Ignorance of the law = Executive "Get out of Jail Free Card"?

Great Debates
1

It has always been my understanding that ignorance of the law was no defense.

Reading an article recently in The Economist magazine I am forced to think this may not strictly be true. (Note the quote below is not linked as you need a subscription so I include issue and page number…the quotes are speaking about the impending trial of former Enron executives).

So a simple, “I didn’t know” from a corporate executive keeps them safe unless it can be proven they did know they were breaking the law? It behooves an executive to not have their legal counsels and others who do know inform them when the company may be in danger of breaking the law?

There are thousands of laws on the books and we cannot know all of them but it is my understanding we are meant to be aware of the ones relevant to us. So, even if I do not know a city has a “no turn on red” law as a driver I can still be held accountable if I break that law. On the flip side I do not fly airplanes so there is no need for me to worry about laws applicable to pilots.

Yet the above seems to indicate a company offical is not guilty of breaking laws applying to operations of the company unless they know beforehand they are in fact breaking the law.

Does this make sense? At the least shouldn’t a corporate executive be held accountable for criminal negligence if they really were not aware of laws that they should be aware of? If an excutive was mislead by their underlings (and the executive had done his/her due diligence) then the underlings should get arrested.

So, are there good reasons for this being the way things are or is this just a nifty example of those with power seeing to it that the law is favorable to them?

2

This suggests to me, (lacking legal training as I am), that the issue may be the specific wording of certain laws.

If the law mentioned in this paragraph said that one could not destroy documentation for the purpose of concealing a crime, then the destruction of the same evidence by an over-efficient file clerk trying to keep Main File from being overwhelmed with paper would not be a crime, although the destruction of exactly the same files by a legal assistant helping to gather documents prior to the discovery stage of a lawsuit would be a crime.

3

I see what you are getting at but it still seems a bit dubious to me. As it happens my job relates to document management of which a big part is document retention policies. Most companies I work with have rules in place for when certain documents get tossed (it can differ for different documents based on a variety of factors…some of their own choosing and some mandated by law).

If Arthur Andersen was merely following normal procedure they apply to all their documents and just happened to shred most of their Enron documents when they did as a matter of course then fine. I seriously doubt this was the case though. If it were they would have been shredding dozens of clients documents at the same time…not just shredding a few here and there mind you but wholesale emptying of the files. More likely they saw the writing on the wall and preemptively ripped up their Enron documents before someone came after them demanding they produce those (at which point it would clearly become against the law).

4

Due process requires that *mens rea * pass the reasonable person standard. Just because he “should have” known it doesn’t mean that it is not reasonable for him not to know it. It seems that the prosecutor failed to prove that.

5

I don’t know that statute at issue, and I haven’t read the Arthur Andersen opinion, but it seems to me that question is “what should be the standard when certain behavior is legal in some situations but illegal in others?”
That’s what is going on here. Corporations routinely dispose of documents. Outside circumstances - the issuance of a subpoena, etc., - may make that disposal of documents, which was legal on Thursday, illegal on Friday.
So, should the person who is disposing of the corporation documents on Friday be held criminally liable if he/she is not told that outside circumstances had changed? I would argue not.

Sua

6

Sort of. What happened in the Andersen case was that the execs put out a memo that all documents that ought to be shredded, needed to be shredded immediately. By coincidence, I’m sure, this happened to include the incriminating documents and happened shortly before the documents were to be subpoened. :rolleyes:

Andersen’s defense was that they weren’t aware that these were incriminating documents and they simply discovered during an internal audit that document disposal was not being performed on the timetable layed out in their normal procedure, so they sent a memo for people to get on this ASAP.

7

Ok…I guess I can see this.

But what about Skilling and Lay at Enron? The article mentions they too had to “know” what they were doing was illegal. In this case it is not an issue of legal yesterday, illegal today. It looks more like they were pushing the envelope on creative accounting and business practices but if they did cross a line it was a line that was already there. Why should they not be accountable for knowing where that line is?

8

If you “should have” known it then I would say it is not reasonable that you do not know it. Regardless I have never seen ignorance of the law as a defense no matter how reasonable your not knowing it may be.

