corporate criminal liability april 2016 - general counsel · pdf fileregarding the definition...

Corporate Criminal LiabilityApril 2016

Global contacts ........................................................ 3

Introduction............................................................... 4

Americas ................................................................... 9

United States......................................................... 10

Europe and the Middle East .................................... 14

Belgium ................................................................. 15

Czech Republic ..................................................... 18

France ................................................................... 20

Germany................................................................ 22

Italy ........................................................................ 24

Luxembourg .......................................................... 27

Poland ................................................................... 29

Romania ................................................................ 32

Russia.................................................................... 34

Slovakia ................................................................. 36

Spain ..................................................................... 39

The Netherlands .................................................... 42

UAE ....................................................................... 45

UK ......................................................................... 47

Asia Pacific ............................................................... 52

Australia................................................................. 53

Hong Kong ............................................................ 57

India....................................................................... 59

Indonesia ............................................................... 63

Japan .................................................................... 65

Mainland China...................................................... 67

Singapore .............................................................. 69

Corporate crime ....................................................... 72

Heat map ................................................................... 73

Worldwide contact information .............................. 75

cont

ents

3Corporate Criminal LiabilityApril 2016

© Clifford Chance, April 2016

Australia:Diana Chang +61 28922 8003Jerrem Ng +61 28922 8069Kirsten Scott +61 89262 5517Kate Godhard +61 28922 8021

Belgium:Sébastien Ryelandt +32 2 533 5988

Czech Republic:Alex Cook +420 222 555 212Michal Jasek +420 222 555 229Ludvík Ružicka +420 222 555 255Jindrich Arabasz +420 222 555 202

France:Thomas Baudesson +33 1 44 05 54 43Charles-Henri Boeringer +33 1 44 05 24 64Sophie Levy +33 1 44 05 24 41

Germany:Heiner Hugger +49 697199 1283David Pasewaldt +49 697199 1453

Hong Kong:Wendy Wysong +852 2826 3460Richard Sharpe +852 2826 2427Lei Shi +852 2826 3547

India:Aarna Law www.aarnalaw.comKabir Singh +65 6410 2273

Indonesia:Linda Widyati +62 21 2988 8301Dinasti Brian Harahap +62 21 2988 8317

Italy:Antonio Golino +39 028063 4509Jean-Paule Castagno +39 028063 4317Pasquale Grella +39 028063 4289

Japan:Michelle Mizutani +81 35561 6646

Mainland China: Wendy Wysong +852 2826 3460Min He +86 10 6535 2298Lei Shi +852 2826 3547

The Netherlands:Jereon Ouwehand +31 20 7119 130Simone Peek +31 20 7119 182Stana Maric +31 20 7119 806

Poland:Marcin Ciemiński +48 22 429 95 15Bartosz Krużewski +48 22 429 95 14Paweł Pogorzelski +48 22 429 95 08

Romania:Daniel Badea +40 21 66 66 101Bianca Alecu +40 21 66 66 127

Russia:Timur Aitkulov +7 495 725 6415Olga Semushina +7 495 725 6418

Singapore*:Nish Shetty +65 6410 2285Janice Goh +65 6661 2021Elan Krishna +65 6506 2785

Slovakia:Michal Jendželovský +420 222 555 274Alex Cook +420 222 555 212Michal Jasek +420 222 555 229Ludvík Ružicka +420 222 555 255Jindrich Arabasz +420 222 555 202

Spain:Bernardo del Rosal +34 91 590 75 66

UAE:James Abbott +971 4 362 0608Payam Beheshti +971 4 503 2631Shane Jury +971 4 503 2718

UKRoger Best +44 20 7006 1640Judith Seddon +44 20 7006 4820Luke Tolaini +44 20 7006 4666Patricia Barratt +44 20 7006 8853Chris Stott +44 20 7006 4231

USA:David DiBari +1 202 912 5098Chris Morvillo +1 212 878 3437Ed O’Callaghan +1 212 878 3439Dan Silver +1 212 878 4919Wendy Wysong +1 202 912 5030Megan Gordon +1 202 912 5021Polly Snyder +1 202 912 5025

Global contacts

The survey looks at whether there is aconcept of corporate criminal liability in anumber of different jurisdictions. Weconsider the underlying principles of suchliability, the relationship with individualofficers’ liability, whether there are anyspecific defences, or mitigating factors,and the type and level of penalties.

Our survey shows not only that corporateliability either has existed for some time, orhas been introduced in most jurisdictionsenabling courts to sanction corporateentities for their criminal acts; but that thereis also a general trend in most countriestowards prosecuting corporate entities forthe criminal misconduct of their officers andemployees and towards the imposition ofhigher penalties. In those countries wherethere is no criminal liability per se, there iseither quasi-criminal liability orconsideration is being given to theintroduction of corporate criminal liability. Inthe United States, where corporate criminalliability has been a feature of US law sincethe nineteenth century, the criminalprosecution of corporate entities came toan abrupt halt following the criminalprosecution of Arthur Andersen in 2002,the conviction of which (subsequentlyoverturned) resulted in its collapse and joblosses for thousands of innocentemployees. However, more recently,prosecutors have been less willing toaccept the prospect of collateralconsequences as justification for notpursuing criminal chargesagainst corporate entities.

European contextBefore looking more closely at corporatecriminal liability across Europe, it is

instructive to consider the context inwhich Member States are operating.Whilst national security remains theresponsibility of each Member State,judicial cooperation in criminal mattersacross Europe has become an essentialelement in ensuring the effectiveoperation of each Member State’scriminal justice system. This is basedlargely on the principle of mutualrecognition of judgments and judicialdecisions by EU countries, introduced bythe Maastricht Treaty in 1992. Becauselegal and judicial systems vary from oneEU country to another, the establishmentof cooperation between differentcountries’ authorities has been a keyfeature of the EU legal landscape over thepast decade or so. Of particularrelevance is the Convention on MutualAssistance in Criminal Matters 2000which strengthened cooperation betweenjudicial, police and customs authorities.The first instrument to be adopted on thebasis of the principle of mutualrecognition of judicial decisions was theEuropean Arrest Warrant (EAW) whichcame into operation in January 2004 andwhich has become a key tool in the fightagainst cross-border crime. An EAW maybe issued by a national judicial authority ifthe person whose return is sought isaccused of an offence for which themaximum period of the penalty is at leastone year in prison or if he or she hasbeen sentenced to a prison term of atleast four months.

The role of the EU increased further withthe introduction of the Lisbon Treaty,which came into effect on 1 December2009. This provides for a new legal

framework for criminal legislationconcerning, for example, minimum rulesregarding the definition of criminaloffences for so-called ‘Euro crimes’,including offences such as terrorism,money laundering, corruption, computercrime and organised crime; commonminimum rules on the definition ofcriminal offences and sanctions if they areessential for ensuring the effectiveness ofa harmonised EU policy; and minimumcriminal sanctions for insider dealing andmarket manipulation. In this latter area,current sanction regimes do not alwaysuse the same definition which isconsidered to detract from theeffectiveness of policing what is often across-border offence. As a consequence,a new regulation on market abuse and anew directive on criminal sanctions formarket abuse were published on 12 June2014 and will enter into force in July 2016(although the latter will not beimplemented in all Member States withthe UK having opted out). The new ruleson market abuse update and strengthenthe existing framework. For example, theyexplicitly ban the manipulation ofbenchmarks (such as LIBOR). Thedirective on criminal sanctions for marketabuse requires all Member States toprovide for harmonised criminal offencesof insider dealing and marketmanipulation, and to impose penaltieswhich are effective and dissuasive –including maximum sanction levels of atleast four years’ imprisonment for marketmanipulation, insider dealing andrecommending or inducing anotherperson to engage in insider dealing andtwo years for the unlawful disclosure ofinside information. Member States will

4 Corporate Criminal LiabilityApril 2016

Introduction


This survey of corporate criminal liability seeks, on a jurisdiction-by-jurisdiction basis,to answer some common questions on a subject which features with increasingregularity on boards’ and prosecutors’ agendas.



have to make sure that such behaviour,including the manipulation ofbenchmarks, is a criminal offence,punishable with effective sanctions.Significantly in the context of corporateliability, the directive extends liability tolegal persons (although liability would notattach to legal persons in circumstanceswhere they had in place effectivearrangements to ensure that no person inpossession of inside information relevantto the transaction could have transmittedthat information).

A new conceptIn all European jurisdictions where theconcept of corporate, or quasi-corporate,criminal liability exists, it is, with theexception of the UK and the Netherlands,a relatively new concept. Those countriesapart, France was the first Europeancountry to introduce the concept ofcorporate criminal liability in 1994, followedby Belgium in 1999, Italy in 2001, Polandin 2003, Romania in 2006 andLuxembourg and Spain in 2010. In theCzech Republic, an act creating corporatecriminal liability was introduced on 1January 2012. In November 2015,Slovakia was the most recent jurisdictionto introduce corporate criminal liability (witheffect from July 2016). In Germany,hitherto it has been thought that imposingcorporate criminal liability would offendagainst the basic principles of the GermanCriminal Code. However, in late 2013 theGovernment of North Rhine-Westphaliaproposed a draft law on corporate criminalliability, although this remains underdiscussion and time will tell whether it isenacted. In Russia, a draft law oncorporate criminal liability was put beforethe Russian Federation Council at the endof June 2014, but was rejected in mid-2015. Even in the UK, where criminalliability for corporate entities has existed fordecades, many offences focussing oncorporate criminal liability have been

created in recent years (and prosecutorscontinue to lobby for further extensions tothe application of this concept). In theNetherlands, until 1976 only charges forfiscal offences could be brought againstcorporate entities.

Rest of world contextOur study of a sample of emerging andestablished economies outside Europehighlights significant variations betweenarrangements in different jurisdictions,both in terms of the mechanisms bywhich corporate entities may faceexposure to the criminal law and themagnitude of the risk of such exposurecrystallising. In some instances, thesedifferences are based on the way inwhich historical connections betweenjurisdictions have shaped thedevelopment of the concept and continueto influence its application today.

For instance, the concept of corporateliability under the criminal law is relativelynascent in India, where the courtsconfirmed in a landmark case in 2005that corporate entities may suffer bothcivil and criminal liability, and Indonesia,where some statutes provide for patchypotential liability. In these jurisdictions,notwithstanding growing bodies ofjurisprudence, significant uncertaintieswill remain until prosecutorialexperiments are followed up with moreconcrete legislative developments and/orrobust jurisprudence.

In other jurisdictions surveyed (namelyAustralia, Hong Kong, Singapore and theUS), the concept is much betterestablished. There are substantialdifferences between these jurisdictions inthe way in which and the extent to whichcorporate entities are prosecuted. Inrelative terms, the highest levels ofinvestigative and prosecutorial activity areto be found in the US and Australia,

although in both jurisdictions, prosecutorsare seeking to send deterrent messagesby increasingly and actively pursuingindividuals in addition to corporates.

In Hong Kong and Singapore the influenceof English law is clear. In these jurisdictions,numbers of cases involving corporatedefendants have been relatively low.Largely as the result of similar difficultieswith attributing individuals’ conduct tocorporate entities as have historically besetUK prosecutors, authorities there haveadopted the approach of targeting theirresources on the pursuit of individualsrather than corporates.

Basis of corporate liabilityThe basis or proposed basis of liability forcorporate entities within those countrieswhere liability exists (or is proposed) restson the premise that the acts of certainemployees can be attributed to acorporate entity. The category ofemployees which can trigger corporateliability is limited in some jurisdictions tothose with management responsibilitiesand the act must generally occur withinthe scope of their employment activities.The act must also generally be done inthe interests of or for the benefit of thecorporate entity.

Systems and controlsOne feature running through the legalframework in many of the jurisdictions isa focus on whether the corporate entityhad proper systems and controls toprevent the offence from occurring. Suchsystems and controls can either operateto: (i) show there was no intent to commitan offence on the part of a corporate, (ii)provide a defence, (iii) be a mitigatingfactor upon sentence or (iv) impact ondecisions to prosecute and on penalties.

In relation to intent, in Luxembourg, forexample, whilst there are no defences

expressly set out in the applicablelegislation, all offences require proof ofintent. This leaves it open to a corporateentity to advance arguments that it hadappropriate systems and controls inplace and so could not have intendedto commit the offence.

In many jurisdictions, corporate entitieswill have a defence if they show they hadproper systems and controls in place toprevent an offence from being committed.

In Belgium, except for offences of strictliability, a corporate entity can avoidcriminal liability altogether by proving thatit exercised proper due diligence in thehiring or supervising of the person thatcommitted the offence and that theoffence was not the consequence ofdefective internal systems and controls.By contrast, in Germany, a corporateentity’s owner or representatives can beheld liable (within the regulatory context) ifthey fail to take adequate supervisorymeasures to prevent a breach of duty byan employee, but it is a defence for theowner and the representatives to showthat they had taken adequatepreventative measures. In Italy, thecorporate entity has an affirmativedefence if it can show that it had in placeand effectively implemented adequatemanagement systems and controls.Likewise, in Spain, corporate entities willnot be criminally liable if they enforceappropriate supervision policies over theiremployees. In Poland, the corporateentity is only liable if it failed to exercisedue diligence in hiring or supervising theoffender or if the corporate entity’srepresentatives failed to exercise duediligence in preventing the commission ofan offence; and in Romania, thecorporate is only liable if the commissionof the offence is due to the latter’s lack ofsupervision or control. In Russia (albeitunder the Administrative Offences Code)

an organisation is guilty if it cannot provethat it took all possible and reasonablesteps to prevent the offence and complywith the law.

In some jurisdictions, measures taken bya corporate entity to prevent thecommission of offences may bemitigating factors to be taken intoaccount during sentencing. For example,in Italy a fine imposed on a corporateentity will be reduced by 50 per cent if,prior to trial, a corporate has adoptednecessary and preventative internalsystems and controls.

Even where it is not an express defenceor it is not taken into account expresslyas a mitigating factor, the adequacy of acorporate entity’s processes, proceduresand compliance culture is likely to be arelevant consideration for prosecutors

and courts in determining whether toprosecute and, where they do, indeciding what penalty to apply. InAustralia, due diligence in ensuringcompliance with the law is often availableto corporates as a defence; where it isnot a defence it may be a relevant factorin determining whether fault has beenestablished. In France, whilst there is nospecific defence provided by law basedon adequate compliance procedures, thefact that a corporate has implementedstrong compliance policies may be takeninto account either to demonstrate thatthere was no mens rea or whenassessing the amount of the penalty.

The emphasis placed on a corporate’scompliance culture and its systems andcontrols by applicable legislation, andmore broadly by prosecuting authoritiesand courts, demonstrates the importance





of having such systems in place. In theUK, the concept of “adequateprocedures” has risen high up thecorporate agenda as a result of theBribery Act 2010. Corporates withoutadequate procedures are liable to beprosecuted for the offence of failing toprevent bribery by their employees, orindeed by anyone performing services foror on their behalf.

