i e n t l y d i f f e r e n t from the B i l l of Rights t o present the argument that the Charter a p p l i e s t o protect the l e g a l r i g h t s of c o r p o r a t i o n s . - 160 -82. Canada Evidence Act, R.S.C. E-10. 83. R. v. N.M. Paterson and Sons L t d . (1980), 19 C R . (3d) 164 ( S . C . C ) . 84. Ex parte Corning Glass Works Ltd., [1971] 2 O.R. 3 (Ont. C.A.). 85. Supra note 83 at 177. 86. _Id. f at 176. 87. R. v. Dominion Steel & Coal Corporation (1956), 116 C.C.C. 117 (Ont. H.C) at 134. 88. _Id., at 135. A s i m i l a r approach was taken by the Ontario Court of Appeal i n upholding sentences imposed on a wholly-owned s u b s i d i a r y and i t s parent i n R. v. McNamara et a t . (No. 2) (1981), 56 C.C.C. (2d) 516 at 529. In R.v. H.TJTTee of Canada L t d . (l9~%TT7 57 C.P.R. (2d) 186 at 208 Mr. J u s t i c e Beauchemin of the Quebec Court of Sessions r e j e c t e d an argument that the accused Canadian company could not be convicted because the d i r e c t i n g minds were "high o f f i c i a l s of the H.D. Lee Company i n the United S t a t e s " . - /&' -CHAPTER 6 CRIMINAL SANCTIONS Once i t i s e s t a b l i s h e d what behavior i s to be condemned by s o c i e t y and that someone has committed a t r a n s g r e s s i o n , the a n c i l l i a r y o b j e c t i v e of c r i m i n a l law, according t o Packer, 1 i s to punish the offender. Various j u s t i f i c a t i o n s f o r punishment have been the subject of debate and pendulum-like swings f o r y e a r s . These j u s t i f i c a t i o n s or goals w i l l be discussed i n l i g h t of the academic arguments f o r and against corporate c r i m i n a l l i a b i l i t y . The role which these goals play when judges sentence corporations f o r conspiracy offences under the Combines I n v e s t i g a t i o n  Act (the "CIA") w i l l a l s o be presented. The lack of c o n v i c t i o n s f o r i l l e g a l mergers does not allow an a n a l y s i s of the use of such p e n a l t i e s and t h e r e f o r e the d i s c u s s i o n of p e n a l t i e s f o r i l l e g a l mergers w i l l be somewhat l i m i t e d . The appropriate sanction to be used against c o r p o r a t i o n s , i n l i g h t of the goals of punishment, and the option of punishing i n d i v i d u a l s involved i n corporate crime w i l l also be discussed. There i s a p r e l i m i n a r y hurdle to overcome p r i o r to d i s c u s s i n g the goals of punishment: can corporations be punished? Or, i n other words, what does i t mean to i n f l i c t punishment on a co r p o r a t i o n as opposed to a natural person? This question w i l l be discussed f i r s t . The present sanctions a v a i l a b l e under the CIA f o r c o n s p i r a c i e s to lessen competition - 162 -and i l l e g a l mergers and t h e i r h i s t o r i c a l use w i l l a l s o be o u t l i n e d p r i o r to examining the goals of punishment. I. CAN A CORPORATION BE PUNISHED? Dershowitz 0 w r i t e s , "punishment, of course, i s p e c u l i a r l y reserved f o r i n d i v i d u a l s ; i t cannot meaningfully be imposed upon a l e g a l form". In order to " d e - t r i v i a l i z e " the criminal s a n c t i o n , Packer argues that i t should not be used unless there i s s u b s t a n t i a l j u s t i f i c a t i o n f o r 4 imposing a sentence of imprisonment. I f the primary sanction i s c monetary, the c r i m i n a l j u s t i c e system should not be invoked. Packer i s of the opinion that the c r i m i n a l j u s t i c e system should be reserved f o r the imposition of stigma and the de p r i v a t i o n of l i b e r t y . 6 Packer views monetary e x t r a c t i o n as a useful sanction t o prevent crimes where economic gain i s the o b j e c t i v e of the conduct; however, the burden of the criminal j u s t i c e system i s not needed i n such cases. He 7 w r i t e s , There i s a vast range of economic offe n s e s , e s p e c i a l l y those i n which a c o r p o r a t i o n rather than a natural person i s the object of the law's a t t e n t i o n , where the forms of the cr i m i n a l sanction can and should be dispensed w i t h . However, s o c i e t y might s t i l l want to sti g m a t i z e such offences and there i s s t i l l a wide spread opinion that corporations should not escape c r i m i n a l s a n c t i o n s . The notion that some members of the p u b l i c might view the large corporation as above the cr i m i n a l law without corporate criminal - 163 -l i a b i l i t y was a f a c t o r i n favor of such l i a b i l i t y observed by the Law q Reform Commission. 0 But can punishment be i n f l i c t e d , or, stigma be attached, without i n c a r c e r a t i o n ? While the i n f l i c t i o n of what human beings r e f e r to as pain on a corporation i s not f e a s i b l e , i t i s p o s s i b l e to i n f l i c t other unpleasant consequences. Any sanctions which r e s t r i c t or otherwise a f f e c t the corporation's a b i l i t y to achieve i t s goals can be c o s t l y . To the extent that the sanction used i s considered s u b s t a n t i a l or i s viewed as having a negative or unpleasant impact on a co r p o r a t i o n , i n c a r c e r a t i o n i s not necessary in order t o i n f l i c t punishment. For example, Mr. J u s t i c e Lerner, upon sentencing f i v e companies convicted of conspiracy under s e c t i o n 32 of the CIA, wrote: To deprive a defendant of his freedom on c o n v i c t i o n i s a serious personal matter. To f i n e a l a r g e , f a c e l e s s corporation can hardly be s a i d t o be punishment or a deterrent unless the f i n e i s s u b s t a n t i a l . If one can a f f e c t the a b i l i t y of a corporation to achieve i t s goals, whether they be p r o f i t s , p u b l i c image, contracts or s a l e s , i t can be s a i d that a co r p o r a t i o n has been punished. The next part w i l l discuss the a v a i l a b l e sanctions under the CIA. I I . AVAILABLE SANCTIONS UNDER THE CIA The maximum penalty, upon c o n v i c t i o n f o r conspiracy to lessen competition unduly under s e c t i o n 32 of the CIA, since January 1, 1976, i s a - 164 -term of imprisonment f o r f i v e y e a r s , a f i n e of one m i l l i o n d o l l a r s or both. From 1889 u n t i l November, 1952, the maximum f i n e f o r c o r p o r a t i o n s was $10,000 and the minimum, f i n e was $1,000. The penalty f o r i n d i v i d u a l s was a maximum f i n e of $4000, a minimum of $200 or imprisonment f o r a term not exceeding two y e a r s . A f t e r 1952, u n t i l January, 1976, there was no upper l i m i t on a f i n e i n the case of a c o r p o r a t i o n . The upper l i m i t i n the case of an i n d i v i d u a l was r a i s e d t o $25,000. 1 0 H i s t o r i c a l l y , from 1910 to 1960, mergers were part of the d e f i n i t i o n of a combine and were t h e r e f o r e subject to the same p e n a l t i e s as c o n s p i r a c i e s . Since 1960, the maximum penalty f o r an i l l e g a l merger, an i n d i c t a b l e offence, i s a term of imprisonment f o r two y e a r s . Paragraph 647(a) of the Criminal C o d e 1 1 (the "Code") provides that where a corporation i s convicted of an i n d i c t a b l e offence, i t i s l i a b l e " i n l i e u of any imprisonment that i s p r e s c r i b e d as punishment f o r that offence, to be f i n e d i n an amount that i s i n the d i s c r e t i o n of the c o u r t " . There i s no upper l i m i t on the f i n e which could be imposed on a corporation f o r being convicted of an i l l e g a l merger. Since 1952, the CIA has provided f o r a number of conduct and preventative remedies. Subsection 30(1) of the CIA provides that upon the c o n v i c t i o n of a person f o r an offence under Part V of the CIA, which includes c o n s p i r a c i e s and i l l e g a l mergers, and upon a p p l i c a t i o n by the Crown, the court can, i n a d d i t i o n to any other penalty, p r o h i b i t the r e p e t i t i o n of the offence or any other act by the person convicted or any other person d i r e c t e d toward r e p e t i t i o n or c o n t i n u a t i o n of the o f f e n c e . - 165 -Upon c o n v i c t i o n with respect to an i l l e g a l merger, the court can d i r e c t whatever actions are necessary to d i s s o l v e the merger (subsection 30(1)). A p r o h i b i t i o n order against an act or th i n g d i r e c t e d toward the commission of an offence under Part V can a l s o be granted by the court, upon a p p l i c a t i o n by the Crown, where a "person has done, i s about to do or i s l i k e l y to do any act or t h i n g c o n s t i t u t i n g or d i r e c t e d toward the commission of an offence under Part V" (subsection 30(2)). The subsection a l s o allows f o r orders d i r e c t e d toward d i s s o l v i n g mergers or monopolies under s i m i l a r circumstances. S e c t i o n 29.1 (s i n c e January 1, 1976) provides f o r i n t e r i m i n j u n c t i o n s pending prosecution or proceedings under subsection 30(2). Such orders, of course, do not require a cr i m i n a l c o n v i c t i o n and can be viewed as preventative measures. Other p r o v i s i o n s , which do not require a c o n v i c t i o n , allow the Governor i n Council t o reduce or remove custom d u t i e s , ( s e c t i o n 28) and f o r the Federal Court of Canada, on an information by the Crown i n the Right of Canada, t o make orders with regard t o patents and l i c e n c e s ( s e c t i o n 29). 12 The CIA a l s o allows f o r other non-criminal remedies. Criminal remedies are not l i m i t e d by what i s contained i n the CIA. The Code p r o v i s i o n s allow f o r the f o l l o w i n g a d d i t i o n a l c r i m i n a l remedies, only some of which are a p p l i c a b l e to c o r p o r a t i o n s : 1. Absolute or c o n d i t i o n a l discharge ( s e c t i o n 662.1), 2. F o r f e i t u r e ( s e c t i o n 443), - 166 -3. Compensation ( s e c t i o n 653), 4. Restoration ( s e c t i o n 655). 5. Probation ( s e c t i o n 663), and 6. R e s t i t u t i o n as part of probation (paragraph 6 6 3 ( 2 ) ( e ) ) . The above sections are r e s t r i c t e d i n terms of t h e i r general a p p l i c a t i o n and i n some cases are not a v a i l a b l e when corporations are being sentenced. Section 662.1 s t a t e s that a discharge i s a v a i l a b l e to an accused, "other than a c o r p o r a t i o n " . The power to order f o r f e i t u r e to the Crown i s l i m i t e d to goods seized as evidence where the lawful owner i s not known (s e c t i o n 443). Restoration of goods to t h e i r lawful owners i s a l s o l i m i t e d to goods before the court ( s e c t i o n 665). When an accused i s convicted of an i n d i c t a b l e offence and the aggrieved person applies to the court at the time of sentencing, the court may "order the accused to pay to that person an amount by way of s a t i s f a c t i o n or compensation f o r l o s s of or damage to property s u f f e r e d by the a p p l i c a n t as a r e s u l t of the commission of the offence of which the accused i s convicted" (subsection 653(1)). Such an order can be f i l e d i n a superior court as a judgment debt (subsection 653(2)). The s e c t i o n i s somewhat l i m i t e d f o r offences under the CIA. The "person aggrieved", or h i s agent must apply to the court and the l e g a l p o s i t i o n of the aggrieved person must be c l e a r ; and, the order i s r e s t r i c t e d to actual l o s s or 13 damage. Very o f t e n the victims of c o n s p i r a c i e s and i l l e g a l mergers under the CIA are consumers as a whole and there does not appear to be any p r o v i s i o n which would allow them to apply to the sentencing c o u r t . An - 167 -a p p l i c a t i o n must al s o be a s s o c i a t e d with p u b l i c reprobation and not be used " i n terrorem as a s u b s t i t u t e f o r or a reinforcement of c i v i l p r o c e e d i n g s " . 1 4 The criminal p r o v i s i o n s are c l e a r l y inadequate f o r compensating victims of corporate crime. Subsections 663(1) and (2) provides that (1) Where an accused i s convicted of an offence the court may, having regard to the age and character of the accused, the nature of the offence and the circumstances surrounding i t s commission, (a) i n the case of an offence other than one f o r which a minimum punishment i s p r e s c r i b e d by law, suspend the passing of sentence and d i r e c t that the accused be released upon the conditions p r e s c r i b e d i n a probation order. . . (2) . . . [T]he c o u r t may p r e s c r i b e as co n d i t i o n s of a probation order that the accused s h a l l do any one or more of the f o l l o w i n g things as s p e c i f i e d i n the order, namely,. . . (e) make r e s t i t u t i o n or reparation to any person aggrieved or i n j u r e d by the commission of the offence f o r the actual loss or damage sustained by that person as a r e s u l t t h e r e o f . (h) comply with such other reasonable c o n d i t i o n s the court considers d e s i r a b l e f o r securing the good conduct of the accused and f o r preventing a r e p e t i t i o n by him of the same offence or the commission of other o f f e n c e s . On the one hand, i t could be argued that s e c t i o n 663 does not apply t o corporations because two co n d i t i o n s to be considered, age and character, are p e c u l i a r to natural persons. On the other hand, Mr. J u s t i c e Swencisky o,f, the B r i t i s h Columbia County Court i s of the opinion that the se c t i o n 1 c a p p l i e s to ships and companies. He w r i t e s , - 168 -I cannot accept the argument advanced by counsel on behalf of the ship that s. 663(1) of the Code has a p p l i c a t i o n only to a person and not to a s h i p . The opening words of s. 663(1) read "(1) where an accused i s convicted of an offence". Now I hold that the word "accused" i s i n t e n t i o n a l l y used so as to embrace not only persons but inanimate beings such as a ship or a l i m i t e d company. The use of probation f o r corporate offenders i n the United States has occurred i n a number of cases and the proposals f o r reform provide that 1 c o r g a n i z a t i o n s may be placed on probation. The use of corporate probation w i l l be discussed, i n f r a . The CIA and the Code p r o v i s i o n s do not provide f o r any sanctions s p e c i f i c a l l y t a i l o r e d f o r corporations except f o r subsection 30(1) of the CIA which allows f o r the d i s s o l u t i o n of a merger. However, even i l l e g a l mergers can occur without the use of the corporate e n t i t y . A l t e r n a t i v e s a n c t i o n s , some p e c u l i a r to c o r p o r a t i o n s , w i l l be discussed a f t e r an examination of the sanctions which are used and the goals of punishment. I I I . SENTENCES IMPOSED FOR CONSPIRACIES TO LESSEN COMPETITION To date there has not been a p r i s o n term imposed f o r a conspiracy t o l e s s e n competition under s e c t i o n 32 of the CIA or i t s p r e d e c e s s o r s . 1 7 Other than p r o h i b i t i o n orders, the f i n e i s the only c r i m i n a l sanction f o r which has been used s i n c e 1889. Table I i l l u s t r a t e s the number of i n d i v i d u a l s and companies c o n v i c t e d , the number of p r o h i b i t i o n orders granted i n a d d i t i o n to f i n e s imposed, and the l a r g e s t s i n g l e f i n e imposed - 169 -on any i n d i v i d u a l or company between 1900 and 1981. Between 1970 and 1981, 8 a d d i t i o n a l prosecutions r e s u l t e d i n p r o h i b i t i o n orders only. Other sanctions, which do not require a c o n v i c t i o n , but which may be more of a deterrent than c r i m i n a l s a n c t i o n s , have r a r e l y been use. A reduction i n a t a r i f f was used once i n 1902 despite the f a c t t h a t , s i n c e 1947, the R e s t r i c t i v e Trade P r a c t i c e s Commission recommended a reduction or e l i m i n a t i o n of t a r i f f s i n 11 c a s e s . 