Corporate Criminal Liability based on Economic Analysis of Law

Zulkarnain

, I Nyoman Nurjaya

, Bambang Sugiri

and Ismail Navianto

Faculty of Law Brawijaya University Malang, East Java, Indonesia

Keywords: Law Enforcement, Corporate Crime, Economic Analysis of Law.

Abstract: Corporate crime is an extra ordinary crime that must be eradicated by extra ordinary efforts. However, the

effort is not directly proportional to the criminal law policy which is the basis of law enforcement. The

Indonesian Criminal Code, only recognizes natural persons as criminal law subjects who are criminally

justified, and does not recognize corporations as criminal law subjects. Corporate criminal liability and

punishment in Indonesia's are criminal law system still refers to the paradigm that puts people as

perpetrators of crime. So although it is clear that the perpetrator of the crime is a corporation, but the

responsible is natural person. The main problem is that up until now law enforcement against corporate

crime has not been able to deter the perpetrators / corporations, or has not been able to effectively cope with

corporate crime. Criminal threats as regulated in Indonesia's criminal legislation are not feared by

corporations (corporate criminals) because they are very weak in their application. Renewal of the

punishment model for corporate criminals is very urgent to put forward, as part of corporate criminal

liability.

1 INTRODUCTION

The development of human civilization does not

always bring any changes for a better condition, but

also for the development of various forms of crimes,

where the human/community is growing fast, the

crimes in the community are growing rapidly as

well. The development of crime can not be separated

from the development of society itself. Likewise,

corporations actually give many positive

contributions to the development of a country,

especially in the economic field. It turns out that on

the other side, corporations also often create

negative impacts, such as pollution, depletion of

natural resources, fraudulent competition, tax

manipulation, exploitation of workers , producing

goods that are harmful to the users, as well as fraud

to consumers fraud, and other forms of actions

constituting corporations’ crimes / criminal acts .

A very great corporate power gives a major

influence to the lives of the people, from the womb

to the grave. Our lives can not be released and

controlled by corporations. Corporate crime can

deplete natural resources, human capital, social

capital, even institutional capital. Corporations could

undermine confidence in the government's functions

and establish a democratic manner. Corporations

spend millions of US dollars in the forms of

company contribution, in order to receive

government subsidies, debt relief and tax (

Arief,

1996). This means that corporate crime has become a

very scary thing.

Therefore, the idea of criminalizing the

corporation through the criminal policy is

intensified. Even since the congress of the 5th

United Nations on Crime Prevention and

Development of Offenders, held in Geneva has

given recommendations to expand the notion of

crimes against 'acts of abuse of economic power

against law (illegal abuses of economic power)

(Susanto, 1998), such as violations of tax laws,

labor, environmental pollution, consumer fraud,

fraud in the marketing and trading by trans-national

firms.

Due to some juridical-normative weaknesses of

the Indonesian Penal Code, some efforts have been

made to renew the Criminal Code as part of a

comprehensive reform of the national laws. The

reformulation efforts have been initiated and carried

out intensively since 1964, although it has never

been free from the influence of political,

sociological, and philosophical as well as practical

considerations as the reasons to implement such a

legal reform in Indonesia (Assiddiqie, 1995).

Therefore, it is necessary to make a research on

what might be causing the law to be ineffective.

Sentencing policies and corporate responsibility in

Zulkarnain, ., Nurjaya, I., Sugiri, B. and Navianto, I.

Corporate Criminal Liability based on Economic Analysis of Law.

DOI: 10.5220/0009923811331139

In Proceedings of the 1st International Conference on Recent Innovations (ICRI 2018), pages 1133-1139

ISBN: 978-989-758-458-9

1133

the perspective of the criminal law policy in

Indonesia based the economic analysis of the law

should also be studied in the hope that it may reveal

the legal issues related to corporate responsibility.

Corporation criminalization should not sacrifice

the economic interests of insane labor community

and really consider its cost and benefit in the

stability of macro and micro economics. Therefore it

is necessary to make a criminological study and an

economic analysis of law. This study will aim to

examine and present a new concept of criminal

sanction and of criminalization for the doers of any

corporation crimes that which better insure social

and economic justices for all people.

