The limited criminal liability corporation

The modern corporation is a structure that allows investors to maximize profit while limiting their individual losses.  The Volkswagen emissions scandal shows that it also is a structure that enables lawbreakers to limit their individual accountability for their crimes.

Because the corporation is treated by law as a person separate from its owners, the individual investors can’t lose anything more than what they put in.  Any debts over and above that are swallowed by the creditor or absorbed by somebody else.

vwWhen executives of a corporation break the law, it usually is the corporation, most of whose employees and owners may be completely innocent, that is penalized and not the individuals actually responsible.

Volkswagen since 2009 installed software in 482,000 diesel vehicles to turn on emissions control systems when approaching an inspection station, but leave them off the rest of the time, which improved fuel economy and engine performance.

Dirty-burning fuel sickened many people and made already-sick people worse.  By one estimate, it caused the deaths of from 5 to 26 people in southern California alone.

Installing such software is no easy task.  Corporate executives would have had to sign off on it.

News stories say that Volkswagen could be liable for up to $37,500 per vehicle, which would mean a penalty of $18 billion.  That would be a big fine.  Last year Volkswagen reported a net profit of $12 billion on $226 billion in revenue.  I would be surprised if VW wound up paying this amount.

And even if VW winds up being liable for the full $18 billion, the fraud was committed by individuals—individuals with names, addresses and telephone numbers.  By the time the case is settled, they will have moved on.

The CEO of a company in Georgia, as Kevin Drum noted, faces a possible life sentence for selling tainted peanuts across a state line, causing a salmonella outbreak that sickened hundreds of people and caused the death of at least nine.

vw-DieselProsecuting executives and employees of Volkswagen for crimes in the United States would be more difficult because VW is a German corporation.  But if the U.S. government can prosecute officials of FIFA, the Switzerland-based governing body for international soccer, it should be able to find a way to prosecute executives and employees of Volkswagen who have caused harm to American citizens.

I always admired Volkswagen for its enlightened labor practices, its pioneering of fuel-efficient vehicles and its reputation for high engineering standards.  But by admiring a corporation, I fell into the trap of thinking a corporation is like a person, rather than an organizational structure and a brand.

Organizational structures and brands are no better than the individuals who control them.  At any given time, these individuals may have high ethical and business standards, but that doesn’t mean that other individuals who come after them will have the same standards.


Pure evil, VW edition by Mark Kleiman for The Reality-Based Community.

WTF, Volkswagen? by Kevin Drum for Mother Jones.  Links to estimates of effects of VW’s illegal emissions on health and mortality.

VW caught cheating on diesel emissions standards by Joel Hruska for ExtremeTech.

Your Guide to Dieselgate: Volkswagen’s Diesel Cheating Catastrophe by Patrick George for Jalopnik.  [added 9/22/2015]

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