Introduction
May The Officers Of A Corporation Be Held Liable For Crimes? In an era of an ever-expanding globalized market and capitalist economy, corporations take up more active roles in legal battlefields. They have increasingly been at the forefront of many legal issues, partly due to the significant role they play in building the economy but also because of the unique nature of their existence.
In the eyes of the law, corporations are persons much like ordinary humans who have rights and concomitant obligations. They can demand that a duty be performed and can likewise be made answerable for any wrong.
Therefore. corporations have juridical personality, and they are regarded, under the law, as juridical persons. Hence:
“The following are juridical1 persons:
“(1) The State and its political subdivisions;2
“(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon as they have been constituted according to law;2
“(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member.2
However, unlike natural persons, corporations come into existence through the operation of the law. There is no presumption of its existence, unless the requisites provided by the statutes are complied with. Nevertheless, once a corporation is deemed to exist, it enjoys every right accorded to it by the statute creating it.
Naturally, in dealings between or among corporations and/or individuals, conflicts are bound to exist. Being deemed as persons under the law, corporations can also be held responsible for certain infractions or unlawful acts.
A question arises, nevertheless, since corporations are composed of many individuals like stockholders, officers, and directors, how can they be prosecuted? Can you arrest an intangible being who does not have a physical manifestation like ordinary natural persons?
This is what this article will try to answer. This will shed light on the concept of corporate crimes, and how can the State hold corporations liable.
Generally, “corporate crimes” are those offenses committed by a corporation or by individuals acting on behalf of a corporation.
As there is no standard definition in this jurisdiction, it may refer to any offense that a particular statute prohibits or a failure to perform an act which is commanded by law; yet, the perpetrator is a corporation, a juridical being, which exists mainly only in contemplation of the law.
In other countries, corporate crimes are also defined as white collar crimes since most of those who commit it are white collar professionals. This may include fraud, private corruption, corruption of a public officer, fraudulent financial reporting, money laundering, tax evasion, and forgeries.
When the law requires a corporation to perform a particular act, failure to perform may constitute an offense. The question remains, how can you charge a corporation for a certain crime that has been committed?
This is done by simply filing a criminal information against the officers and directors of the corporation who are criminally liable there for, as they are the ones who actively acted and perpetrated the said punishable acts. This is because a corporation can only act through its officers and agents.
A corporation can only be adjudged monetarily, such as impositions of fines. Although apparently, the corporation has committed a corporate crime through its active corporate officers, it cannot be incarcerated since corporeal punishment cannot be be inflicted.
Similarly, when the law prohibits an act, a corporation [monetarily adjudged i. e. fines] and its officers are criminally liable for anything in contravention of a specific prohibition of law.
May the officers of a corporation be held liable for crimes?
Crimes have consistently become more complex and sophisticated. Interactions between local and foreign markets have bridged gaps which were previously insurmountable. In the same vein, crimes have become easier to commit because of these interactions.
Today, many legislations have been crafted to address these offenses. Laws have made both the corporations and its officers liable for acts that are considered reprehensible against public policy or convenience.
Labor laws hold both corporations and officers for offenses like illegal recruitment, human trafficking, and violations of labor practices. They are, in fact, solidarily liable with each other.
Anti-money laundering laws have also been enacted to prevent the spread and circulation of money derived from unlawful activities.
Corporations are also used as conduits to perpetuate this offense which is why laws have deemed it wise to hold them responsible if found guilty of committing it.
Businesses are now more prone to economic sabotage due to increasing competition. The opening up of corporate status to one person corporations have allowed more to venture in the free market.
More and more entities are now encouraged to incorporate. This could potentially give rise to pyramid scams and other fraudulent organizations posing as legitimate business interests.
In the field of intellectual property, the proliferation of products and brands used by newly formed corporations tend to increase litigation in copyright, trademark, and patents. Intellectual property laws also criminalize certain acts that are inimical to business and development.
Will the officers of a corporation be held liable for certain unlawful corporate acts or so-called corporate crimes?
The principle of separate juridical personality is a mantle that protects the officers and agents of a corporation from being held answerable for the acts of the corporation. A corporation, as an artificial being, has a separate and distinct personality from the people that compose it.
Simply put, since they are separate and apart from one another, one cannot be prosecuted with the other. Clearly, this opens the floodgate to abuse and criminality.
If the officers cannot be prosecuted for the crimes held by the corporation, how can accountability and responsibility be exacted from the corporation?
This is what the laws are trying to prevent from happening, to fill up the vacuum between law and justice. Since corporations can only act through its officers, it shall be rightfully just and proper to hold the officers equally responsible.
Courts have adopted several principles of equity found in common law jurisdictions. One of which is piercing the corporate veil.
It is used when the court believes that the separate juridical personality of a corporation is being used to defeat public convenience or to do a wrong.
