When Can a Corporate Parent Be Prosecuted for a Subsidiary’s Crimes?

The general rule is that a company can be held liable for criminal acts of an agent, within the scope of the agent’s authority, for the benefit of the company.  That may apply when the “agent” is a division or subsidiary of the company.

Some courts have looked to whether the parent played an active role in the subsidiary’s affairs that formed the basis of the criminal charges.  This can be a question of degree.  For example, one court imposed liability on a parent that reviewed and approved safety practices of a subsidiary that resulted in criminal negligence.  In another case, a court refused to hold a parent criminally liable based merely on its receipt of reports of safety practices.

When a subsidiary is merely a tool of the parent used to commit criminal conduct or the corporate form is disregarded, a parent company can be held criminally liable under the “mere instrumentality” theory.  This is more or less an extension of the concept of “piercing the corporate veil.”

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