The Green Sheet Online Edition
February 2, 2025 • 25:02:01
Legal ease: Civil versus criminal liability in payments
Are you old enough to remember the O.J. Simpson trial? If you are, you got a great lesson on the difference between civil and criminal liability. Simpson's ex-wive Nicole Brown Simpson was found dead outside her condominium in Los Angeles. Her friend Ronald Goldman, a waiter who had come to her home to return a pair of eyeglasses left behind at a restaurant, was lying a few feet away, stabbed to death.
A criminal-court jury found Simpson, a former great NFL Buffalo Bills running back, not guilty of murder in 1995, but a separate civil trial jury found him liable in 1997 for both deaths and ordered him to pay $33.5 million to relatives of Brown and Goldman. The criminal case was a media sensation.
Two types of legal liability
In the much less sensational payments space, it's worthwhile considering the difference between civil and criminal liability. Let's start by defining these two key types of legal liability:
- Civil liability: In the context of payment processing, civil liability refers to the responsibility of a party to compensate another for harm or loss caused by their actions or omissions. This can include breaches of contract, negligence, or other wrongful acts that result in financial loss or damage to another party.
Civil claims are brought by aggrieved parties, such as a processor that believes an ISO has wrongfully solicited merchants under an ISO agreement.
Examples of civil liability in payments include a payment processor being sued for failing to comply with contractual obligations, resulting in financial losses for a merchant. Another example is negligence in securing payment data, leading to a data breach and subsequent damages.
- Criminal liability: Criminal liability involves the prosecution of a party for actions that are considered offenses against society or the state. In payment processing, this can include fraud, money laundering or other illegal activities that violate criminal laws. Criminal claims are prosecuted by attorneys general at the federal or state level.
Examples of criminal liability in payments include a payment processor being prosecuted for facilitating fraudulent transactions, money laundering, or knowingly processing payments for illegal activities such as online gambling or drug trafficking.
Distinctions between civil and criminal liability
Following are six key differences between the way civil and criminal liability are identified and handled in the courts.
- Purpose and objectives
The primary purpose of civil liability is to provide restitution or compensation to the injured party. It aims to make the victim whole by awarding damages or specific performance. Since most payments relationships are based on contracts (for example, ISO agreements and merchant agreements) civil liability in payments usually arises from contractual obligations.
Outside of payments, parties can become liable for civil claims without contract, such as claims in damages from car accidents or even brawls.
The objective of criminal liability is to punish the wrongdoer, deter future criminal behavior, and protect society. It involves penalties such as fines, imprisonment, or probation.
- Burden of Proof
In civil cases, the plaintiff's burden is to demonstrate that it is more likely than not that the defendant's actions caused the harm. This is known as the "preponderance of the evidence" standard. Lawyers and their clients marshal all available evidence to convince a judge, jury or arbitrator that their claim is more worthy than that of the opponent.
In criminal cases, the burden of proof is much higher. The prosecution must prove the defendant's guilt "beyond a reasonable doubt," which is a more stringent standard than the preponderance of the evidence standard. The reason the burden of proof in criminal law is so much higher is that it results in taking away a person's liberties (that is, going to prison), which should happen only when there is no doubt as to the guilt of the defendant.
- Legal proceedings
Civil cases are initiated by the injured party (plaintiff) filing a lawsuit against the defendant. The proceedings involve discovery, motions, and a trial where both parties present their evidence and arguments. In payments and other cases, civil claims are usually preceded by formal demand letters.
Criminal cases are initiated by the state or federal government, represented by a prosecutor. The defendant is charged with a crime, and the case proceeds through arraignment, pre-trial motions, trial and potentially sentencing.
- Types of remedies and penalties
Remedies in civil cases typically involve monetary damages, which can be compensatory (to cover actual losses) or punitive (to punish egregious behavior). Other remedies may include injunctions or specific performance.
When considering your potential civil liability in payments contracts, take a look at the limitation of liability clauses because they will determine the upper end—if any—of your liability. Note as well the difference between contractual liability of your company on the one hand and any personal guarantees you may have given on the other hand.
Penalties in criminal cases can include fines, imprisonment, community service, probation, and other forms of punishment designed to penalize the offender and deter future crimes.
- Role of intent
In civil cases, intent is less critical; liability can arise from negligence or breach of contract, regardless of whether the defendant intended to cause harm.
Intent is a crucial element in criminal cases. To secure a conviction, the prosecution must often prove that the defendant acted with criminal intent or, in legalese, mens rea, which means "guilty mind" in Latin.
- Impact on businesses
Civil liability can result in significant financial losses for payment processors, including damages, legal fees and reputational harm. It can also lead to changes in business practices to avoid future liability.
Criminal liability can have severe consequences, including loss of business licenses, hefty fines and imprisonment of key personnel. It can also lead to increased regulatory scrutiny and loss of consumer trust.
A preventive mindset
Basic due diligence and transaction monitoring required of payments businesses, exercising common sense and taking advice from legal counsel will help payments companies navigate the many sources of potential civil and criminal claims.
The business culture of counterparties to contracts is a big determinant of whether parties sue. Contracts that open a defendant to claims might never be the basis of a claim while a highly protective contract could be. 
In publishing The Green Sheet, neither the author nor the publisher are engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law email: atlas@adamatlas.com, Tel. 514-842-0886.
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