1 8 Orders with regard t o patents and trademarks were made on three occasions s i n c e 1910, when such orders were f i r s t a v a i l a b l e . IV. SENTENCES IMPOSED'FOR'ILLEGAL MERGERS The f i r s t c o n v i c t i o n and the only one which was not overturned on appeal f o r an i l l e g a l merger i n Canada was in 1970 when E l e c t r i c Reduction i o Company of Canada entered a plea of g u i l t y . The company was f i n e d $40,000 and a p r o h i b i t i o n order was issued against the e x e r c i s e of s p e c i f i c 20 forms of market power. The only c o n v i c t i o n r e s u l t i n g from a t r i a l on an i l l e g a l merger charge 21 22 was in the K.C. Irving case. The t r i a l judge imposed f i n e s t o t a l l i n g $150,000 and ordered, i n a d d i t i o n to s p e c i f i c p r o h i b i t i o n s , that 2 newspapers be s o l d "within 12 months from the date of the f i n a l determination of the appeals". An a c q u i t t a l was entered on appeal to the 9 0 Supreme Court of New.Brunswick and upheld by the Supreme Court of 24 Canada. - 170 -V. THE PRIMARY GOALS OF PUNISHMENT Packer views r e t r i b u t i o n and deterrence as the two primary goals of punishment. These two goals can be l i n k e d by what i s r e f e r r e d t o as the symbolic goal of punishment. J u d i c i a l pronouncements on these goals, upon sentencing corporations f o r c o n s p i r a c i e s to lessen competition under the CIA, together with some of the academic arguments f o r and against corporate c r i m i n a l l i a b i l i t y , w i l l be addressed. A. R e t r i b u t i o n R e t r i b u t i o n addresses two aspects of punishment: (a) should there be punishment and (b) how much punishment should there be? According t o Packer punishment takes revenge and thereby s a t i s f i e s a community's blood l u s t . It demands that the c r i m i n a l be punished in order that j u s t i c e may be achieved. "Blood l u s t properly tamed r e i n f o r c e s i n d i v i d u a l r e c t i t u d e . " 2 6 27 Packer notes that S i r James Fitzjames Stephen dis g u i s e d a u t i l i t a r i a n purpose behind h i s revenge theory: "punishment i s j u s t i f i a b l e because i t provides an o r d e r l y o u t l e t f o r emotions t h a t , denied i t would express themselves i n s o c i a l l y l e s s acceptable ways". In t h i s way punishment i s als o f u n c t i o n a l i n that i t i s c e n t r a l i z e d i n the s t a t e rather than l e f t to the judgment of victims or t h e i r f a m i l i e s . - 171 -Not a l l authors would agree with Packer's terminology. According t o o p N e t t l e r , ° r e t r i b u t i o n became an unpopular goal because i t was confused with revenge. "Revenge i s the emotional impulse t o wreck havoc on a person who has i n j u r e d us. Revenge knows no balance." R e t r i b u t i o n sets l i m i t s to punishment and demands a balance. The notion of o n balance or f a i r n e s s was espoused by B e c c a r i a in 1764. It addresses the question of how much punishment; and, i t was viewed by B e c c a r i a as a f a c t o r which would deter c r i m i n a l s from committing more serious offences. F i n n i s ^ 1 i s a l s o of the opinion that r e t r i b u t i o n should not be confused with revenge or s o c i a l c a t h a r i s i s . His theory of r e t r i b u t i o n i s that punishment ought to r e s t o r e the balance of advantages and 32 disadvantages created by crime. He w r i t e s , Every c r i m i n a l a c t , i n s o f a r as i t i s f r e e l y chosen, represents (quite apart from the empirical success or f a i l u r e of the c r i m i n a l ' s o v e r a l l purpose) the gaining of an advantage which the law-abiding members of s o c i e t y have as such denied themselves; namely, the advantage of i n d u l g i n g one's w i l T , of e x e r c i s i n g one's freedom beyond the r e s t r i c t i o n s imposed by law. This i s an advantage, a gain, a s a t i s f a c t i o n i n i t s e l f , p r e c i s e l y because freedom and i t s e x e r c i s e i s as such a good. And once gained, t h i s advantage of the c r i m i n a l v i s - a - v i s h i s f e l l o w c i t i z e n s cannot be l o s t unless and u n t i l the c r i m i n a l undergoes a disadvantage i n a p r e c i s e l y relevant respect, namely by a r e s t r i c t i o n of his freedom (not n e c e s s a s r i l y by i n c a r c e r a t i o n ) , a s u b j e c t i o n of h i s w i l l t o the w i l l of the s o c i e t y whose o f f i c i a l l y chosen r e s t r i c t i o n s on f r e e choice he f r e e l y f l o u t e d i n the c r i m i n a l a c t . Now, q u i t e apart from crime and punishment, i t i s j u s t t h a t , over a period of time, one person should not be able to gain and r e t a i n advantages over h i s f e l l o w s without good cause. So, although the crime i t s e l f cannot be undone, i t i s j u s t ( in t h i s quite ordinary and general sense of j u s t i c e ) that the balance of advantages and disadvantages as between c i t i z e n s - 172 -should be r e s t o r e d by punishing the ( f r e e - w i l l i n g ) c r i m i n a l , so that at the end of a period of time no-one should be able to say that he has been u n f a i r l y disadvantages by being law-abiding. Along a s i m i l a r v e i n , r e t r i b u t i o n as a j u s t i f i c a t i o n f o r punishment has appeared r e c e n t l y under the t i t l e s " j u s t d eserts" or "commensurate d e s e r t s " and focuses on the question of how much punishment. The p r i n c i p l e of commensurate deserts i s that "the s e v e r i t y of punishment should, as a matter of j u s t i c e , be commensurate with the seriousness of the 33 o f f e n c e " . It prevents the undue punishment of an i n d i v i d u a l f o r the good of others. It c o n s t r a i n s the p u r s u i t of the prevention of crime at the expense of what i s j u s t . 3 4 R e t r i b u t i o n a l s o sets lower l i m i t s . A d i s p r o p o r t i o n a t e l y small sentence destroys law-abiding a t t i t u d e s . It " f a i l s to preserve respect f o r the law; . . . encourages a measure of o c contempt; [and has a] subversive i n f l u e n c e on the law". According t o Von H i r s c h , 3 6 balance i s achieved by examining the seriousness of the offence i n terms of harm done ("the degree of i n j u r y caused or risked") and the degree of c u l p a b i l i t y of the offender ("the degree t o which he may j u s t l y be held to blame f o r the consequences or r i s k 37 of his a c t " ) . Von H i r s c h states that the s e v e r i t y of punishment should a l s o be standardized, to l i m i t d i s c r e t i o n . How unpleasant i s the punishment c h a r a c t e r i s t i c a l l y ? He argues that such an approach w i l l guard against sentences which are c l a s s biased. For example, judges sometimes attempt to impose equivalent amount of discomfort by p u t t i n g the middle c l a s s person on probation and j a i l i n g the lower c l a s s person who has "less to l o s e " . 3 8 - 173 -i ) The r o l e of r e t r i b u t i o n i n sentencing corporations A 39 A survey of 41 d e c i s i o n s under the conspiracy s e c t i o n of the CIA and i t s predecessors, which i n v o l v e d the sentencing of 348 corporations between 1905 and 1980, revealed t h a t r e t r i b u t i o n was never r e f e r r e d t o by name. A comment by Mr. J u s t i c e Linden, upon sentencing Hoffman-LaRoche  L i m i t e d 4 0 f o r predatory p r i c i n g , may i n d i c a t e why r e t r i b u t i o n has not been mentioned. [ R ] e t r i b u t i o n i s not a s i g n i f i c a n t feature of punishment i n Canada today. It i s e s p e c i a l l y inapt i n economic cases such as these [predatory p r i c i n g ] . It i s important, though, f o r the p u b l i c t o know that a s u i t a b l e punishment i s meted out to those who v i o l a t e s. 34(1)(c) that v i o l a t o r s w i l l r e c e i v e t h e i r " j u s t d e s e r t s " . While courts may be r e l u c t a n t to a t t r i b u t e t h e i r sentences d i r e c t l y t o 41 the purpose of punishment and r e t r i b u t i o n , the question of how much punishment i s being considered when the courts address the question of balance. Some j u d i c i a l comments r e f l e c t the concern with f i n e s that are too high or v i n d i c t i v e ; others with f i n e s that are too low; and, some with both. A common expression, t h a t the f i n e s "ought to be substantive, yet not v i n d i c t i v e , " suggests a concern with balance. A concern with balance was expressed i n f i v e conspiracy cases under the CIA. For example, i n 4? Albany F e l t Mr. J u s t i c e Phelan wrote: It has been stated and re s t a t e d that a penalty imposed must not f a l l i n t o the c l a s s of a mere l i c e n c e or permit fee which would sanction the offence but must be commensurate with the g r a v i t y of the offence though needless to say not unduly harsh or v i n d i c t i v e . - 174 -A concern was expressed i n f i v e a d d i t i o n a l cases that the f i n e s be s u b s t a n t i a l and not a mere l i c e n c e , slap on the w r i s t , or a mere r i s k of doing business. Mr. J u s t i c e McKay, i n Ocean Construction Supplies L t d . 4 3 wrote: The f i n e s imposed must be such as to bring home to c e r t a i n members of the business community the message that the combines l e g i s l a t i o n i s to be obeyed and cannot be f l o u t e d with impunity. Fines of the s i z e suggested by counsel f o r the c o n s p i r a t o r s amount to l i t t l e more than a slap on the w r i s t . Six cases were s p e c i f i c a l l y concerned that the f i n e be a punishment t o the corporation or a condemnation of the offence. For example, Mr. J u s t i c e 44 Schroeder i n F i r e s t o n e T i r e ^ wrote: T h e i r actions were cold-blooded, c a l c u l a t e d and d e l i b e r a t e v i o l a t i o n s of the law of the land and a c a l l f o r as severe a penalty as can be imposed w i t h i n legal l i m i t s , both to make the Court's condemnation of the enormity of the offence from the standpoint of punishment, and f o r i t s deterrent e f f e c t upon other p o t e n t i a l o f f e n d e r s . The courts are not prepared to reduce sentencing to a formula so that companies can p r e d i c t f i n e s as a cost of doing business. Mr. J u s t i c e 45 Seaton of the B r i t i s h Columbia Court of Appeal, i n d i s m i s s i n g appeals and cross appeals from sentences imposed by Mr. J u s t i c e McKay i n Ocean Cons t r u c t i o n , expressed the f o l l o w i n g opinion: Indeed, I see the disadvantage that one may budget f o r a f i n e when he decides to commit the offence. The complaint seems to be that the p r i c e of a permit to commit the crime has been r a i s e d without n o t i c e and that i s u n f a i r to the c o n s p i r a t o r s . That argument must f a i l . - 175 -As to the shock at the s i z e of the f i n e s I say, "Good". I hope that some people are s u f f i c i e n t l y shocked that they w i l l r e j e c t t h i s s o r t of conduct i n the f u t u r e . To> summarize, while the courts have been r e l u c t a n t to frame t h e i r reasons f o r sentencing i n terms of r e t r i b u t i o n , as such, the concern with r e t r i b u t i o n i s expressed i n terms of t r y i n g to achieve a balance between too l i t t l e and too much punishment. Contrary to the opinion expressed by Mr. J u s t i c e Linden, that r e t r i b u t i o n i s not appropriate f o r economic off e n c e s , r e t r i b u t i o n , as defined by F i n n i s , i s very appropriate to economic o f f e n c e s . I f judges viewed p r i c e f i x i n g as an advantage gained by corporations or i n d i v i d u a l s over consumers, they may be more prepared t o rest o r e the balance when i t came to imposing a sentence. B. Symbolism Symbolism, or the reinforcement of law-abiding values through the cr i m i n a l j u s t i c e system, i s c l o s e l y l i n k e d to r e t r i b u t i o n and i n some instances viewed as one i n the same. Both are l i n k e d to the goal of deterrence. The c r i m i n a l j u s t i c e process presents both a deterrent threat to people and a p u b l i c r i t u a l which r e a f f i r m s , as N e t t l e r puts i t , "what we 46 are f o r and what we are a g a i n s t . " Packer writes that the process creates and r e i n f o r c e s "the conscious morality and the unconscious habitual 47 c o n t r o l s of the law a b i d i n g . " The r a t i o n a l hedonist w i l l c o n s c i o u s l y avoid breaking the r u l e s . The existence of a t h r e a t can a l s o induce people to adopt acceptable behavior unconsciously. " G u i l t and AO punishment are, a f t e r a l l , what the superego i s a l l about." - 176 -F e i n b e r g ^ y o u t l i n e s four expressive or symbolic functions which are served by punishment: 1. a u t h o r i t a t i v e disavowal: punishment condemns and thereby disavows an act; 2. symbolic nonacquiescence: unless the act i s p u b l i c l y denounced f a i l u r e to punish i t endorses i t ; 3. v i n d i c a t i o n of the law: law must be emphatically r e a f f i r m e d or i t loses i t s impact as law; and 4. a b s o l u t i o n of others: punishment absolves others of blame. The symbolic purposes served by punishment i n c l u d e the reinforcement of p o s i t i v e behavior and the deterrence of criminal behavior. Symbolism, by name, was not r e f e r r e d to by the courts in sentencing c o r p o r a t i o n s convicted of c o n s p i r a c i e s to lessen c o m p e t i t i o n . 5 0 C. Deterrence One of the underlying assumptions of deterrence theory i s that man i s 51 a r a t i o n a l a c t o r . This assumption i s r e l i e d on by commentators who conclude that deterrence i s the major or only purpose f o r using c r i m i n a l 52 sanctions against economic and a n t i t r u s t v i o l a t i o n s . The assumptions, that corporations are p r o f i t o r i e n t e d and that they are r a t i o n a l , that i s , they s e l e c t the most appropriate means to a t t a i n t h e i r economic goals, are used to transpose deterrence theory from i n d i v i d u a l s to 53 c o r p o r a t i o n s . - 177 -However, deterrence i s not a s i n g u l a r concept and the f a c t o r s which determine the e f f e c t i v e n e s s of c r i m i n a l sanctions are multidimensional and d i f f i c u l t to measure. 5 4 Zimring and Hawkins 5 5 make a d i s t i n c t i o n between "absolute deterrence" which addresses the question of whether a p a r t i c u l a r t h r e a t , as opposed t o no t h r e a t , deters behavior and "marginal deterrence" which addresses the question of whether a l a r g e r penalty w i l l reduce the rate of unwanted behavior below that experienced under the l e s s e r penalty. The authors a l s o d i s t i n g u i s h between "special deterrence" which i s d i r e c t e d at d e t e r r i n g the offender from f u t u r e c r i m i n a l a c t i v i t y and "general deterrence" which i s d i r e c t e d at d e t e r r i n g others. The e f f e c t i v e n e s s of punishment i s often viewed as being contigent eg upon i t s f o l l o w i n g c h a r a c t e r i s t i c s : 1. s e v e r i t y , 2. c e r t a i n t y , 3. c e l e r i t y , 4. frequency, and 5. p u b l i c i t y . The i n e f f e c t i v e n e s s of the c r i m i n a l sanction in d e t e r r i n g combines offences could be the r e s u l t of a sanction which i s too l e n i e n t , too 57 infrequent or too u n c e r t a i n . T i t t l e i s of the opinion that c e r t a i n t y of punishment i s more important than s e v e r i t y . Other academics recommend i n c r e a s i n g the s e v e r i t y of the sanction because i t i s l e s s c o s t l y CO than i n c r e a s i n g the c e r t a i n t y of c o n v i c t i o n . The swiftness of punishment and the p u b l i c i t y surrounding i t w i l l a l s o i n f l u e n c e i t s - 178 -e f f e c t i v e n e s s . Sentences imposed under the CIA are c r i t i c i z e d f o r a combination of these f a c t o r s ; that i s , they have been considered too l e n i e n t , too u n c e r t a i n , too infrequent as well as l a c k i n g widespread p u b l i c i t y . E x t r a - l e g a l f a c t o r s which i n f l u e n c e the e f f e c t i v e n e s s of punishment include whether the c r i m i n a l act i s expressive or instrumental. An expressive act has i t s own end as a goal; whereas, an instrumental act i s purposeful i n the sense that i t i s done to achieve a s p e c i f i c end. C r i m i n o l o g i s t s assume that instrumental acts are r a t i o n a l and t h e r e f o r e e a s i e r to d e t e r . 6 0 According t o Webb, 6 1 " e x t r a - l e g a l c o n d i t i o n s " which "may engender or f o s t e r crime i n a manner independent of c r i m i n a l s a n c t i o n s " i n c l u d e the f o l l o w i n g : 1. Criminal self-image: Indicates the degree to which the offender or p o t e n t i a l offender conceives of himself as a c r i m i n a l . To the extent the criminal s e l f - c o n c e p t e x i s t s i t w i l l be d i f f i c u l t t o prevent that person from engaging i n c r iminal a c t s . 2. Criminal l i f e o r g a n i z a t i o n : Indicates the degree t o which the person's l i f e i s organized around h i s offending behaviour. If t h i s i s high then, again, there are u n l i k e l y to be f e a s i b l e a l t e r n a t i v e s f o r the person and i t i s l i k e l y he w i l l remain as a career offender regardless of the l e g a l s a nctions. . . . 3. Group support: Refers to the degree t o which the offender has the support of his reference group. Again, i f the offender receives support and/or encouragement from s i g n i f i c a n t others then his behaviour w i l l be r e i n f o r c e d . 4. D i f f e r e n t i a l a s s o c i a t i o n : If a person a s s o c i a t e s with others engaged i n c r i m i n a l behaviour, not only w i l l h i s own offending be condoned but w i t h i n that group he w i l l l i k e l y l e a r n the s k i l l s and r a t i o n a l i z a t i o n s to support f u r t h e r c r i m i n a l a c t i v i t i e s . - 179 -5. Moral commitment: ... To the extent a person has a high moral commitment to the law he w i l l be l e s s l i k e l y t o engage i n criminal behaviour regardless of the legal sanctions i n v o l v e d . Criminal sanctions against c o r p o r a t i o n s s u f f e r from the a d d i t i o n a l problem of d e a l i n g with group behavior. The e x t r a - l e g a l c o n d i t i o n s , which Webb describes as i n f l u e n c i n g the e f f e c t i v e n e s s of c r i m i n a l s a n c t i o n s , work i n the opposite d i r e c t i o n . For example, i t i s not the c r i m i n a l s e l f -concept which a s s i s t s the businessman i n committing c r i m i n a l acts but the s e l f concept of a law-abiding, s u c c e s s f u l businessman. Group support f o r t h i s image, while engaging i n c r i m i n a l a c t i v i t i e s , n e u t r a l i z e s the p o t e n t i a l stigma of c o n v i c t i o n and sentence. E f f e c t i v e sanctions w i l l have to overcome such n e u t r a l i z a t i o n . The above l i s t of f a c t o r s which i n f l u e n c e the e f f e c t i v e n e s s of punishment i s not exhaustive. However, i t i l l u s t r a t e s the complexity of the concept of deterrence. The problems a s s o c i a t e d with measuring these v a r i a b l e s and t h e i r i n f l u e n c e on the deterrent hypothesis are a l s o CO complex. Packer goes so f a r as to r e j e c t deterrence as the sole j u s t i f i c a t i o n f o r punishment because i t i s based on a leap of f a i t h ; that i s , he i s unsure of i t s e f f e c t i v e n e s s . i ) The r o l e of deterrence i n sentencing corporations The most common j u s t i f i c a t i o n f o r corporate c r i m i n a l l i a b i l i t y i s deterrence. This e f f e c t might be achieved through perceived damage to corporate reputation or the economic i m p l i c a t i o n s of being processed - 180 -through the criminal j u s t i c e system. General deterrence was r e f e r r e d t o i n 10 of the 41 deci s i o n s sentencing corporations under the conspiracy s e c t i o n of the CIA and i t s predecessor. Four cases r e f e r r e d t o s p e c i a l deterrence. An example of j u d i c i a l concern with general deterrence i s found i n Ocean  C o n s t r u c t i o n . 