In the US, robust complianceprogrammes may help corporates avoidprosecution, though they are not formallya defence to criminal prosecution –however, a robust complianceprogramme is likely to facilitate othermitigating circumstances, such as self-reporting of violations, that will help acorporate entity avoid prosecution. InApril 2016, the US Department of Justice(DOJ) announced a one year pilotprogramme applicable to investigationsconcerning the Foreign Corrupt PracticesAct. Under this programme, corporateswhich are able to show that they haveput in place “timely and appropriateremediation” may receive up to50 per cent credit on penalties. Althoughit remains to be seen how this is appliedin practice, guidance issued by the DoJhas indicated that factors to be taken intoaccount when determining whetherremediation has been “timely andappropriate” include whether a culture ofcompliance exists, evidenced byawareness amongst employees thatcriminal conduct will not be tolerated; thequality and quantity of resources devotedto and the independence of thecompliance function; and the adequacyof risk assessment, audit and governanceand reporting arrangements.

PenaltiesThe level of penalties varies acrossjurisdictions, but there are certaincommon trends. The most common

penalties imposed on corporate entitiesare fines which have been on an upwardtrajectory in recent years across manyjurisdictions. Several jurisdictions, suchas France and Spain, envisage thedissolution of the corporate entity incertain cases. Another common featureof sentencing regimes is a ban fromparticipating in public procurementtenders although there is no formalscheme for mandatory debarment frompublic procurement processes forcorporate entities convicted of criminaloffences in Hong Kong.

In Australia, law reform commissions haverecommended introducing sentencingprovisions targeted specifically atcorporate entities but there has notbeen any indication that suchrecommendations will be implementedin the near future. However, there is anappetite for higher penalties. TheAustralian Securities and InvestmentsCommission has called for the penaltiesavailable to it to be increased, looking tothe UK and US models in particular,where fewer constraints on maximumlevels of penalties apply.

In the US, in determining a corporateentity’s penalty in the federal system,judges refer to several statutory factorsenumerated in 18 USC. 3553(a) andChapter 8 of the Federal SentencingGuidelines (the Sentencing Guidelines).The crux of the Sentencing Guidelines isthat they punish according to thecorporate entity’s culpability and theseriousness of the crime, and rewardcorporate entities for self-disclosure,cooperation, restitution, and preventativemeasures. Under the DOJ’s pilotprogramme referred to above, previousarrangements where fines imposed havebeen reduced below the lowerboundaries of the Sentencing Guidelinesin order to incentivise self-reporting and

cooperation have now been codified. Inmany cases, prosecutors have begun toinsist on corporate guilty pleas in lieu ofmore lenient settlements and thesettlements themselves have requiredenormous fines on companies foundlacking adequately robust complianceprogrammes or internal controls.

In the Netherlands, the last couple ofyears have seen the Public ProsecutionOffice demonstrate a much greaterwillingness to impose very substantialfines, against a concern not to fall behindactions by foreign authorities.

In the UK, in respect of certain offences,the Sentencing Council’s DefinitiveGuideline for Fraud, Bribery and MoneyLaundering Offences (the Guideline) cameinto force on 1 October 2014.The Guideline contains a ten-stepprocess to be followed by the criminalcourts when sentencing corporate entitiesfor fraud, bribery and money launderingoffences. Some guidance can be derivedfrom the way in which judges arebeginning to use the Guideline, both incases where the corporate entityconcerned is prosecuted and thosewhere deferred prosecution agreements(DPAs) are negotiated with authorities andapproved by the courts. The Guidelinedraws upon a variety of sources includingregulatory and civil penalty regimesapplied by UK enforcement authorities;sentencing guidelines for corporatemanslaughter as well as civil and criminalpenalties imposed in other jurisdictions, inparticular the US. As noted above, theGuideline is also relevant to thedetermination of fines imposed under theterms of a DPA.

Since February 2014 DPAs have beenavailable to UK prosecutors as a way ofdealing with alleged economic criminalconduct by a corporate entity. These will

almost always require payment of afinancial penalty – but can also includecompensation to victims, the impositionof a monitor and/or disgorgement ofprofits, among other things. Any financialpenalty imposed under a DPA must bebroadly comparable to a fine that a courtwould have imposed upon a corporateentity following a guilty plea.

The concept of a DPA comes from theUS, where DPAs are an established andfrequently used method of concludinginvestigations involving corporateentities. The US also has available to itNon-Prosecution Agreements (NPAs).The DOJ turned to these tools followingArthur Andersen’s collapse to imposesubstantial financial penalties andcompliance reforms on companieswithout the collateral consequencesassociated with criminal charges. DPAsentail a criminal charge publicly beingfiled with the court, albeit in deferredstatus, whereas NPAs do not require acharge, deferred or otherwise.

The first DPA in the UK was concluded inNovember 2015, in a case that alsomarked the first action in respect of thecorporate offence of failing to preventbribery under section 7 of theBribery Act 2010. Both it, and a case thatfollowed shortly after it in which anothercorporate was actually prosecuted for thesame offence, underlined the discretionavailable to UK prosecutors as to how to

deal with cases involving self-reportingcorporates based upon their perceptionof levels of cooperation. DPAs havepreviously been introduced in someEuropean jurisdictions (for example in theCzech Republic), and in some othersthere are concepts akin to DPAs – suchas criminal settlement in Belgium. Similararrangements have also been mooted indraft legislative proposals in France. Insome European countries there can be aresolution short of prosecution in certaincircumstances not dissimilar to thosewhich must exist under the UK DPAregime. For instance, in Germany, thedraft proposal by the State of NorthRhine-Westphalia contains a provisionstipulating that the competent court canrefrain from imposing any penalty at all onthe corporate concerned if certainrequirements are met, one of which isthat the entity has self-reported. Similarly,in Romania, where corruption offencesarise, criminal liability can be avoidedaltogether if the corporate entity self-reports before an investigation hasstarted. In other countries, cooperationwill be considered a mitigating factorwhen it comes to sentencing.

MitigationIn many jurisdictions a corporate canmitigate the consequences of any liabilityby cooperating with the authorities. It isperhaps unsurprising that, in an era ofincreasingly scarce resources,prosecutors and regulators alike are

willing to reduce potential penalties,sometimes dramatically, in exchange forcooperation by the corporate entity. TheDOJ’s pilot programme is another clearexample of this.

In the UK “considerable weight” will begiven to a “genuinely proactiveapproach” adopted by the corporate inbringing the offending to the notice of theprosecuting authorities when a decisionis taken as to whether or not toprosecute. Prosecutors and judicialauthorities in a number of jurisdictionsrecognise that assistance provided bycorporate entities leading to theidentification and prosecution of culpableindividuals is a powerful mitigating factorwhich, in appropriate cases, meritsmeaningful reductions in penalties. In theUS, the Yates Memo’s prosecutorialguidance published in September 2015,makes the provision of full informationabout misconduct (including details ofinvolvement by individuals, no matterhow senior) a precondition of receivingcooperation credit.

In many jurisdictions it is still too early tojudge how effectively prosecutors willmake use of the legislation at theirdisposal. Nevertheless, the signs are thatthe trend is towards greater, not less,scrutiny of the conduct of corporateentities and their officers.



1 Deferred Prosecution Agreements Code of Practice, published by the UK’s Serious Fraud Office and Crown Prosecution Service, paragraph 2.82 (i).

Americas

IntroductionCorporate criminal liability has been afeature of United States law since thenineteenth century. In the early part of thecentury, corporate entities could be heldliable only for strict liability crimes (ie, thosethat impose liability regardless ofculpability). This trend started to change in1890, when Congress passed theSherman Antitrust Act, explicitly providinga statutory basis for corporate criminalliability. By the early twentieth century,courts also applied the civil doctrine ofrespondeat superior to hold corporateentities liable for intent-based crimescommitted by their agents and employees.

Criminal prosecution of corporate entitiesbecame more commonplace by the turnof the twenty-first century. That practice,however, came to a rather abrupt halt inthe wake of the notorious criminalprosecution of Arthur Andersen inconnection with the Enron accountingfraud scandal. Arthur Andersen foughtthe criminal charges and lost at trial, withthe resulting conviction resulting in thedemise of the well-established companyand job losses for thousands of innocentemployees. These collateralconsequences of the conviction —resounding all the more sharply when theconviction was later reversed for legalerror by the US Supreme Court — chilledprosecutors’ inclination to pursue criminalcases against corporate entities, areluctance that persisted even throughthe beginning of the financial crisis.

The pendulum has since swung back theother way. Prosecutors are soundlyrejecting the theory that any company orinstitution is “too big to jail” and havebecome less willing to accept the adventof collateral consequences as justificationfor not pursuing criminal charges againstcorporate entities. While there have notbeen trials, prosecutors have begun to

insist on corporate guilty pleas in lieu ofmore lenient settlements and thesettlements themselves have requiredenormous fines on companies foundlacking adequately robust complianceprogrammes or internal controls. Thetheories under which such charges maybe pursued are discussed below.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Under principles of respondeat superior, acorporate entity is vicariously criminallyliable for the illegal acts of any of its agents(including employees and contractpersonnel) so long as those actions werewithin the scope of their duties and wereintended, even only in part, to benefit thecorporate entity. An act is considered“within the scope of an agent’semployment” if the individual commits theact as part of his general line of work andwith at least the partial intent to benefit thecorporate entity. The corporate entity neednot receive an actual benefit. A corporateentity may be liable for these offenceseven if it directs its agent not to committhe offence.

In contrast with federal law, in many states,a corporate entity is liable only for the actsof senior level management officials, andnot for those of junior employees.

Some courts have also allowed forprosecution where the prosecutor couldnot identify the specific agent whocommitted the crime, if the prosecutor canshow that someone within the corporateentity must have committed the offence.Similarly, where no single employee has therequisite intent or knowledge to satisfy ascienter element, courts have recognised a“collective knowledge doctrine,” whichimputes the collective intent andknowledge to the corporate entity when

several employees collectively knewenough to satisfy the intent or knowledge.Some courts, however, have limited thecollective knowledge doctrine tocircumstances where the company wasflagrantly indifferent to the offencesbeing committed.

Additionally, some statutes imposecriminal liability for corporate entitiesbeyond respondeat superior, particularlyin the fields of environmental law andantitrust violations.

What offences can a corporate notcommit?Corporate entities can commit any offencethat an individual could commit, providedthe offence meets the standards laid outabove, and as long as the US Congresshas not specifically exempted corporateentities from liability in an applicable statute.

Are there any specific defencesavailable?While there are not specific defencesavailable to corporate entities, they havesome (but not all) of the same constitutionalrights as an individual facing a criminalinvestigation or prosecution. Any violation ofthese rights would provide a defence. Aswith individuals, ex post facto laws areunconstitutional as applied to corporateentities. An ex post facto law is one thatmakes conduct criminal retroactively, while itwas innocent at the time of the conduct, orthat increases the punishment for a crimeafter the conduct. Furthermore, corporateentities have a First Amendment right tofreedom of speech when it comes topolitical speech and the government cannotplace content-based restrictions on acorporate entity’s truthful speech in thecontext of lawful commercial activity.Corporate entities also have a FourthAmendment right to be free fromunreasonable searches and seizures. Incertain highly regulated sectors, however,


United States




corporate entities may, by the nature of theirbusiness, be subject to reasonablewarrantless inspections or inquiries.Additionally, corporate entities have Fifthand Fourteenth Amendment rights to dueprocess and a Fifth Amendment right to befree from double jeopardy, or the repeatedprosecution for the same crime. However,corporate entities cannot assert the FifthAmendment’s privilege againstself-incrimination or the right to a grand juryindictment. Furthermore, corporate entitiesalso have Sixth Amendment rights toassistance of counsel, notice of charges,public trials, speedy trials, and trials by jury,and to call witnesses and confrontwitnesses against them. Finally, corporateentities have an Eighth Amendment right tobe free from excessive fines that are grosslydisproportionate to the crime committed.

Robust compliance programmes may alsohelp corporate entities avoid prosecution,though they are not formally a defence tocriminal prosecution. However, having arobust compliance programme is likely tofacilitate other mitigating circumstances,such as self-reporting of violations, thatwill help a corporate entitiy avoidprosecution, as discussed further below.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?Generally, corporate liability does notinsulate the directors, officers, or agents ofthe corporate entitiy from individual liability.

Courts have stated explicitly that withouta clear intent from the US Congress, boththe corporate entity and the individualcan be found liable for the crime. Thereare several crimes for which officers anddirectors may be liable even if they didnot commit the underlying crimethemselves, including conspiracy,procurement, aiding and abetting,

misprision, accessory after the fact, andobstruction of justice.

Additionally, both the corporate entity andits directors or officers may be liable forinchoate crimes, such as a conspiracybetween two or more directors or officers.However, an officer or director of thecorporate entity cannot be convicted ofconspiring solely with the corporate entity.Furthermore, under Pinkerton v. UnitedStates, a director or officer who was notaware of the criminal act may be liablecriminally for the foreseeable offencescommitted by one of his co-conspiratorsin furtherance of a common scheme.

Corporate directors or officers may also beliable when they have instructed anotheremployee to commit a federal offence forprocurement, or for aiding and abettinganother in the commission of a federaloffence. To aid and abet another, theofficer or director would have to know ofand facilitate the other’s misconduct.Furthermore, a director or officer could beliable for their conduct after the crime hasbeen committed. A director or officermight be liable for misprision if they knewof the commission of a federal felony byanother employee and actively tried toconceal the crime. Furthermore, a directoror officer could be liable as an accessoryafter the fact for assisting another inavoiding the consequences of their federaloffence. “Misprision” and “accessory afterthe fact” charges can also lead to specificstatutory charges for obstruction of justice.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?On the federal level, the US Departmentof Justice (DOJ) is responsible forprosecuting criminal offences bycorporate entities. Administrative bodies,such as the US Securities and Exchange

Commission and the US Commoditiesand Futures Trading Commission, canbring civil charges against corporateentities. Individual states, also have thepower to pursue criminal and civil chargesagainst corporate entities for violation ofstate laws and regulations. Notably, NewYork State has taken an active role inprosecuting financial crimes and otherwhite collar matters. However, theparagraphs below focus on federal law.

PunishmentCorporate entitiesIn the criminal context, corporate entitiesface the same punishments asindividuals after conviction, except that,naturally, corporate entities cannot besentenced to prison time or death.However, corporate entities can be fined,put on probation, required to payrestitution, required to performcommunity service, ordered to implementmonitorships, barred from engaging incertain commercial activity, required toestablish compliance programmes, orordered to follow any other condition thatthe judge believes addresses the harmcaused or threat of future harm, or havetheir property confiscated.

In determining a corporate entity’ssentence in the federal system, judgesrefer to several statutory factorsenumerated in 18 US C. 3553(a) andChapter 8 of the Federal SentencingGuidelines (the Sentencing Guidelines).The crux of the Sentencing Guidelines isthat they punish according to thecorporate entity’s culpability and theseriousness of the crime, and rewardcorporate entities for self-disclosure,cooperation, restitution, andpreventative measures.



