The Criminalization of Compliance

Todd Haugh*

Corporate compliance is becoming increasingly “criminalized.” What began as a means of industry self-regulation has morphed into a multi-billion-dollar effort to avoid government intervention in business, specifically criminal and quasi-criminal investigations and prosecutions. In order to avoid application of the criminal law, companies have adopted compliance programs that are motivated by and mimic that law, using the precepts of criminal legislation, enforcement, and adjudication to advance their compliance goals. This approach to compliance is inherently flawed, however—it can never be fully effective in abating corporate wrongdoing. Criminalized compliance regimes are inherently ineffective because they impose unintended behavioral consequences on corporate employees. Employees subject to criminalized compliance have greater opportunities to rationalize their future unethical or illegal behavior. Rationalizations are a key component in the psychological process necessary for the commission of corporate crime—they allow offenders to square their self-perception as “good people” with the illegal behavior they are contemplating, thereby allowing the behavior to go forward. Criminalized compliance regimes fuel these rationalizations, and in turn, bad corporate conduct. By importing into the corporation many of the criminal law’s delegitimizing features, criminalized compliance creates space for rationalizations, facilitating the necessary precursors to the commission of white collar and corporate crime. The result is that many compliance programs, by mimicking the criminal law in hopes of reducing employee misconduct, are actually fostering it. This insight, which offers a new way of conceptualizing corporate compliance, explains the ineffectiveness of many compliance programs and also suggests how companies might go about fixing them.

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© 2017 Todd Haugh. Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice.

*Assistant Professor of Business Law and Ethics, Indiana University, Kelley School of Business; 2011–2012 Supreme Court Fellow, Supreme Court of the United States. The author would like to thank Miriam Baer, Sean Griffith, Robert Bird, Stephen Park, Larry Trautman, and Scott Killingsworth, as well as Vince Buccola, Amy Sepinwall, Sarah Light, and other members of the Wharton School’s Legal Studies and Business Ethics Department, for helpful comments on early drafts. In addition, special thanks are given to participants of the 2016 Huber Hurst Research Seminar and UC Irvine School of Law’s 2016 Business Law Colloquium.