Normally, however, this is applied in civil cases only because this is an equitable principle, such as when the law does not specifically provide for a sanction but the court may temper the application of the law according to fair play.
In criminal cases, we adhere to the principle of nullum crimen sine lege. Since penal laws provide for punishment, an act should be clearly defined as a criminal act and should have equal sanctions.
In corporate crimes, a corporation may be charged of an offense but it should clearly be provided for in the statute books.
Moreover, a director or officer of a corporation can only be held accountable for an offense if there is a particular provision of law making the director or officer liable otherwise no sanction can be validly meted against the officer.
Being a corporate officer per se cannot be the basis for punishing them despite the corporation being liable for some felonious act.
However, as a rule, corporate officers, including directors, can be held liable for corporate acts that are unlawful, or the so-called corporate crimes, if the statute itself pierced the corporate veil by specifically naming the said officers criminally responsible.
What are some examples of corporate crimes?
The examples of corporate crimes are the following:
One common instance of corporate crime is money laundering. Money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources.
It is committed3 by the following:
a] Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or;4
b] Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above;4
c] Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.4
Reference is made to the Anti-Money Laundering Law and its amendments:
The usual scheme of corporations when committing money laundering is when they circumvent the required documents by Securities and Exchange Commission, then they will commingle the illegal funds with the legitimate funds.
Next, the tax evasion. The corporation as a juridical being is subject to tax, the same as other individual taxpayers in the country. Hence, they can also commit the crime of tax evasion just like any taxpayers.
Tax evasion is committed when the corporation willfully uses illegal means and methods to get away with taxes or at least lower the amount of taxes that they will pay to the detriment of the State.
The act includes lowering the reported income, not recording sales transaction, or hiding other accounts through the use of other business entity or individuals, among others. The company could also deposit their money in offshore banks.
The law imposes stricter penalty for this kind of violation. The TRAIN law8 now imposes, P500,000 and P10 million fine for those who committed tax evasion, much bigger than the previous P30,000 to P100,000.
In addition, a longer imprisonment time which ranges from six to 10 years as compare to previous two to four years’ jail time is being imposed to perpetrators. Those who print will produce fraudulent and unauthorized receipt, commercial paper, sales invoices are bound to imprisonment.
Crimes under the Revised Corporation Code
There are crimes under the Revised Corporation Code9 that are penalized such as:
- Toleration of graft and corrupt practices;
- Engaging in graft and corrupt
- Obtaining corporation registration through
- Violation of duty to maintain records especially when injurious or detrimental to the public
What is the most common crime committed by corporations in the Philippines?
The most common crime committed by corporations in the Philippines is tax evasion. As mentioned, tax evasion is the willful attempt in any manner to evade or defeat any tax imposed under the National Internal Revenue Code.
Tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent return with the intent to evade and defeat a part or all of the tax.
Assessment of the tax deficiency is not an element of the crime however; the tax must be due first. It is committed by a corporation when its corporate fiction is being used as a shield as in the case between a parent corporation and subsidiary corporation.
What is considered a corporate crime?
A corporate crime is committed by individuals within the scope of their functions and occupations for the benefit of their own corporation or on behalf of the corporation.
It is the act of the corporation within its powers, yet, declared by law as punishable as a crime or felony, and for which certain penalties may be imposed against the corporation itself and/or its agents, corporate officers, or directors who actively participated in the perpetration of such unlawful acts.
In this case, the directors, trustees or officers are under the direct command of the corporation. Hence, their acts are treated as the act of the corporation.
These infractions, so-called corporate crimes, can also be committed by the corporation alone because such corporation has a separate and distinct personality from its directors, trustees or officers. Here, the latter, unless specifically held into account by the Statue itself, may not be regarded as accountable.
Can a corporation be held criminally liable?
Crime is personal. However, a corporation can be penalized as a juridical entity through the imposition of fines. Criminal accountability shall extend only to the officers therein that are responsible for the criminal acts proscribed by laws.
In Philippine legal system, and as laid down in abundance of jurisprudence, the Supreme Court held that a corporation once forbid by a criminal statute to perform certain acts shall be extended to the officers and agents of such corporation as well. But this is not to say that a corporation shall be criminally liable at all times.
In the pronouncement of judgment of People v. Tan Boon King10 , the Court held that:
“a corporation can act only through its officers and agents, and where the business itself involves a violation of the law, the correct rule is that all who take part in it are liable.”11
In this case, the Court disallowed the application of the legal fiction of the corporation to shade the liable officers even if they did the criminal acts for the benefit of the corporation.
The Court also considered the impossibility of imposing a penalty to a corporation, such as imprisonment, an entity without corporal existence which cannot be put behind bars. Since a corporation is deemed as an artificial being lacking of a mind, there is no criminal intent that can be attributed to it which is the salient ingredient of a crime.
