Andrew Tuch, ‘The Limits of Gatekeeper Liability’

Abstract:
Gatekeeper liability – the framework under which actors such as law firms, investment banks and accountants face liability for the wrongs committed by their corporate clients – is one of the most widely used strategies for controlling corporate wrongdoing. It nevertheless faces well-recognized flaws: gatekeepers often depend financially on the clients whose conduct they monitor; to carry out their gatekeeping function, gatekeepers rely on individuals – often their employees – whose interests diverge from their own; and major transactions typically involve multiple gatekeepers, each with specific areas of expertise and information, which produces both gaps and overlaps in the gatekeeping net.

In this paper, I assess a recently proposed strategy intended to address the core challenges that afflict gatekeeper liability. Proposed by Professor Stavros Gadinis and Mr Colby Mangels in ‘Collaborative Gatekeepers’, 73 Washington and Lee Law Review 797 (2016), the strategy would require gatekeepers to report their suspicions of wrongdoing by their clients to regulators – a duty that is analogous to rules that have proven effective in anti-money laundering regulation. I assess the proposal’s likely effectiveness by, first, distinguishing it from conventional gatekeeping regimes. I argue in favor of the proposal but suggest that its success is likely to depend on the particular ways in which it interacts with conventional gatekeeper regimes – because the proposal would be overlaid on these existing regimes, rather than amending or replacing them. I also examine the basic difficulty in justifying any gatekeeper liability regime that stems from the need to establish its superiority over more direct forms of liability – namely, individual and enterprise liability – a task that hinges on the satisfaction of numerous complex conditions that cannot be established – easily, or at all (at least to the satisfaction of those inclined to oppose new liability regimes). Arguing that the Gadinis-Mangels proposal nevertheless holds strong promise, I suggest an extension designed to overcome defects associated with the fragmentation of the gatekeeping net that results from the presence of multiple gatekeepers in major business transactions.

Tuch, Andrew F, The Limits of Gatekeeper Liability (April 3, 2017). 73 Washington and Lee Law Review Online 619 (2017); Washington University in St Louis Legal Studies Research Paper No 17-04-01.

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