Anecdote: I got pulled over on a very wide road once for going 37mph. In court I brought pictures to the judge showing the speed limit sign thoroughly covered by a tree and pointed out to the judge it was such a wide road (not a usual city street…parking on either side and two lanes each way) that I assumed the speed limit was faster. The judge informed me that if the limit isn’t posted then the limit is 20mph so I was guilty of 17mph over and he fined me (or maybe it was 30 and I was 7 over…this was some 20 years ago now so memory of it is fuzzy but it was my first ticket so I remember it to some extent). I told him I did not know that rule as it never came up in any class or driving test I ever had. He did not care and fined me anyway. That said I think my protestations of ignorance got me a lighter fine than I might have so perhaps ignorance may be a mitigating circumstance in the penalty phase but I still was guilty. Should it be any different for Mr. Skilling or Mr. Lay?

9

It’s not an Executive GooJFC, it’s an Employee GooJFC. I haven’t been following this too closely, apologies if I have some facts wrong.

Do you think Skilling and Lay were personally feeding all those documents into the shredder? Probably not, it was most likely an employee, who didn’t know they were committing a crime. They’re not being prosecuted, though if you remove the ignorance defense, they could be.

This rule is protection for the ignorant Employee. It can be (mis)used by the Executive in his defense, but these guys are still on trial, none of the employees who did the actual shredding are. You can’t remove this protection without exposing many innocent people to prosecution.

10

I used quotes because they were your words. It doesnt matter how you feel unless you are on the jury. I’m sure the prosecutor was saying the same thing. They didn’t prove their case.

The required test of mens rea means that ignorance of the law is justification if it is reasonable. I am sure some exceptions apply. Your insistance that ignorance is no defense is a fallacy.

11

I do not think that is correct inasmuch as protecting the ignorant low level employee goes.

For instance, if you asked me for two aspirin for your wife and I handed you two cyanide pills and you then gave her those pills not knowing what they really were I do not think anyone, law enforcement or otherwise, would think you were guilty of a crime.

12

I’m not sure what your argument is then. Are you suggesting that executives not be allowed to use an ignorance defense?

I don’t think that makes sense. I give poisoned pills to my wife, and I get to use it as a defense for murder, but they don’t get the same option.

13

I am saying the execs are akin to me giving you the poison pills. The execs (or someone higher up the food chain from the generic office guy) know they are asking their subordinates to do something wrong so the exec is guilty but not the subordinate. If the exec somehow does not know what they are asking is illegal I am suggesting they are criminally negligent…they (or someone) should know. I cannot see how an organisation should be allowed to cover its ass by remaining ignorant of laws governing their operations.

14

For god’s sake will everybody who doesn’t know what they’re talking about shut up?

Wrong. When someone “should have known” X under the law, it means that the reasonable person in his position would have known X and that, if he doesn’t know X, he is either negligent or reckless. Depending on the particular context, statute at issue, and the harm which resulted (if any), negligence can be enough to make a person liable even if he acted in good faith – because you not only have a responsibility to do the best you can to follow the law, you also have a responsibility to be sufficiently careful that you don’t injure someone negligently.

Wrong again. Ignorance of the law in most cases is not a defense. Mens rea doesn’t mean what you think it means, mostly. There are a few crimes where you must have a specific, particular intent to do something such as commit a crime. These are called, interstingly enough, specific intent crimes. For instance, at common law, Carl was guilty of burglary if he entered someone’s house without permission at night with the purpose of committing a crime therein. If Carl busted into your house at night with the purpose of giving you a birthday present, he might be liable for some crimes, but burglary is not one of them.

Most crimes, however, are not specific intent crimes. That doesn’t mean mens rea does not apply, because the person must still mean to act – they just don’t have to know that the act is criminal. For instance, lets assume that in my country bashing someone over the head with a rubber chicken is the accepted form of greeting. I then move to America in the house next to yours and, because I’m so friendly, walk up and bash you on the head with a rubber chicken. I have committed the crime of battery, because I intended to hit you with the chicken and I did. The fact that I did not know this is illegal in America has no bearing. The Mens rea applies here to my intention to do the act, not any intention to do an illegal act.

To be continued…

–Cliffy, Esq.

15

So given the above, Whack’s central underpinning premise is valid. So why, as he asks in the OP, does it not apply in these situations? There are two answers in the securities laws contenxt, although one is really a subset of the other. As always, the first stop is the text.

Section 10(b) of the Securities Exchange Act of 1934 (as amended) reads in relevant part:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange–
…

b. To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

Looking at that section, we see that this could be a specific intent crime. The prohibition is against “manipulative or decpetive practices” suggests that you’re not doing anything in violation if you’re not manipulating or decieving someone. Unlike say the crime of larceny, which doesn’t require you to decieve someone out of their money, just to take it.