12

What factors are taken intoconsideration in determiningthe penalty?Among the factors considered by afederal judge in determining a corporateentity’s penalty, the most significant is thenature and seriousness of themisconduct in question. The SentencingGuidelines provide a sliding scale finerange based on the gravity andcircumstances of the offence, amongother factors. In determining where in therange the fine should be set, the judgelooks to factors such as the quality of thecorporate entity’s compliance programmeand whether the corporate entity wouldgain a windfall despite the fine. Othersignificant factors include theorganisation’s cooperation with theinvestigation ie whether the corporateentity provided “substantial assistance” toauthorities in the investigation andprosecution of others whether the offenceresulted in death or bodily injury, whetherthe offence constituted a threat tonational security or the environment,whether the organisation bribed anypublic officials in connection with theoffence, and whether the corporate entityagreed to pay remedial costs that greatlyexceed the gain the organisationreceived, among others.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Voluntary disclosure of violations can helpa corporate entity at several points in thecriminal process, including seekingleniency through a settlement orotherwise mitigating penalties. Voluntarydisclosure of violations is one of severalfactors considered by federal prosecutorsin deciding whether to bring chargesagainst a corporate entity. In determiningwhether to pursue a criminal chargeagainst a corporate entity, prosecutorsare guided by a set of internal criteria

called the “Principles of FederalProsecution of Business Organisations.”Sometimes referred to as the “FilipFactors,” these publicly available criteriainclude such factors as:

n the pervasiveness of the wrongdoingwithin the corporate entity;

n the corporate entity’s history of similarmisconduct;

n the corporate entity’s timely andvoluntary disclosure of wrongdoingand its willingness to cooperate in theinvestigation of its agents;

n the existence and effectiveness of thecorporate entity’s pre-existingcompliance programme;

n the corporate entity’s remedial actions,

n collateral consequences;

n the adequacy of the prosecution ofindividuals responsible for thecorporate entity’s malfeasance; and

n the adequacy of remedies such as civilor regulatory enforcement actions.

On 9 September 2015, the Filip Factorswere updated by Deputy AttorneyGeneral Sally Quillian Yates in what hasbecome known as the “Yates Memo.”Now, to be eligible for any “cooperationcredit,” companies must “identify allindividuals involved in or responsible forthe misconduct at issue, regardless oftheir position, status or seniority, andprovide to the Department all factsrelating to that misconduct.” Further, if acompany “declines to learn of such factsor to provide the Department withcomplete factual information about theindividuals involved” it will receive nocredit for cooperation. This new policyreflects the DOJ’s express commitment tofocus on the prosecution of individualwrongdoers. While it remains to be seenhow this policy is enforced in practice,

corporate entities consideringcooperation will need to be alive from theoutset to the myriad consequencescompliance with this policy will entail.

Additionally, on 5 April 2016, the Fraudsection of the DOJ announced a one-yearpilot programme applicable to all ForeignCorrupt Practices Act matters. Entitled“The Fraud Section’s Foreign CorruptPractices Act Enforcement Plan andGuidance”, the programme is intended toclarify the self-disclosure process andprovide greater certainty as to the benefitsof self-disclosure of FCPA violations. Whilethe new programme, of course, alsorequires full compliance with the DOJ’sPrinciples of Federal Prosecution ofBusiness Organisations and the YatesMemo, the benefits outlined could result incompanies receiving up to a 50 per centreduction in financial penalties from FCPAviolations and avoid the costs andconsequences of a monitor. As with theYates Memo, the effects of this new policyremain to be seen, but it reflects an effortby the DOJ to provide some clarity,certainty and encouragement tocompanies considering self-disclosure ofan FCPA violation.

What types of settlements areavailable to a corporate entity incriminal matter? Alternatives to a criminal trial include aguilty plea, a deferred prosecutionagreement (DPA), a non-prosecutionagreement (NPA), or civil orregulatory sanctions.

DPAs and NPAs are dispute resolutionmechanisms that avoid indictment. DOJturned to these tools in abundance in thewake of Arthur Andersen to imposesubstantial financial penalties andcompliance reforms on companies withoutthe collateral consequences associatedwith criminal charges. The key difference



between NPAs and DPAs is that DPAsentail a criminal charge publicly filed withthe court, albeit in deferred status, whereasNPAs do not require a charge, deferred orotherwise. NPAs are private agreementsthat become public only by theagreement’s terms. There is no judicialinvolvement in a resolution by NPA; DPAsettlements require court approval.

Otherwise, NPAs and DPAs are similar.They both include: (i) an admission in theagreement to misconduct described in anaccompanying statement of facts; (ii)requirements to implement variousmeasures during the term of theagreement, including (among otherthings) payment of a fine, continuedcooperation with the DOJ and otherauthorities, and enhanced internalcontrols to remediate the wrongdoing;and (iii) a release from criminalprosecution for any crimes described inthe statement of facts, so long as theagreement is not breached. A DPA

includes the DOJ’s commitment to deferprosecution of the charge filed with thecourt during the term of the agreementand, absent breach, to dismiss thecharge entirely at the term’s close.

In considering whether to apply civil orregulatory sanctions instead of criminalprosecution, prosecutors considerseveral factors including the interest ofthe regulatory body, their ability andwillingness to take over theinvestigation, and the sanction likely tobe imposed on the corporate entity bythe regulatory body.

Current positionThe DOJ has been pursuing severalinitiatives concerning corporate liability.Firstly, the DOJ has placed greateremphasis on corporate entitiescooperating in the prosecution ofindividuals to receive cooperation creditsufficient to avoid prosecution. To obtainfull cooperation credit, the corporate

entity must act promptly to identifyresponsible individuals and to procureand produce evidence against them.

Furthermore, the DOJ emphasised thevalue of bringing charges againstindividuals rather than corporate entities.According to the DOJ, this promotesfairness to other employees andstockholders, while still maintainingaccountability and appropriatedeterrence. The DOJ also emphasisedthe need to incentivise whistle-blowersand cooperating witnesses to comeforward and cooperate.

The best way for corporate entities toavoid criminal prosecution in the UnitedStates is to implement robust internalcompliance programmes, to be sure toreport any violations in a timely manner,and to cooperate fully should a federalinvestigation of the responsible agentfollow self-reporting.

Europe and the Middle East



IntroductionTraditionally, legal entities were notcriminally liable under Belgian law. In thecase of an offence committed by acorporate, only those persons who wereresponsible for the corporate and whohad the duty to prevent the offence couldbe punished.

The situation changed radically with theadoption of the law of 4 May 1999which came into force on 2 July 1999on the criminal liability of legal entities.This law enables corporate entities tobe prosecuted, with somelimited exceptions.

Under Belgian law, corporate entities aremainly exposed to the risk of criminalinvestigation or prosecution in the fieldsof environmental law and regulation,labour law, road traffic offences,consumer protection, aggravated taxfraud, corruption (especially in relation topublic procurement tenders), marketmanipulation and money laundering.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?A corporate entity can incur criminalliability either where a criminal offence iscommitted on its behalf or when anoffence is intrinsically linked toits activities.

This is interpreted broadly. For example,a corporate entity could be criminallyliable if one of its drivers caused anaccident as a result of a violation of theHighway Code.

However, a corporate entity may not beconvicted for the criminal acts of itsemployees committed outside the scopeof their professional activities.

What offences can a corporatenot commit?A corporate entity can commit any offence,except those for which only physicalpersons could be held liable (eg bigamy).

Are there any specific defencesavailable?With the exception of strict liabilityoffences, a corporate entity can avoidcriminal liability by proving that it did nothave any criminal intent, that it hasexercised proper due diligence in thehiring or supervising of the person whocommitted the offence and that theoffence was not the consequence ofdefective internal systems and controls.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?There is no need to identify the physicalperson who committed the offence onbehalf of the corporate entity in order toprosecute the corporate entity.

When a criminal offence, which iscommitted on behalf of a corporate entityor which is intrinsically linked to theactivities of the corporate entity, isattributable to one or more physicalperson(s), both the corporate entity andthe physical person(s) may be prosecutedat the same time.

In principle, the corporate entity is liablefor the civil consequences of theoffences committed by its directors,managers and employees.

For specific offences, such as theviolation of the highway code, thecorporate legal entity is jointly andseverally liable vis-à-vis the Belgian Statefor the fines imposed on its directors,managers and employees.

There is an exception to this principle ofconcurrent liability which applies when anunintentional offence has beencommitted. In that case, only the person(corporate entity or physical person) whohas committed the most serious faultmay be prosecuted. This rule is verycontroversial and creates conflict ofinterest issues in circumstances where acompany is prosecuted for anunintentional offence (strict liability) at thesame time as its directors or managers.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?The public prosecutor (Procureur duRoi/Procureur des Konings) (PP) is incharge of prosecuting criminal offencescommitted by corporate entities.

Most investigations will be carried out bythe PP, with the assistance of the police.However, more complex investigationsrequiring, for example, powers of searchand seizure and/or powers of arrest anddetention must be carried out by aninvestigating magistrate (Juged’Instruction/Onderzoeksrechter).

Criminal proceedings against corporateentities are, like proceedings againstphysical persons, conducted inaccordance with the Belgian Code ofCriminal Procedure. At the end of theinvestigation and upon requisitions fromthe public prosecutor, the CouncilChamber (Chambre du Conseil/Raadkamer) will decide whether there aresufficient grounds to bring the suspect(s)before the criminal courts or not. Thecriminal court of first instance (TribunalCorrectionnel/Correctionele Rechtbank) iscompetent to adjudicate the case at firstinstance. The judgment can be appealedbefore the Court of Appeal (Courd’Appel/Hof van Beroep). Issues of law

Belgium

can then be appealed before theSupreme Court (Cour de Cassation/Hofvan Cassatie).

PunishmentCorporate entitiesThe penalties that corporate entities canface are determined by the BelgianCriminal Code. In cases whereimprisonment is the proposed penalty fora particular offence, this is automaticallyconverted into a fine. The level of the fineis determined according to a formulabased on the number of months’imprisonment imposed.

The level of the fines may have adeterrent effect on small corporateentities. Experience suggests that largecorporate entities are more concernedabout the reputational risk and theconsequential civil liability that can resultfrom a conviction.

For specific offences, such as marketabuse or insider trading, the defendantmay be required, in addition to the penalty,

to pay an amount equal to two or threetimes the profit made from the offence.

Corporate entities can also faceconfiscation of assets, prohibition fromconducting a specific activity and/orpublic censure. The corporate entity mayalso be dissolved if it is found that it wasset up for the purpose of committingcriminal offences.

Additionally, corporate entities which havebeen convicted of specific criminal offencesmay be prohibited from participating inpublic procurement tenders.

What factors are taken intoconsideration in determiningthe penalty?There is a maximum and a minimumpenalty for each specific offence. Thecourt will determine the penalty withinthese limits, taking into account variousaggravating or mitigating factors.Aggravating factors taken into accountinclude the harm which the offencecaused, whether the offence was

planned, the profit generated and anyprevious offending.

Mitigating factors include cooperationduring the investigation, early acceptanceof guilt and steps taken to compensatevictims. It remains very difficult however tomeasure the precise impact of each ofthese factors on the court’s decision.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?The Belgian Criminal Code does notcontain any leniency provisions.However, voluntary disclosure of acriminal offence will generally beconsidered a mitigating factor.

Can the PP settle a criminal matter(transaction pénale/strafrechtelijketransactie)? Two laws of 14 April and 11 July 2011have introduced into Belgian law anextended possibility of settlement incriminal matters. Pursuant to these newlaws, the PP can settle a criminal matterfor a financial penalty (includingcompensating victims where appropriate)for both individuals and corporateswhere s/he considers that the offencedoes not deserve a term of imprisonmentexceeding two years, provided that thefacts do not imply a severe infringementof the physical integrity of a person.This is regardless of the maximumpenalty prescribed by law, so that it isthe judgement of the PP that matters.The PP need not explain why heconsiders two years to be sufficient. Inpractice, this means that the PP is freeto settle cases when s/he believes it isappropriate. However, a settlement is notalways possible, for instance where theoffence involves customs and exciseduties or has caused severe physicalinjuries. Further, the potential victim(s)must be indemnified. The victim does not





need to be fully indemnified if thequantum is disputed but must becompensated to the extent not disputed.Where tax or social law authorities areamong the victims, they must approvethe settlement. Other victims can submittheir comments to the PP but cannotveto the settlement. A settlement can bereached at any stage of the proceedingsuntil a final decision on the meritsis rendered.

The amount of the financial penalty is atthe discretion of the PP. However, theamount to be paid cannot exceed themaximum penalty as prescribed by law(and penalties of imprisonment areconverted into an amount in EUR).

The settlement must only be approved bya court where proceedings have beentransferred to an investigating magistrate

(Juge d’Instruction/Onderzoeksrechter) ordeferred to the criminal court; otherwise nocourt approval is required, however its roleis limited to verification that the abovementioned conditions have been met.

The laws contain specific guidelines asto, inter alia, the fine which can beproposed, the delays for the execution ofthe settlement, the hand-over of seizedassets, the treatment of civil damagesclaims and the ultimate discontinuation ofthe criminal action.

Current positionSince the adoption of the law of 4 May1999 a significant number of corporateentities have faced criminal investigationsand/or prosecutions. Public prosecutorshave not hesitated to use the broadpowers conferred under the law toprosecute legal entities and some

prosecutors have been very aggressive intheir approach.

As a result, criminal prosecution is nowseen as a real risk by the vast majority ofcorporate entities in Belgium, and thishas undoubtedly had an impact oncorporate consciousness.

Criminal settlement is becoming morecommon, especially in complex financialmatters. This is principally because theBelgian authorities lack the resources todeal with these matters within areasonable period of time, such that inmany complex matters, the defendantsare acquitted after relying on technicaldefences relating to time-limitation.

IntroductionThe existence of corporate criminalliability is a relatively new phenomenonin the Czech Republic. The Act onCriminal Liability of Corporations andProceedings Against Them (the Act) onlycame into force on 1 January 2012.The Act was introduced to meet theCzech Republic’s internationalcommitments and as part of the Czechgovernment’s anti-corruption strategy.

A corporate entity (including a foreigncorporate entity) can be held liable underthe Act if it is registered in theCzech Republic, conducts its business inthe Czech Republic through an enterpriseor branch or otherwise, or has assets inthe Czech Republic. Czech corporateentities can also be punished under the Actfor criminal offences committed abroad.

There have been several minoramendments to the Act since it came intoforce. The first amendment implementedcertain changes in connection with newlegislation on international judicialcooperation in criminal matters and is notspecific to corporate criminal liability. As of1 January 2014, the Act stipulates that alegal entity which is based in the CzechRepublic is considered a Czech citizen or aperson with permanent residence in theCzech Republic, for the purposes of theAct on International Judicial Cooperation inCriminal Matters. The sections of the Actdealing with international judicialcooperation in criminal matters wererepealed when the Act on InternationalJudicial Cooperation in Criminal Mattersbecame applicable.