This is in the same light on how corporation can be held criminally liable for the acts of its employees showing that the latter acted within the scope of their job description of authority, and the corporation benefited from such conducts. Employee’s act within the scope of his corporate duties is present if the activities being engaged is related to the corporation.
Although the corporation cannot be put into jail like persons, they can be reprimanded or punished by fines, loss of license and by government agencies’ regulation. On one hand, the employees or officers participating in the criminal activity are the ones that can be incarcerated.
Are corporate officers liable for corporate acts?
Generally, corporate officers may not be held personally liable for corporate acts incurred by the corporation. This is in honor of the legal fiction that the State recognizes, which is the doctrine of separate personality of a corporation from its stockholders.
The corporation has to shield the corporate officers (owners and/or directors) from personal liability, in furtherance of the vision or goal of corporation. This is also known as the limited liability rule that is provided by incorporation. Nonetheless, this is not absolute.
To hold the corporate officers personally liable, piercing the corporate veil is necessary. Under this doctrine, the State is allowed to turn a blind eye, for justifiable reasons, on the separate personality of that of a corporation.
In this notion, the corporate officers who performed said corporate acts prohibited by law shall be personally liable. This may be civil, administrative, or criminal in nature.
In this instance, the Court acknowledges the ill-intention of the corporators in organizing such distinct legal fiction, the corporation, as a means to employ fraud or illegal act, or to evade the law.
In the case of Uy vs International Exchange Bank,12 the Court emphasizes that piercing of the corporate veil should be done with caution. The Court in so doing:
“must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.”13
Additionally, according to the Court:
“personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action.”14
Can a corporation be convicted of a crime?
A corporation can be penalized for illegal acts but cannot be imprisoned. Corporations, like persons, are capable of suing or being sued, in the similar fashion of capable of committing prohibited acts or crimes as well as face the consequences of doing acts expressly prohibited by a law.
A corporation can be found to have committed infractions if the agents of the corporation perpetrated criminal acts while in the performance of their scope of employment or is in under the influence of their goal to benefit the corporation.
This follows that the knowledge of the owners or shareholders of a corporation is immaterial to hold a company liable, for so long as the wrongful officer did such acts for the sake of the corporation.
What is sufficient is that the prosecution may be able to prove that the imputed acts are illegal and that the corporation’s agent acted within the scope of his corporate duties with the particular purpose of availing benefits for the corporation.
Such crimes that are inherent in the Philippine laws are tax evasion, money laundering, fraud or swindling, and large scale pilferage of cable wires of electric companies.
When is a corporation liable for the acts of its officers?
The corporation acts through its officers and board of directors. Generally, the act of its officer is the act of the corporation. The corporation is held liable for the act of its officers in the following circumstances, to wit:
First, the officer acted in accordance with his duty or authority given to him. Every officer in a corporation held special role which became the source of their authority.
In order for the officer not to be held liable, he must act within the scope of this given authority. As a result, it is the corporation which will be held liable when a violation is committed.
Second, when an officer acted in good faith, meaning with prudence and exercise of due diligence, following the consensus of the Board of Directors, in relation to their bylaws, the corporation itself will answer for any liability.
In addition, when an officer acted contrary to what was agreed upon by the Board of Directors or other officers, or did an act without authority, but after the commission of such act, the Board did not repudiate the act of its officers, the corporation will be held liable for the act is deemed ratified.
They are estopped from denying the validity of the act of their officer specially when a third person was affected with such act. Consequently, the corporation is answerable to the persons affected.
Related Jurisprudence
In the case of Bustos vs Milan15, the Supreme Court applied the general doctrine of separate juridical personality, which provides that a corporation has a legal personality separate and distinct from that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the corporate debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does not make one’s property the property also of the corporation.
The Supreme Court then stated in the case of Spouses Fernandez vs Smart Communication, Inc.16 that the doctrine of piercing the veil of corporate fiction is a legal precept that allows a corporation’s separate personality to be disregarded under certain circumstances, so that a corporation and its stockholders or members, or a corporation and another related corporation could be treated as a single entity. It is meant to apply only in situations where the separate corporate personality of a corporation is being abused or being used for wrongful purposes.
The piercing of the corporate veil must be done with caution. To justify the piercing of the veil of corporate fiction, “it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings.”17
A corporate director, trustee, or officer is to be held solidarity liable with the corporation in the following instances:17
1] When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;17
2] When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;17
3] When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation; or17
4] When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.17
In the case of Sia vs People of the Philippines18, the issue was whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Company as President thereof in dealing with the Continental Bank may be liable for the crime of estafa. The Court held that:
“A corporation is an artificial person, an abstract being. If the defense theory is followed unscrupulously legions would form corporations to commit swindle right and left where nobody could be convicted, for it would be futile and ridiculous to convict an abstract being that cannot be pinched and confined in jail like a natural, living person, hence the result of the defense theory would be hopeless chose in business and finance. It is completely untenable.19
“The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes committed by a corporation, the responsible officers thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)”19
In the above quoted pronouncement, the High Court merely restated the view of the Court of Appeals to hold the petitioner liable for the crime. However, the Supreme Court further held that:
“x x x x . . . .
