FAQs on Corporate Death Penalty Legislation
Last updated June, 2003 (do not quote data as current)
Based on material developed in support of the Corporate Three Strikes Act introduced in California in 2003.
Q. Why do we need a 3 strikes law for corporations?
A. We should demand accountability for all criminals, corporations as well as individuals. As it is now, some corporations get away with repeatedly breaking the law simply treat tax-deductible fines and settlements as another cost of doing business. This not only hurts the general public but creates an disfunctional business climate where law-abiding corporations are at a disadvantage.
Q. Is corporate lawbreaking really a big problem?
A. Yes. Statistics show that corporate law violations cost society at least $2 trillion dollars a year, contrasted with only $17 billion for personal and household crimes by individuals.
Q. What counts as a "strike" against a corporation?
A. A major violation of any federal, state or local law in the United States. A "major violation" is intentional or grossly negligent ans has resulted in a fine or settlement of at least $1 million, or in a death. If a corporation has three of these major violations in a 10 year period, it's charter is revoked.
Q. For what kinds of crimes are corporations heavily fined?
A. In a list of the 100 top criminal corporations (by journalists Russell Mokhiber and Robert Weissman), the most prevalent fines were: environmental crimes such as toxic pollution; food and drug violations, fraud, bribery, wrongful death of community members, of employees and for illegal agreements.
Q. What kinds of corporations cause these crimes?
A. Oil, pharmaceutical, airlines, chemical, food, photographic, insurance and financial are some of the top recidivists.
Q. Why set the fine at $1 million? If it were lower, you could catch more violators.
A . One million dollars is a reasonable number chosen to protect the public against the biggest offenders. The Act is a reasonable measure to provide a meaningful deterrent to the most serious corporate crimes.
Q. Why not cover violation of laws in foreign countries, since many of abuses by out of state corporations are inflicted on victims overseas.
A. It is just too difficult to determine the facts of violations that occur abroad, or to get a stable measurement of a "million dollar violation" in fluctuating foreign currencies. Remedies for foreign abuses must come from the foreign nations themselves and from international law.
Q. Why put a corporation out of business when you could just increase the fines it has to pay?
A. Time and again, corporations have shown that fines just become another cost of doing business. In fact, most fines and court settlements are actually tax deductible as business expenses. This act is not retroactive, so it may never put any corporation out of business. Hopefully, the threat of being put out of business will prove a meaningful deterrent to repeated criminal behavior an dcorporate crime will decrease.
Q. Isn't it too drastic to put a corporation out of business?
A . Not at all. The citizens of California like those of every other state have always had the legal authority to set the conditions on which companies may incorporate or do intrastate business, and to withdraw that authority when the companies violate the conditions. In the words of the California Supreme Court, a corporation is but a creation of the law, if it disobeys the law, may be dissolved.
Q. What will happen to the jobs, goods and services provided by a corporation if it is denied permission to exist in California because it is a 3 strikes offender?
A. if there is a market, the jobs, goods and services will be replaced. Productives assetts will not go unused. If a California company is dissolved by a court under the Act, the Act requires the judge to specifically issue orders to ensure that jobs and wages are not lost in the transition to new companies.
Q. Won't corporations see this Act as unfriendly to business and punish California by pulling out of the state?
A. California has the 5th largest economy in the world -- larger than all but 4 nations -- so few companies can afford to ignore it. If any corporations managers were so threatened by the prospect of having to obey the law, do you really want them operating in your state? Ethical law-abiding companies will welcome the chance to compete in a huge, clean market.
Q. What happens to out-of-state companies that are 3-strikes offenders?
A. The Secretary of State, after holding a hearing, will disqualify them from transacting in-state business in California. For example, a company chartered in Delaware that has offices, employees and stores in California, would have to sell them to others or close them. Its operations would be bought by others or taken over by competitors. If, however, the out-of-state company merely sends goods or makes sales in California without a significant physical presence here (for example, by mail or Internet), it can continue to do so. Iinterstate commerce is governed by federal, not state, law.
Q. What happens to California companies that are 3 strikes offenders?
A. Companies whose home of incorporation is California will be dissolved after a court hearing before a judge. This is nothing new. The same thing sometimes happens now in the familiar bankruptcy proceedings as well as in suits for involuntary dissolution brought by shareholders or the Attorney General.
The court has power to appoint a receiver to manage the business and preserve its property while arranging for it to be sold to others. The Corporate 3 Strikes Act strengthens this by requiring the judge to specifically issue orders necessary to ensure that jobs are not lost, to protect the local community and shareholder interests (though they may suffer significant losses).
Q. Doesn't this give an additional responsibility to the Attorney General and the Secretary of State to enforce this law?
A. No, they already have the responsibility to stop criminal corporations from doing business in California, but they seldom fulfill that responsibility. The Act will require that they do.
Q. Won't the Secretary of State and the corporations have more paperwork if the companies need to report their fines, penalties and settlements each year to the Secretary of State?
A. For affected corporations, a small amount of paperwork will become necessary. The Act requires that they file disclosure forms electronically with the Secretary of State, who will then post them online. The benefit to the citizens is well worth this small effort.
In a time when there are comprehensive computer databases for personal violation records such as unpaid parking tickets, there are no official, comprehensive lists of corporate crimes anywhere. Citizens have a right to know which corporations are violating the law.
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