The legal problems to be philosophically

explored are as follows: (1) describe philosophical

basis that the corporation must be accounted for and

convicted of criminal offenses committed by and / or

for the corporation and (2) provide model is used to

determine the conversion of criminal sanction on the

corporation liability based the economic analysis of

law.

2 METHOD

This study was designed as a normative legal

research, more specifically the study of criminal law

and economic law. Where will examine the urgency

of corporate punishment and the regulation of the

criminal model by using economic analysis of law.

Because that is normative legal research, the

approach method used in this research is statue

approach, historical approach, comparative

approach, and conceptual approach.

Statue approach is used to examine juridical-

normative provisions relating to corporate criminal

law provisions. Historical approach is used to trace

and analyze the legal principles of corporate

criminal liability that have been applied, are still

valid, and have been applied in several jurisprudence

in Indonesia. Comparative approach is used to

analyze the points of differences and similarities

between common law systems and civil law systems

and Islamic law systems. While the conceptual

approach is used to analyze the concept of

criminalization of corporate crime and the concept

of corporate punishment.

The results of the study are based on the results

of primary legal materials and secondary legal

materials. Primary legal materials such as the

Indonesian Criminal Code as lex generalis and

various laws outside the Criminal Code as lex

specialis. Whereas secondary legal materials in this

study include writings or expert opinions contained

in various literature such as text books, theses,

dissertations, and scientific journals. The legal

materials collected are analyzed using a theory or

concept that is determined. Furthermore, the legal

material was analyzed by using deductive-inductive

thinking method in accordance with the character of

legal reasoning, using a descriptive-prescriptive and

comparative method of "normative qualitative

analysis" with a starting point on the work of

"juridical construction" about the criminal liability

of corporations.

3 FINDING AND DISCUSSION

3.1 Corporation and Corporate Crime

Corporation is a term commonly used by experts

on criminal law and criminology to refer to what

exists in other fields of law (in particular in the field

of civil law), called a legal entity (recht persoon).

Since a legal entity is created by the law, then,

except its creation, its death is also determined by

the law. While Marshall B. Clinard give provide

some traits to an entity said to be corporation: it is an

artificial legal subject, it has unlimited life span, it

obtained the power to perform certain activities, it is

owned by the shareholders, the shareholders are

merely able to the shares they possess (Susanto,

1995). And Ronald A. Anderson, Ivan fox, and

David P. Twomey concluded that "The corporation

is as a legal person.

Dealing with corporate crime, Simpson stated

"corporate crime is a type of white-collar crime".

Simpson, then cites the opinion of John Braithwaite,

which defines corporate crime as "conduct of a

corporation, or employees acting on behalf of a

corporation, the which is proscribed and punishable

by law". Clinard and Yeager (in the Vedas, 1993: 3),

give the sense that "a corporate crime is any act

committed by the corporation that is punished by the

state, regardless of whether it is punished under

administrative, civil, or criminal law".

Theoretically, the causes of such a corporate

crime can be seen from various aspects of the legal

system,(Mersky and Dunn, 2002) namely: firstly, if

it is examined from the legal substance, corporate

crime is very significantly correlated with the

absence of legislative policy (criminal justice

system) in Indonesia governing the corporate crime

explicitly. Criminal system and criminal liability in

criminal law positively adopted in Indonesia are still

focused on natural persons (natuurlijke person). So

that the corporate crime is still not considered as a

'serious crime'.

In China, even in some developed countries too,

as shown by Zhang’s publication (Yingjun, 2012),

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1134

the case also happens in that way: hat there is a

deficiency of various policy legislations in

regulating the criminalization of corporate crime and

accountability system. Even some substantial

ambiguity is found in some products related to laws.

In Indonesia, the ambiguity is not only at the level of

its legal interpretation, but it is rather contradictory

between the Criminal Code as a holding corporation

and provisions in the criminal law in some laws

outside the Criminal Code.

Secondly, the structure of the legal context

seems to show some ignorance of the law

enforcement agencies on aspects of corporate crime

and criminal liability for corporations. The structure

of law enforcement is still very conventional in

interpreting legal subjects. Since it is considered that

the subject of criminal law is only natural person, it

is the only human persona who is considered to have

mensrea.

Thirdly, from the aspect of legal culture, it is

shown that the issue of Corporate Social

Responsibility (CSR) and Corporate Criminal

Responsibility (CCR) has not yet become an integral

part of the perspective and and culture of the

corporate work existing in Indonesia.