6 3 Mr. J u s t i c e McKay, of the t r i a l court, was of the opinion that the f i n e s imposed "must be such as to bri n g home to c e r t a i n members of the business community the message that the combines l e g i s l a t i o n i s to be obeyed and cannot be f l o u t e d with impunity". None of the judges r e f e r r e d to the complexity of the concept of deterrence or the p o s s i b l i t y that deterrence might not work. On the other hand, lack of demonstrative evidence that deterrence works w i l l not r e s u l t i n abandoning i t as a goal of sentencing. Legal s c h o l a r s and p o l i t i c a n s w i l l continue to t r e a t the corporate crime problem as i f something can be done. Opinions w i l l always vary on how to achieve a reduction i n behavior p r o h i b i t e d under the CIA. Some of the options i n the range of c r i m i n a l sanctions and problems with such options w i l l be reviewed a f t e r a b r i e f look at the secondary goals of punishment. VI. SECONDARY'GOALS OF PUNISHMENT Packer r e f e r s to i n c a p a c i t a t i o n and r e h a b i l i t a t i o n as secondary goals of punishment because, i n his view, n e i t h e r present a s u f f i c i e n t basis f o r imposing punishment. The use of i n c a p a c i t a t i o n to prevent future crime assumes that one can p r e d i c t f u t u r e offences from past conduct and that one - 181 -can p r e d i c t when an offender w i l l r e s t r a i n his cr i m i n a l conduct without f u r t h e r i n c a p a c i t a t i o n . Packer has two obje c t i o n s to making r e h a b i l i t a t i o n a primary j u s t i f i c a t i o n f o r punishment. F i r s t , we do not have s u f f i c i e n t knowledge of the roots of crime to be confident that r e h a b i l i t a t i o n w i l l work. Second, given s u f f i c i e n t knowledge, there may be humanitarian and moral reasons not to compel change against an i n d i v i d u a l ' s wishes. The goal of r e h a b i l i t a t i o n has the added danger that "because such measures are being taken i n the name of humanity, we w i l l be le s s quick to recognize and defend against encroachments on l i b e r t a r i a n v a l u e s . " 6 4 The goal of r e h a b i l i t a t i n g corporations r a i s e s concerns with the amount of government i n t e r v e n t i o n i n the economy and the appropriateness of using the the criminal j u s t i c e system to r e s t r u c t u r e business 65 o r g a n i z a t i o n s . For example, the Law Reform Commission of Canada i s of the opinion that the c r i m i n a l t r i a l " i s not r e a l l y a s u i t a b l e forum f o r r e - o r g a n i z i n g a corporation's s t r u c t u r e or reforming i t s business p r a c t i c e s " . Other secondary goals of punishment include compensation, r e s t i t u t i o n and the recovery of i l l e g a l p r o f i t s . For example, F l y n n 6 6 writes that one of the reasons the maximum f i n e under the American Sherman Act was increased from $5,000 to $50,000 i n 1955 was so that i t could "serve both as a deterrent and to some degree as a remedial device to recover i l l e g a l p r o f i t s " . The maximum f i n e was increased t o $1 m i l l i o n i n 1974. While the ( - 182 -Law Reform Commission 6' has recommended that r e s t i t u t i o n be made a basic p r i n c i p l e i n c r i m i n a l law, i t i s l e s s e n t h u s i a s t i c about i t s place i n the rol e of s a n c t i o n i n g c o r p o r a t i o n s f o r economic offences. I t w r i t e s , The large number of v i c t i m s of economic crimes can cause d i f f i c u l t i e s i n processing c l a i m s . It i s a l s o apparent that many of the i n j u r i e s s u f f e r e d by victims are of the de  minimus v a r i e t y ; they are simply too small taken i n d i v i d u a l l y to process economically, even though to allow the corporation to p r o f i t would be a gross i n j u s t i c e . As w e l l , corporate a c t i o n w i l l sometimes a f f e c t i n t e r e s t s shared by the community as a whole, which may not be t i e d to r i g h t s that our law recognizes to e x i s t in p r i v a t e i n d i v i d u a l s , and t h e r e f o r e may not support claims t o r e s t i t u t i o n . F i n a l l y , e s timating losses can place a tremendous burden on a c o u r t , e s p e c i a l l y a c r i m i n a l c o u r t , and even with s p e c i a l i z e d a s s i s t a n c e the best estimate may only be a vague approximation based on l i m i t e d f a c t o r s . However, the Commission 0 0 does recommend r e s t i t u t i o n where "victims have s u f f e r e d a s i z a b l e l o s s " or where r e s t i t u t i o n "can be achieved without unreasonable e f f o r t " . The Commission a l s o recommends the establishment of a fund t o which victims could apply f o r r e s t i t u t i o n and which could be used t o support p u b l i c i n t e r e s t groups concerned with a s s i s t i n g victims of corporate c r i m e . 6 9 A. The Role of Secondary Goals i n Sentencing Corporations Compensation and r e s t i t u t i o n were not r e f e r r e d to i n the survey of sentences imposed under the CIA f o r c o n s p i r a c i e s to lessen competition. However, the amount of i l l e g a l p r o f i t s which accrued to the accused and the p o s s i b l e f i n a n c i a l hardship which a f i n e might present to the corporation were considered by some of the judges in sentencing corporate o f f e n d e r s . - 183 -Others expressed an opinion that the lack of i l l e g a l p r o f i t s d i d not j u s t i f y or minimize i l l e g a l a c t i o n s . Excessive i l l e g a l p r o f i t s and f i n a n c i a l harm to the p u b l i c were considered i n sentencing corporations in seven cases. Judges took i n t o account the f a c t that the p u b l i c had been "mu l c t e d " , 7 0 " b i l k e d " , 7 1 "wronged", 7 2 "damaged", 7 3 and "burdened" 7 4 by i l l e g a l p r o f i t s . The confusion over the proper weight to be given t o i l l e g a l p r o f i t s i s discussed by Mr. J u s t i c e P e n n e l l , who sentenced the 75 companies convicted i n the Large Lamps case. He w r i t e s , An attempt to a r r i v e at an appropriate penalty under the philosophy that the f i n e imposed on the v i o l a t o r should exceed the p r o f i t s generated by his v i o l a t i o n i s not f r e e of d i f f i c u l t y . . . The essence of the offence [ c o n s p i r a c y ] i s the i l l e g a l agreement. . . The actual e f f e c t on p r i c e s i s not always before the court with any p r e c i s i o n and i n that sense the court sometimes lacks the information necessary to determine the g r a v i t y of the offence. . . [A] problem of undeterrence may r e s u l t i f the penalty f o r v i o l a t i o n under-estimates the gain received from the i l l e g a l a c t i v i t y that was the object of the conspiracy. . . I am f a r from implying that an appropriate sentence can be reduced to an arthmetic problem. P o s s i b l e f i n a n c i a l hardship on the corporation being sentenced was 7 c taken i n t o c o n s i d e r a t i o n i n two cases. In Hartt and Adair Co. Ltd. the t r i a l judge took i n t o account the f a c t that one of the companies had r e t i r e d from the market a f t e r considerable l o s s e s . In Link B e l t 7 7 the t r i a l judge imposed the then minimum f i n e of $1,000 on two of the seven companies sentenced i n order not to force them out of business and t o keep "competition as keen and a c t i v e as p o s s i b l e " . However, in Deschenes - 184 -Construction L t d . / o the t r i a l judge warned that a " p r i n c i p l e of taking i n t o account only the economical means of a wrongdoer cannot be adopted without reservation and q u a l i f i c a t i o n " . Parts V and VI of t h i s chapter discussed some of the goals of the crim i n a l law and how judges viewed these goals when sentencing corporations 7 9 f o r c o n s p i r a c i e s to lessen competition under the CIA. F i s s e , who uses a s l i g h t l y d i f f e r e n t c a t e g o r i z a t i o n , i s of the view that they are a l l a p p l i c a b l e to sanctioning c o r p o r a t i o n s . F i s s e summarizes f i v e d i s c e r n i b l e aims, as f o l l o w s : deterrence (inducing compliance by threat of punishment), d i r e c t i o n (mandating i n t e r n a l d i s c i p l i n e or r e v i s i o n of d e f e c t i v e operating procedures), i n s t r u c t i o n ( s o c i a l i z a t i o n , maintenance of respect f o r law, warning, development of p r o s c r i p t i v e standards, p r o v i s i o n of a r a t i o n a l e f o r conformity, and h a b i t u a t i o n ) , r e t r i b u t i o n ( v i n d i c a t i o n of community f e e l i n g s of resentment, r e s t o r a t i o n of f a i r n e s s , deliverance back i n t o community, or management of uncert a i n t y through i n t e r n a l i z a t i o n of s o c i a l c o s t s ) , and redress (compensation, r e s t i t u t i o n or r e s t o r a t i o n ) . Redress or what F i n n i s e u r e f e r s t o as r e s t o r i n g the "balance of advantages and disadvantages" may be p a r t i c u l a r l y important i n the case of economic crimes engaged i n by c o r p o r a t i o n s . Not only i s there advantage taken of others but the t a k i n g of such advantage i s often f a c i l i a t e d by the use of the co r p o r a t i o n , an e n t i t y created by the s t a t e . - 185 -\ V I I . THE APPROPRIATE CRIMINAL SANCTION FOR CORPORATIONS The above d i s c u s s i o n on the functions or aims of criminal sanctions r a i s e s the question of the appropriate sanction f o r achieving such aims when corporations are sentenced f o r c r i m i n a l offences. This Part w i l l o u t l i n e some of the arguments f o r and against the use of f i n e s against corporations and some inn o v a t i v e a l t e r n a t i v e s suggested by a number of s c h o l a r s . A. The Case f o r Fines Some economists* 5 1 argue that the f i n e i s the p r e f e r r e d c r i m i n a l sanction and that the co r p o r a t i o n should bear the burden of the f i n e . C o f f e e 8 2 summarizes the three basic tenants of t h i s economic approach: 1. The Pref e r r e d Form "of Sanction: Fines are seen as the optimal form of c r i m i n a l s a n c t i o n , superior t o i n c a r c e r a t i o n , because imprisonment wastes both s o c i e t y ' s resources and the offender's productive c a p a c i t y . Thus, confinement i s a sanction of l a s t resort to be used only when the offender e i t h e r w i l l not or cannot pay an adequate f i n e . 2. The Approriate Cost-Bearer: When crimes are committed on behalf of the o r g a n i z a t i o n , the o r g a n i z a t i o n , rather than the i n d i v i d u a l who a c t u a l l y engages i n the cr i m i n a l a c t , should pay the f i n e . (The assumption here i s that the o r g a n i z a t i o n w i l l d i s c i p l i n e i t s agent i f i t i s i n i t s i n t e r e s t to do so.) In a d d i t i o n , some economists also argue that t h i s f i n e should be the e x c l u s i v e penalty, p r e c l u d i n g even the award of c i v i l damages, because the p o t e n t i a l a v a i l a b i l i t y of damages creates a "perverse i n c e n t i v e " l e a d i n g claimants to misrepresent t h e i r i n j u r i e s t o e x t o r t settlements. 3. The C e r t a i n t y - S e v e r i t y Trade-Off: In general, high p e n a l t i e s are favored over more vigorous law enforcement. - 186 -That i s , i t i s asserted to be more cost e f f i c i e n t to r a i s e the s e v e r i t y of the sanction than the p r o b a b i l i t y of c o n v i c t i o n , because s o c i e t y can i n c a r c e r a t e more cheaply than i t can apprehend a d d i t i o n a l o f f e n d e r s . S u f f i c i e n t l y high f i n e s are viewed as capable of a t t a c h i n g stigma t o po corporate c r i m i n a l s , d e t e r r i n g corporate crime and disgorging 84 i l l e g a l p r o f i t s . Fines f o r corporate offenders are a l s o defended on the basis that d e r i v a t i v e a c t i o n s or actions based on f u d i c i a r y duties by shareholders w i l l allow the corporation to pass the f i n e on to d i r e c t o r s with a more l e n i e n t t e s t of l i a b i l i t y . The t h r e a t of such an a c t i o n , i t i s argued, should deter corporate o f f i c i a l s and f o r c e them t o take reasonable p c care i n c a r r y i n g out the duties of t h e i r p o s i t i o n s . Fines should a l s o force corporations to d i s c i p l i n e t h e i r employees who engage i n c r i m i n a l a c t i v i t i e s . The arguments are pursuasive. However, counter arguments are a l s o pursuasive. B. The Problems with Fines The above purposes to be served by f i n e s , the disgorgment of p r o f i t s , the deterrence of crime, the s t i m u l a t i o n of d e r i v a t i v e a c t i o n s , the d i s c i p l i n e of employees and the attachment of stigma, a l l depend on f i n e s which are s u f f i c i e n t l y l arge to cause more than a t r i f l i n g r i p p l e i n the p C l i f e of the corporate offender. The nature of the corporation and who bears the brunt of the f i n e s are a l s o c o n s i d e r a t i o n s . The s i z e of f i n e s imposed, and i n some cases, the maximum f i n e set by l e g i s l a t i o n , i s the most common c r i t i c i s m of using f i n e s to c o n t r o l - 187 -corporate conduct. 0' The answer i s not simply in l e g i s l a t i v e amendments which allow or r e q u i r e more severe sentences. Prosecutors u s u a l l y do not recommend, and, judges w i l l not impose, what they view as draconian sentences. The n u l l i f i c a t i o n of mandatory sentences, through po a c q u i t t a l s and c o n v i c t i o n s of l e s s e r o ffences, i s well known. 89 Large f i n e s could a l s o face what Coffee r e f e r s to as the "deterrence t r a p " . According to economic theory, the "expected punishment c o s t " must exceed the expected gain i n order f o r behavior to be deterred. The expected penalty must take i n t o account the r i s k of apprehension and c o n v i c t i o n . Coffee gives the example that i f the expected gain was $1 m i l l i o n and the p r o b a b i l i t y of apprehension 25%, the penalty would have to be $4 m i l l i o n i n order f o r the expected punishment cost to equal the expected gain. While there are other f a c t o r s which a f f e c t the 90 91 equation the "crux of the dilemma", as Coffee describes i t , i s "that the maximum meaningful f i n e that can be l e v i e d against any corporate offender i s n e c e s s a r i l y bounded by i t s wealth". Since many corporate crimes are h i g h l y c o n c e a l a b l e , the rate of apprehension i s low. The s i z e of f i n e s needed i n some cases would f a r exceed the corporation's resources. Whether the economists' equation works or not, i t i s p o s s i b l e to imagine some f i n e s as beyond the f i n a n c i a l l i m i t s of the corporate 92 o f f e n d e r s . However, i t i s probably more r e a l i s t i c to view the p o s s i b i l i t y of such f i n e s as l i m i t e d to the t h e o r e t i c a l world. As was pointed out in Chapter 1, the l a r g e s t s i n g l e f i n e imposed under the CIA f o r - 188 -a conspiracy to f i x p r i c e s , when there was no l i m i t a t i o n on the maximum f i n e allowed by l e g i s l a t i o n , was $300,000. The f i n e could have been absorbed by the companies with an increase i n p r i c e s of 0.19%. The crime OO was almost c e r t a i n l y highly p r o f i t a b l e . Large f i n e s could a l s o f o r c e innocent corporations to arrange f o r consent orders or to plead g u i l t y i n exchange f o r recommendations of leniency i n sentencing i n order t o s e t t l e the uncer t a i n t y surrounding t h e i r an f i n a n c i a l p o s i t i o n . Coffee ^ states that contingent f i n a n c i a l l i a b i l i t i e s , such as f i n e s , make a corporation a poor r i s k and reduce or el i m i n a t e i t s a b i l i t y to obtain c r e d i t . The cost of defending an a c t i o n could a l s o mean that small companies plead g u i l t y whereas large companies, possessing the f i n a n c i a l resources, defend charges. However, the evidence i n Canada i s that between 1910 and the 1960s they both pleaded g u i l t y under the CIA. Another c r i t i c i s m of f i n i n g corporate offenders i s the problem of 95 " s p i l l over" o r "passing on". As Coffee puts i t , "when the corporation catches a c o l d , someone e l s e sneezes". According t o 96 Coffee, the incidence of f i n e s imposed on a corporation can u l t i m a t e l y a f f e c t people at four d i f f e r e n t l e v e l s . F i r s t , stock holders bear the penalty i n the reduced value of t h e i r s e c u r i t i e s . Second, bond holders and other c r e d i t o r s s u f f e r a diminution i n the value of t h e i r s e c u r i t i e s which r e f l e c t s the increased r i s k i n e s s of the e n t e r p r i s e . . . . [T]he t h i r d l e v e l . . . invo l v e s reductions i n the work f o r c e through l a y o f f s of lower echelon employees who received no b e n e f i t from the e a r l i e r crime. . . . F i n a l l y , there i s the fourth l e v e l of - 189 -incidence of a f i n a n c i a l penalty: i t may be passed on to the consumer. . . If t h i s happens, the "wicked" corporation not only goes unpunished, but the intended b e n e f i c i a r y of the c r i m i n a l s t a t u t e ( i . e . , the consumer) winds up bearing i t s penalty. The argument that f i n e s can be passed on to consumers by higher p r i c e s Q7 i s met by a number of counter arguments. McAdams suggests three f a c t o r s which could prevent c o r p o r a t i o n s from passing f i n e s onto consumers. F i r s t , an i n j u n c t i o n could be imposed., While i t may be d i f f i c u l t to enforce, i t would carry a stamp of d i s a p p r o v a l . Second, market c o n d i t i o n s might prevent corporations from r a i s i n g p r i c e s . T h i r d , the corporation might be deterred from r a i s i n g p r i c e s by f e a r of p o t e n t i a l government r e g u l a t i o n in an otherwise unregulated i n d u s t r y . Another problem with f i n i n g the c o r p o r a t i o n i s that the i n d i v i d u a l s involved i n the crime are not penalized or a f f e c t e d by the corporate 98 f i n e . Leigh w r i t e s , " [ t ] h e i r p o s i t i o n s have not been i m p e r i l l e d ; t h e i r s a l a r i e s and p r e r e q u i s i t e s remain unimpaired". While i t may be expected that a corporation w i l l d i s c i p l i n e i t s wayward employees, i t i s more often the case t h a t such employees are rewarded because the i l l e g a l p r o f i t s are s u b s t a n t i a l l y l a r g e r than the f i n e imposed on the 99 c o r p o r a t i o n . C. Modifying F i n a n c i a l P e n a l t i e s Against Corporations There have been a number of suggestions as to how f i n a n c i a l p e n a l t i e s could be improved. For example, D e r s h o w i t z 1 0 0 and Davids''' 0 1 - 190 -propose that a f i n e could be imposed upon a corporation keyed to a percentage of the corporation's taxable income or t o t a l c a p i t a l . 