The second amendment, which becameeffective on 1 August 2014, extended thelist of criminal offences recognised by theAct. Corporate entities may now beprosecuted for eg profiteering, the abuse ofa child for the production of pornography,or for the participation in pornographic

performances. Further, deferredprosecution agreements (DPAs) wereintroduced into the Czech legal systemwith effect from 1 September 2012. Therules on DPAs have been incorporated intothe Code of Criminal Procedure and areapplicable, inter alia, in proceedingsconcerning the criminal liability of corporateentities and should help to simplify criminalproceedings. A DPA may be proposed bya public prosecutor (upon the petition ofthe accused or ex officio) and must beapproved by a criminal court in a publichearing. The negotiations may be initiatedprovided that there is sufficient evidence tojustify the conclusion that a criminal offencehas been committed by the accused. ADPA may only be concluded in thepresence of the defence counsel, and thepublic prosecutor is required to take thevictim’s interests into consideration. TheDPA itself must contain, among otherthings, a declaration that the accusedcommitted the act in question and it shallalso specify the punishment to be imposed(or waiver of punishment if permissible) aswell as the extent and manner ofcompensation for material or non-materialdamage, or disgorgement (if agreed).

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?A corporate entity is held criminally liableif the offence was committed:

n on its behalf, in its interests or withinthe scope of its activities; and

n by: (i) its statutory body or otherpersons acting on its behalf(eg under a power of attorney);(ii) persons performing managing orsupervisory activities within thecorporate entity; (iii) personsexercising decisive influence over themanagement of the corporate entity;or (iv) its employees while carryingout their tasks, subject to further

qualifications set out in the Act(eg where due supervision wasnot exercised).

What offences can a corporate entitynot commit?A corporate entity can only commit alimited number of criminal offences(approximately 82 in total). These includeoffences related to money laundering,corruption, interference with justice,fraud, fraudulent accounting, rigging oftenders, environmental offences,organised crime, human trafficking,computer crimes and various tax-relatedoffences. A major amendment that wouldincrease the number of offences acorporate entity could commit toapproximately 240 is currently beingconsidered. If the amendment were to beadopted, a corporate entity could be heldliable for committing almost any offencerecognisable under Czech law with only afew exceptions (eg those offences that bytheir very nature can only be committedby natural persons or which relate tocompetition law).

Are there any specific defencesavailable?The Act does not provide for any specificdefences. However, it provides for theapplication of the Czech Criminal Codeand the Czech Code of Criminal Procedurewhere it does not set out specific rules andthe nature of the matter permits.For example, the defence of “mistake offact” which exists under the Czech CriminalCode could be applicable.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?If a corporate entity is convicted, the Actdoes not provide that secondary liabilitywill automatically attach to the directors ifthey knew of or were negligent regardingthe facts which led to the conviction ofthe corporate entity. However, thecriminal liability of a corporate entity does


Czech Republic




not preclude the (additional) criminalliability of its directors and officers andthey are at riks of individual prosecutionunder the Criminal Code if their conductconstitutes an offence.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?The police and the public prosecutorwould be responsible for investigatingand prosecuting offences committed bycorporate entities (as is the case foroffences committed by individuals).

PunishmentCorporate entitiesThe most serious penalty envisaged isthe dissolution of the corporate entityitself if its activities wholly orpredominantly consisted of thecommission of criminal offences. Thispenalty can only be imposed againstcorporate entities with a registered officein the Czech Republic.

Other penalties contained in the Actinclude: (i) the forfeiture of (all) property; (ii)monetary penalties; (iii) the forfeitureand/or confiscation of assets; (iv) theprohibition of activities; (v) the prohibitionof performance under public procurementcontracts, participation in concessionprocedures or tenders; (vi) the prohibitionon accepting grants and subsidies and;(vii) the publication of judgments.

The Act does not provide for anymitigating or aggravating factors.However, relevant provisions of theCriminal Code are applicable, such as:

n mitigating factors: if it is a firstoffence, committed in circumstancesthat were beyond the control of theoffender; or if only minor damageresulted; and

n aggravating factors: if it is a repeatoffence or if it was committeddeliberately or with premeditation.

IndividualsThe criminal liability of corporate entitiesdoes not have any impact on the existingcriminal liability of individuals under theCzech Criminal Code. The punishment ofindividuals will continue to be regulatedby the Czech Criminal Code alone.

However, some offences may only becommitted by an offender “vested with aspecial capacity, status or quality”. In suchcases, the offender does not need to havethis special capacity, status or quality himor herself provided that the corporate entityon whose behalf the offender acts had thisspecial capacity, status or quality.

What factors are taken intoconsideration when determiningthe penalty?In determining the type and severity of thepenalty, similar principles apply under theAct as those which apply to individualsunder the Criminal Code. A court will takeinto account factors such as:

n the nature and seriousness of theoffence committed;

n the financial circumstances of thecorporate entity and the nature of itsexisting activities;

n the corporate entity’s conduct after thecriminal conduct, in particular its effortsat making good any damage ormitigating any other detrimental effects;

n the effects and consequences thatmight be expected from the penaltywith regard to the corporate entity’sfuture activities; and

n the effects that the penalty might haveon third parties, in particular thosepersons harmed through the criminaloffence. In the case of corporateentities, the court would have toconsider the effect on creditors withno connection to the offence itself.

Is there a mechanism for corporateentities to disclose violations inexchange for lesser penalties?The Act provides for “effective remorse”,which means that the criminal liabilitywould expire if the offender voluntarily:

n prevented or rectified the detrimentaleffects of its criminal offence; or

n reported its criminal offence at atime when the detrimental effects ofthe criminal offence could stillbe prevented.

However, effective remorse is notapplicable to corruption-related offences.

Current positionThe Act enables the punishment ofcriminal conduct that previously could notbe sanctioned due to the difficulty inidentifying the individual(s) responsible incircumstances where decisions are takenby a corporate entity. It also helps toprevent situations where individuals areheld criminally liable whilst the corporateentity escapes liability and continues itscriminal conduct. The level of penaltiescontemplated under the Act can severelyaffect the continued operation andprofitability of corporate entities.

Since its enactment, there have beenapproximately 90 convictions underthe Act.

The most severe sentences haveincluded the dissolution of a corporateentity and the prohibition of businessactivities for a period of 10 years.DPAs have not been used frequentlysince they were introduced. However,since it is now possible to prosecutecorporate entities under the Act, and asDPAs become a greater feature of theinternational prosecutorial landscape, it isanticipated that the use of DPAs forcorporate offending in theCzech Republic will increase.

IntroductionThe Penal Code of 1994 introduced theconcept of corporate criminal liability inFrench law. Initially applicable to a limitednumber of offences, the principle hasbeen extended to all offences as from 31December 2005 (Law No 2004-204 of 9March 2004).

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?With the exception of the State and, undercertain conditions, the local publicauthorities, a corporate entity may becriminally liable for the offences committedon its behalf by its legal representatives.

A corporate entity may also be convictedfor the criminal acts of its employees actingon behalf of the company through anexpress power of attorney (délégation depouvoir), where the corporate entity hasvalidly delegated certain powers to them.

However, recent case law has suggestedthat a corporate entity may be convictedon the basis of negligence resulting fromcareless and/or defective organisation ofthe company, even if the fault cannot beattributed to a representative or anemployee to whom the corporate entityhas delegated functions.

What offences can a corporate entitynot commit?In theory, a corporate entity can commitany offence except for offences which, bytheir very nature, can only be committedby natural persons. A corporate entitycan commit offences for whichimprisonment is the only penalty providedby law. In such cases, the company maybe fined up to EUR 1 million.

Are there any specific defencesavailable?There is no specific defence provided bylaw, such as the one based on theimplementation of anti-corruptionadequate procedures set out by the UKBribery Act. However, the fact that acompany has implemented strongcompliance policies may be taken intoaccount either to demonstrate that therewas no mens rea or when assessing theamount of the penalty.

More generally, a corporate entity will notbe convicted if it is able to demonstratethat the offence was not committed on itsbehalf. For example, a corporate entitycannot be indicted or convicted ofoffences committed by its representativesif they acted in their own interest, ratherthan on the company’s behalf.

However, the court may infer that theoffence was committed on behalf of thecompany if it was committed in thecourse of the usual corporate businessand for its benefit.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?The criminal liability of a corporate entityfor an offence does not preclude that ofany natural person who may be aperpetrator or accomplice to the sameact but the commission of an offence bya corporate entity does not automaticallyresult in liability for its directors or officers.

Both individuals and corporate entitiescan be convicted on the basis of thesame facts. For instance, the CEO of acompany may be held criminally liable forthe same offence as the company, if theoffences committed with his consent,assistance or neglect. The decision toprosecute an individual or a corporateentity rests with the Public Prosecutor.

In practice, despite an increasing numberof prosecutions brought againstcorporate entities, individuals are still theprimary target of prosecutors.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?The public prosecutor is in charge ofprosecuting and investigating offencescommitted by corporate entities. In somecomplex matters, an investigatingmagistrate will be appointed to carry outthe investigation.

French regulatory bodies are not entitledto prosecute and investigate criminaloffences. For example, the FrenchAuthority of Financial Markets (Autoritédes Marchés Financiers) only focuses onregulatory breaches giving rise toadministrative liability when dealing withcorporate entities or individuals. If aregulatory body becomes aware ofpossible criminal offences during thecourse of an investigation, it has a duty toreport them to the public prosecutor.

PunishmentCorporatesThe maximum fine applicable to acorporate entity is five times the fineapplicable to individuals. For example, acorporate can be fined up to EUR1,875,000 for misuse of company assetsas compared with a fine up to EUR375,000 for individuals.

Where expressly provided by law, thefollowing additional penalties maybe imposed:

n dissolution, where the corporate entitywas created to commit a felony; or,where the felony or misdemeanorcarries a sentence of imprisonment ofthree years or more, where thecorporate entity was diverted from itsobjectives in order to committhe crime;


France




n prohibition from exercising, directly orindirectly, one or more social orprofessional activities, eitherpermanently or for a maximum periodof five years;

n placement under judicial supervisionfor a maximum period of five years;

n permanent closure or closure for upto five years of one or more of thepremises of the company thatwere used to commit the offencesin question;

n disqualification from public tenders,either permanently or for a maximumperiod of five years;

n prohibition on making a public appealfor funds, either permanently or for amaximum period of five years;

n prohibition on drawing cheques, exceptthose allowing for the withdrawal offunds by the drawer from the draweeor certified cheques, and the prohibitionon using payment cards, for amaximum period of five years;

n confiscation of the object which wasused or intended to be used for thecommission of the offence, or of theassets which are the product of it;and publication of the judgment.

IndividualsPossible legal consequences for a legalrepresentative, director, or employee ofa corporate entity to whom powershave been delegated includeimprisonment, fines and a prohibition onexercising a commercial professionand/or on managing or controlling acommercial company.

What factors are taken intoconsideration when determiningthe penalty?When imposing a sentence on a corporateentity, courts take into account, amongother factors: the circumstances of the

offence; the amount of profit realised; theharm caused; and the financialcircumstances of the corporate entity.

The court must take into considerationaggravating factors, such as if the offencewas repeated or planned.

If the corporate entity cooperates withthe prosecutor or with the investigatingjudge, the court can take suchcooperation into consideration. However,there is no official sentencing guideline inrelation to cooperation of the offender orself-reporting.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?The French Code of Criminal Procedureallows a defendant to “negotiate” hispenalty with the Public Prosecutor (inorder to try to obtain a lesser penalty),provided that he first admits his guilt. Insuch circumstances, once the facts areadmitted, the Public Prosecutor proposesa penalty to the defendant in thepresence of his lawyer. If agreed by thedefendant, the “deal” is then submitted tothe President of the Criminal Court forapproval. However, in practice, thisprocedural option, which is designed forsimple/undisputed cases where thepenalty is foreseeable, is rarely used bycorporate entities.

Current positionIn 2004, a plea bargaining process wasintroduced (comparution surreconnaissance préalable de culpabilité).Under this process, the defendant admitshis guilt for a lesser penalty and there isno public trial. Where the penalty isagreed between the parties, it is thensubmitted to the President of the CriminalCourt for approval through a judgment,which is registered in the criminal record.

Until recently, this process had only beenused by prosecutors for minor offencessuch as car traffic offences. In the lastcouple of years, some investigatingmagistrates have started to use thisprocedural option to settle complexfinancial matters involving legal entitiesand it is now officially encouraged bypublic prosecutors.

Pursuant to a law enacted on 6December 2013, a new prosecutorspecialising in financial matters wascreated. This new prosecutor has, so far,been very active in investigating corporateand financial institutions and a number ofmajor cases are ongoing. Judges havealso recently demonstrated their capacityto impose much higher fines oncompanies than they have historically.

In 2016, a draft bill on transparency,anti-corruption and economic modernisation, introducing a new frameworklegislation to prevent, detect and punishcorruption in France and abroad is to bediscussed before the French Parliament.It proposes to introduce:

n The creation of an obligation for largeFrench companies to prevent risks ofcorruption through a duty toimplement efficient internal measures.

n The creation of a national anti-corruption agency with powers todetect and punish failures to implementcorruption prevention measures.

n The creation of new administrativeand criminal sanctions imposed andmonitored by the agency.

n The possibility for prosecuted entitiesto enter into criminal settlements withthe French authorities, similar todeferred prosecution agreementsused in the US,the UK and someother jurisdictions.

IntroductionThe question of whether German lawshould be amended to include criminalliability for corporate entities has longbeen debated. Corporate scandals andlarge fines levied against corporateentities by foreign authorities keep thisdebate alive, despite repeatedcontentions that such liability isincompatible with the essence ofGerman criminal law.

The advocates of criminal liability forcorporate entities consider that regulatorysanctions, typically in the form of fines, areinadequate. In addition they point to thevarious initiatives in the European Unionwhich require Member States to establishsanctions against corporate entities, andthe corresponding growing coverage ofcorporate liability and sanctions, mainly inthe United Kingdom, France and theNetherlands, as well as outside Europe,especially in the United States.

Opponents to the idea that corporatecriminal liability should be introduced inGermany argue that the German penalcode is based on the notion of individualculpability, and therefore corporateentities may not be held criminally liableas they lack the capacity to act in thecriminal law sense.

In September 2013, the Government ofthe German Federal State North Rhine-Westphalia proposed a new law creatingcriminal liability for corporate entities(Verbandsstrafgesetzbuch). This draft lawstipulates that offences committed by anentity’s officers/executives are not only tobe attributed to the individual but also tothe entity on whose behalf the individualacts. The attribution of criminal liabilitywould even apply to offences committedabroad where an entity is headquarteredin Germany. The North Rhine-Westphaliadraft law provides for a wide range of

different penalties, and includes (notnecessarily cumulatively) a fine of up to10 per cent of the entity’s annual totalrevenue, exclusion from government aid,exclusion from public procurement, theprohibition of further (commercial) activityor a warning with the threat of furthersanctions. A court can refrain fromimposing a penalty in circumstanceswhere no substantial damage wascaused or any damage has largely beenremediated and/or the entity self-reported, voluntarily disclosing crucialinformation to assist the discovery of theoffending and providing evidencenecessary to prove the entity’swrongdoing. Whilst the overall politicalclimate might be favourable to reform, thedraft law raises numerous constitutionaland doctrinal concerns which are likely tobe the cause of lively parliamentarydebate. Furthermore, the draft bill is yetto be presented to the German FederalAssembly (Bundesrat), which wouldtrigger the legislative process. Against thisbackground, it is difficult to predict theoutcome of such a process, ie whetherthe bill will be passed into law and if so,to what extent it may be subject tofurther amendment.