3.2 Criminal Policy about Corporate

Crime

On the other hand, regarding the criminogent

factors of criminal acts made by corporations,

perhaps it needs to be associated with the opinion of

Lord Acton who once declared that "growing niche

power to corrupt and absolutely power corrupt

absolutely". It is clear that the corporation is closely

related to power. Power in this context is not only

defined as a state power, but the power of a

particular organ which has the power to control

anything. Even David C. Korten (1997) once wrote a

report on the results of his study of the corporation,

in which he revealed that now the corporation has

ruled the world. If it is associated with Acton’s

above statement, then when the corporation has

mastered the world also some irregularities

committed by the corporation will appear. This was

further exacerbated by a condition that the

corporation is intentionally set to benefit as much as

possible with the smallest cost.

The main punishment that can be imposed on the

corporation is simply fine crime (fine), but when a

sanction is imposed in the form of corporate

closures, it is basically a "corporate death penalty".

Meanwhile sanctions in the form of restrictions on

the corporation’s activities, are then tantamount to

imprisonment or confinement. Additional penalty

can still be imposed, even additional punishment in

the form of the announcements of the judge's

decision is a sanction which is greatly feared by any

corporation (Brickey, 1995).

However, remembering that corporations are

employers, then the application of sanctions of

closing the corporation should be carefully and

cautiously considered. Impacts of such a sanction

against the corporation can impinge on people who

are innocent, such as workers, consumers,

shareholders and so on. Conversely, if the crime

committed is very heavy, then in various countries,

it is considered to implement the announcement of

the verdict (adverse publicity) as a sanction for

corporate costs, because the impact to be achieved

not only on the financial impact, but also a non-

financial one.

If it is associated with the theory of Marc Ancel

and confirmed by Peter Hofnagels (Hofnagels, 1969)

it is obvious that a legal system will affect the law

enforcement in achieving the goals of the law itself.

The theory can be described as follows:

Figure 1: Integrated Criminal Policy Concept

From the scheme above it is clear that the policy

of crime prevention (criminal policy) is a sub-system

of social policy that can be done through two

approaches, criminal law (penal) and non-penal.

Meanwhile, with respect to the above scheme,

Hofnagels also provides a related scheme as follows:

Corporate Criminal Liability based on Economic Analysis of Law

1135

Figure 2: Criminal Policy as Part of Law Enforcement

Criminal policy or crime prevention policies

according to the above two scheme it is very

decisive and is determined by the law enforcement

policy. So that any law enforcement against

corporate crime will not be effective if they are not

progressive crime prevention policies. A

fundamental question in this case is that ‘how is it

possible to prosecute corporate crime and corporate

crime of t the perpetrator is not recognized as

subjects of criminal law by the criminal law itself?

In Malaysia, where the criminal law is more

backward than that in Indonesia, but it rather more

developed in the implementation to respond to

developments in the crime, including corporate

crime. Great changes have taken place in Malaysia,

most of which has some implications on the

collective endeavor of the components of society

and partly because of other development-mutatis

mutandis that has brought great improvements in

various aspects of social life and law in Malaysia

(Yaqin, 2002).

3.2 Economic Analysis of Law in

Corporate Criminal Law

An economic analysis of this criminal law emerged

in 1764 when Cesare Beccaria published a book

entitled On Crimes and Punishments. According to

him, the imposition of criminal sanctions should be

designed (designed) to a certain level to eliminate

the advantage obtained by the offender (Hylton,

1998). Beccaria’s thinking about this criminalization

then influence not only to famous thinkers of

utilitarianism school, Jeremy Bentham, but also

lawyers and experts in criminal law at the time. The

most amazing thing is that the concept of

punishment offered by Beccaria changes the

perspective of criminal law in European countries

with a greater emphasis on criminal

individualization.

In the subsequent development, the concept of

Beccaria was stagnant and a new life was obtained

in the early 60s after Calebresi and Ronald Coase

published their essay on unlawful acts (torts) and

social costs (social costs). The second paper was the

first attempt how to apply an economic analysis of

law (Posner, 1998). This economic analysis of law is

growing after Garry Becker was related it to the

issue of crime, racial discrimination, and so forth

(Cooter and Ullen, 2002).