10? Green ^ suggests that a f i n e could be c a l c u l a t e d as a percentage on 103 s a l e r e c e i p t s . The Law Reform Commission of Canada recommends a day f i n e in order to "equalize the marginal d e p r i v a t i o n imposed on corporations in r e l a t i o n to such f a c t o r s as p r o f i t s , t o t a l assets and capacity to d e f l e c t a f i n e " . One suggestion, which takes i n t o account most of the c r i t i c i s m s of using f i n e s against corporate o f f e n d e r s , i s the use of an "equity f i n e " . C o f f e e 1 0 4 describes the f i n e and i t s advantages. The convicted c o r p o r a t i o n should be required to authorize and i s s u e such number of shares to the s t a t e ' s crime v i c t i m compensation fund as would have an expected market value equal to the cash f i n e necessary to deter i l l e g a l a c t i v i t y . The fund should then be able to l i q u i d a t e the s e c u r i t i e s i n whatever manner maximizes i t s r e t u r n . This strategy reduces the e a r l i e r encountered obstacles to adequate corporate deterrence: (1) the o v e r s p i l l of corporate p e n a l t i e s t o workers and consumers i s reduced, and the costs of deterrence are concentrated e x c l u s i v e l y on the stockholder; (2) i n t u r n , the n u l l i f i c a t i o n phenomenon may be reduced, since the l a t e n t thr e a t to employees and the community dependent on the corporation that a cash f i n e c a r r i e s i s no longer present; (3) much higher p e n a l t i e s (in terms of t o t a l monetary value) can be imposed because the market v a l u a t i o n of the t y p i c a l c orporation v a s t l y exceeds the cash resources a v a i l a b l e to i t (with which a cash f i n e might be p a i d ) ; (4) the manager's self-image i n t e r e s t i s better a l i g n e d with that of the c o r p o r a t i o n because the r e s u l t i n g per-share d e c l i n e i n the c o r p o r a t i o n ' s common stock f o l l o w i n g such a penalty w i l l reduce the value of stock options and other i n c e n t i v e compensation a v a i l a b l e to him; (5) the manager w i l l f e a r that the c r e a t i o n of a large marketable block of s e c u r i t i e s makes the c o r p o r a t i o n an i n v i t i n g t arget f o r a takeover; and (6) the t y p i c a l stockholder's - 191 -apparent focus on short-term p r o f i t maximization w i l l now have to take i n t o account the r i s k s of i l l e g a l behavior; a c c o r d i n g l y , the stock value of l e g a l l y " r i s k y " companies w i l l p r e d i c t a b l y d e c l i n e , and stockholders w i l l begin t o demand increased i n t e r n a l c o n t r o l s w i t h i n corporations to reduce such l e g a l exposure. C o f f e e 1 0 5 suggests that the equity f i n e could be increased with each succeeding criminal c o n v i c t i o n . P e r s i s t e n t r e c i d i v i s m would even t u a l l y r e s u l t in a s u f f i c i e n t number of shares held by the fund t o appoint "public i n t e r e s t " d i r e c t o r s . Shareholders, who were formerly i n t e r e s t e d i n only the p r o f i t record of the company would be forced to consider the e t h i c a l aspects, of t h e i r investments because i t would be 1 nfi c l o s e l y l i n k e d to the economic performance of the company. A number of compensation schemes have been suggested in order to disgorge the delinquent corporation of i l l e g a l p r o f i t s . C i v i l a c t i o n r i g h t s , often accompanied by double or t r e b l e damage awards, are commonly recommended f o r C a n a d a . 1 0 7 Both have e x i s t e d i n the United States since 1 8 9 0 . 1 0 8 The extent of a common law r i g h t to an a c t i o n f o r damages i n Canada 109 has never been adequately e s t a b l i s h e d . A s t a t u t o r y r i g h t of action under s e c t i o n 31.1 of the CIA was not a v a i l a b l e i n Canada u n t i l January 1, 1976 and i t i s l i m i t e d t o s i n g l e damages. The option of c l a s s a c t i o n s , used e x t e n s i v e l y i n the United S t a t e s , i s somewhat l i m i t e d i n Canada and was not provided f o r in the 1976 amendments to the C I A . 1 1 0 - 192 -Treble damage actions in the United States have met with a number of c r i t i c i s m s . While t r e b l e damage awards s u b s t a n t i a l l y r a i s e the amount of money a corporation i s forced t o part w i t h , 1 1 1 they do not approach 112 the amount of i l l e g a l p r o f i t s obtained by the c o r p o r a t i o n . The i f a c t that t r e b l e damages are tax d e d u c t i b l e i n the United States erodes 1 1 0 t h e i r e f f e c t i v e n e s s as a de t e r r e n t . Treble damages are a l s o " t o t a l l y misoriented i n r e l a t i o n to p r o f i t d i s g o r g e m e n t " . 1 1 4 Instead of posing relevant i n q u i r i e s i n terms of the defendant corporation's r i g h t to r e t a i n i t s i l l e g a l bounty, the t r e b l e damage s u i t poses the i n q u i r i e s i n terms of the v a l i d i t y or i n v a l i d i t y of p a r t i c u l a r p l a i n t i f f s ' claims against a portion of the bounty. Despite these c r i t i c i s m , the compensation of victims has been suggested as a necessary part of a n t i t r u s t law enforcement i n order t o e f f i c i e n t l y deter v i o l a t i o n s . 1 1 5 Such compensation could be achieved through e i t h e r p u b l i c or p r i v a t e enforcement. Another a l t e r n a t i v e would be to allow the Crown to recover i l l e g a l p r o f i t s at criminal proceedings. Such a c i v i l attachment was recommended by D e r s h o w i t z . 1 1 6 Some of the problems with using p r i v a t e enforcement to compensate victims were discussed, s u p r a . 1 * 7 In Canada, the fede r a l government faces the a d d i t i o n a l problem that the establishment of r i g h t s of c i v i l a c t i o n s might 118 be w i t h i n the j u r i s d i c t i o n of the prov i n c e s . - 193 -D. Economic Leverage by Government The use of economic leverage by government, i n the form of d i s a l l o w i n g convicted corporations to bid on government contracts or the boycotting of products s o l d by convicted c o r p o r a t i o n s , has been suggested by the same authors who acknowledge the shortcomings of such an a p p r o a c h . 1 1 9 For example, Dershowitz quotes P r o f e s s o r Manning of the Yale Law School as observing that " i f the government stopped buying i t s e l e c t r i c a l equipment from the corporations who pleaded g u i l t y in the General E l e c t r i c case, i t would e i t h e r have to do without e l e c t r i c a l equipment or i t would have to import a l l such equipment from. Japan". D i r e c t r e g u l a t i o n i s another form of government i n t e r v e n t i o n which 121 could be viewed by corporations as a "san c t i o n " t o be avoided. However, i n some instances c o r p o r a t i o n s seek r e g u l a t i o n . E. I n c a p a c i t a t i o n and Corporate Quarantine Death and i n c a r c e r a t i o n are the most common forms of i n c a p a c i t a t i o n . Neither i s appropriate f o r le g a l e n t i t i e s . However, p r i v i l e g e s granted t o corporations could be revoked. For example, corporate charters could be revoked and companies could be d i s s o l v e d . The Quebec Code of C i v i l Procedure allows f o r the Attorney General to move f o r an order d i s s o l v i n g a 122 c o r p o r a t i o n which engages i n i l l e g a l behavior. S i m i l a r l y , the Model Penal Code in the United States allows f o r the prosecuting attorney - 194 -i n c r i m i n a l actions to apply to the court f o r an order d i s s o l v i n g a c o r p o r a t i o n organized under s t a t e laws. " Revocation of a corporate c h a r t e r could be considered too l e n i e n t a penalty i f the shareholders re-organized and incorporated a new 1 OA company. On the other hand, such a measure could be considered too severe a penalty to shareholders, employees and the p u b l i c who may be l e f t without e s s e n t i a l goods or s e r v i c e s . 1 2 5 S t o n e 1 2 6 w r i t e s , " i t i s d i f f i c u l t to imagine circumstances i n which a court r e a l l y would, or should, revoke the c h a r t e r of a major automobile company". While a court may be more prepared to revoke the charter of a small company, " i t i s p r e c i s e l y the l i t t l e e n t e r p r i s e , t y p i c a l l y unbaggaged with much goodwill, that can, l i k e a hermit crab ousted by the courts from one s h e l l , most 1 OTP f r e e l y s c u t t l e i n t o another". ' It i s p o s s i b l e f o r corporate i n c a p a c i t a t i o n to be made temporary or 128 even p a r t i a l by what Yoder r e f e r s to as "corporate quarantine". Such a sanction would temporarily suspend the corporation's r i g h t to engage i n commerce f o r a term equal to a term of imprisonment or to suspend the corporation's r i g h t to engage i n s p e c i f i c forms of commerce, such as f o r e i g n commerce. However, Yoder views these measures as too draconian and as unnecessarily a f f e c t i n g innocent employees, lenders and customers. Ad m i n i s t r a t i o n of t h i s remedy would a l s o pose a severe problem. - 195 -F. P u b l i c i t y In 1910, Mackenzie King argued that " l i g h t [was] the sovereign a n t i s e p t i c and the best of a l l policeman" i n the enforcement of the CIA. Since that time, p u b l i c i t y as a formal sanction has received 130 considerable a t t e n t i o n i n the l i t e r a t u r e , e s p e c i a l l y by F i s s e . F i s s e discusses i n d e t a i l the forms of p u b l i c i t y , the goals to be achieved by using p u b l i c i t y as a san c t i o n , and some of the advantages and disadvantages to i t s use. A d i s t i n c t i o n i s made between informal p u b l i c i t y , that i s , p u b l i c i t y 131 which i s l e f t to the d i s c r e t i o n of the mass media and formal p u b l i c i t y , that i s , p u b l i c i t y which i s a c t i v a t e d by an o f f i c i a l agency upon 132 the imposition of a sanction by a court or an a d m i n i s t r a t i v e body. 133 F i s s e suggests the f o l l o w i n g purposes to be served by formal p u b l i c i t y : 1. lowering corporate p r e s t i g e , 2. i n f l i c t i n g monetary l o s s upon the corporate offender, 3. inducing government i n t e r v e n t i o n , 4. n o t i f y i n g prospective offenders of p e n a l t i e s , 5. warning consumers, and 6. educating and mo r a l i z i n g about i l l e g a l behavior. Formal p u b l i c i t y may be faced with problems of persuasion, counter p u b l i c i t y , d i s s o l u t i o n , change of l o c a t i o n or products, or a change i n the 134 name of the corporation or i t s products. The impact of formal - 196 -p u b l i c i t y i s u n c e r t a i n . 1 - ^ i t i s a l s o counterproductive i n the sense ' I ozr that i t does not generate any funds. F i s s e concludes t h a t - l i m i t e d p u b l i c i t y d i r e c t e d at lowering p r e s t i g e or inducing governmental i n t e r v e n t i o n , combined with a f i n e , poses the fewest problems. He 1 37 concludes, ' For those who d i s l i k e t i n k e r i n g with the i n t e r n a l a f f a i r s of business c o r p o r a t i o n s new methods of imposing i n d i v i d u a l r e s p o n s i b i l i t y or achieving corporate reformation and r e h a b i l i t a t i o n w i l l very often be anathema, and p u b l i c i t y sanctions may be seen as a more pal a t a b l e method of decreasing the incidence of corporate crime. . . P u b l i c i t y may exert pressures which t h r u s t i n the d i r e c t i o n of reformation or r e s t r u c t u r i n g . P u b l i c i t y of c o n v i c t i o n s can a l s o a s s i s t i n the deterrence of other c o r p o r a t i o n s . Most of the above d i s c u s s i o n assumes that the corporation i s a u n i t a r y and r a t i o n a l actor, s i m i l a r to what Kre i s b e r g describes in his Model I of corporate behavior which was described i n Chapter 4, supra. One a l t e r n a t i v e , which involves what F i s s e r e f e r s to as " t i n k e r i n g " and has the p o t e n t i a l of focusing more on the i n t e r n a l workings of the c o r p o r a t i o n , i s corporate probation. G. Corporate R e h a b i l i t a t i o n and Probation According t o McAdams, ° " r e h a b i l i t a t i o n plays almost no r o l e as a purpose f o r imposing c r i m i n a l sanctions on corporate e n t i t i e s . " The corporate e n t i t y cannot be r e h a b i l i t a t e d , "almost by d e f i n i t i o n " . McAdams - 197 -does not elaborate on his statement. Other authors are not so p e s s i m i s t i c . According t o a Note in the Yale Law J o u r n a l , 1 3 9 " [ r ] e h a b i l i t a t i n g a corporation requires that i t s i n t e r n a l operations and procedures be r e s t r u c t u r e d i n such a way as to f o s t e r f u t u r e compliance with the law". Corporate probation i s often viewed as the v e h i c l e through which t o r e h a b i l i t a t e a c o r p o r a t i o n . Corporate probation i s a term of probation which requires a corporation to comply with a number of s p e c i f i e d c o n d i t i o n s . Paragraph 663(2)(h) of the Code allows a court to impose any "reasonable c o n d i t i o n s as the court considers d e s i r a b l e f o r securing the good conduct of the accused and f o r preventing a r e p e t i t i o n by him of the same offence or the commission of other o f f e n c e s " . Such orders can remain i n force f o r 3 years (paragraph 664(2)(b)). Breach of probation i s a summary offence (subsection 666(1)) and an offence committed during the term of probation allows the court to sentence the accused f o r the o r i g i n a l offence and the new offence. As was discussed, supra, corporate probation can a l s o be used to order r e s t i t u t i o n or r e p a r a t i o n . Taken t o one extreme, corporate probation could be used by the sentencing judge to intervene i n the i n t e r n a l processes of a corporation rather than ordering c o n d i t i o n s which the corporation must obey on i t s own i n i t i a t i v e . Probationary terms allow the court to depart from the u n i t a r y , r a t i o n a l model of a c o r p o r a t i o n and to deal with the corporation as e i t h e r an o r g a n i z a t i o n a l or bureaucratic e n t i t y , r e f l e c t i n g Kreisberg's Models II and III r e s p e c t i v e l y , which were described i n Chapter 4. For example, the court could order that the c o r p o r a t i o n i n s t i t u t e standard operating - 198 -procedures which would prevent f u t u r e offences. S p e c i f i c i n d i v i d u a l s could be assigned the task of s u p e r v i s i n g corporate conduct at the p e r i l of personal l i a b i l i t y . 