Author: Regina Paulose
From October 6-7, 2014, the Working Group of Government Experts on Technical Assistance will meet in Vienna, Austria for its 7th session of the Conference of Parties for the United Nations Convention against Transnational Organized Crime (CATOC). The provisional agenda includes a discussion of the “liability of legal persons” which is commonly referred to as corporations.
Corporate liability is currently structured under CATOC 10. Article 10(1) provides that “state parties shall adopt such measures as may be necessary…to establish the liability of legal persons for participation in serious crimes involving an organized group.” Article 10(2) states that such liability may be “criminal, civil, or administrative.” Under CATOC it is therefore mandatory that state parties hold corporations liable in one of these three ways. Further, criminal liability of natural persons is punished in addition to corporate liability/legal persons.
Article 10 in its current form does not give much guidance to a state party looking to hold a corporation liable. The Secretariat discusses some of the Article 10 challenges in its Background Paper. First, a state party must determine what constitutes a “legal person.” This is term is not defined in CATOC. Once a state party has determined what a “legal person” is – how does it exercise jurisdiction over the entity? Next, state parties must determine what forms of liability are most appropriate for these kinds of activities. The Secretariat examines two modes and its sub-categories, nominalist and organizational. The nominalist mode assigns liability to the individual whereas the organizational mode assigns liability to the entity.
The Secretariat also mentions that state parties must evaluate the power it has given to investigative agencies in these cases and whether those powers are effective. As part of this evaluation, state parties must also determine whether separate investigative rules should govern a natural person from a legal person. The same analysis needs to be done for procedural legal rules of natural versus legal persons. Similarly what kind of defenses should be afforded to corporations needs to be examined. Finally, a lingering question remains as to how state parties can effectively sanction corporate perpetrators under CATOC.
Unfortunately, these challenges may result in further paralysis for state parties who have not even been able to implement the fundamental structure of CATOC. One of the biggest reasons is the financial burden states face in order to implement a Convention of this magnitude alongside the Optional Protocols and the U.N. Convention against Corruption. Setting aside this mammoth sized problem for the moment and given the parameters the Secretariat has put in place for the Working Group session; there are related issues to this discussion that should be considered.
State parties need to create and implement robust standards for business formations. There are two examples which organized crime uses for exploitation, shell and front companies. A “shell company” can be used as a front for illegal business and as a shield for illegally acquired monies. Shell corporations/companies are loosely defined as legal entity which “primarily exists on paper,” has no place of business, and has no significant operations or assets. Countries such as the United States, Belize, and Panama have “loose” shell corporation policies which do not comply with international standards. Another example is a “front company” which is a legitimate business but is controlled by organized criminals. A notable example is the Italian mafia’s use of front companies to siphon billions of dollars from renewable energy investments. Preventative measures in this area could go a long way in protecting both the state and the consumer from exploitation. A recent study calls for the G20 to crackdown on “massive financial outflows” resulting from these kinds of business structures.
It is important that the cyber world is integrated into CATOC. The internet allows cyber criminals and corporations to conduct activity that may be heavily regulated otherwise beyond the cyber realm. Further, integrating the cyber world into CATOC would be beneficial for investigations of corporate entities. State parties need to regulate how electronic evidence is retrieved and protected and those interests need to be balanced between corporate entities and law enforcement. Illegal activities in the cyber realm and obtaining electronic evidence could also pose significant jurisdictional issues if not addressed.
Finally, any discussion of sanctions is lacking if it does not address victim reparations. In 1997, jailed mafia informants testified to illegal waste dumping occurring in Naples, Italy. The “triangle of death,” was a result of low mafia bids in order to make millions in transporting waste. The “triangle of death” is so named because of the amount of cancer clusters forming in the area. So far Italy has ordered its army to patrol the areas to prevent further dumping and there has been no mention as to whether the communities will receive assistance or compensation. It is important that sanctions placed on entities place addressing victim rights as a priority.
The Working Group session on this particular topic is important. It will go a long way if it provides all states with practical means of preventing corporations from working alongside or engaging in organized crime.
 UNODC, UNTOC Legislative Guide, para 252-253, http://www.unodc.org/pdf/crime/legislative_guides/Legislative%20guides_Full%20version.pdf
 Ibid, para 254
 An example of a country which struggles financially, despite cooperation, is Malawi, see McSyd Chalunda, “Corporate Crime and the Criminal Liability of Corporate Entities in Malawi” Resource Material Series No 76, http://www.unafei.or.jp/english/pdf/RS_No76/No76_08PA_Chalunda.pdf
 Department of Justice, Statement for the Record of Jennifer Calvery, “Combatting Transnational Organized Crime: International Money Laundering as a Threat to Our Financial Systems” February 8, 2012, p.4, available at: http://www.justice.gov/ola/testimony/112-2/02-08-12-crm-shasky-calvery-testimony.pdf
 Ibid p. 5