When Is a Company Criminally Liable for an Employee’s Fraud?

Prosecutions for white-collar crimes like fraud are often brought against people who work for corporations or other organizations. Even though the fraudulent activity may not have been authorized, the company that employs the individual might also be exposed to criminal liability under federal or state law. However, this liability is not automatic and requires a demonstration of the company’s knowledge and/or approval.

Under federal law, the prosecution must establish that the employee or agent’s actions were within the scope of employment and that company officials knew that the employee was engaging in criminal acts. The U.S. Justice Department will consider a number of factors in determining whether to prosecute a company for the criminal acts of an employee, including these:

• The nature and seriousness of the offense
• The harm to the public caused by the offense
• The pervasiveness of wrongdoing within the company
• The company’s willingness to cooperate in the investigation
• The corporation’s history of similar misconduct
• The existence and effectiveness of the corporation’s compliance program
• Whether remedial measures were taken

If the prosecution can demonstrate that the company’s actions or assets were tied directly to the crime, the company may face significant fines, mandatory restitution orders and confiscation of property. In some cases, the company may also be barred from engaging in business activity.

Vicarious liability may be avoided if the company can establish that the employee’s fraud was committed outside of work duties and did not have the company’s approval. Even in cases in which a fraud or another white collar crime was committed using company assets, a corporation may still be able to escape liability by showing mitigating factors.

Texas law sets a higher standard of proof for a company to be convicted of fraud. These three elements must be established by the prosecution:

• The employee committed the act while acting within the scope of their duties.
• The employee committed the alleged fraud while acting on behalf of the company.
• The employee’s act was requested or authorized by the CEO, a managerial agent or a majority of the board of directors, or the act constituted a strict liability offense.

This means, in essence, that the fraudulent act must have been committed with the company’s actual or tacit endorsement.

Whether at the state or federal level, prosecutors often target companies as deep pockets for seeking restitution for an employee’s fraud. This sometimes unfair tactic can seriously damage a business’s financial resources and general reputation. If your company is accused of fraud due to the criminal conduct of an employee, a skilled criminal defense attorney can develop a comprehensive strategy to fight the charges.

At The Law Offices of Kevin Collins in San Antonio, Texas, we provide aggressive and effective defense to white-collar criminal prosecutions, including those brought against corporations. Call 210-598-8629 or contact us online to schedule a consultation.