1 4 0 Perhaps the greatest deterrent aspect of a probationary sentence would be the presentence i n v e s t i g a t i o n and report by an outside party. As G a l b r a i t h 1 4 1 observed, "[n]othing i n American business a t t i t u d e s i s so i n i q u i t o u s as government i n t e r f e r e n c e i n the i n t e r n a l a f f a i r s of the c o r p o r a t i o n " . Such i n v e s t i g a t i o n s could a l s o a c t i v a t e i n t e r n a l d i s c i p l i n e upon being submitted to shareholders. Enthusiasm f o r r e h a b i l i t a t i n g corporations should probably be tempered with the f a c t that the r e h a b i l i t a t i o n of i n d i v i d u a l s has not been overly s u c c e s s f u l . H. Community Service Orders F i s s e 1 4 3 has recently recommended the use of community se r v i c e orders as a sanction apart from a c o n d i t i o n of probation, a c o n d i t i o n f o r m i t i g a t i n g sentence or a c o n d i t i o n of non-prosecution. He compares community s e r v i c e orders with f i n e s and concludes that the l a t t e r are s u p e r i o r to f i n e s on the basis of the f o l l o w i n g c r i t e r i a : 1. the f u n c t i o n or aim of the c r i m i n a l law; 2. the target of the c r i m i n a l s a n c t i o n ; 3. the promotion of c o n s t r u c t i v e corporate r e a c t i o n ; and 4. the f l e x i b i l i t y needed i n sentencing. - 199 -F i s s e concludes that community s e r v i c e orders are s u p e r i o r to f i n e s on a l l f i v e functions a t t r i b u t a b l e to the c r i m i n a l s a n c t i o n . H e 1 4 4 w r i t e s , i n r e l a t i o n to deterrence, community s e r v i c e orders would provide a stronger c a t a l y s t to i n t e r n a l d i s c i p l i n e . In being f o r c e d t o a l l o c a t e personnel to a required p r o j e c t of community s e r v i c e , a corporate offender would be encouraged t o ask those responsible f o r s u b j e c t i n g i t to that requirement to e x t r i c a t e the o r g a n i z a t i o n from the problem they c r e a t e d ; f i n e s do not carry the same inducement. As a matter of d i r e c t i o n , community s e r v i c e orders would require the performance of tasks which, by impressing upon personnel the unwantedness of corporate crime, might favorable a l t e r the a t t i t u d e s which shape the design and a p p l i c a t i o n of standard operating procedures; by c o n t r a s t , the f i n e i s a n o n - i n t e r v e n t i o n i s t sanction which does not attempt to make any d i r e c t reformative impression. From the standpoint of i n s t r u c t i o n , a l l relevant aims, namely s o c i a l i z a t i o n , maintenance of respect f o r law, warning, development of p r o s c r i p t i v e standards, p r o v i s i o n of a r a t i o n a l e f o r conformity and h a b i t u a t i o n , would be matched by community s e r v i c e orders, e s s e n t i a l l y because community s e r v i c e conveys a model of d e s i r a b l e s o c i a l behavior. In comparison, the model of s o c i a l behavior conveyed by f i n e s i s that crime i s open to those prepared to pay a t a r i f f . In r e l a t i o n to r e t r i b u t i o n , community s e r v i c e orders would be compatible with any theory of r e t r i b u t i v e punishment because, by r e q u i r i n g offenders to produce some good in order to o f f s e t the unwanted bad of c r i m i n a l i n j u r y , community s e r v i c e would s a t i s f y by r e q u i t a l or redemption the common r e t r b u t i o n i s t requirement that crime be annulled; by c o n t r a s t , f i n e s hardly annul crime--they put a p r i c e on i t . F i n a l l y , i n r e l a t i o n to the goals of redress i n corporate c r i m i n a l law, community se r v i c e orders would provide a means of r e s t o r a t i o n as well as of nonmonetary s u b s t i t u t e r e l i e f ; f i n e s do no more than provide l i q u i d a t e d damages or monetary r e s t i t u t i o n . F i s s e 1 4 b a l s o views community s e r v i c e orders as s u p e r i o r to f i n e s in reaching i n t e r n a l t a r g e t s , i . e . , "blameworthy actors or i n f l u e n t i a l c o n t r o l l e r s w i t h i n an offender's o r g a n i z a t i o n " . A corporate offender would be re s p o n s i b l e f o r nominating personnel who were involved i n the offence - 200 -and who were i n a p o s i t i o n of control i n the company to carry out the order. Corporations would be encouraged to design and implement t h e i r own p r o j e c t s . F i s s e 1 4 5 a l s o discusses the f o l l o w i n g p o t e n t i a l c r i t i c i s m s of community s e r v i c e orders: 1. they are too l e n i e n t and s e l f - s e r v i n g ; 2. they are counter productive i n that they would t r a n s f e r resources from preventive measures to s o c i a l l y useful works; and 3. they are " s u s c e p t i b l e to corporate i n t r a n s i g e n c e and subterfuge. F i s s e 1 4 7 views community s e r v i c e orders as a more severe method of punishing corporations than f i n e s and suggests a number of methods f o r c o n t r o l l i n g p o s s i b l e subterfuge. The purpose of t h i s s e c t i o n was not to c r i t i q u e community s e r v i c e orders as a p o s s i b l e sanction a g a i n s t corporations but to suggest that they may be another a l t e r n a t i v e worthy of f u r t h e r e x p l o r a t i o n i n the search f o r sanctions appropriate f o r c o r p o r a t i o n s . I. Enforced S e l f - R e g u l a t i o n C l o s e l y r e l a t e d to the concept of community s e r v i c e orders i s the 148 suggestion of enforced s e l f - r e g u l a t i o n . Braithwaite elaborates on the concept, discusses i t s advantages and disadvantages and points out t h a t - 201 -i t i s not r a d i c a l l y d i f f e r e n t from e x i s t i n g regulatory p r a c t i c e s . B r a i t h w a i t e 1 4 9 describes his model as f o l l o w s : Under enforced s e l f - r e g u l a t i o n , the government would compel each company t o w r i t e a set of rules t a i l o r e d to the unique set of contingencies f a c i n g t h a t f i r m . A regulatory agency would e i t h e r approve these rules or send them back f o r r e v i s i o n i f they were i n s u f f i c i e n t l y s t r i n g e n t . At t h i s stage in the process, c i t i z e n s ' groups and other i n t e r e s t e d p a r t i e s would be encouraged to comment on the proposed r u l e s . Rather than having governmental i n s p e c t o r s enforce the r u l e s , most enforcement duties and costs would be i n t e r n a l i z e d by the company, which would be required to e s t a b l i s h i t s own independent i n s p e c t o r i a l group. The primary function of governmental i n s p e c t o r s would be to ensure the independence of t h i s i n t e r n a l compliance group and t o audit i t s e f f i c i e n c y and toughness. Again, i t i s not the purpose of t h i s t h e s i s to examine t h i s proposal i n d e t a i l . It i s i l l u s t r a t i v e of the f a c t that a l t e r n a t i v e s which deal with the corporation as an o r g a n i z a t i o n , rather than as an i n d i v i d u a l , are being'explored and such a l t e r n a t i v e s take i n t o account and use the o r g a n i z a t i o n as part of the s o l u t i o n to corporate crime. But, however one deals with the corporation there i s s t i l l the problem of imposing sanctions on the i n d i v i d u a l s involved in corporate crime. Part VIII w i l l address t h i s i s s u e . V I I I . SUBJECTING INDIVIDUALS TO CRIMINAL SANCTIONS Problems with attaching c r i m i n a l l i a b i l i t y to i n d i v i d u a l s involved i n corporate crime were discussed i n Chapter 5. I t was concluded that i n d i v i d u a l s involved i n what i s often r e f e r r e d to as corporate crime should not be allowed t o escape l i a b i l i t y . This s e c t i o n w i l l examine a number of - 202 -issues with regard t o the a p p l i c a t i o n of c r i m i n a l sanctions to i n d i v i d u a l s once t h e i r l i a b i l i t y i s e s t a b l i s h e d . A major c o n s i d e r a t i o n in sentencing i n d i v i d u a l s i s the nature of the sanction and i t s s e v e r i t y . The debate u s u a l l y revolves around whether there should be a f i n e or a j a i l term. A. The Case f o r Fines Against I n d i v i d u a l s P o s n e r , 1 5 0 who bases his argument on a s o c i a l c o s t - b e n e f i t a n a l y s i s of punishment, concludes that white c o l l a r c r i m i n a l s , that i s , well-to-do i n d i v i d u a l s and business a s s o c i a t i o n s or c o r p o r a t i o n s , should be punished only by f i n e s where the f i n e s are c o l l e c t i b l e . The only economic cost i s c o l l e c t i n g the f i n e ; the cost of imprisonment i s e l i m i n a t e d . But are the s o c i a l costs e q u i v a l e n t ? Can a f i n e i n f l i c t as much pain as imprisonment? Posner argues that given the present existence of short p r i s o n terms f o r white c o l l a r o f f e n c e s , i t should be p o s s i b l e to set a f i n e at a l e v e l which would deter c r i m i n a l behavior as e f f e c t i v e l y or more e f f e c t i v e l y than p r i s o n terms. In response to the o b j e c t i o n t h a t such a system d i s c r i m i n a t e s against 151 the poor, Posner w r i t e s : ... a uniform p r i s o n term d i s c r i m i n a t e s against the r i c h compared with a uniform f i n e . I f we want to d i s c r i m i n a t e against the r i c h through a f i n e system, that i s e a s i l y done by p r o g r e s s i v e l y varying the f i n e with the offender's income. I f we want not to d i s c r i m i n a t e against the r i c h through an imprisonment system, we can make the length of the sentence inverse to the offender's income. - 203 -In e i t h e r case the choice t o d i s c r i m i n a t e i s independent of the form of punishment. For those who argue t h a t j a i l terms add a stigma e f f e c t , Posner responds by saying t h a t the stigma i s i n the c o n v i c t i o n , not the sentence. Moreover, "stigma, u n l i k e a f i n e , imposes costs on the c r i m i n a l with no corresponding gain to s o c i e t y . " 1 5 2 B. Probl ems Wi th Imposi ng Fi nes Agai nst Indi v i duals A major problem with imposing f i n e s on i n d i v i d u a l s , who commit crimes on behalf of and u s u a l l y f o r the b e n e f i t of c o r p o r a t i o n s , i s one of i n c i d e n c e . I f the penalty i s a f i n e , where w i l l i t u l t i m a t e l y f a l l ? The impos i t i o n of f i n e s w i l l have l i t t l e impact on i n d i v i d u a l s i f they are absorbed by the company through insurance proceeds, d i r e c t i n d e m n i f i c a t i o n , or higher s a l a r i e s and bonuses to pay f o r f i n e s and l e g a l expenses. The stigma attached to c o n v i c t i o n i s also less i f the company t r e a t s i t as j u s t another cost of doing business. The p o s i t i v e reinforcement from business a s s o c i a t e s would probably outweigh any negative sanctions imposed by the s t a t e . The law with regard to i n d e m n i f i c a t i o n i s set out in the various p r o v i n c i a l and the fede r a l company a c t s . The Canadian Business Corporation I C O Act (the "CBCA") allows i n d e m n i f i c a t i o n of d i r e c t o r s and o f f i c e r s f o r the consequences of nonderivative a c t i o n s under the f o l l o w i n g c i rcumstances: - 204 -119(1) ... a c o r p o r a t i o n may indemnify a d i r e c t o r or o f f i c e r of the c o r p o r a t i o n , a former d i r e c t o r or o f f i c e r of the corporation or a person who acts or acted at the corporation's request as a d i r e c t o r or o f f i c e r of a body corporate . . . against a l l c o s t s , charges and expenses, i n c l u d i n g an amount paid to s e t t l e an a c t i o n or s a t i s f y a judgment, reasonably i n c u r r e d by him i n respect of any c i v i l , c r i minal or a d m i n i s t r a t i v e a c t i o n or proceeding to which he i s made a party by reason of being or having been a d i r e c t o r or o f f i c e r of such corporation or body corporate, i f (a) he acted honestly and i n good f a i t h with a view to the best i n t e r e s t s of the c o r p o r a t i o n ; and (b) in the case of a c r i m i n a l or a d m i n i s t r a t i v e a c t i o n or proceeding t h a t i s enforced by a monetary penalty, he had reasonable grounds f o r b e l i e v i n g that h i s conduct was l a w f u l . Court approval i s needed to indemnify where the l i a b i l i t y a r i s e s from a d e r i v a t i v e a c t i o n . A person r e f e r r e d to in subsection 119(1) who f u l f i l l s the c o n d i t i o n s set out in paragraphs (a) and (b) i s e n t i t l e d to indemnity i f he "was s u b s t a n t i a l l y successful on the merits i n h i s defence of the action or • 155 proceeding". At common law, a contract of insurance f o r the consequences of i l l e g a l 156 157 acts could not be enforced. However, the CBCA allows a c o r p o r a t i o n to maintain insurance f o r persons r e f e r r e d to under subsection 119(1) against any l i a b i l i t y i n c u r r e d by him " i n his capacity as a d i r e c t o r or o f f i c e r of the c o r p o r a t i o n , except where the l i a b i l i t y r e l a t e s to h i s f a i l u r e to act honestly and i n good f a i t h with a view to the best i n t e r e s t s of the c o r p o r a t i o n " . The l e g i s l a t i o n appears to l i m i t i n d e m n i f i c a t i o n but - 205 -there i s no p r o v i s i o n to ensure that the c o n d i t i o n s are met. F l y n n A a o suggests that mandatory j u d i c i a l review of i n d e m n i f i c a t i o n be granted at the instance of d i s s e n t i n g shareholders. Under the CBCA, the c r i t e r i o n f o r l i a b i l i t y insurance i s more l i b e r a l than the c r i t e r i a f o r i n d e m n i f i c a t i o n from the company. There i s no requirement in the insurance p r o v i s i o n , as there i s i n the i n d e m n i f i c a t i o n p r o v i s i o n , that the o f f i c e r or d i r e c t o r "had reasonable grounds f o r b e l i e v i n g that his conduct was l a w f u l " . Perhaps i n s u r a b i l i t y should be l i m i t e d t o circumstances under which the person had reasonable grounds f o r b e l i e v i n g h i s conduct was l a w f u l . It could be argued that the above p r o v i s i o n s , which allow a c o r p o r a t i o n to indemnify i t s o f f i c e r s and d i r e c t o r s , are necessary i n order to encourage high c a l i b e r people to occupy p o s i t i o n s of a u t h o r i t y in a c o r p o r a t i o n . On the other hand, i t could be argued t h a t , since mistake of law i s not a defence a v a i l a b l e to the "common" c r i m i n a l , mistake of law should not be a v a i l a b l e to businessmen who generally have access to legal 159 a d v i s e . Stone points out that f e d e r a l law in the United States has done nothing to preempt i n d e m n i f i c a t i o n where corporate agents are involved but has taken measures to prevent labor unions from indemnifying i t s agents. . , C. "Why Not Hang a P r i c e F i x e r Now and Then?" The above question was borrowed from Block and Sidak, not to suggest that we return to the p u b l i c gallows, but to suggest that a more - 206 -s e v e r e t y p e o f p e n a l t y , i n t h i s c a s e , i n c a r c e r a t i o n , m igh t be an a p p r o p r i a t e s a n c t i o n f o r i n d i v i d u a l s i n v o l v e d i n c o r p o r a t e c r i m e . C o f f e e i b i summar izes the a rguments i n f a v o r o f i n c a r c e r a t i n g i n d i v i d u a l s i n v o l v e d i n c o r p o r a t e c r i m e . (1) F i n e s w i l l be " p a s s e d o n " t o t h e o r g a n i z a t i o n , e i t h e r t h r o u g h i n d e m n i f i c a t i o n payments o r c o v e r t i n c r e a s e s i n s a l a r y o r f r i n g e b e n e f i t s , t h e r e b y u n d e r c u t t i n g t h e d e t e r r e n t e f f e c t o f t h e p e n a l t y ; (2) a l t h o u g h f i n e s may p r o v i d e d e t e r r e n c e , t h e y do no t i n c a p a c i t a t e t h e dangerous o f f e n d e r — a p o i n t w h i c h may seem i r r e l e v a n t i n t h i s a r e a o f n o n - v i o l e n t c r i m e bu t w h i c h s t i l l may d e s e r v e some w e i g h t once t h e s t a t i s t i c s on " c o r p o r a t e r e c i d i v i s m " a r e e x a m i n e d ; (3) even i f a moneta ry e q u i v a l e n t t o i m p r i s o n m e n t e x i s t s , -c o u r t s c o u l d n e v e r a c c u r a t e l y d e t e r m i n e t h e t r a d e - o f f s and w o u l d was te c o n s i d e r a b l e t i m e and r e s o u r c e s i n t h e a t t e m p t ; a n d , (4) r e l i a n c e on f i n e s i s so d e m o n s t r a b l y d i s c r i m i n a t o r y a g a i n s t t h e poo r t h a t , even i f c o n s t i t u t i o n a l , i t w o u l d e x a c e r b a t e s o c i a l a n t a g o n i s m s a l o n g p r e d i c t a b l e c l a s s and r a c i a l l i n e s . C o f f e e a l s o s u g g e s t s a mixed model o f c r i m i n a l s a n c t i o n s w i t h an added e l ement o f c o m p e t i t i o n s i m i l a r t o a b u y - s e l l a g r e e m e n t . The j u d g e w o u l d s e t a p r i s o n s e n t e n c e and t h e o f f e n d e r wou ld be r e q u i r e d t o s p e c i f y an e q u i v a l e n t f i n e . In o r d e r t o keep t h e s y s t em f a i r , a j u d g e w o u l d be i n s t r u c t e d t o i n c a r c e r a t e o f f e n d e r s i n a s p e c i f i e d p e r c e n t a g e of c a ses w i t h i n each t y p e o f c r i m e . He a r g u e s t h a t t h i s model w o u l d r educe t h e d i s p a r i t y and i n e q u a l i t y i n s a n c t i o n s . C o f f e e i s o f t h e o p i n i o n t h a t i n e q u a l i t y wh i ch i s random i s l e s s o b j e c t i o n a b l e t h a n i n e q u a l i t y wh i ch i s - 207 -s t r u c t u r e d or i n s t i t u t i o n a l i z e d . It a l s o reduces p r e d i c t a b i l i t y thereby i n c r e a s i n g the deterrent e f f e c t . Coffee a l s o argues that the economic model presented by Posner i s contrary to t r a d i t i o n a l notions about crime and he presents an a l t e r n a t i v e economic model which asserts the f o l l o w i n g : 1 6 2 (1) the threa t of i n c a r c e r a t i o n t y p i c a l l y w i l l have a greater deterrent value than the threa t of a f i n e ; (2) more deterrence i s generated by p e n a l t i e s focused on an i n d i v i d u a l than on an o r g a n i z a t i o n ; and, (3) the c e r t a i n t y of a sanction i s , w i t h i n the context discussed, more important than i t s s e v e r i t y . I C O C o f f e e 1 0 elaborates on his arguments in favor of punishing the i n d i v i d u a l . F i r s t , i l l e g a l p r o f i t s accrue to the c o r p o r a t i o n , and since an i n d i v i d u a l ' s expected b e n e f i t i s l e s s than that of the corporation the i n d i v i d u a l i s more e a s i l y deterred. Second, the corporation i s l e s s deterred because i t can more r e a d i l y pass f i n e s on. Higher f i n e s would increase t r a n s a c t i o n costs because co r p o r a t i o n s would spend more money on t r i a l s ; whereas, t r a n s a c t i o n costs would give the i n d i v i d u a l a greater i n c e n t i v e t o plea bargain. Therefore, " i t may be more cost e f f i c i e n t t o focus on the i n d i v i d u a l d e c i s i o n maker". T h i r d , there i s l i t t l e evidence that firms d i s c i p l i n e t h e i r employees and when d i s c i p l i n e i s meted out i t i s too i n s i g n i f i c a n t to deter others. Punishing the i n d i v i d u a l a l s o allows the court to i n c a p a c i t a t e the i n d i v i d u a l c u l p r i t . - 208 -D. Other Sanctions Directed at I n d i v i d u a l s A l t e r n a t i v e c riminal sanctions d i r e c t e d at i n d i v i d u a l s i n c l u d e d i s q u a l i f i c a t i o n from corporate executive positions,''" 6 4 orders to make speeches about the e v i l s of corporate c r i m e 1 6 5 and c h a r i t a b l e or community w o r k . 