Nevertheless, the imposition of regulatoryfines and the imposition of orders requiringeconomic benefits associated withparticular conduct to be repaid are toolsused frequently as practical solutions tosanction corporate entities for wrongdoing.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?As German criminal law only applies tonatural persons, a legal entity cannotcommit a criminal offence underGerman law. However, criminal orregulatory sanctions (namely forfeitureorders or regulatory fines) may be

imposed on the entity itself because ofcriminal or regulatory offencescommitted by its officers or employees.Such criminal or regulatory sanctionscan be imposed irrespective of whetherfines or imprisonment are also imposedon individuals.

Whilst the imposition of a forfeiture order ora regulatory fine does not necessarilyrequire any prior conviction of an individual,it does require some finding of wrongdoing.

A regulatory fine (Geldbuße) of up toEUR 10 million can be imposed on acorporate entity if the prosecutionauthorities and courts find that a seniorexecutive or an employee of the entitycommitted a criminal or regulatoryoffence and thereby either enriched orviolated specific legal obligations of suchentity. The fine can be increased if thealleged offence led to economic benefitof more than EUR 10 million.

Alternatively, a court can make a forfeitureorder (Verfallsanordnung) against acorporate entity if the court finds that theentity was enriched by a criminal orregulatory offence committed by anindividual (most likely by an officer oremployee of the entity). Such forfeitureorders apply to off the gross proceeds(Brutto-Erlangtes) of the criminal orregulatory offence (without deducting anyrelated expenses incurred) and cantherefore result in significant amounts.

What offences can a corporate entitynot commit?As explained above, a corporate entitycannot commit any criminal offence.

Are there any specific defencesavailable?Whilst there are no specific defences,the imposition of a regulatory fine on acorporate entity is discretionary and the


Germany




court could refrain from imposing a fine ifit considered that the company hadtaken adequate measures to preventsuch breaches.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?There must be a finding of wrongdoing byofficers or employees of a corporateentity for forfeiture orders and regulatoryfines to be imposed.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?Forfeiture orders and regulatory fines areimposed on a corporate entity by thecompetent prosecuting authorities andcriminal courts. Regulatory fines can alsobe imposed by supervisory authorities.

PunishmentCorporate entitiesA regulatory fine can amount toEUR 10 million and can be increasedfurther if deemed necessary to account forthe profits made from the alleged offence.

A forfeiture order identifies and removesthe gross proceeds of the criminal orregulatory offence. Anything “gained”through criminal acts can be subject toforfeiture without deducting any relatedexpenses incurred. In corruption cases the“contract value” will be forfeited, but notthe turnover generated profit, according tothe German Federal Supreme Court’s(Bundesgerichtshof) decision in the so-called “Cologne Waste Scandal”.

Other potential sanctions include entriesin blacklists and procurement bans inrelation to tenders to provide goods orservices of public authorities.

A regulatory fine and the name of thesanctioned entity will be entered into the

German Federal Commercial Register(Gewerbezentralregister) unless theamount of the regulatory fine does notexceed EUR 200. However, the entry intothe register can only be accessed bypublic authorities and the corporate entityitself. The entry must be deleted afterthree years if the regulatory fine is lessthan EUR 300 and after five years if theregulatory fine exceeds EUR 300.

There is a growing willingness to imposeregulatory fines on corporate entities anda clear trend for prosecuting authorities toextend their activities in this arena (see forinstance, the recent and currentregulatory proceedings against well-known financial institutions and industrialcompanies such as UBS AG, CreditSuisse, Siemens AG or MAN AG).

IndividualsApart from potential sanctions againstindividual offenders, the corporate entity’sowner or representatives can also be heldliable if they have failed to take adequatesupervisory measures which would haveprevented a breach of duty by anemployee. This will apply if the breach ofthe duty imposed on the owner ispunishable with a criminal penalty orregulatory fine.

It is a defence for the owner and therepresentatives to show that they tookadequate measures to prevent suchbreaches. These include adequateselection of staff, organisation andprocesses, guidelines and training,monitoring and controls and responsiveaction to the misconduct of employees.

What factors are taken intoconsideration when determiningthe penalty?There are different factors influencing thepenalty, such as the severity andquantum of damages, the extent to which

the corporate entity has cooperatedduring the investigation, whether it hasgenerated any profits from its offendingand whether it is a first offence. It shouldbe noted that there are no sentencingguidelines as to the appropriate level ofpenalty in each case.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?As mentioned above, disclosure andcooperation may be mitigating factors.

Current positionIn the recent past, regulatory proceedingshave been initiated against variousGerman companies arising fromcorruption charges, in particular:

n in 2007 Siemens AG received aregulatory fine of EUR 201 million;

n in 2009 MAN AG received aregulatory fine of EUR 151 million;

n in 2011 Credit Suisse received aregulatory fine of EUR 150 million;

n in 2012 Ferrostaal AG received aregulatory fine of EUR 140 million; and

n in 2014 UBS AG received a regulatoryfine of EUR 300 million.

As noted above, it is not clear whetherthe draft law on corporate criminal liabilityfor the State of North Rhine-Westphaliawill be introduced into the Germanlegislative process in the near future.However, should it actually be debated,corporates and their senior executivesand representatives will closely follow tosee whether the opponents to the billsucceed in halting the march of legislationcreating corporate criminal liability.

IntroductionAdministrative vicarious liability forcorporate entities for crimes committedby their employees was first introduced inItaly by Decreto Legistativo no. 231 of2001 (Law 231). Previously, vicariousliability was covered exclusively by thelaw of tort.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?For a corporate entity to be held liableunder Law 231, the offence must havebeen committed (at least in part, if notexclusively) in the interest or for the benefitof such corporate entity. Conversely, thecorporate entity is not liable if the employeehas acted exclusively in their or a thirdparty’s interest.

What offences can a corporatenot commit?Under Law 231 a corporate can be heldliable only in relation to specific crimes(the Relevant Offences) listed underarticles 24 et seq. In addition,responsibility may arise if the employeeaids and abets the commission of suchcrimes. Finally, the corporate can be heldliable – albeit exposed to lower penalties– even in the event that the relevantoffence is merely attempted by theemployee. The Relevant Offences includethe following:

n fraud for the purpose of receivingpublic funding or subsidies, fraudagainst the Italian Government,municipalities or government agencies,computer fraud against the ItalianGovernment or a Government entity;

n cyber crimes and breach ofdata protection;

n criminal conspiracy;

n extortion and corruption;

n counterfeit of cash, treasury bonds orstamp duties;

n trade fraud;

n corporate offences (including: falsefinancial statements and obstructionof regulators);

n terrorism;

n market abuse;

n manslaughter and breaches of healthand safety legislation;

n slavery, exploitation of prostitution andpornography offences;

n money laundering and self-money laundering;

n copyright offences;

n obstruction of justice offices;

n environmental offences;

n use of illegal immigrant workers; and

n private corruption.

Are there any specific defencesavailable?Law 231 provides for different defencesdepending on the position of the allegedoffender within the corporate.

Where an offence is committed by thecorporate entity’s directors or officers, thecorporate entity cannot be heldvicariously liable if it can prove that:

n its management body had adoptedand “effectively” implemented,“management and organisationalcontrol protocols that were adequatefor the prevention of the offence thatwas committed”. These protocolsmust be adequate to:

(a) identify those areas of activitywhere Relevant Offences couldbe committed;

(b) establish training andimplementation protocols;

(c) identify ways of managing financialresources in a manner that willprevent the commission of theRelevant Offences;

(d) ensure that there is adequateinternal communication; and

(e) introduce an adequate system ofsanction for failure to observe therelevant controls;

n an internal body, (a “SurveillanceCommittee”) had been set up tooversee the above-mentionedcontrols (to which independentpowers of initiative and control hadbeen entrusted);

n the individual Directors/Officerscommitted the offences by fraudulentlyavoiding internal controls; and

n the Surveillance Committee had notfailed to exercise adequate controls.

Where an offence is committed by thecorporate entity’s supervised employees,the corporate entity can only be heldvicariously liable if it can be shown thatthe commission of the Relevant Offencewas made possible by the failure toobserve the internal control protocols.However, if it can be shown that prior tothe commission of the Relevant Offence,the corporate entity had adopted andeffectively implemented a system oforganisation, management and controlthat was adequate for the purpose ofavoiding the commission of suchRelevant Offence, it will not be held liable.The “effective implementation” of thesystem is evidenced by:

(a) carrying out periodic reviews of thesame, in particular in the event that aRelevant Offence is committed by aSupervised Employee or following


Italy




changes to the overall structure of thecorporate; and

(b) adopting a disciplinary processsuitable to sanctioning any failure toobserve the internal controls.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?Pursuant to Section 8 of Law 231, acorporate entity can be held liable even if:

n the individual who committed thecrime has not been specificallyidentified (as long as it is proved thata Relevant Offence has beencommitted by someone workingwithin the entity);

n the alleged offender is not indictable; or

n the offence is “extinct” (for example, ifthe offence is time-barred).

A finding against a corporate entitycannot be used to determine the liabilityof an individual. However, in proceedingsbrought against an individual, a court hasdiscretion to introduce the conviction of acorporate entity, if relevant, as evidenceof the findings of those facts.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?In Italy there is not a specific judicial bodyexclusively dedicated to prosecutingcorporate entities.

From a procedural standpoint, proceedingsfor vicarious liability against a corporateentity are automatically merged with the

criminal proceedings for the underlyingcrimes, except where the underlyingoffences are summary only (and subject toa few other exceptions). The corporateentity is subject to criminal procedure rulesapplicable to defendants under the Codeof Criminal Procedure, with some minordistinctions under Law 2312.

In Italy where, prima facie, an offencehas been committed, criminalprosecution is mandatory.

PunishmentCorporate entitiesThe maximum penalty differs foreach offence. The highest fine isEUR 1.549 million. For market abuseoffences, this amount may be increased

to up to ten times the profit of theoffence, if the latter is material.

The court will also impose a finesufficiently large to have an impact on thecorporate entity.

In addition to pecuniary penalties,corporate entities can be sentenced to:

n suspension of licences andauthorisations;

n prohibitions from carrying out abusiness activity, from obtaininggovernment contracts and fromadvertising products;

n exclusion from or termination offunding, special terms, orwelfare payments;

2 The main distinctions are the following:- similarly to the registration of suspects in the relevant register held by the court, a corporate entity that is the subject of an investigation by the prosecutor will be

registered as a vicariously liable entity in a separate register;- a formal notice of investigation served on a corporate entity, addressed to the legal representative of the corporate entity, will include an order to indicate an address for

service of process in connection with the proceedings; and- in order to be able to exercise its right of defence in the criminal proceedings against its employees, a corporate entity must file a representation notice under Article 39,

Paragraph 2 of Law 231, by which, among other things, it appoints counsel.

n disgorgement of profits (if needed,even disgorgement of other propertiesuntil the profits value is reached); and

n publicising the sentence.

Judicial practice has shown that if theindividual who committed the RelevantOffence is found liable, it is highlyprobable that the corporate will also befound guilty. Defences provided by Law231 have only been deemed applicabletwice since the introduction of the law.

IndividualsThe liability of individuals is completelyindependent of the corporate entity’sliability and is determined under the Italianlaw and according to the applicable rules.

What factors are taken intoconsideration when determining thepenalty?A judge will take into account the gravityof the offence, the degree of involvementof the corporate entity and the measures,if any, adopted to mitigate theconsequences of the offence or toprevent its reoccurrence. In particular, thefine may be reduced by 50 per cent if,prior to trial, the corporate entity has fullycompensated any victims or has taken allnecessary steps to mitigate theconsequences of the offending and if ithas adopted necessary and preventativeinternal systems and controls.

Is there a mechanism for corporateentities to disclose violations inexchange for lesser penalties?There is no such a mechanism underItalian law.

Current positionIn 2014 and 2015, the Italian Parliamentamended Legislative Decree 231/2001as follows:

(a) Law no. 186 of 15 December 2014concerning the voluntary disclosureand the criminal offence of self-laundering. This Law has extendedthe list of Relevant Offence under Law231 with the inclusion of the criminaloffence of self-laundering (whichcovers circumstances whereoffenders launder the proceeds ofcrime having been involved in thecommission of predicate offences).

(b) Law no. 68 of 22 May 2015concerning provisions on criminaloffences against the environment.This Law has led to the inclusion ofthe following environmental offencesas Relevant Offences under Law 231:(i) environmental pollution; (ii)environmental disaster; (iii) crimescommitted without intent against theenvironment; and (iv) traffic ofradioactive material. Enforcement ofthese new Relevant Offences startedon 29 May 2015. The penaltiesagainst the corporate entities for the

commission of the environmentaloffences have been expanded and incases of environmental pollution andenvironmental disaster, the court mayissue an order prohibiting thecorporate entity from carrying out itsbusiness operations for a prescribedperiod of time.

(c) Law no. 69 of 27 May 2015concerning provisions on criminaloffences against the publicadministration, conspiracy inorganised crimes, false statements inrelation to a company’s financialstatements or accounts. This Law hascaused the following changes in Law231: the legal test for the criminaloffence relating to false statements inrelation to a company’s financialstatements/accounts has beenmodified, in particular the monetarythresholds have been removed, sothat any false statement may triggerenforcement. The penalties againstcorporate entities for the commissionof these Relevant Offences havebeen increased.

Following the recent amendments toLaw 231, corporate entities in Italy areassessing whether to update theinternal control protocols in relation tothe Relevant Offences introduced ormodified by Law 186/2014,Law 68/2015 and Law 69/2015.





IntroductionThe existence of corporate criminalliability is a relatively recent phenomenonin Luxembourg. Legislation wasintroduced on 3 March 2010 on thecriminal liability of legal persons (theLaw).3 Its adoption, which represents asignificant change to the principles of theLuxembourg legal system, was influencedboth by international considerations suchas reports from the Financial Action TaskForce and by a deliberate effort of theLuxembourg legislator.4 The Law appliesto all corporate entities (including publiclegal entities) with the exception of theState and the local government entities.5

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?In general, a corporate entity may be heldliable if a crime or an offence has beencommitted in its name and its interest byone of its statutory bodies or by one ormore of its directors, whether de jure orde facto.

A “statutory body” is defined as one ormore physical or legal persons whichhave specific function in the organisationof the corporate entity, in accordancewith the relevant law governing that entity.This can be a function of administration,direction, representation or control.

What offences can a corporate entitynot commit?Luxembourg has a three-tier system ofoffences, which in descending order ofgravity are called: (i) crimes (crimes);(ii) offences (délits); and (iii) contraventions(contraventions). Corporate entities arenot liable for the commission of

contraventions, which have beenspecifically omitted from the Law.

There is no limitation on the crimes andoffences which a corporate entity is ableto commit. Indeed, the Law was draftedby adding corporate entities as potentialperpetrators to the Criminal Code in orderto render the Criminal Code applicable tothem, subject to certain conditionsspecific to corporate entities and with theexception of contraventions. However,there are certain crimes and offenceswhich, by their very nature, can only becommitted by natural persons.