I’m not a full-time securities lawyer, so I don’t know all the history of this stuff, but I do know tha tthe courts have read a “scienter” requirement into Section 10(b). Scienter means knowledge – that is, as I said above, to violate the statute you need some level of knowledge that what you’re doing is manipulative. There is a ton of litigation on just how broad this requirement is (and whether negligent ignorance is enough knowledge, of if you need to actually know), but the basic rule is clear – if you do something that you have no reason to suspect is manipulative, decpetive, or illegal, then in most circumstances you’re not violating 10(b).

However, it isn’t that simple. Because publicly traded companies have a responsibility to follow the laws. So they can’t just plead ignorance completely. They typically have to get advice from securities lawyers and accountants about what the proper treatment is. This means two things. First, it means that in general, ignorance remains not an excuse because you have a responsibility to learn what’s allowed. But it also means that in the securities realm, there is an “advice of counsel” defense. The securities laws are exceedingly complex and, given how often companies try to end run around them, they become more complex every day. It’s impossible for someone to know all this stuff who doesn’t do it for a living. (And even then.) So what you’re expected to do is hire a good lawyer and tell him waht you want to do. And if he tells you it’s illegal, don’t do it. But, if he tells you it’s legal and he’s wrong, well, you tried your best to be in compliance, and you failed through no fault of your own. In this situation, again, given how difficult it is for the layman to keep up with all the intricacies of securities laws, “My lawyer told me it was OK” is a valid defense. As a society we understand that it’s inappropriate to hold you to the same “ignorance is no defense” standard with these incredibly complex rules than we do with the law against shooting people. You can’t just do whatever you want, but if you make serious efforts to find out what’s legal and you proceed on the basis of what you find out, we’re not going to punish you for following bad advice.

I think that answers the question in this situation – while ignorance of the law is no excuse generally, the complexity of the securities laws and regulations mean that ignorance is a legitimate defense so long (roughly) as it’s a reasonable ignorance, especially if based on efforts to find the answers which should have yielded the correct answers but didn’t.

–Cliffy

16

Some disclosure: I’m not a securities lawyer, although I have done securities work. I also used to work for a firm which was embroiled in the Enron scandal to some extent. (The managing partner said it was a limited extent, the New York Times said is was a large extent. I know the Times was exaggerating; I don’t know if the managing partner was lowballing.) While with that firm I did legal work for Enron, although I had nothing to do with any of the stuff that’s related to their collapse of the alleged misdeeds. I don’t work at that firm anymore.

–Cliffy

17

What **Cliffy **said. In the Arthur Anderson case, the Court was interpretting a very specific statute:

http://www4.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001512----000-.htmlhttp://www.law.cornell.edu/supct/html/04-368.ZO.html
The bolded language is what was at issue. The Court focused on the words “knowingly . . . corruptly persuades . . . from an official proceeding,”

http://www.law.cornell.edu/supct/html/04-368.ZO.html

The Court noted that:

The prosecution suggested that Congress would not have adopted such an ungrammatical verbal formula as “knowingly . . . corruptly.” But the Court noted, “Long experience has not taught us to share the Government’s doubts on this score, and we must simply interpret the statute as written.”

So the Court decided that the statute required the jury to be instructed that it had to find that Arthur Anderson was conscious of wrongdoing.

But the jury had been told:

The Court found the instructions wanting:

The Court concluded:

So the Court found that the statute required that the conduct be wrong, that the defendant know it is wrong, and that the defendant know that the obstruction is related to a specific proceeding. The Court did not make any broad holding that ignorance was a defense.

18

Yeah. Interpreting even.

19

:rolleyes: I think you are in the wrong forum for that attitude, bud.

If you actually read what was posted before, “should have known” was in quotes because it seemed to be the arguement of the OP.

It seems that that question was not even put to the jury. Since it was relevant, then it would have been a defense.

I never said it was a defense in most cases. However, it is a defense. I was under the impression that ignorance was not a defense, myself, until I was directed to mens rea. I admit, I may have downplayed the “some exceptions apply”, but that doesn’t change the fact that ignorance is not a defense. If it wasn’t in this case, then it would not have mattered if the jury decided if he knew it was illegal or not.

20

Perhaps. It’s frustrating to know that every time someone posts an interesting legal question, the great uninformed horde funnels in to efficiently disseminate misinformation. That actually wouldn’t be so bad if it came with a disclaimer, but it’s invariably stated as fact.

–Cliffy