1 6 6 , IX. THE ROLE OF JUDICIAL ATTITUDES IN SENTENCING The s o l u t i o n to issues concerning the s i z e of f i n e s , corporate probation and the i n c a r c e r a t i o n of i n d i v i d u a l s involved i n corporate crime i s l a r g e l y dependent on j u d i c i a l a t t i t u d e s towards sentencing, both at the t r i a l and the a p p e l l a t e l e v e l . The c l a s s b i a s , found by W e i l e r , 1 6 7 i n favor of appointing men from "upper c l a s s , well-to-do, p r o f e s s i o n a l f a m i l i e s " to the Supreme Court of Canada probably does not come as a great r e v e l a t i o n to any Canadian. A s i m i l a r c l a s s bias was found to e x i s t i n the appointment of magistrates i n O n t a r i o . Hogarth, i n a n a l y z i n g the l e g a l , s o c i o l o g i c i a l and p s y c h o l o g i c a l elements of sentencing by magistrates i n Ontario, described sentencing as a "human process". S o c i a l background plays an important r o l e i n the development of a t t i t u d e s ; and, judges are probably not immune from such i n f l u e n c e s . Most studies of the r o l e of j u d i c i a l a t t i t u d e s i n sentencing have focused on the a t t i t u d e s of judges toward the "common" c r i m i n a l . However, Mann, Wheeler, and S a r a t 1 7 0 examined the a t t i t u d e s of 51 federal court judges in the United States toward white c o l l a r crime. The empathy, which - 209 -the judges experienced with white c o l l a r c r i m i n a l s , i s i l l u s t r a t e d by the 17? l i m i t e d r o l e which punishment played at the time of sentencing. Most judges share a widespread b e l i e f that the s u f f e r i n g experienced by the white c o l l a r person as a r e s u l t of apprehension, p u b l i c indictment and c o n v i c t i o n , and the c o l l a t e r a l d i s a b i l i t i e s i n c i d e n t to c o n v i c t i o n - - l o s s of job, p r o f e s s i o n a l l i c e n c e s , and status in the community— completely s a t i s f i e s the need t o punish the i n d i v i d u a l . Most of the judges viewed white c o l l a r c r i m i n a l s as "more s e n s i t i v e to the 173 impact of the p r i s o n environment" than non-white c o l l a r c r i m i n a l s . They were concerned with e l i m i n a t i n g the c o n t r i b u t i o n that white c o l l a r offenders made to t h e i r communities and f a m i l i e s i f such offenders were 174 sent to p r i s o n . Judges a l s o d i s a s s o c i a t e d the i n d i v i d u a l from the crime which he committed. For example, the i n d i v i d u a l was viewed as a p r o f e s s i o n a l man, with a f a m i l y , who supported his church and l o c a l c h a r i t i e s ; "he j u s t happened to cheat the IRS out of $30,000 in the l a s t 175 three y e a r s " . White c o l l a r c r i m i n a l s were a l s o viewed as being i n a p o s i t i o n to make r e s t i t u t i o n to t h e i r victims and reparation to the community.'''76 One method of overcoming the bias i n favor or white c o l l a r c r i m i n a l s would be to e l i m i n a t e some of the d i s c r e t i o n presently granted t o the sentencing judge. The concept of a Sentencing Commission has received a 177 c o n s i d e r a b l e amount of a t t e n t i o n i n the United S t a t e s . ' However, " f i x e d " sentencing schemes, where the l e g i s l a t i o n s p e c i f i e s the exact penalty that w i l l f o llow a c o n v i c t i o n , and "presumptive" sentencing schemes, where the l e g i s l a t i o n s p e c i f i e s a "normal" sentence, have been - 210 -c r i t i c i z e d f o r moving d i s c r e t i o n from the sentencing judge to other i n a p p r o p r i a t e agencies. In a l l p r o b a b i l i t y , d i s c r e t i o n in sentencing w i l l remain, within c e r t a i n l e g i s l a t i v e l i m i t s , with the j u d i c i a r y . J u d i c i a l a t t i t u d e s no doubt play an important r o l e i n the sentencing of c o r p o r a t i o n s . An indepth study of such a t t i t u d e s would probably a s s i s t i n b e t t e r understanding why the sentences presently imposed are imposed and how sentencing can be s t r u c t u r e d so as to introduce a number of innovations to better meet the goals of punishment. X. CONCLUSION Punishing a corporation i s not an easy t a s k . This chapter examined the a v a i l a b l e sanctions under the CIA f o r c o n s p i r a c i e s to lessen competition and i l l e g a l mergers and the sentences imposed by judges i n Canada f o r such offences. The goals of punishment, r e t r i b u t i o n , symbolism, deterrence, i n c a p a c i t a t i o n and r e h a b i l i t a t i o n , were examined in l i g h t of the r o l e which these goals played i n sentencing corporations f o r c o n s p i r a c i e s to lessen competition. The academic arguments concerning the appropriateness of these goals i n d e a l i n g with corporations were examined. The most common sanction imposed on c o r p o r a t i o n s , the f i n e , was examined i n d e t a i l . A major problem with f i n e s i s one of incidence; who bears the burden of the f i n e ? An equity f i n e , paid by the i s s u i n g of - 211 -shares, was discussed as one p o s s i b l e s o l u t i o n to the problems associated with imposing f i n e s on c o r p o r a t i o n s . The sentencing of corporations needs to be examined i n greater d e t a i l and a l t e r n a t i v e s to f i n e s need t o be explored. Towards t h i s end, community s e r v i c e orders and enforced s e l f -r e g u l a t i o n were b r i e f l y d i s c u s s e d . Corporate probation, which would allow the courts to r e s t r u c t u r e the i n t e r n a l d e c i s i o n making of a corporation and the a c c o u n t a b i l i t y of i n d i v i d u a l s involved i n corporate crime, was al s o d i s c u s s e d . - 212 -FOOTNOTES 1. Herbert L. Packer, The Limits of the Criminal Sanction, (1968). 2. Combines I n v e s t i g a t i o n Act, R.S.C. 1970, C-23. 3. Alan M. Dershowitz, Increasing Community Control Over Corporate Crime: A Problem i n the Law of Sanctions, (1961) 71 Yale L.J. 281 at 282. 4. Supra note 1 at 37. 5. I_d., at 273. 6. _Id., at 252. 7. J_d., at 252-253. 8. Law Reform Commission of Canada, Criminal R e s p o n s i b i l i t y f o r Group A c t i o n , (1976). 9. R. v. Armco Canada Ltd. et al.No. 2) (1976), 24 C.C.C. (2d) 147 (Ont. H.C.) at 149. : 10. W.T. Stanbury, P e n a l t i e s and Remedies Under the Combines I n v e s t i g a t i o n Act, 1889-1976, (1976) 14 Osgoode Hall L . J . 571. 11. Criminal Code, R.S.C. 1970, C-34. 12. For example, Part IV.1 provides that upon a p p l i c a t i o n by the D i r e c t o r of Research and I n v e s t i g a t i o n , c e r t a i n conduct such as consignment s e l l i n g and e x c l u s i v e d e a l i n g , can be reviewed by the R e s t r i c t i v e Trade P r a c t i c e s Commission which can make orders regarding the conduct. Section 31.1 provides that "any person who has s u f f e r e d loss or damage as a r e s u l t of (a) conduct that i s contrary to any p r o v i s i o n s of Part V, or (b) the f a i l u r e of any person to comply with an order of the commission or a court under t h i s Act," may sue to recover damages. 13. Clayton C. Ruby, Sentencing (2d), (1980) at 365-371. 14. _Id., at 371; see R. v. Zelensky (1978), 41 C.C.C. (2d) 97 (S.C.C.). 15. R. v. M.V. "Vancouver F o r e s t " , [1972] 4 W.W.R. 259 at 260 (B.C. Co. C t . ) -16. Note, S t r u c t u r a l Crime and I n s t i t u t i o n a l R e h a b i l i t a t i o n : A New Approach to Corporate Sentencing, (1979) 89 Yale L . J . 353 at 367-368.; see a l s o Comment, Criminal Law, The A p p l i c a t i o n of the Federal Probation Act to the Corporate E n t i t y , (1974) 3 U. B a l . L. Rev. 294. 17. Supra note 10; data a f t e r 1976 provided by Dr. W.T. Stanbury, F a c u l t y of Commerce, U n i v e r s i t y of B r i t i s h Columbia. - 213 -18. i d ^ , at 576. 19. R. v. E l e c t r i c a l Reduction Company of Canada L t d . (1970) 61 C.P.R. 235 (Ont. H.C.J. 20. For a d i s c u s s i o n of the order, see D.G. McFetridge, The Emergence of a Canadian Merger P o l i c y : The ERCO Case, (1974) 19 A n t i t r u s t B u l l . 1 at 9-11. 21. R. v. K.C. I r v i n g Ltd (1974), 16 C.C.C. (2d) 49 (N.B.S.C.T.D.); 22. _ l d . , (1975), 22 C.C.C. (2d) 281 (sentence). 23. _Id., (1976), 23 C.C.C. (2d) 479 (S.C.N.B. App. D.) ( a c q u i t t a l ) ; 24. _ l d . , (1977), 32 C.C.C. (2d) 1 (S.C.C.) ( a c q u i t t a l upheld). 25. Supra note 1 at 37. 26. _Id., at 44. 27. Id., at 37. 28. Gwynn N e t t l e r , E x p l a i n i n g Crime, (1978) at 51. 29. Ld., at 51. 30. Cesare B e c c a r i a , Of Crimes and Punishments, (1764). 31. John M. F i n n i s , Meaning and Ambiguity In Punishment (and Penology), (1972) 10 Osgoode Hall L .J. 264 at 266. 32. _Id., at 265. 33. Andrew Von H i r s c h , Doing J u s t i c e : The P r i n c i p l e of Commensurate, (1976) i n Hyman Gross and Andrew Von Hirsch (eds.) Sentencing, (1981) 241 at 255. 34. Jd^., at 247. 35. Hyman Gross, Proportional Punishment and J u s t i f i a b l e Sentences, (1979) i n Gross and Von Hirsch 272 i_d., at 275. 36. Supra note 33 at 248-249. 37. _Id., at 253. 38. J u d i c i a l a t t i t u d e s w i l l be examined l a t e r i n t h i s chapter. 39. A review of the d e c i s i o n s was conducted by the author f o r Dr. W.T. Stanbury, Faculty of Commerce, U n i v e r s i t y of B r i t i s h Columbia. - 214 -40. R. v. Hoffman-LaRoch Limited (No.2) (1980), 56 C.C.C. (2d) 563 at 568-569. 41. Such a r e s i s t a n c e i s i l l u s t r a t e d by David V i c t e r s , i n Commercial Crime, Continuing Legal Education Society of B r i t i s h Columbia, (1981) at 113 who quotes a B r i t i s h Columbia Court of Appeal judge as saying: "Courts do not impose sentences in response to p u b l i c clamour, nor in a s p i r i t of revenge. On the other hand, j u s t i c e i s not administered i n a vacuum. Sentences imposed by courts f o r c r i m i n a l conduct by and large must have the support of concerned and t h i n k i n g c i t i z e n s . If they do not have such support, the system w i l l f a i l . " The f a c t t h a t a r e t r i b u t i o n i s not mentioned does not mean that i t i s not an important f a c t o r i n sentences. F i n n i s , supra note 31 at 265 w r i t e s , "[o]ne i s not s u r p r i s e d by one of Professor Hogarth's most important but l e a s t s t r e s s e d d i s c o v e r i e s : that r e t r i b u t i o n i s of conside r a b l y greater s i g n i f i c a n c e i n the actual d e c i s i o n behavior of magistrates than in those magistrates' expressed penal philosophies and v e r b a l l y expressed ' a t t i t u d e s ' . " 42. R. v. Albany F e l t Co. of Canada L t d . et a l . (1981), C.P.R. (2d) 204 (Que. S.C.) at 206; see a l s o R. v. Alexander L t d . et a l . (1932), 57 C.C.C. 346 (Ont. S.C.) at 365 ("The p e n a l t i e s ought not to be v i n d i c t i v e , but they should be s u b s t a n t i a l , . . . and . . . they ought to be exemplary."); R. v. Canadian Import Co. et a l . (1933), 61 C.C.C. 114 (Que. K.B.) at 168 ("I c o n s i d e r that the penalty to be imposed should be s u b s t a n t i a l , [but] not v i n d i c t i v e , " ) ; R. v. A b i t i b i Power & Paper Co. et a l . (1960), 131 C.C.C. 201 (Que. Q.B.) at 257-258 ("The sentence should not be v i n d i c t i v e , yet i t should be s u b s t a n t i a l and exemplary."); R. v. Eagle Pencil Company  of Canada Ltd. (1966), B.C.P. 78-1 (Ont. S.C.) at 3 ("The sentence should be s u f f i c i e n t l y s u b s t a n t i a l as to be considered exemplary while not being v i n d i c t i v e . " ) . 43. Ocean Construction S u p p l i e s " L t d . et a l . (1974), 15 C.P.R. (2d) 224 at 230 (B.C.S.C); see a l s o R. v. Dominion Steel and Coal Corporation Ltd. et al_. (1956), B.C.P. 45-1 ( S . C Unt.; at l b ("Ihe expression has been used Dy some of the judges that even the maximum f i n e under t h i s s t a t u t e , as i t stood before amendment, was no more than a l i c e n c e f e e, and a very moderate l i c e n c e f e e . " ) ; R. y. Northern E l e c t r i c Company L t d . et a l . (1956), 116 C.C.C 98 (Ont. H.C) at 99 (The f i n e s before the amendment to the Code amount to a "very t r i v i a l l i c e n c e - f e e " t o commit crime.); R. v. Ryan  B u i l d e r s Supplies (Windsor) Limited et a l . (1966), B.CP 84-1 ( S . C Ont.) ("The f i n e must not not amount to a mere l i c e n c e to commit the o f f e n c e " ) ; R. v. E l e c t r i c a l Contractors A s s o c i a t i o n of Ontario and Dent (1962), 37 CP.R. l {I r a i l and Ont. C.A.) at 22 (The t r i a l judge quotes the above quotation from Dominion S t e e l ) . 44. F i r e s t o n e T i r e & Rubber Company of Canada Ltd. et a l . (1954), 20 C.P.R. 8 (Ont. H.C) at 16; see a l s o Dominion S t e e l . , i d . at 15 (These people "should be t o l d , and in no uncertain terms, that t h i s conduct i s p r o h i b i t e d . . . " ) ; E l e c t r i c a l C o n t r a c t o r s , i d . , at 23 ("[T]his i n t e n t i o n was a v i c i o u s example of i n d u s t r i a l c u p i d i t y which i s not to be condoned."); Eagle P e n c i l s , supra note 42, at 4 (Quotes Dominion S t e e l , i d . ) ; Ryan B u i l d e r s , i d . , at 1 ("The sentence must be punishment. ". T"); - 215 -Armco, supra note 9 at 149 ("To f i n e a large f a c e l e s s corporation can hardly be s a i d to be punishment or a deterrent unless the f i n e i s s u b s t a n t i a l . " ) . 45. R. v. Ocean Construction Supplies L t d . et a l . (1975), 18 C.P.R. (2d) 166 (B.C.C.A.) at 169. 46. Supra note 28 at 50. 47. Supra note 1 at 65. 48. 2d., at 43. 49. Joel Feinberg, The Expressive Function of Punishment, (1965) i n Gross and Von H i r s c h (eds.) 23 supra note 33. 50. Supra note 39. 51. Ezzat Abdel F a t t a h , Deterrence: A Review of the L i t e r a t u r e , (1976) i n Law Reform Commission of Canada, Fear of Punishment, (1976). 52. Supra note 1 at 356 ("What generally speaking, are the purposes f o r which we invoke the criminal sanction to deal with economic offences? There i s r e a l l y only one. These p r o s c r i p t i o n s are uniquely deterrent i n t h e i r t h r u s t " . ) . 53. For example, Dershowitz, supra note 3 at 281-282 defines an e n d o c r a t i c c o r p o r a t i o n as a " l a r g e , p u b l i c l y - h e l d c o r p o r a t i o n , whose stock i s s c a t t e r e d i n small f r a c t i o n s among thousands of s t o c k h o l d e r s " and proposes the f o l l o w i n g hypothesis: "The rate of a c q u i s i t i v e corporate crime engaged in on behalf of any endocratic c o r p o r a t i o n w i l l a) vary d i r e c t l y with the expectation of net gain to that c o r p o r a t i o n from the crime, and w i l l b) vary i n v e r s e l y with the c e r t a i n t y and s e v e r i t y of the impact with which the c r i m i n a l s anction p e r s o n a l l y f a l l s upon those who formulate corporate p o l i c y . " " A c q u i s i t i v e corporate crime" i s defined as crime engaged i n f o r the "immediate purpose of i n c r e a s i n g corporate, as d i s t i n g u i s h e d from p e r s o n a l , wealth". Also see Stephen A. Yoder, Comments, Criminal Sanctions f o r Corporate I l l e g a l i t y , (1978) 69 J . Crim. L. and Criminology 40 at 45 ("General Deterrence i s regarded as the primary j u s t i f i c a t i o n f o r use of c r i m i n a l sanctions f o r corporate crime.") 54. A d i s c u s s i o n of some of the problems i s found i n F r a n k l i n E. Zimring and Gordon J . Hawkins, Deterrence: The Legal Threat i n Crime C o n t r o l , (1973). 55. Id., at 72. 56. Id., at 91-194; supra note 51 at 27. 57. C R . T i t t l e , Crime Rates and Legal Sanctions, (1969) 16 Soc i a l Problems 409. - 216 -58. See f o r example, Gary S. Becker, Crime and Punishment: An Economic Approach, (1968) 76 J . P o l . Econ. 169. 59. W i l l i a m J . Chambliss, Types of Deviance and the E f f e c t i v e n e s s of Legal Sanctions, (1967) 67 Wise. L. Rev. 703. 60. The economics of committing crime or "does crime pay" f o r the cr i m i n a l has been p a r a l l e l l e d by a concern with the economics of cri m i n a l law enforcement. The economics of deterrence from the enforcement point of view i n v o l v e s an a n a l y s i s of both economic and s o c i a l c o s t s . See supra note 51 at 17-18; Robert B. Reich, The A n t i t r u s t Industry, (1980) 68 Geo.  L.J . 1053; Warren F. Schwartz, An Overview of the Economics of A n t i t r u s t Enforcement, (1980) 68 Geo. L . J . 1075; Fred S. McChesney, On the Economics of A n t i t r u s t Enforcement, (1980) 68 Geo. L.J. 1103. 61. Stephen D. Webb, Deterrence Theory: A Re c o n c e p t u a l i z a t i o n , (1980) 22 Can. J . of Criminology 23 at 30-31. 62. Supra note 54. 63. Supra note 43 at 230; deterrence was a l s o considered a f a c t o r i n the f o l l o w i n g cases: Firestone T i r e , supra note 44 at 16 (quoted at footnote 41); Northern E l e c t r i c , supra note 43 at 99 ("If i t were i n my power I would impose very heavy f i n e s that would operate as a real deterrent to those who seek to carry on business contrary to the law. . . " ) ; R. v. Lyons  Fuel Hardware & Supplies Ltd. et a l . (1964), 40 C.P.R. 27 (Ont. H.C.) at 41 ("I must consider the deterrent e f f e c t on other groups of business men who might to tempted i n t h e i r own l i n e . . . " ) ; Ryan B u i l d e r s , supra note 43 at 1 ("The sentence must be punishment and i t must be a deterrent to others that they must not transgress t h i s law"); R. v. St. Lawrence Corporation Limited et a l . (1966), 51 C.P.R. 170 (Ont. H.C.) at 192 ("The f i n e s must be of such an amount as w i l l act as a real d e t e r r e n t . . . " ) ; R. v. Alpa In d u s t r i e s Ltd. et a l . (1976), 22 C.P.R. (2d) 231 (Ont. H.C.) at 234 ("the mam purpose to which the Court ought to d i r e c t i t s a t t e n t i o n i s the d e t e r r i n g e f f e c t i t may have on other producers or manufacturers. . . " ) ; Armco, supra note 9 at 148-149 ("The punishment must be such as in the cnrcumstances w i l l act as a deterrent t o these defendants that they w i l l be discouraged from ever attempting t o conspire or engage i n t h i s kind of c r i m i n a l i t y again. Furthermore, the p e n a l t i e s should be such as to act as a deterrent t o others who might venture i n t o the area of business a c t i v i t i e s that have the e f f e c t of doing the things charged i n t h i s i n d i c t m e n t " . ) ; R. v. Canadian General E l e c t r i c Company Ltd. et a l . (1977), 35 C.P.R. (2d) (Ont. H.C.) at 210 ("The punishment must be such as in the circumstances w i l l act as a deterrent to those defendants that they w i l l be discouraged from attempting to conspire to engage i n t h i s kind of c r i m i n a l i t y again. Furthermore, the p e n a l t i e s should be such as to act as a deterrent t o others who might be tempted t o pass from that which i s l e g i t i m a t e i n t o actions which have the e f f e c t of doing the things charged i n t h i s i n d i c t m e n t " . ) ; Albany F e l t , supra note 42 at 206 ("The sentence must operate as a deterrent both to the convicted accused from repeating the offence and to others who may contemplate engaging i n s i m i l a r p r a c t i c e s . " ) . - 217 -64. Supra note 1 at 60. 