Are there any specific defencesavailable?There are no defences expressly set outin the Law on which only corporateentities might rely. However, all offencesfor which corporate entities are potentiallyliable require the prosecution to provewilful fault (dol general) and so corporateentities can advance solve specificarguments in their defence (such ashaving appropriate procedures in place,exercising adequate surveillance overtheir employees, and so forth) which arenot available to physical persons.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?The Law applies the principle ofcumulative liability of corporate entitiesand physical persons. The logic behindthis principle is to attribute criminal liabilityto a corporate entity for an offence thathas, due to the nature of the offence,been committed by one or more physicalpersons. The aim of this provision is toprevent physical persons using thecorporate entity as a shield for their own

criminal liability. Note that the criminalliability of the corporate entity is in nocase automatic, and will always need tobe specifically ruled upon by the court.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?There are no bodies with a specific remitto prosecute corporate entities althoughcertain divisions of the state prosecutionservice (eg the financial informationdivision) may in practice be morefrequently involved in the prosecution ofcorporate entities than other divisions.

PunishmentCorporate entitiesFines range from a minimum of EUR 500to a maximum of EUR 750,000 in mattersrelated to crimes, or to a maximum ofdouble the fine applicable to physicalpersons in matters related to offences. Inmatters related to offences, in the case ofspecific offences for which the law onlyprovides a punishment of imprisonment,the Law envisages a ‘conversion’ system,involving a maximum possible fine forlegal entities of EUR 180,000.

The above amounts are multiplied by fivefor certain crimes and offences expresslylisted by the Law (eg money laundering,acts of terrorism or financing of terrorism,drug trafficking, corruption).

For instance, in the case of moneylaundering, the maximum fine forphysical persons is EUR 1.25 million.By application of the above rules ofcalculation, the maximum fine forlegal entities is EUR 12.5 million.

Luxembourg

3 Loi du 3 mars 2010 introduisant la responsabilité pénale des personnes morales dans le Code pénal et dans le Code d’instruction criminelle et modifiant le Code pénal, leCode d’instruction criminelle et certaines autres dispositions législatives. Mémorial A – N°36, 11 March 2011, p. 641.

4 See, in this respect, J.-L. Schiltz, Les personnes morales désormais pénalement responsables, JTL n° 11, 15 October 2010, p. 157 et seq.5 “communes”.

The Law also envisages the possiblespecial sanctions of confiscation,prohibition from public procurementcontracts and dissolution, subject tocertain conditions.

IndividualsIndividuals may be liable according toapplicable and relevant legislation,including, without limitation, theprovisions of the Criminal Code, companylaw and other specific legal provisions.

What factors are taken intoconsideration when determining thepenalty?Generally, Luxembourg criminal law usesthe threshold of the Court’s “intimateconviction” when assessing the culpabilityof any person charged with an offence.According to scholarly opinion, the“intimate conviction” is the “profoundopinion to which the judge comes in his

soul and conscience and which is thecriteria and foundation of the sovereignpower of appreciation of the judgedealing with the facts of the case”.

For corporate entities, specific anddistinct provisions apply in the case of theoffence being repeated after priorconviction: a fixed multiplier is applied tothe fines mentioned above.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?The Law does not provide for such amechanism. Generally speaking,cooperation of the perpetrator and tryingto redress the damage caused aremitigating factors which the court willconsider. There is no equivalent conceptunder Luxembourg law of a deferredprosecution agreement; indeed, enteringinto an agreement with the public

prosecutor or with the courts (and thus“negotiating” as to whether or not thecompany should be convicted) isimpossible under Luxembourg law. Onlythe public prosecutor has the discretionto start criminal proceedings against acompany (the so-called principle of“opportunité des poursuites”) and once itdecides to start these proceedings, thecompany cannot stop them.

Current positionAs the corporate criminal liability conceptwas only introduced relatively recently inLuxembourg, it has rarely been used andis therefore still largely untested inpractice. There have been so far nosignificant cases. The Law has howeverbeen extensively discussed in theLuxembourg legal community and thegeneral feeling is that the publicprosecution service will utilise the law to avery large extent.





IntroductionCorporate criminal liability in Poland isregulated by the Act on the Liability ofCollective Entities for Acts ProhibitedUnder Penalty (the Liability Act), whichcame into force in 2003. It generallyapplies to all corporate entities, exceptthe State Treasury, local governmententities and associations thereof.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?In general, under the Liability Act, acorporate entity may be liable if aspecified offence is committed by aspecific person and his/her conduct hasresulted or may have resulted in a benefitfor the corporate entity.

A corporate entity may be held liable foroffences committed by:

n a person acting on behalf of thecorporate entity or in its interest andwithin the scope of his/her powers orduty to represent it, a person whomakes decisions on behalf of the entityor who exercises internal control, or,exceeds his/her powers or fails toperform his/her duty (a Manager);

n a person given permission to act bya Manager;

n a person acting on behalf of thecorporate entity or in its interest withthe consent or knowledge of aManager; or

n a person being “an entrepreneur” (asole trader) who is involved in abusiness relationship with thecorporate entity.

The entity will face liability for actions ofthe above-mentioned persons only if:

n the entity’s bodies or representativesfailed to exercise due diligence in

preventing the commission of anoffence by the Managers or anentrepreneur; or

n it has failed to exercise due diligencein hiring or supervising a person givenpermission to act by the Manager or aperson acting with his/her consentor knowledge.

The liability of the entity is secondary tothe liability of the person who committedthe offence, ie the entity can be heldcriminally liable only after the person whocommitted the offence has been foundguilty and sentenced by a court of law.

Under the provisions of the Liability Act,the lack of criminal liability of a corporateentity does not exclude the possibility ofcivil liability for the damage caused or theadministrative liability of the entity.

What offences can a corporate entitycommit?The Liability Act lists the offences for whicha corporate entity may face criminal liability.It refers to specific offences regulated in thePolish Criminal Code which are generallydirected to individuals. The list is constantlybeing expanded and currently includes,inter alia:

n offences against economic turnover(for example, money laundering);

n offences against trading in money andsecurities (for example, currencycounterfeiting or the counterfeiting ofofficial security paper, and the illegalissuance of corporate bonds);

n offences against the protection ofinformation (for example, theobtaining or removing information byan unauthorised person);

n offences against the reliability ofdocuments (for example, thecounterfeiting of documents or use ofsuch documents);

n offences against property (for example,fraud, receipt of stolen property);

n offences against the environment (forexample, the pollution of water, airor soil);

n bribery and corruption and; certainfiscal offences;

n offences of a terrorist nature; and

n major offences against public order.

Are there any specific defencesavailable?Proving that due diligence wasconducted in the hiring or supervision ofan alleged offender (being a person givenpermission to act by the Manager or aperson acting with his/her consent orknowledge) prevents the corporate entityfrom being held liable.

In the case of offences committed byManagers or entrepreneurs, it would needto be proved that the entity’s bodies orrepresentatives exercised due diligence inpreventing the commission of an offence.To this end, implementing and enforcingan effective compliance system canprovide a defence for corporates.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?The criminal liability of a manager, officeror director as determined in a courtsentence may result in the criminal liabilityof an entity (if the other conditions forliability mentioned above are fulfilled). Atthe same time, an entity’s liability for anoffence does not automatically determinethe personal liability of its managers,officers or directors.

However, if a corporate entity is heldliable for a fiscal offence, the officers ordirectors thereof may be heldaccountable on the basis of auxiliary

Poland

liability. In order to incur such liability, it issufficient that a director or officer isnegligent in fulfilling his/her duties.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?The Polish Code of Criminal Procedurerefers to the criminal liability of corporateentities and therefore public prosecutorsare responsible for prosecuting suchoffences.

Criminal proceedings against corporateentities are conducted in accordance withthe Polish Code of Criminal Procedurewith several changes resulting from theLiability Act. The proceedings arecommenced on the motion of a publicprosecutor or the injured party. TheDistrict Court is competent to adjudicatethe case in the first instance. The DistrictCourt’s judgment may be appealed.

PunishmentCorporate entitiesThe penalty for offences committed bycorporate entities is a fine ranging fromPLN 1,000 to PLN 5,000,000(approximately EUR 250 toEUR 1,250,000). However, the fine maynot exceed 3 per cent of the entity’srevenue earned in the financial year inwhich the offence was committed.

The court may also order the forfeiture ofany object or benefit which derived fromthe offence.

Moreover, the court is competent toprohibit the corporate entity from carryingout promotions and advertising,benefiting from grants, subsidies orassistance from internationalorganisations or bidding for publiccontracts. It can also decide to publicisethe judgment. All the above-mentionedbans may be imposed for a period of oneyear to five years. Furthermore, if theperson has been convicted of offencesrelating to hiring illegal immigrants, the

court may prohibit the entity fromobtaining public funds and order theentity to repay to the State Treasury thepublic funds obtained by the entity in the12 months preceding the conviction.

The level of enforcement of this regulationis quite low and it has rarely been used inpractice. According to statistics publishedby the Polish Ministry of Justice, from2005 to 2015 only 206 corporate entitieswere prosecuted under the Liability Act.In addition, up until 2014, fines wereimposed on only 55 of them (the highestof which was PLN 12,000 –approximately EUR 3,000). Furthermore,the courts have not yet prohibited entitiesfrom bidding for public contracts. Thepossibility to publicise the judgment isalso very rarely used in practice.

IndividualsAs mentioned above, directors andofficers only face liability for their actionsand inactions insofar as they constituteoffences under Polish criminal law whichrequires some mental element (intent,recklessness or negligence).

What factors are taken intoconsideration when determining thepenalty?Under the Liability Act, whenconsidering the sentence to be imposedon a corporate entity, the court musttake into account in particular the levelof benefit obtained from the offence, thecorporate entity’s financial situation, andthe social aspects of the punishmentand its influence on the furtherfunctioning of the entity.

This is not an exhaustive list of factorsand the court has discretion to considerother issues on a case by case basis. Forexample, attempts to redress the damageor cooperation in uncovering criminal actsmay be regarded as mitigating factors.





Is there a mechanism for corporateentities to disclose violations inexchange for lesser penalties?The Liability Act does not contain anyspecific provisions concerning therequirements which entities must fulfil inorder to seek leniency in Poland. Deferredprosecution agreements are notenvisaged in the Liability Act. However, asthe courts generally have discretion whenconsidering the sentence to be imposed,a corporate entity may receive favourabletreatment if it has attempted to redressthe damage or has cooperated inuncovering criminal acts.

Current positionDespite the Polish Liability Act being inforce for almost fifteen years, it has rarelybeen used until now and is therefore still

largely untested in practice. Its provisionswere considered by the PolishConstitutional Tribunal and amended in2005 by the Parliament in accordancewith a Tribunal decision, which meant itwas impossible to prosecute corporateentities for offences committed bymembers of the board. The criminalliability of an entity is secondary to thecriminal liability of an individual acting onits behalf, and therefore prolongedcriminal proceedings to establish theliability of an individual tend to discouragecourts from considering the liability ofcorporate entities.

However, because of the current trendin Poland to create stricter criminal law,it is very probable that provisions ofthe Liability Act will be used more

frequently in future. This follows fromthe amendments made to theLiability Act in 2011, which repealed theabove-mentioned change that corporateentities may not be prosecuted foroffences committed by its boardmembers, and the growing number ofprosecutions under the Liability Act sincethen. Also, the Polish anti-corruptionauthorities (eg the Central Anti-CorruptionBureau) indicated that they want to takeadvantage of the Liability Act’s provisionson penalties and a ban on taking part inpublic tenders.

IntroductionThe criminal liability of corporate entitiesis a relatively new concept in Romaniancriminal law. In 2006, Law 278 of 4 Julyamended the Criminal Code of 1968,which was subsequently amendedthrough the new Criminal Code (whichcame into force on 1 February 2014).

The Criminal Code applies to all legalentities, except for the State, publicauthorities and public institutions whichcarry out purely public (rather thanprivate) activities.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Generally, corporate entities can be heldcriminally liable for offences committed inrelation to their statutory scope of activity,in their interest or on their behalf.

The rules for distinguishing betweenholding liable only the corporate entity’sdirectors and officers and holding liableboth the directors/officers and thecorporate itself are not currently clearlyregulated.

However, according to the majority ofdoctrine and jurisprudence, a corporateentity may be held criminally liable if,through its individual or collectivemanagement body, it was aware of,encouraged or consented to thecommission of an offence by an individualin relation to the corporate entity’sstatutory scope of activity. If the offence isone of negligence, the corporate entity isonly liable if the commission of theoffence is due to the latter’s lack ofsupervision or control.

Holding a corporate entity criminally liabledoes not preclude its civil oradministrative liability.

What offences can a corporate entitycommit?The law does not expressly specify whichoffences a corporate entity can or cannotcommit. In theory, corporate entities maybe held liable for all criminal offencesprovided under Romanian legislation,except for offences which by their verynature may only be committed byindividuals. There are offencesincorporated into the Criminal Code thataim to apply to corporate entities,examples include abuse of trust in orderto defraud creditors, public auctionmisrepresentation, conducting fraudulentfinancial operations and assetmanipulation to defraud the creditors.However, the offence must have beencommitted on behalf of the corporateentity for it to be liable.

Are there any specific defencesavailable?Provided an offence is committed againstthe corporate entity’s will and without anynegligence on the part of the corporateentity, the corporate entity will not beliable. Each case is determined on itsown facts. Courts tend to considerwhether any compliance or ethicsprocedures were in place when decidingcriminal liability of a corporate entity.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?Directors and officers can be held liableas co-accused, alongside the corporateentity. In most cases where a corporateentity is prosecuted, member(s) of thestatutory bodies of the entity aresimilarly prosecuted.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?There is no criminal investigation body setup expressly for prosecuting corporate

entities. The public prosecutor isresponsible for the investigation ofoffences committed by corporate entities.

Likewise, criminal proceedings againstcorporate entities are conducted inaccordance with the Romanian CriminalProcedure Code.

PunishmentCorporate entitiesThe Criminal Code introduced a finingsystem, based on the “fine per day”concept. The value of the fine per dayranges between RON 100 (approximatelyEUR 24) and RON 5,000 (approximatelyEUR 1,200), while the number of days offine ranges from 30 to 600 (ie a generalmaximum fine of RON 3,000,000(approximately EUR 720,000). A court willestablish the number of days based on thegeneral criteria for determining the penalty,while the fine per day is based on thecorporate entity’s turnover. If the corporateentity aimed to gain patrimonial advantagesthrough the criminal offences, then thecourt may increase the special limits of thefine up to a third but without surpassingthe maximum fine provided by law.

Besides the fine, courts may apply one orseveral of the auxiliary penalties, althoughtheir application is mandatory if providedby the law for specific offences. Auxiliarypenalties include the dissolution of thecorporate entity, suspension of thecorporate entity’s activity (or of one of itsactivities) for a period ranging from threemonths to three years, closing downsome of the corporate entitie’s workingunits for a period ranging from threemonths to three years, debarment frompublic procurement for a period rangingfrom three months to three years and/orpublicising the conviction.

The court may also confiscate theproceeds of the crime, unless such areused for compensating the victim(s).