In connection with the crime and the criminal

act, an economic analysis (empirical economics) at

least gives three important contributions, namely;

first, the economy provides a simple model of how

individuals behave before the law, which are more

specifically to analyze how the individual responds

to the presence of criminal sanctions. Most of us do

the best of what we have, or in the language of

economics, we maximize the advantages in doing a

particular activity. Second, the economic is

relatively rigid in doing empirical analysis. The

main priority in the empirical economic analysis is

to distinguish between relation and cause. This is

because economists assume that the Men in their

behavior is rational and they have specific purposes.

Third, the economy provides a clear metric in

evaluating the success or failure of a policy of

criminal law. In this case, the normative criteria used

is efficiency, and efficiency itself has implications

for optimal enforcement. In practice, this view is

implemented in the form of a comparison between

the costs and benefits of a policy (Miles, 2005).

In general, it can be said that the main principles

used to understand the economic analysis of criminal

law are rationality and efficiency. The principle of

rationality contains an understanding that human in

performing a particular activity, including crime,

think rationally with the main objective to maximize

the expected profit/utility (Hovenkamp, 1992). What

is meant by rationality here is to choose the means

which are the best for voters’ purposes (Posner,

1998). For example, someone who wants to keep

warm when the winter comes will compare all the

means that can be used to create warmth in relation

to costs. The means that needs the least costs will be

chosen as a means to realize the warmth.

The concept of rationality is actually derived

from a micro-economics theory, a rational choice

theory. This theory is related to a number of

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assumptions about how The people respond to

incentives. The use of this theory is very important

in relation to the interaction between the rule of law

and society. This is because the law was not present

in the vacuum chamber. The presence of the rule of

law will impact on a person's behavior (Korobkin,

2000).

Definition of rationality (rational choice) itself is

not a single sense, meaning that there is no notion of

rationality that is widely accepted. Russel B.

Korobkin and Thomas Ullen argue that there are at

least four notions of rationality. First, a man is a

rational maximized of his ends Rationality here is

not being followed by what means are used to

maximize its objectives (profit). The term this

rationality coined by Richard Posner is the weakest

and the most general term. Second, the term

rationality is conceived with the expected profit.

This term according to Ali (2008), is more

powerful than the first, because it has to specify the

means by which the offender will realize / satisfy the

objectives and preferences. If the concept of

rationality above is associated with criminal law, the

assumption being born is that offenders are rational

economic beings who weigh the costs of doing evil

with the benefits to be gained. When profits are

greater than the costs incurred, the offender will

commit a crime (Miles, 2005). Conversely, if the

benefits are smaller than the costs, the perpetrators

would be deterred for committing a crime. In other

words, individuals behave rationally to maximize

benefit they get (individuals behave rationally to

maximize Reviews their utility).

Cost-benefit analysis is very important in relation

to the effort of preventing crime which also closely

related to the allocation of the available budget,

while the cost-benefit analysis is also concerned

with how many resources should be allocated to

tackle the crime. Gary Becker (Barnes, 1999)

presents his thinking with regard to the concept of

rationality with criminal law, namely the optimal

criminal justice policy.

Another principle of economic analysis of

criminal law is the efficiency which implies the

savings or implementation in accordance with the

objectives. Efficiency is related to the goals and the

means used to achieve the goal. If the tool to achieve

costs higher than the goals attain, then it is said to be

inefficient. Conversely, if the use of facilities need

less costs compared with the objectives to be

achieved, then it is said to be efficient.

3.4 Economic Analysis of Law and

Optimalisation of Criminal Law

Enforcement

The main principle in the optimal criminal law

enforcement is based on the idea of maximizing

social welfare (to maximize social welfare) as stated

by Garoupa. Whereas the Government in designing

policies, including policies prohibiting certain acts

(in abstracto), must pay attention to maximize

benefits to be obtained. In the context of the

economic analysis of criminal law, social welfare

can be reached by taking into account the amount of

benefits obtained the perpetrators from doing

prohibited acts reduced by any losses caused by the

act, and any expenses incurred in the context of law

enforcement.

Losses due to criminal acts include social losses

incurred, costs to be incurred by potential victims to

take precautions to avoid becoming a victim, and

that loss is directly experienced by the victim

(Garoupa and Klerman, 2002). Meanwhile, the costs

of enforcement of criminal law the costs of

prevention, disclosure, arrests, and the imposition of

criminal sanctions. They must be measured and

compared to the amount of its profit obtained by the

perpetrator in doing a criminal act.