“The performance of the act is an obligation directly imposed by the law on the corporation. Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation, they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the law, negated.19
“In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not in the performance of an act directly ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a practice observed in the usual pursuit of a business or a commercial transaction.19
“The offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor determinant of whether a crime was committed or whether a civil obligation alone intended by the parties.19
“With this explanation, the distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful.19
“In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any doubt.19
“In all criminal prosecutions, the existence of criminal liability for which the accused is made answerable must be clear and certain. The maxim that all doubts must be resolved in favor of the accused is always of compelling force in the prosecution of offenses.19
“This Court has thus far not ruled on the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as that involved herein.”19
Consequently, the petitioner Jose Sia has been acquitted of the crime of Estafa in view of the above disquisition.
In Philippine National Bank vs. Court of Appeals20, the Court held that the Philippine National Bank, as a corporation, is civilly liable in the same manner as natural persons for torts, because:
“generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person. A corporation is liable, therefor, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body.”21
In addition, the Court held in the case of Philippine Society for the Prevention of Cruelty to Animals vs. Commission on Audit22
“By virtue of the fiction that all corporations owe their very existence and powers to the State, the reportorial requirement is applicable to all corporations of whatever nature, whether they are public, quasi-public, or private corporations—as creatures of the State, there is a reserved right in the legislature to investigate the activities of a corporation to determine whether it acted within its powers.23
In other words, the reportorial requirement is the principal means by which the State may see to it that its creature acted according to the powers and functions conferred upon it.23
These principles were extensively discussed in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government. Here, the Court, in holding that the subject corporation could not invoke the right against self-incrimination whenever the State demanded the production of its corporate books and papers, extensively discussed the purpose of reportorial requirement viz:23
“x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law.23
“It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve[d] right in the legislature to investigate its contracts and find out whether it has exceeded its powers.23
“It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose.23
“The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it.23
“While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)”23
Conclusion | Final Analysis
Almost all corporations created by the law involve public interest. Nowadays, corporations are not merely created for profit and for the economy.
Corporations play a major role in all aspect of people’s lives. Corporations, through economic continuity, may have been continuously providing the basic needs like food, water, clothing, utilities.
Likewise, some, if not all, give some provisions to educational institutions, insurance companies, medical institutions, financial institutions, etc.
Just like any other persons, a corporation through the conduct of its officers can commit crimes which are detrimental to the public. Thus, a more rigid rules should be set for these entities.
Nonetheless, corporation should not be a vehicle for the proliferation of different crimes in the country. Corporations must exist in equilibrium towards the attainment of fruitful economic growth. They should not be utilized as a subterfuge for the commissions of unlawful acts.
As much as possible, this should be prevented through proper implementation of existing laws, or evaluation of the applicability of the existing law with regard to the amount of fines imposed for specific crime and the length of jail time for officers who willfully committed such.
Likewise, if proven guilty, the Board of Directors and its officers as the drivers of the corporation should be strictly held accountable for their illegal or tortious acts.
Through this, the general public can safety transact with different corporations knowing that there will be someone who will answer for the damages arising for criminal acts and those perpetrators cannot simply hide in the veil of the corporation fiction
- New Civil Code of the Philippines, Article 44[↩]
- Ibid.[↩][↩][↩]
- Section 4, RA 9160[↩]
- Ibid.[↩][↩][↩]
- RA 9160, September 29, 2001[↩]
- RA 10365, July 23, 2012[↩]
- RA 11521, January 29, 2021[↩]
- Republic Act No. 10963[↩]
- Republic Act No. 11232[↩]
- G.R. No. L-35262, March 15, 1930; [54 Phil 607] 1930[↩]
- Ibid.[↩]
- G.R. No. 166282, February 13, 2013[↩]
- Ibid.[↩]
- Carag vs National Labor Relations Commission, G.R. No. 147590, April 2, 2007[↩]
- G.R. No. 185024, April 24, 2017[↩]
- G.R. No. 212885, July 17, 2019[↩]
- Ibid.[↩][↩][↩][↩][↩][↩]
- G.R. No. L-30896 April 28, 1983[↩]
- Ibid.[↩][↩][↩][↩][↩][↩][↩][↩][↩]
- G.R. No. L-27155. May 18, 1978[↩]
- Ibid.[↩]
- G.R. No. 169752, September 25, 2007[↩]
- Ibid.[↩][↩][↩][↩][↩][↩][↩][↩]