65. Supra note 8 at 58. 66. John J . Flynn, Criminal Sanctions Under State and Federal A n t i t r u s t Laws, (1976) 45 Tex. L. Rev. 1301 at 1309. 67. Law Reform Commission of Canada, R e s t i t u t i o n and Compensation, (1974). 68. Supra note 8 at 46-47. 69. Id., at 47. 70. R. v. McGavin Bakeries Ltd. et a l . (No. 6) (1951), 101 C.C.C. 22 ( A l t a . S.C.) at 56. 71. R. v. S.C. Johnson and Son Ltd. (1975), B.C.P. 225-1 (Man. Prov. Ct.) at 2. 72. Ryan B u i l d e r s , supra note 43 at 2. 73. R. v. Norman Lathing L t d . et a l . (1969), B.C.P. 113-1 (S.C. Ont.). 74. R. v. Hobbs Glass Ltd. et a l . (1950), B.C.P. 33-2 (Ont. H.C.). 75. Canadian General E l e c t r i c , supra note 63. 76. R. v. Hartt and Adair Co. Ltd. (1935), B.C.P. 24-1 (Que. K.B.) at 13. 77. R. v. Link Belt et a l . (1957), B.C.P. 49-1 (Ont. S.C.) at 1. 78. R. v. Deschenes Construction L t d . et a l . (1967), 515 C.P.R. 255 (Que. Q.B.) at 257. 79. Brent F i s s e , Community Ser v i c e as a Sanction Against Corporations, (1981) 5 Misc. L. Rev. 970 at 1004. 80. Supra note 31. 81. Richard Posner, Optimal Sentences f o r White C o l l a r C r i m i n a l s , (1980) 17 Am. Crim. L. Rev. 400; Kenneth E l z i n g a and W i l l i a m B r e i t , The A n t i t r u s t P e n a l t i e s : A Study i n Law and Economics (1976). 82. John C o l l i n s Coffee, J r . , Corporate Crime and Punishment: A Non-Chicago View of the Economics of Criminal Sanctions, (1980) 17 Am. Crim. L. Rev. 410 at 421. 83. Sanford H. Kadish, Some Observations on the Use of Criminal Sanctions i n E n f o r c i n g Economic Regulations, (1963) 30 U. Chic. L. Rev. 423 at 434; Flynn, i_d_«» at 1310; John B. McAdams, The Appropriate Sanctions For Corporate Criminal L i a b i l i t y : An E c l e c t i c A l t e r n a t i v e , (1978) 46 U. C i n . L. Rev. 989 at 996. - 218 -84. Flynn, jd_., at 1309; McAdams, ^ d . , at 997-998. 85. Robert W. Hamilton, Corporate Criminal L i a b i l i t y i n Texas, (1968) 47 Tex. L. Rev. 60 at 74-75; McAdams, j_d., at 995. Other arguments in favor of monetary p e n a l t i e s can be found i n C h r i s t o p h e r D. Stone, Large Organizations and the Law at the Pass: Toward a General Theory of Compliance Strategy, (1981) 5 Wise. L. Rev. 861. 86. In R. v. C i v i l Construction Inc. (1966), 47 C.P.R. 208 (Que. Q.B.) at 210 Mr. J u s t i c e Legault wrote, "In order to be e f f e c t i v e the sentence should be t r u l y p r o h i b i t i v e , but even the amount imposed below w i l l not leave a r i p p l e on the f i n a n c i a l s t r u c t u r e of the condemned corporation".) 87. G i l b e r t Geis, Criminal P e n a l t i e s f o r Corporate C r i m i n a l s , (1972) 8 Crim. L. B u l l . 377 at 390; Leonard Orland, R e f l e c t i o n s on Corporate Crime: Law i n Search of Theory and S c h o l a r s h i p , (1980) 17 Am. Crim. L. Rev. 501 at 516; Dershowitz, supra note 3 at 285; Leo Davids, Penology and Corporate Crime, (1967) J . of Crim. L. Criminology and P o l i c e S c i . 524 at 530; and McAdams, supra note 83 at 997. 88. Jerome Michael and H. Wechsler, A Rational of the Law of Homicide, (1937) 37 Col urn. L. Rev. 1261; John C. Coffee, J r . , "No Soul to Damn, No Body To Kick": An Unscandalized Inquiry i n t o the Problem of Corporate Punishment, (1981) 73 Mich. L. Rev. 386 at 405-407. 89. C o f f e e , f d . , at 389-393. 90. See W.T. Stanbury, Notes and P e n a l t i e s and Remedies i n Competition P o l i c y Cases: New Evidence and New Approaches, (1982) (Unpublished Manuscript). Stanbury presents the f o l l o w i n g equation: "F=(R) 1/P(G), where F= amount of the f i n e ; G= amount of gain to defendents; P= p r o b a b i l i t y of d e t e c t i o n , prosecution and c o n v i c t i o n ; ;and R= the d e c i s i o n -maker's ex ante degree of r i s k a v e r s i o n , i . e . , R w i l l be l e s s than 1 f o r r i s k averse i n d i v i d u a l s " . Stanbury notes that the f i n e and the amount of the gain should be put i n terms of present values. 91. C o f f e e , supra note 88 at 390. 92. Shareholders are protected by the l i m i t e d l i a b i l i t y c h a r a c t e r i s t i c of most c o r p o r a t i o n s . The i n t r o d u c t i o n of u n l i m i t e d l i a b i l i t y i s one a l t e r n a t i v e ; however, i t may not be a p r a c t i c a l s o l u t i o n i n the case of widely held companies. See Paul Halpern, Michael T r e b i l c o c k and Stuart T u r n b u l l , An Economic Analysis of L i m i t e d L i a b i l i t y i n Corporation Law, (1980) 30 U. of Toronto L.J. 117. 93. However, the l e g a l fees were t r i p l e the amount of the f i n e . Dr. W.T. Stanbury argues that under current c o n d i t i o n s corporations have more to f e a r from t h e i r lawyers than they do from the c o u r t s . 94. C o f f e e , supra note 88 at 403; A s i m i l a r view i s expressed by the Law Reform Commission of Canada, supra note 8 at 48. - 219 -95. Coffee, id., at 401. 96. I_d., at 401-402. 97. McAdams supra note 83 at 996. 98. L.H. L e i g h , The Criminal L i a b i l i t y of Corporations and Other Groups, (1977) 9 Ottawa L. Rev. 247 at 293; see a l s o Note, supra note 15 at 363. 99. Corporate executives convicted of c r i m i n a l offences often r e t a i n t h e i r p o s i t i o n i n the corporation or they are h i r e d by the company as a c o n s u l t a n t . See Robert Stuart Nathan, Coddled C r i m i n a l s , (Jan., 1980) Harper's 30; see a l s o C h r i s t o p h e r D. Stone, Where The Law Ends: The S o c i a l Control of Corporate Behavior, (1975) at 47-48; Orland, supra note 87 at 514-515. 100. Supra note 3 at 295. 101. Davids, supra note 87 at 530. 102. M. Green, The Closed E n t e r p r i s e System, (1972) at 175. 103. Supra note 8 at 67. The Law Reform Commission i n F i n e s , (1974) at 34 describes a day f i n e as one which i s determined by the amount earned by the offender. T r a n s l a t i n g a 10 day f i n e i n t o an amount would become an a d m i n i s t r a t i v e matter. 104. C o f f e e , supra note 88 at 413. See a l s o John C. Coffee, J r . , Making Punishment F i t the Corporation: The Problem of F i n d i n g and Optimal Corporation Criminal Sanction, (1980) 1 N. II1. U.L. Rev. 3. 105. Id., (1981) at 420. 106. Id., at 422. 107. Supra note 3 at 284 and 288; Flynn, supra note 66 at 1330. 108 B.C. McDonald, P r i v a t e Actions and the Combines I n v e s t i g a t i o n Act, (1979) i n J . Robert P r i c h a r d , W.T. Stanbury and Thomas A. Wilson, (eds.) Canadian Competition P o l i c y ; Essays i n Law and Economics, (1979) 195; see a l s o Stanbury, supra note 16 at 603-606. 109. See McDonald, j_d., at 201-204. 110. J . Robert S. P r i c h a r d , P r i v a t e Enforcement and C l a s s A c t i o n s , (1979) i n P r i c h a r d , Stanbury and Wilson, supra note 108 at 217. 111. C o f f e e , supra note 88 at 435. 112. Flynn, supra note 66 at 133; McAdams, supra, note 83 at 998. \ - 220 -113. Flynn, i_d_., at 1330. 114. Supra note 3 at 296. 115. Roderick G. Dorman, The Case f o r Compensation: Why Compensatory Components are Required f o r E f f i c i e n t A n t i t r u s t Enforcement, (1980) 68 Geo.  L. J . 1113; and Coffee supra note 88 at 435. 116. Supra note 3 at 298. 117. See C o f f e e , supra note 88 at 434-440 f o r some recommendations as t o how to i n t e g r a t e p r i v a t e and p u b l i c enforcement. 118. For a d i s c u s s i o n of the c o n s t i t u t i o n a l issues see Peter W. Hogg and Warren Grover, The C o n s t i t u t i o n a l i t y of the Competition B i l l , (1976) 1 Can.  Bus. L . J . 197; Bruce C. McDonald, C o n s t i t u t i o n a l Aspects of Canadian A n t i -Combines Law Enforcement, (1969) 47 Can. Bar Rev. 161; and The C o n s t i t u t i o n a l i t y of Federal Intervention in the Marketplace: The Competition Case, (1975) C D . Howe Research I n s t i t u t e . 119. Supra, note 3 at 289; Flynn, supra note 66 at 1333. 120. Supra note 3. 121. The extent of government involvement i n the economy i s discussed by John L. Howard and W.T. Stanbury, Measuring Leviathan: The S i z e , Scope and Growth of Governments i n Canada, (1982) Paper to be published by the Fraser I n s t i t u t e . 122. L e i g h , supra note 98 at 295. 123. Bruce Coleman, Is Corporate Criminal L i a b i l i t y R e a l l y Necessary, (1975) 29 Sw.L.J. 908 at 915; Davids, supra note 87 at 530; Yoder, supra note 53 at 54. 124. W. B. F i s s e , R e s p o n s i b i l i t y , Prevention, and Corporate Crime, (1973) N.Z.U.L. Rev. 251 at 252; Yoder, id., at 54. 125. Supra note 8 at 48. 126. Stone, supra note 85 at 867. 127. I_d., at 867-868. 128. Yoder, supra note 53 at 54. 129. Quoted i n supra note 10 at 573. 130. Brent F i s s e , The Use of P u b l i c i t y as a Criminal Sanction Against Business Corporations, (1971) 8 Melb. U.L. Rev. 107. The merits and weaknesses of p u b l i c i t y sanctions have a l s o been discussed by Yoder, supra - 221 -note 53 at 52, Coffee, supra note 88 at 424, Leigh, supra note 98 at 294, and Dershowitz, supra note 3 at 288. 131. Dershowiz, supra note 3 at 288-289 o u t l i n e s some of the problems a s s o c i a t e d with r e l y i n g on the newsmedia to adequately report on corporate crime. 132. F i s s e , supra note 130 at 109. 133. ^ d . , at 120-126. 134. _Id., at 133. 135. Id., at 139. 136. Id., at 141. 137. I_d., at 149. 138. McAdams, supra note 83 at ,992. 139. Note, supra note 15 at 361; see a l s o F i s s e , supra note 124. 140. Note, j_d., at 372. 141. John Kenneth G a l b r a i t h , The New I n d u s t r i a l S t a te, (1967) at 77; quoted i n John Braithwaite, Enforced S e l f - R e g u l a t i o n : A New Strategy For Corporate Crime C o n t r o l , (1982) 80 Mich. L. Rev. 1466 at 1478. 142. See, f o r example, Robert Martinson, What Works: Questions and Answers About Prison Reform, (1974 35 Pub. Interest 22; and F. A l l e n , The Decline of the R e h a b i l i t a t i o n I d e a l , (1981). 143. Supra note 79. A d e t a i l e d d e s c r i p t i o n of community s e r v i c e orders i s beyond the scope of t h i s t h e s i s . The reader i s r e f e r r e d to F i s s e at 978-990 f o r a d e s c r i p t i o n of community s e r v i c e orders used i n the United Kingdom and recommended by the A u s t r a l i a n law reform commission. Some i l l u s t r a t i o n s are given by F i s s e at 990-1001. 144. Id., at 1004-1005. 145. Id., at 1005-1006. 146. Id., at 1008-1011. 147. J[d_., at 1008-1011; F i s s e a l s o addresses the argument that f i n e s are more e f f i c i e n t than community se r v i c e orders at 1012-1016. 148. Supra note 141. 149. Id., at 1470-1471. - 222 -150. Supra note 81. 151. Id., at 415. 152. _Id., at 417. 153. Canadian Business Corporation Act, S.C. 1974-75, c.33 as amended. 154. Id., s e c t i o n 119(2). 155. Id., s e c t i o n 119(3). 156. O'Hearn v. Yorkshire Insurance Co. (1921), 67 D.L.R. 734. 157. Supra note 153 subsection 119(4). 158. F l y n n , supra note 66 at 1336. 159. Supra note 126 at 875. 160. Michael K. Block and Joseph Gregory Sidak, The Cost of A n t i t r u s t Deterrence; Why Not Hang a P r i c e F i x e r Now and Then? (1980) 68 Geo. L.J. 1131. The authors describe the suggestion as " f a n c i f u l " and use i t i n response to suggestions that since enforcement i s so expensive e f f o r t s should be made to d r a s t i c a l l y i n c r e a s e the f i n e s imposed f o r a n t i t r u s t v i o l a t i o n s rather than to increase the p r o b a b i l i t y of det e c t i o n and convi c t i o n . 161. Supra note 82 at 425. 162. i d . , at 422. 163. i d . , at 458. 164. Yoder, supra note 53 at 56-57. 165. Yoder, i d . , at 57; Charles B. Renfrew, The Paper Label Sentences: An Ev a l u a t i o n , "(1977) 86 Yale L.J. 590, followed by 4 c r i t i q u e s by Donald I . Baker and Barbara A. Reeves, Alan M. Dershowitz, Arthur L. Liman and Stanton Wheeler. 166. Yoder, i_d., at 57. 167. Paul W e i l e r , In The Last Resort: A C r i t i c a l Study of The Supreme Court of Canada, ^(1974) at 19. 168. John Hogarth, Sentencing as a Human Process, (1971). 169. i d . ; see a l s o Sentencing as a Human Process by John Hogarth: I n t e r n a t i o n a l Review Symposium, (1972) 10 Osgoode Hall L . J . 232. - 223 -170. Kenneth Mann, Stanton Wheeler and Austin Sarat, Sentencing the White C o l l a r Offender, (1980) Am. Crim. L. Rev. 479. 172. Id., a t 483-383. 173. _Id., at 486. 174. _Id., at 488. 175. Id., at 488. 176. Id., at 491-496. 177. See f o r example, John C. C o f f e e , J r . , The Repressed Issues of Sentencing: A c c o u n t a b i l i t y , P r e d i c t a b i l i t y , and E q u a l i t y i n the Era of Sentencing Commission, (1978) 66 Geo. L . J . (1979) 975. Coffee's a r t i c l e was c r i t i q u e d by Marvin Zalman, Making Sentencing Guidelines Work: A Response t o Pr o f e s s o r Coffee, (1979) 67 Geo. L . J . 1005. 178. A l b e r t W. A l s c h u l e r , Sentencing Reform and P r o s e c u t o r i a l Power: A C r i t i q u e of Recent Proposals f o r "Fixed" and "Presumptive" Sentencing, (1978) U. Pa. L. Rev. 550. See a l s o Gross and Von H i r s c h , supra note 33 at 303-368. - 2l4 -CHAPTER 7 CONCLUSIONS This t h e s i s does not c l a i m to have found a s o l u t i o n to the Lord Chancellor's f r u s t r a t i o n , as i l l u s t r a t e d by the quotation at the beginning of Chapter 1, in d e a l i n g with corporations i n the l a t e 18th century. The development of corporate law and the growth and s i z e of national and m u l t i n a t i o n a l corporations in the l a s t 200 years would probably leave h i s Lordship more b a f f l e d today than he was then. The mammoth s i z e of c o r p o r a t i o n s today i s such as to make t h e i r impact on economic l i f e h i g l y s i g n i f i c a n t . Laws, which were o r i g i n a l l y designed to f a c i l i a t e the e f f i c i e n t management of economic groups, may have created unruly giants t h a t , i n some cases, are beyond the control of the s t a t e . 1 Corporations are u s u a l l y formed to f a c i l i t a t e the management of economic a c t i v i t y and i t i s g e n e r a l l y assumed t h a t they are p r o f i t o r i e n t e d . Some would say t h a t they t r y to maximize p r o f i t s . However, s o c i e t y must set l i m i t s to the p u r s u i t of wealth by i n d i v i d u a l s and 2 c o r p o r a t i o n s at the u n f a i r expense of others. As F i n n i s s t a t e s , "no one should be able to say that he was u n f a i r l y disadavantaged by being law-a b i d i n g " . The s t a t e which helped to create corporations must control t h e i r a c t i v i t i e s so that they do not take u n f a i r advantages over others. - 225 -The control of economic crime engaged i n by corporations i s t r u l y a multidimensional and m u l t i d i s c i p l i n e problem. It i s necessary to draw from the d i s c i p l i n e s of economics, s o c i a l o r g a n i z a t i o n , criminology, and corporate and c r i m i n a l law in order to evaluate the impact of legal a c t i o n on corporate behavior. The purpose of t h i s t h e s i s was to examine some of the i s s u e s with regard to the c o n t r o l of corporate behavior through the c r i m i n a l law and i t s sanctions. The p r o h i b i t i o n s under the Combines  I n v e s t i g a t i o n Act ("CIA") against c o n s p i r a c i e s to lessen competition unduly and i l l e g a l mergers were used to i l l u s t r a t e problems a s s o c i a t e d with c o n t r o l l i n g c o r p o r a t i o n s . It has been assumed, at l e a s t s i n c e the time of Adam Smith, that the economic well being of a s o c i e t y i s enhanced when p r i c e s are set by highly competitive market forces rather than by i n d i v i d u a l s or corporations possessing the power to do so. However, few people understand the theory behind t h i s statement. Chapter 2 o u t l i n e d some of the economic and p o l i t i c a l arguments concerning the. b e n e f i t s of competition. Competition f o r c e s firms to produce at the lowest p o s s i b l e cost thereby achieving t e c h n i c a l e f f i c i e n c y . Markets which are not competitive can r e s u l t i n a r e d i s t r i b u t i o n of income from consumers to producers and in a dead-weight welfare l o s s due to a l l o c a t i v e i n e f f i c i e n c y . N e i t h e r consumers nor producers w i l l b e nefit from the r e s t r i c t i o n of output and higher p r i c e s which e x i s t in a market dominated by a monopolist. In a d d i t i o n to the economic reasons, p o l i t i c a l reasons f o r p r e f e r r i n g a competitive economy i n c l u d e the d i f f u s i o n of p r i v a t e power and the e l i m i n a t i o n of the need f o r a d d i t i o n a l forms of government i n t e r v e n t i o n . - 226 -In simple terms, competition i s dependent upon a s u f f i c i e n t number of independent firms p a r t i c i p a t i n g in a market so that no one f i r m or a combination of firms can manipulate p r i c e s or volume of production to t h e i r advantage. Competitive forces in the market can be undermined by a s u f f i c i e n t number of firms agreeing t o l i m i t output and t o set p r i c e s to t h e i r advantage. The ease with which firms or corporations coordinate t h e i r a c t i v i t y w i l l depend upon t h e i r number and other market c o n d i t i o n s . An obvious way t o e l i m i n a t e competition i s by t a k i n g a competitive f i r m or a number of such f i r m s . C o n s p i r a c i e s to lessen