If the losses due to crime (after refundable) and

the costs to be incurred by the government to tackle

the crime through law enforcement officers are

greater than the amount of profits earned from the

perpetrator of a criminal act, then the optimization of

law enforcement will not be realized. Therefore,

what needs to do is to use other instruments in

preventing the crime occurred. In other words, deeds

to be banned and it costs law enforcement when

violations is greater than the benefits to be obtained,

should not be prohibited and dealt with criminal law

instrument.

Dealing with the economic analysis with regard

to the principle of efficiency if it is related to the

imposition of criminal sanctions for the perpetrators,

the first to consider is the forms of criminal

sanctions available to be inflicted upon him.

Criminal penalty, which is a form of financial

sanctions (monetary sanction), is an efficient

punishment because it does not cost anything; it is

only concerned with the obligations of the offender

to pay a sum of money to the State. The State itself

does not pay anything when sanction is given.

Therefore, the efficiency of the penalty is no doubt

in the economic analysis of criminal law.

However, to determine that criminal sanctions of

fines is said to be efficient and to prevent the

Corporate Criminal Liability based on Economic Analysis of Law

1137

perpetrator to commit the crime, depends on five

factors (Shavell, 1985); First is the assets owned by

the perpetrator. The smaller the wealth (assets), the

less the existence of criminal penalties in preventing

the perpetrator to commit the crime; second is to

allow the offender not to sanctioned. The higher the

possibility, the higher criminal sanctions are

imposed to prevent crime; third is the level of profits

obtained from committing the crime; fourth is the

possibility that criminal offenses will result in

losses; and fifth is the amount of loss incurred.

Judging from the theory of punishment,

economic analysis is appropriate to use the theory of

early prevention deterrence . The assumption of this

theory according to Barnes (1999) is that humans are

rational beings. The implication is that when a

person commits a crime, the criminal sanctions

imposed shall exceed the seriousness of the crime.

Prevention theory in question is a general prevention

(general deterrence) and is not special precautions

(special deterrence). The imposition of criminal

sanctions is aimed at preventing a person or other

person / people to commit crimes. Criminal

sanctions are imposed so that the perpetrators and

others do not do the crime, because if that's the case,

criminal sanctions will be imposed for the second

time.

Economic analysis of criminal law as described

above, may only be able to prevent crimes related to

the economy. That is, the motive of the perpetrators

of crimes is to get economic benefits like corporate

crime which is the focus of this study. As for any

crimes that are not economically motivated, an

economic analysis of criminal law is difficult to

apply.

4 CONCLUSIONS

The recognition of corporations as the subject of

criminal law is based on the reasons that (a) the

execution of administrators is not sufficient to

repress the offenses committed by or with a

corporation. So it is necessary to punish

corporations, corporations and administrators, or

administrators only; (b) in socio-economic life,

corporations are increasingly playing an important

role; (c) if the criminal law is only determined on the

individual side, then the purpose of the community's

pervasion is ineffective, therefore there is no reason

to always suppress and oppose the corporation's

punishment; (d) corporal punishment is one of the

attempts to avoid punishment of the corporations

themselves.

The criminal liability system adopted by

Indonesia's positive criminal law tends to use the

doctrine of identification theory and the doctrine of

delegation. Where in addition to looking at the error

location of the manufacturer also pay attention to

from where the source of acting authority is owned.

Implementation of law enforcement against

corporate crime perpetrators in Indonesia, should use

economic analysis approach to law. So criminal

liability to corporations can further realize social

justice and economic justice

ACKNOWLEDGEMENTS

This paper is part of the results of the analysis of

dissertation research, conducted to obtain a doctoral

degree in Brawijaya University. The program is

implemented on a scholarship from the Ministry of

Research Technology and Higher Education

(Kemenristek-Dikti). Therefore, we would like to

thank all parties who have supported this program.

They are: Kemenristek-Dikti, Doctoral Program of

Law Science, Faculty of Law Brawijaya University,

Promotor and co-Promotors, University of

Wollongong, New South of Wales, Australia, and

Faculty of Law University of Widyagama Malang.

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