Romania




Also, during the criminal investigation, ifreasonable doubt exists to justifyreasonable suspicion that the legal entityhas committed a criminal offence andonly in order to provide a smoothoperation of the criminal trial, one of thefollowing steps may be taken: a) forbidthe initiation or, as the case may be,suspension of the procedure to dissolvethe legal entity or liquidate it; b) forbid theinitiation or, as the case may be,suspension of the legal entity’s merger,division or reduction in nominal capital,that began prior to the criminalinvestigation or during it; c) forbid assetdisposal operations that are likely todiminish the legal entity’s assets or causeits insolvency; d) forbid the signing ofcertain legal acts, as established by thejudicial body; and e) forbid activities of thesame nature as those on the occasion ofwhich the offence was committed.

The level of enforcement has increasedsignificantly over the past year or so.

IndividualsDirectors and officers may also be heldliable alongside the corporate entity itself,for offences committed by the latter, aslong as their personal actions aredeemed to be offences under the criminallegislation. Besides criminal liability,directors and officers may also face civilor administrative liability.

What factors are taken intoconsideration when determining thepenalty?When determining the penalty, the courtsconsider factors such as thecircumstances and manner of committingthe criminal offence; the meansemployed; the state of danger createdagainst the protected value; the natureand seriousness of the harm caused or ofother consequences of the criminaloffence; the reason for committing the

criminal offence and the envisagedpurpose; the prior criminal history of theperpetrator and its conduct aftercommitting the criminal offence andduring the criminal trial.

Is there a mechanism for corporateentities to disclose violations inexchange for lesser penalties?Romanian legislation provides thepossibility to reduce, or even avoid, criminalpenalties. Such provisions relate to specificoffences, not to the person of the offender(ie persons or entities), such as:

n Compensation to the victim, duringthe investigation and before the firstcourt hearing (among otherscorruption, money laundering andother limited provided offences), willgenerate a discount of a third;

n for bribery offences, the corporate isnot liable if it self-reports the offencebefore the criminal investigation bodyis vested with the case;

n for tax evasion offences, there is a50 per cent per cent discount if theoffender makes the payment beforethe first court hearing;

n for money laundering offences, thereis also a 50 per cent per centdiscount if the offender disclosesinformation and facilitates theprosecution of other participantsduring the criminal investigation; and

n The Criminal Procedure Codeprovides that in cases where theoffender pleads guilty and accepts theprosecution case, the penalty limitsare reduced (i) by one third where thesanction is prison and (ii) by onequarter where the sanction is a fine.

Current positionIn the past, prosecution authorities havetended to focus their efforts on theinvestigation of corporate entities’ officers

and directors rather than on the corporateentities themselves. Following theenforcement of new criminal code, this hasbegun to change and today there is a“trend” by prosecutors and courts toinvestigate and prosecute corporateentities. DNA, The Romanian NationalAnti-Corruption Department (the mostactive prosecutor’s office) has said that thenumber of corporate entities prosecutedfor criminal offences doubled in 2014 andan increase of eight per cent is reportedfor 2015 while DIICOT, the Department forOrganised Crime and Terrorism, reportedan increase with more than 25 per cent inthe finalised investigations.

Whilst most cases investigated andconcluded in 2014 involved companiesaffiliated (directly or indirectly) to highranking officials, ministers, politicians andinfluential Romanian business people, in2015/16 the focus of the authoritiesseems to have moved to foreign entities,multinationals and investors doingbusiness in Romania (particularly insectors such as energy/water, pharma,food retail, construction). Investigationscommonly concern include corruption,tax evasion and money laundering andmay investigations are commenced inrespect of tax evasion. A corporate whichself-reports an offence of bribery beforean investigation has started can avoidprosecution altogether. In many casesauthorities are focused on the recovery ofthe proceeds of crime and damages.

Fines imposed on corporate entities arerelatively high and in some cases tendtowards the maximum fine permissible forthe offence(s) in question.

A similar procedure to the DeferredProsecution Agreement concept wasused in the last year by prosecutors tosettle some cases.

IntroductionThe Criminal Code of the RussianFederation (RF) does not establishcriminal liability for corporate entities, butthis issue is being extensively debated inRussia at the moment.

A draft law on amendments creatingcriminal corporate liability was put forwardby the RF Investigative Committee in 2011,but was left to languish and eventually wasabandoned altogether.

In 2014 the question of corporate criminalliability arose again in connection with the“deoffshorisation” of the country’seconomy announced by the RFPresident. For that process to take place,a number of new mechanisms will needto be incorporated into Russian law. Inthis context, it has been suggested thatestablishing criminal liability for legalentities would be useful for authoritiesundertaking corruption investigations. Forthese reasons, the InvestigativeCommittee and some members of theState Durma proposed a revisedcorporate criminal liability bill.

However, in mid 2015 the RFGovernment gave a negative response tothe bill and it was not adopted.

LiabilityUnder what circumstances can acorporate entity incur criminal orquasi-criminal liability?Currently under Russian criminal law, onlyindividuals can be prosecuted.

Legal entities can be liable under the RFAdministrative Offences Code if crimesare committed by their management oremployees. Specifically, a legal entity issubject to administrative liability for

providing, offering or promising unlawfulremuneration, for which the penalty is anadministrative fine plus confiscation ofthe money, securities or other assetsconstituting the unlawful remuneration(Article 19.28 of the RF AdministrativeOffences Code). Criminal proceedingsagainst an individual and administrativeproceedings against an organisation canbe based on the same facts and heardin parallel.

What offences can a corporate entitynot commit?Under the current law, legal entitiescannot commit any crimes.

Are there any specific defencesavailable?If an organisation is charged with anadministrative offence, it may be adefence to show that it has taken all

possible and reasonable measures toprevent the offence and comply withrelevant statutory requirements(under Article 2.1 of the RF AdministrativeOffences Code, an organisation is guilty ifit cannot prove that it took all possibleand reasonable steps to prevent theoffence and comply with the law).

What is the relationship between theliability of the corporate entity andthat of its directors and officers?In practice, Russia’s law-enforcementagencies tend to initiate an administrativeinvestigation of an organisation when oneof its managers or employees has beenconvicted of a crime.

ProcedureIf a legal entity commits an administrativeoffence it will be investigated by thecompetent Russian authority.


Russia




PunishmentCorporate entitiesPenalties that can be imposed against alegal entity under the RF AdministrativeOffences Code include the forfeiture ofmoney, securities and other propertyobtained through unlawful activity,administrative fines and administrativesuspension.

If a legal entity is found guilty of unlawfulremuneration, the maximum possibleadministrative penalty is a fine of100 times the value of the bribe (but atleast RUB 100 million (approximatelyEUR 1.2 million)), plus confiscation of themoney, securities or other assets thatconstituted the unlawful remuneration.

IndividualsThe most common penalties forindividuals are imprisonment and fines.

What factors are taken intoconsideration when determining thepenalty?A number of factors are taken intoaccount for the purposes of determiningthe penalty.

The continuation of an unlawful activitynotwithstanding a request from thecompetent authority to desist and therepeated commissioning of the sameoffence within a single year are examplesof aggravating circumstances.

Mitigating factors include the preventionof any harmful consequences, of theoffence the voluntary reimbursement oflosses and cooperation duringthe investigation.

Is there a mechanism wherebyentities can disclose violations inexchange for lesser penalties?Disclosure and cooperation can bemitigating factors.

Current PositionAt the time of publication, the mostrecent draft law creating criminal liabilityfor legal entities is being considered bythe competent authorities.

The idea of criminal liability for legalentities is the focus of such greatinterest because the current system ofquasi-criminal liability for offences similarto crimes has not proven very effective.In particular, in recent years, theauthorities have only rarely imposedadministrative fines for unlawfulremuneration and then only at thelowest possible level.

IntroductionThe concept of quasi-criminal liability ofcorporate entities was introduced into theSlovak legal system on 1 September 2010by an amendment to the Slovak CriminalCode. In general, any corporate entity maybe subject to quasi-criminal liabilityprovisions except for, inter alia, states,municipalities, corporate entities inpossession of state or EU property, andinternational public law organisations. Thisquasi-criminal liability is still effective, asthough courts have never applied thisconcept in criminal proceedings in practice.

In order to introduce an effectivemechanism for the sanctioning ofcorporate entities that have arisen fromdifferent international documents thatare binding on the Slovak Republic(principally the OECD Convention onCombating Bribery of Foreign PublicOfficials in International BusinessTransactions), the Slovak NationalCouncil adopted a new Act on thecriminal liability of corporate entities on13 November 2015 that will becomeeffective on 1 July 2016 (the Act) andunder which corporate entities will incurcriminal liability.

A corporate entity (including a foreigncorporate entity) can be held liable underthe Act if it has committed a criminaloffence in whole or partially in the SlovakRepublic, if it has committed an offenceabroad with intended consequences inthe Slovak Republic, or if an offence hasbeen committed abroad by a corporateentity registered in the Slovak Republic orwith a registered business or branchoffice in the Slovak Republic. Foreigncorporate entities can also be held liableunder the Act for criminal offencescommitted abroad if these offences werecommitted in favour of a Slovakcorporate entity, a Slovak citizen or aforeigner that has residency in the Slovak

Republic or have the effect of causingloss to these same subjects.

The criminal liability of corporate entitiesexcludes subjects such as the SlovakRepublic and its bodies, all other statesand their bodies, internationalorganisations established by internationallaw and their bodies, municipalities,corporate entities that have at the time ofthe commission of the criminal offencebeen established by law, and othercorporate entities that cannot be subjectto bankruptcy proceedings.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?A corporate entity is held criminally liableif the offence was committed:

n in its favour, in its name, within thescope of its activities, or on itsbehalf; and

n by: (i) its statutory body or a memberof its statutory body; (ii) a personperforming supervisory or oversightactivities within the corporate entity;(iii) a person that is entitled to act onbehalf of the corporate entity (eg bymeans of a power of attorney) or isentitled to make its decisions(together the Directors).

Under the Act, directors authorised tosupervise and control a corporate entitymay incur criminal liability for negligence,where such negligence leads to thecommission of a criminal offence by theperson acting under the authority given toit by the corporate entity. However, thisliability will not be attributable to thecorporate entity when the effect of suchnegligence (taking into consideration thebusiness activities of the corporate entity,the manner of the commission of theoffence, its consequences and the

circumstances under which the offencewas committed) is minimal.

What offences can a corporate entitycommit?A corporate entity can only commit alimited number of criminal offences (whichare enumerated in the Act), most notablyoffences related to money laundering,corruption, interference with justice,fraud, fraudulent accounting, rigging oftenders, harming the financial interests ofthe European Union, environmentaloffences, organised crime, humantrafficking, computer crimes and varioustax-related offences.

Are there any specific defencesavailable?The Act does not provide for any specificdefences. However, it does provide for theapplication of the Slovak Criminal Codeand the Slovak Code of Criminal Procedurewhere the Act does not set out specificrules and the nature of the matter permits.For example, the defence of “mistake offact” which exists under the SlovakCriminal Code could be applicable.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?The criminal liability of a corporate entitynot conditional on the criminal liability ofthe Directors acting on its behalf, and isnot conditional on the identification of theDirector who actually committed therelevant act.

If a corporate entity is convicted, the Actdoes not provide that secondary liability willautomatically attach to the Directors if theyknew of or were negligent regarding thefacts leading to the conviction of thecorporate entity. However, the criminalliability of the corporate entity does notpreclude the (additional) criminal liability ofits Directors, and the Directors are at risk of


Slovakia




individual prosecution under the generalprovisions of the Slovak Criminal Code iftheir conduct constitutes an offence.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?Generally, the police, public prosecutorsand courts are in charge of theinvestigation and enforcement of thecriminal liability of the corporate entities.

PunishmentCorporate entitiesThe most serious penalty envisaged isthe dissolution of the corporate entityitself if its activities have wholly orpredominantly consisted of thecommission of criminal offences or if thepenalty available for such criminal offenceunder the Slovak Criminal Code is25 years or life imprisonment. Thispenalty can only be imposed oncorporate entities with a registered officein the Slovak Republic.

Other penalties contained in the Actinclude: (i) the forfeiture of property; (ii) theforfeiture of assets; (iii) monetary penalties;(iv) the prohibition of activities; (v) theprohibition on participation in publicprocurement; (vi) the prohibition onaccepting grants and subsidies; (vii) theprohibition on accepting aid and subsidiesprovided by European Union funds; and(viii) the publication of judgments.

The Act does not provide for any mitigatingor aggravating factors. However, relevantprovisions of the Slovak Criminal Code areapplicable, such as those inviting courts toconsider whether:

n mitigation factors: if it is a first offencecommitted in circumstances that werebeyond the control of the offender orif only minor damage resulted; and

n aggravating factors: if it is a repeatoffence or if it was committeddeliberately or with premeditation.

IndividualsThe criminal liability of corporate entitiesdoes not have any impact on the existingcriminal liability of individuals under theSlovak Criminal Code. The punishment ofindividuals will continue to be regulatedby the Slovak Criminal Code alone.

However, some offences may only becommitted by an offender “vested with aspecial capacity, status or quality”. Insuch cases, the offender does not needto have this special capacity, status orquality him or herself provided that thecorporate entity on whose behalf theoffender acts had this special capacity,status or quality.

What factors are taken intoconsideration when determiningthe penalty?In determining the type and severity ofthe penalty, similar principles apply to thecorporate entities under the Act as thosewhich apply to individuals under the

Slovak Criminal Code. A court will takeinto account factors such as:

n the nature and seriousness of theoffence committed;

n the financial circumstances of thecorporate entity and the nature of itsexisting activities;

n the corporate entity’s conduct after thecriminal conduct, in particular its effortsto make good any damage or tomitigate any other detrimental effects;

n the corporate entity’s activities in thepublic interest and its strategicpositions with regard to the nationaleconomy, defence or safety;

n the effects and consequences thatmight be expected from the penaltywith regard to the corporate entity’sfuture activities;

n the effects on creditors with bona fideliabilities that have no connection tothe criminal offence itself;

n ensuring the minimal effects of thepenalty on employees of thecorporate entity; and

n the extent of the benefit that thecorporate entity had obtained as anaccomplice to the criminal offence.

Is there a mechanism for corporateentities to disclose violations inexchange for lesser penalties? The Act provides for “effective remorse”,which means that the criminal liabilitywould expire if, in addition to ceasing allfurther actions leading to thecommission of criminal offences, theoffender voluntarily:

n prevents or rectifies the detrimentaleffects of its criminal offence; or

n reports its criminal offence at a timewhen the detrimental effects of thecriminal offence can still be prevented.

However, effective remorse is notapplicable to corruption-related offencesand to those offences related to theharming of the financial interests of theEuropean Union.

Current positionThe Act introduces the new concept of thecriminal liability of corporate entities andenables the punishment of criminalconduct that could not previously bedirectly sanctioned at a criminal level. It also

helps to prevent situations whereindividuals are held criminally liable whilstthe corporate entity escapes liability andcontinues its criminal conduct. The level ofpenalties contemplated under the Act canseverely affect the continued operation andprofitability of corporate entities.

The concept of the criminal liability ofcorporate entities has not yet been testedin the Slovak courts. Given the absenceof case law in cases of the less stringentquasi-criminal liability since 2010, it isdifficult to predict with any certainty howthe Slovak courts will construe and applythe relevant legislation.