competition and mergers are two major f o r c e s which i n t e r f e r e with competitive forces i n the market place. Since 1889 and 1910, r e s p e c t i v e l y , Canada has d e a l t with these two a c t i v i t i e s with the f o r c e of the c r i m i n a l law. In the l a t e 1960s and e a r l y 1970s there was a growing concern i n the United States and Canada over l i m i t i n g the use of the c r i m i n a l law. The p r o l i f e r a t i o n of r e g u l a t i o n s and of offences not r e q u i r i n g the t r a d i t i o n a l element of mens r e a , but nevertheless enforced by the a p p l i c a t i o n of the c r i m i n a l law, was probably a major impetus f o r t h i s concern. P r o f e s s o r Packer i n the United States and the Law Reform Commission of Canada both provided a set of c r i t e r i a which should be met p r i o r t o using the c r i m i n a l Jaw to c o n t r o l behavior. In general, they recommended t h a t the use of the c r i m i n a l law be made much more r e s t r i c t i v e . Chapter 3 a p p l i e d these c r i t e r i a t o the p r o h i b i t i o n s against c o n s p i r a c i e s to lessen competition and i l l e g a l mergers under the CIA. - 227 -Moral opprobrium, c l a r i t y of d e f i n i t i o n and the degree of f a u l t required, three aspects of moral n e u t r a l i t y , were used to evaluate the appropriateness of using the criminal law f o r these economic matters. I t was concluded that c o n s p i r a c i e s to lessen competition are morally reprehensible but that they would be more c l e a r l y p r o h i b i t e d i f references to l i m i t i n g competition "unduly" were removed and a per se approach, as i s used i n the United S t a t e s , were adopted. The more recent Canadian j u d i c i a l i n t e r p r e t a t i o n s of t h i s offence have r e s u l t e d i n an a d d i t i o n a l element of i n t e n t . That i s , the Crown must not only prove an i n t e n t to enter an agreement but a l s o the i n t e n t to lessen competition unduly. The d i f f i c u l t y with proving t h i s "double i n t e n t " has the e f f e c t of n e u t r a l i z i n g the moral opprobrium of such p r o h i b i t i o n s . The lower l e v e l of enforcement, which e x i s t s in Canada as compared t o the United S t a t e s , a l s o leads to moral n e u t r a l i t y . L e g i s l a t i o n must be enforced or i t loses i t s moral s t i n g . While c o n s p i r a c i e s serve no useful economic purpose f o r s o c i e t y as a whole and are u s u a l l y detrimental to the economic well being of s o c i e t y , mergers can have a b e n e f i c i a l , detrimental or neutral e f f e c t on s o c i e t y . While the e f f e c t s of mergers are d i f f i c u l t to p r e d i c t , i t i s common ground that whether the e f f e c t s are harmful or b e n e f i c i a l w i l l depend on a host of f a c t o r s , i n c l u d i n g the s t r u c t u r a l and behavioral aspects of the i n d u s t r y . C i v i l or a d m i n i s t r a t i v e law would be more appropriate than the criminal law to c o n t r o l merger a c t i v i t y and could prevent undesirable mergers rather than impose p e n a l t i e s a f t e r the mergers occur. Moreover, such law should be a p p l i e d by an expert t r i b u n a l rather than the c o u r t s . - 228 -The c r i m i n a l j u s t i c e system i s a l s o faced with the struggle between the need to be e f f i c i e n t and the need to respect the r i g h t s of the accused. In an a d v e r s a r i a l system, such as that which e x i s t s i n Canada, the r i g h t not to be c a l l e d as a witness at one's own t r i a l i s viewed as e s s e n t i a l t o the maintenance of the a d v e r s a r i a l process. However, i n q u i s t o r i a l and i n q u i r y powers granted to the D i r e c t o r of I n v e s t i g a t i o n and Research under the CIA and a number of other p r o v i n c i a l and f e d e r a l s t a t u t e s have severely i m p e r i l l e d t h i s r i g h t . While i n d i v i d u a l s in non-adversarial c o u n t r i e s appear as witnesses at t h e i r own t r i a l s without an outcry from c i v i l l i b e r t a r i a n s , the i m p l i c a t i o n s of such a procedure i n a d v e r s a r i a l proceedings should be c l o s e l y studied p r i o r to i t s use. > The i n f l u e n c e which groups have on the behavior of i n d i v i d u a l s can be profound. For example, studies have shown that businessmen take more r i s k s when reaching d e c i s i o n s i n a small group than when a c t i n g alone. The impact of formal groups, l i k e c o r p o r a t i o n s , on the behavior of i n d i v i d u a l s i s p o t e n t i a l l y more powerful than l e s s formal groups. Standard operating procedures or the "way things are done" presuppose that decisions have already been made f u r t h e r up the hierarchy and that i n d i v i d u a l s are h i r e d to carry them out, not to make them or to question them. Chapter 4 examined the nature of o r g a n i z a t i o n a l and corporate behavior. Some of the l i t e r a t u r e on how corporations make, tran s m i t and implement dec i s i o n s was reviewed i n order to understand the nature of corporate behavior and the r e a c t i o n of corporations to criminal s a n c t i o n s . - 229 -Chapter 5 examined the t r a d i t i o n a l approaches to atta c h i n g criminal l i a b i l i t y t o corporations and explored the p o s s i b i l i t y of e s t a b l i s h i n g c r i m i n a l l i a b i l i t y through a s t r u c t u r a l approach. V i c a r i o u s l i a b i l i t y , which holds a corporation l i a b l e f o r the acts of i t s o f f i c e r s , agents and employees, and personal corporate l i a b i l i t y , which imputes the actions and i n t e n t of i n d i v i d u a l s within the cor p o r a t i o n t o the corporation i t s e l f , have c e r t a i n l i m i t a t i o n s . Both require that an i n d i v i d u a l w i t h i n the corp o r a t i o n be i d e n t i f e d as c u l p a b l e . Group i n t e n t , while considered and used i n the United States and i n some c i v i l a c t i o n s i n Canada, has not rece i v e d widespread support. The use of s t r u c t u r a l l i a b i l i t y , or the imposition of l i a b i l i t y when the i n t e r n a l operating procedures of a corporation f a i l to prevent corporate crime, was suggested as a p o s s i b i l i t y which merits f u r t h e r study. Such an approach would f o r c e corporations t o p o l i c e themselves. The present approach, which requires that an i n d i v i d u a l be i d e n t i f i e d as respon s i b l e f o r acts on behalf of the c o r p o r a t i o n , provides the corporation with a motive f o r obscuring rather than c l a r i f y i n g i t s i n t e r n a l operating procedures. The p o s s i b i l i t y of r e q u i r i n g corporations accused of crime to e s t a b l i s h that t h e i r operating procedures were adequate to prevent crime was a l s o considered. It was concluded that corporate l i a b i l i t y should not be pursued at the expense of allowing i n d i v i d u a l s involved i n corporate crime to escape untouched by the fo r c e of the c r i m i n a l law. However, a f u r t h e r study of the impact of t h i s approach on procedural and e v i d e n t i a l aspects of the - 230 -c r i m i n a l law i s needed. The p o s s i b i l i t y of extending l i a b i l i t y to i n d i v i d u a l s who are involved in corporate crime by acquiescence or s e t t i n g unreasonable goals f o r employees should a l s o be s t u d i e d . A one-time neglected aspect of the enforcement of c r i m i n a l l e g i s l a t i o n , sentencing, was examined i n Chapter 6. The j u s t i f i c a t i o n s f o r punishment were examined in l i g h t of j u d i c i a l reasons f o r imposing sentences on corporations f o r c o n s p i r a c i e s to lessen competition. The most frequent reason c i t e d by the judges was deterrence of others who might be tempted t o engage in such behavior. Judges a l s o struggled with the notion of balance, that i s , a concern that p e n a l t i e s should be s u b s t a n t i a l y e t they should not be v i n d i c t i v e . Problems with imposing f i n e s on c o r p o r a t i o n s include the c o n t r o l of a c o r p o r a t i o n ' s a b i l i t y to pass the f i n e on and the p o s s i b i l i t y that a f i n e w i l l destroy a corporation e i t h e r through the i n a b i l i t y to obtain f i n a n c i n g or bankruptcy. The use of an equity f i n e , paid by the i s s u i n g of shares, was suggested as an a l t e r n a t i v e which merits f u r t h e r a t t e n t i o n . Such a f i n e would allow a corporation to continue f u n c t i o n i n g as an economic e n t i t y but could e v e n t u a l l y r e s u l t in c o n t r o l of the corporation being e x e r c i s e d by the s t a t e or by a competitor i f the shares were s o l d by the s t a t e . The t h r e a t of a takeover would probably stimulate a greater concern among managers than a f i n e which r a r e l y causes a r i p p l e i n the f i n a n c i a l l i f e of a c o r p o r a t i o n . Corporate probation, which would allow the court to impose r e s t r i c t i o n s on, or order a l t e r a t i o n s i n , the i n t e r n a l operating procedures of a c o r p o r a t i o n , was a l s o s i n g l e d out as a p o s s i b i l i t y which merits - 231 -f u r t h e r study. Such an approach would i n v o l v e c l o s e r s c r u t i n y of the i n t e r n a l operations of a c o r p o r a t i o n . While the t h r e a t of such an i n v e s t i g a t i o n might possess i t s own deterrent powers, i t should be remembered that e f f o r t s to r e h a b i l i t a t e i n d i v i d u a l s has r a r e l y been s u c c e s s f u l . Community ser v i c e s orders and enforced s e l f - r e g u l a t i o n were al s o considered. While there are s t i l l a l o t of d e t a i l s to be worked out on some of these suggestions, the trend appears to be i n the d i r e c t i o n of f o r i c i n g corporations to p o l i c e themselves. The use of the o r g a n i z a t i o n to combat crime might be a more e f f e c t i v e and more e f f i c i e n t approach to c o n t r o l l i n g corporate crime. This t h e s i s has r a i s e d and examined some of the issues involved i n s u b j e c t i n g corporations to criminal s a n c t i o n s . The s i z e of corporations and t h e i r economic power i n s o c i e t y today makes a comprehensive study of c o n t r o l l i n g them even more urgent today than i t was i n the day of the Lord C h a n c e l l o r who would have p r e f e r r e d a world where corpor a t i o n s were endowed with pants to kick and souls to damn. - 232 -FOOTNOTES 1. Stanton Wheeler and M i t c h e l l Lewis Rothman, The Organization as Weapon i n White-Collar Crime, (1982) 80 Mich. L. Rev. 1403 at 1422 present the argument that "persons who commit offenses under the aegis of an o r g a n i z a t i o n are able thereby to commit crimes of g r e a t e r s o p h i s t i c a t i o n , complexity and magnitude". The problem i s not l i m i t e d to corporations but in v o l v e s other organizations as w e l l . Stone t a l k s about the general " b u r e a u c r a t i z a t i o n of s o c i e t y " as "one of the most s i g n i f i c a n t demographic trends in our century". See Christopher D. Stone, Large Organizations and the Law at the Pass: Toward a General Theory of Compliance Strategy, (1981) 5 Wise. L. Rev. 861 at 863. Another growing concern, which was beyond the scope of t h i s t h e s i s , i s the problem of c o n t r o l l i n g crime engaged in by governments through crown corporations and other government o r g a n i z a t i o n s . While many of the problems with c o n t r o l l i n g such c r i m i n a l a c t i v i t y are the same as c o n t r o l l i n g crime engaged in by p u b l i c l y traded, p r i v a t e l y owned c o r p o r a t i o n s , there are a d d i t i o n a l problems such as sovereign immunity and c o n f l i c t of i n t e r e s t when a government enforces laws against i t s own c o r p o r a t i o n s . 2. John M. F i n n i s , Meaning and Ambiguity In Punishment (and Penology), (1972) 10 Osgoode Hall L . J . 264 at 266. 3. Combines I n v e s t i g a t i o n Act, R.S.C. 1970, C-23. TABLE I THE NUMBER OF CASES, THE NUMBER OF INDIVIDUALS AND COMPANIES CONVICTED, THE NUMBER OF PROHIBITION ORDERS GRANTED IN ADDITION TO FINES, AND THE LARGEST SINGLE FINE IN CIA CONVICTIONS, 1900-1981 1 PERIOD NUMBER NUMBER OF NUMBER OF NUMBER OF LARGEST SINGLE OF COMPANIES INDIVIDUALS PROHIBITION FINE LEVIED CASES CONVICTED CONVICTED ORDERS AGAINST A CORPORATION 1900-1909 1910-1919 1920-1929 1930-1939 1940-1949 1950-1959 1960-1969 1970-1979 1980-1981 41 17 22 13 16 24 147 152 80 14 59 22 NA' NA NA NA NA 14 19 11 $5,000 $2,000 $10,000 $15,000 $20,000 $75,000 $300,000 $115,000 1. Data was p r o v i d e d by Dr. W.T. Stanbury, F a c u l t y of Commerce, U n i v e r s i t y of B r i t i s h Columbia, and W.T. Stanbury, P e n a l t i e s and Remedies Under the Combines I n v e s t i g a t i o n A c t , 1889-1976, (1976) 14 Osgoode H a l l L.J. 571. 2. P r o h i b i t i o n Orders were f i r s t a v a i l a b l e under the CIA i n November, 1952. 33 + FIGURE 1" THE PRICE PAID BY CONSUMERS AND THE QUANTITY PRODUCED PER PERIOD UNDER A COMPETITIVE AND MONOPOLISTIC INDUSTRY WHEN PROFIT MAXIMIZATION IS A GOAL. 0 Qm Qc Quan t i t y Produced Per P e r i o d Pm=price s e t by monopolist; Pc=price s e t i n c o m p e t i t i v e market; LRATC=Long run average t o t a l c o s t ; Qm=quantity produced by monopolist; Qc=quantity produced i n c o m p e t i t i v e markets. FIGURE 2 THE PRICE PAID BY CONSUMERS AND THE QUANTITY PRODUCED PER PERIOD UNDER A MONOPOLISTIC' INDUSTRY WHEN PROFIT MAXIMIZATION IS NOT A GOAL Qm Quan t i t y Produced Per P e r i o d Pm=price s e t by monopolist; Po=price observed i n the market p l a c e ; Pc=price s e t i n c o m p e t i t i v e market; LRATC=long run average t o t a l c o s t ; Qm=quantity produced by a monopolist. Occupation d u r i n g p a s t 10 y e a r s . A. A r t i c l i n g p o s i t i o n ; Mr. L a r r y C r e i g h t o n ; 224 4935 40th Avenue N. 4 C a l g a r y , A l b e r t a ; August, 1980-July, 1981. B. H o l i d a y s ; May, 1980-July, 1980. C. Law st u d e n t ; U n i v e r s i t y of C a l g a r y ; September, 1 9 7 9 - A p r i l , 1980. D. Research p o s i t i o n ; F a c u l t y of Law, U n i v e r s i t y of C a l g a r y ; May, 1979-September, 1979. E. Law student; U n i v e r s i t y of C a l g a r y ; August, 1 9 7 8 - A p r i l , 1979. F. Research p o s i t i o n ; F a c u l t y of Law, U n i v e r s i t y of C a l g a r y ; May, 1978-August, 1978. G. Law student; U n i v e r s i t y of C a l g a r y ; September, 1 9 7 7 - A p r i l , 1978. H. A s s i s t a n t P r o f e s s o r ; Department of S o c i o l o g y , U n i v e r s i t y of A l b e r t a ; May, 1977-June, 1977.^ I. Ph.D. st u d e n t ; U n i v e r s i t y of A l b e r t a ; January, 1976-1979. J . Graduate Teaching A s s i s t a n t ; U n i v e r s i t y of A l b e r t a ; September, 1 9 7 6 - A p r i l , 1977. K. Research p o s i t i o n ; A l b e r t a Board of Review, Edmonton; May, 1976-September, 1976. L. M.A. st u d e n t ; U n i v e r s i t y of A l b e r t a ; September, 1 9 7 4 - A p r i l , 1976 M. Graduate Teaching A s s i s t a n t ; U n i v e r s i t y of A l b e r t a ; September, 1 9 7 5 - A p r i l , 1976! N. Research p o s i t i o n ; Department of P u b l i c H e a l t h , Saskatoon, Saskatchewan; May, 1975-September, 1975. O. Graduate r e s e a r c h p o s i t i o n ; U n i v e r s i t y of A l b e r t a ; September, 1 9 7 4 - A p r i l , 1975. P. Research p o s i t i o n ; Department of P u b l i c H e a l t h , Saskatoon, Saskatchewan; May, 1974-September, 1974. Q. M.A. st u d e n t ; U n i v e r s i t y of Saskatchewan; September, 1973-A p r i l , 1974. R. O p p o r t u n i t i e s f o r Youth; Government of Canada; A p r i l , 1973-August, 1973. S. B.A. (Honors) student; U n i v e r s i t y of Saskatchewan; J u l y , 1970-September, 1973. 31. b) P u b l i c a t i o n s 4 1. W i t h C a r l D ' A r c y , " C h a n g i n g p u b l i c r e c o g n i t i o n o f p s y c h i a t r i c symptoms: B l a c k f o o t r e v i s i t e d . " J o u r n a l o f H e a l t h and S o c i a l B e h a v i o r ( 1 9 7 7 ) , 1 7 ( 3 ) : 302-310. 2. W i t h C a r l D ' A r c y , " P u b l i c r e j e c t i o n o f t h e e x - m e n t a l p a t i e n t : A r e a t t i t u d e s c h a n g i n g ? " The C a n a d i a n R e v i e w o f S o c i o l o g y a n d A n t h r o p o l o g y ( 1 9 7 7 ) , 1 4 ( 4 ) : 68-80. 3. W i t h James H a c k l e r and E v a L u c z y n s k a , "The c o m p a r i s o n o f r o l e i n t e r r e l a t i o n s h i p s i n two j u v e n i l e c o u r t s : V i e n n a and B o s t o n . " I n t e r n a t i o n a l J o u r n a l o f C r i m i n o l o g y a n d P e n o l o g y ( 1 9 7 7 ) , 5:367-397. 4. W i t h C a r l D ' A r c y , " C o r r e l a t e s o f a t t i t u d i n a l s o c i a l d i s t a n c e t o w a r d t h e " m e n t a l l y i l l : A r e v i e w and r e - s u r v e y . " S o c i a l P s y c h i a t r y (1978) 13: 69-77. 5. W i t h James H a c k l e r , " A t t i t u d e s t o w a r d d e l i n q u e n c y by c o u r t o f f i c i a l s : C o m p a r i s i o n s between N o r t h A m e r i c a a n d E u r o p e . " I n t e r n a t i o n a l J o u r n a l o f C o m p a r a t i v e a n d A p p l i e d C r i m i n a l J u s t i c e (1979) 3 ( 1 ) : 1-25. 6. W i t h C a r l D ' A r c y and L o r e t t a Edmonds, " F a c t s o r A r t i f a c t s ? C h a n g i n g p u b l i c a t t i t u d e s t o w a r d t h e m e n t a l l y i l l . " S o c i a l S c i e n c e a n d M e d i c i n e (1979) 1 3 A ( 6 ) : 673-682. 7. W i t h James H a c k l e r , " O p i n i o n - r o l e t y p o l o g i e s f o r c r o s s c u l t u r a l c o m p a r i s o n s o f J u v e n i l e C o u r t s . " J u v e n i l e and F a m i l y C o u r t J o u r n a l (1980) 3 1 ( 4 ) : 61-76. 8. I a l s o r e v i e w b o o k s f o r t h e C a n a d i a n J o u r n a l o f C r i m i n o l o g y . 

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