IntroductionOrganic Law 5/2010 of 22 June 2010(LO 5/2010) establishes, for the first timein the Spanish Criminal Code(Código Penal) (CP), an expressregulation for the criminal liability ofcorporate entities for crimes committedon their behalf by their representatives,administrators, employees and/orcontracted workers.

The law was extended by the OrganicLaw 7/2012 of 27 December 2012(LO 7/2012). Originally the CP was limitedin its application, and not applicable, forexample, to the State, to the territorialand institutional public administrations, topolitical parties and trade unions, toorganisations under public internationallaw, or to any others that exercise publicpowers of sovereignty, administration, orin the case of State mercantilecompanies that implement public policiesor provide services of general economicinterest. Since the passing of LO 7/2012,however, political parties and trade unionsare subject to the general regime ofcriminal accountability and can also beheld liable, although the other restrictionsconcerning the application of the law toother state bodies still apply.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?To establish corporate criminal liability, theoffence must have been committed for oron behalf of a corporate entity and for itsbenefit by any of the following individualsaccording to the text amended by OrganicLaw 1/2015 of 30 March (LO 1/2015):

n Legal representatives or any personsacting individually or as members of abody of the legal person, who areauthorised to take decisions on behalf

of the legal person and hold powers oforganisation and control within it; or

n Persons who, while subject to theauthority of the natural personsmentioned in the foregoing paragraph,were able to commit the acts due aserious breach by the former of theduty of control of their activities whilecarrying out corporate activities.

Corporate entities are only liable forcrimes expressly applicable to themunder corporate law, including:

n discovery and disclosure of secrets;

n fraud and punishable insolvency;

n crimes related to intellectual andindustrial property, the market andconsumers;

n tax fraud and money laundering;

n urban planning offences and crimesagainst the environment; and

n corruption offences.

Which offences can a corporateentity commit?As indicated above, corporate entitiescan only commit those offences whichexpressly apply to them.

Are there any specific defencesavailable?LO 1/2015, which came into force on

July 1st, 2015, sets out grounds forexemption from criminal liability for acorporate entity if it can show that itpossesses and effectively implements acrime prevention or complianceprogramme. In the case of offencescommitted by administrators orrepresentatives, the grounds forexemption from criminal liability will applyif the person proves that:

n Organisation and managementmodels were effectively adopted and

enforced, demonstrating duesupervision and control;

n Supervision was entrusted to a bodywith autonomous powers of initiativeand control;

n The perpetrators committed theoffence by fraudulently eluding theorganisation and prevention models;and

n The body responsible for thesupervision, control and monitoringfunctions was not guilty of an omissionor insufficient exercise of its duties.

The requirements that a criminalcompliance plan must meet in order foran entity to be exempt from criminalliability, include:

n identifying the activities in the contextof which the offences to be preventedcan be committed;

n establishment of protocols orprocedures that constitute theprocess of formation of corporate will,decision-making;

n appropriate models for themanagement of financial resourcesto prevent the commission ofthe offences;

n obligations to inform the bodyresponsible for overseeing theoperation and observance of theprevention plan of possible risksand breaches;

n establishment of a disciplinary systemwith appropriate sanctions forbreaches of the measures establishedin the model; and

n regular checks of the model andultimately modify it when relevantinfringements of its provisions cometo light or when there are changes inthe organisation, in the control

Spain

structure or in the activity performedthat makes such changes necessary.

In those cases in which the abovecircumstances can only be partiallyconfirmed, they will be consideredmitigating factors.

The criminal liability of legal persons willbe mitigated when, following thecommission of the offences and via itslegal representative:

n The infringement is confessed to theauthorities before receiving knowledgeof judicial proceedings in progress inrelation to the same;

n The entity collaborates in theinvestigation of the offence, supplyingnew evidence that is decisive for thepurpose of ascertaining the criminalliabilities derived from the facts;

n Steps have been taken to repair orreduce the damage caused by theoffence; and/or

n Prior to the start of the oral hearing,effective measures are established inorder to prevent and discoveroffences that may be committedusing the means or under the coverof the legal person.

Accordingly, it is highly advisable forcorporate entities to establish internallyenforceable measures to prevent and/ordiscover crimes.

Such measures should be reflected in acorporate compliance manual whichshould describe, among other aspects,the internal policies and proceduresrelating to the evaluated risks, the internalchannels of upward or downwardcommunication and the establishment ofa supervisory committee, to name a few.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?The CP does not establish anyconsequences for directors or officers ofa corporate entity found guilty in a

criminal case. However, in somecircumstances, such directors or officersmight be found guilty of the sameoffences committed by the company, ifthe relevant court considers that theywere aware of the criminal conduct andthey did not try to prevent it. UnderSpanish law, most crimes can only becommitted with consent or wilfulmisconduct. However, for some offences,such as money laundering, negligence isenough. As a general rule, consentand/or connivance is needed to considerindividual omissions as an offence butnegligence could be considered enoughin very exceptional cases.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?The ability to prosecute offences in Spainis limited to the Investigating Courts(Juzgados de Instrucción). However, thepolice, the prosecution office, otherregulatory bodies and individuals ingeneral can report to the InvestigatingCourts any conduct that they mightconsider to be a crime and can actas complainants.

PenaltiesCorporate entitiesLO 5/2010 establishes several penaltieswhich may be imposed on a corporateentity, such as:

n monetary fines (calculated accordingto the damage caused or therevenue obtained);

n dissolution of the legal entity;

n suspension of activities for a term ofup to five years;

n closure of the premises andestablishments for a term of up tofive years;





n prohibition from carrying out in thefuture any activities which led to thecrime being committed, favoured orconcealed. This prohibition may betemporary or indefinite. If temporary,the term cannot exceed 15 years;

n disqualification from obtainingsubsidies and public aid, fromentering into agreements with thepublic sector and from obtaining taxor social security benefits andincentives for a term of up to15 years; and

n legal intervention for a term of up tofive years.

Furthermore, the imposition of criminalliability on a corporate entity is compatiblewith (i) the criminal liability which may beimposed on the individual who committedthe offence, (ii) any civil liability for the lossand damage that the offence may havecaused to the victims, and (iii) any othertype of civil or administrative liability whichmay be imposed on the corporate entityor the individual.

IndividualsPossible consequences for individuals ofthe company include disqualification,fines and imprisonment.

What factors are taken intoconsideration when determiningthe penalty?As a general principle, in considering theseriousness of any offence, the courtmust consider the corporate entity’sculpability in committing the offence andany harm which the offence caused.

Depending on the penalty to be imposed,the court might take into considerationother factors, such as: the suitability ofthe penalty in preventing future crimes,the social and economic consequencesof the penalty, the position within thecorporate entity of the individual whoactually committed the crime, prioroffending and whether it was used as aninstrument for crime.

Furthermore, LO 5/2010 provides that theestablishment of enforceable measures toprevent and/or discover the crimes whichmay be committed in the future with thecorporate entity’s means or under itssupervision shall be mitigating factors inconsideration of a corporate’s culpability.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Cooperation and early acceptance of guiltare always mitigating factors insentencing; as is the voluntarycompensation of victims.

Current positionCorporate criminal liability is still arelatively new concept in Spain. It is tooearly to foresee what the consequencesof this new law will be since there haveso far been no significant prosecutions.However, complaints against corporateentities (mainly banks and savingsbanks) filed by individuals are becomingmore frequent.

As a consequence of the amendment ofthe CP, most Spanish companies areadapting their corporate complianceprogrammes in an attempt to preventliability that could result from the potentialcommission of relevant crimes.



IntroductionThe Netherlands has a long tradition ofholding corporate entities to account forcriminal offences.

For the better part of the twentiethcentury, entities could only beprosecuted for economic and fiscaloffences. Since 1976, however, as ageneral rule in the Dutch Criminal Code,every criminal offence can be committedby a legal entity and can be prosecutedto the same extent as natural persons.As a result, legal persons can beprosecuted as perpetrators oraccomplices, or be liable for incitementto commit an offence or for aiding andabetting. Furthermore, personssupervising the unlawful conduct of thelegal entity or persons ordering themisconduct of the legal entity are liable,alongside the perpetrators themselves.Although most criminal prosecutions areinstigated against natural persons, agrowing number of corporate entitieshave been prosecuted in the last twentyyears, in particular since 2012 a growingnumber of large settlements have beenconcluded with legal entities.

On 1 July 2009 these criminal law ruleswere introduced in all administrativepunitive procedures, so that corporateentities and the natural persons whohave control over such conduct canalso be administratively fined forcertain offences.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?In a landmark ruling of 21 October 2003(Zijpe-arrest) the Supreme Court heldthat an offence can be attributed to alegal entity depending on thecircumstances of the case and whethersuch attribution is reasonable.

A corporate entity can be held liable for alltypes of offences provided the offencecan be reasonably attributed to the entity,for example if the offence has beencommitted within the working environmentof the corporate entity. Factors relevant tosuch attribution include, but are notlimited to, the following:

n the conduct constituting the offencefalls within the scope of thecorporate entity;

n the corporate entity benefitted fromthe offence;

n the offence was committed by anemployee of, or a person working onbehalf of, the corporate entity; and

n the corporate entity could haveprevented the conduct but did not doso and “accepted” it. Not takingreasonable care to prevent suchconduct can also constitute“acceptance” of the conduct.

What offences can a corporate entitynot commit?In principle, all offences can be attributedto a corporate entity. Even physicalcrimes like molestation could beattributed to a corporate entity, althoughin general prosecution is limited toeconomic, fiscal, environmental offencesand fraud and corruption based offences.

Are there any specific defencesavailable?All defences open to natural persons canbe relied upon by corporate entities.There are no specific defences availableto corporate entities, beyond arguing thatan offence should not be attributed to it.In particular, a valid argument againstattribution of individual offending could bethat the corporate entity took reasonablecare to prevent the prohibited conduct.Reasonable care could be demonstratedby the implementation of a robustcompliance system.

In the Netherlands, there is no automaticjurisdiction in relation to foreignsubsidiaries of Dutch companies. It isgenerally assumed that a parentcompany cannot be held liable merelybecause of its major shareholding andformal legal structure. The sameattribution criteria for liability of legalentities in general could also be used toattribute criminal conduct by a (foreign)subsidiary to its Dutch parent company.

What is the relationship between theliability of the corporate entity and itsdirectors and officers?In general, all natural persons connectedto an offence can be prosecutedseparately, including the perpetrators, anyaccomplices and any person who may beliable for incitement to commit the offenceor aiding and abetting and so on.

Besides the potential offendersmentioned above, directors andmanagers of a corporate entity can beprosecuted if an offence attributable to acorporate entity (see the paragraph onliability above) can also be attributed tothem. This will be the case if there isevidence that they directed or orderedthe conduct of the legal entity in question.For instance, a director or manager couldbe held accountable for neglecting totake proper measures to prevent suchmisconduct, despite being reasonablyrequired to do so.

There must be some level of knowledgeand responsibility to act and therefore, inorder to incur liability, the director ormanager must be aware of such conducttaking place or have appreciated the riskthat such conduct would occur. Liabilityfor offences cannot be imposed solely byvirtue of a person’s role within thecorporate entity and having a direct(management) line is not necessary toimpose liability.

The Netherlands



ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?In the Netherlands, all criminalinvestigations are conducted under thecontrol of the Public Prosecution Office.In particular, the Public ProsecutionOffice responsible for fraud, economicand environmental crimes will oftenprosecute corporate entities. ThisFunctioneel Parket is located in fourregions in the Netherlands.

All cases being investigated by specialinvestigation services, such as the fiscal,environmental, social securityinvestigation services will be prosecutedby the Functioneel Parket. However,other fraud offences (for exampleembezzlement, corruption, moneylaundering) can be prosecuted by theFunctioneel Parket, each regionaldepartment of the Public ProsecutionOffice or the National Public ProsecutionOffice (the latter mainly responsible forsevere crimes) These offences can beinvestigated by each investigationservice, including the regionaldepartments of the police.

For administrative punitive enforcementactions which regulator is authorised toimpose a fine depends on the applicableset of rules and regulations. For example,in relation to financial offences, thefinancial regulators, the AFM and DNB,would have authority. For consumer andcompetition issues the Authority forConsumers and Markets (ACM), forhealth care issues the HealthcareAuthority (NZa).

PunishmentCorporate entitiesThe maximum fines in the Dutch criminallaw system are defined according tocategory of offence. In general, the

maximum fines for corporate entities areone category higher than they would befor natural persons. The overall maximumis EUR 820,000 per offence, which canaccumulate indefinitely where there are anumber of individual offences. If thismaximum is not deemed to beappropriate a maximum fine can beimposed on a legal entity of up to10 per cent of its annual turnover in theprevious year. For fiscal offences themaximum fine is 100 per cent of theevaded taxes if that is higher than themaximum fines as described in general.

In administrative procedures, themaximum fine depends on which lawsare applicable. For financial offences thefines are probably the highest, being

EUR 4,000,000 for first offenders andEUR 8,000,000 for repeat offenders orhigher if the profits derived from theoffence merit a higher fine. In cartelcases, the maximum fine is 10 per centof the relevant turnover.

There are no circumstances specificallytaken into account for corporate entities.

As with all offenders, corporate entitiescan face forfeiture. Furthermore specialmeasures can also be imposed, in case ofcertain economic crimes, such as closingthe business activities of the corporateentity for a maximum period of one year.Another measure is placing a corporateentity into temporary administration for amaximum of three years.



Dissolution of the corporate entity is aseparate civil procedure that can bestarted by the Public Prosecution Office.However, this is not considered to be asanction. Rather, it is a measure intendedto avoid future wrongdoing and it isnot part of the criminal prosecution.In practice, it is rarely sought by thePublic Prosecution Office.

The Public Prosecution Office tends totarget individuals responsible for theconduct within the corporate entity.The same approach is taken byregulators under administrative law.

IndividualsThe maximum fine which may beimposed on an individual is generallyEUR 82,000 or EUR 820,000 inparticularly large cases. In administrativeprocedures the same maximum finesapply as for legal entities. There is noformal distinction between a corporateentity and a natural person in terms of theimposition of fines. As the amount ofeach fine is determined by the financialmeans of an offender, natural persons areusually fined much lower amounts thancorporate entities.

What factors are taken intoconsideration when determiningthe penalty?In criminal and administrative cases all thecircumstances of the offence, includingthe financial circumstances of theoffender, should be taken into account indetermining the level of the fine.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?A leniency regime only exists in relationto cartel offences under administrativelaw. In criminal law there is no suchsystem. Voluntary disclosure may lead tomore favourable treatment, includingavoidance of prosecution, imposition oflower penalties or the offer of asettlement out of court. However, there isno obligation on the authorities to offerany of the above. There are no generalrules governing voluntary disclosurewhich could provide any assurance tolegal entities as to the consequences ofsuch disclosure.

Current positionAfter the landmark case of October 2003(see above), in general, the attribution ofoffences to corporate entities is readilyaccepted by the courts.

The level of fines imposed underadministrative law has increasedconsiderably over the last few years.Some of these fines have been thesubject of recent challenges. Also, therange of administrative offences forwhich fines can be imposed hasexpanded greatly. Furthermore, the lastseveral years have seen an increase infines being imposed by the Dutchfinancial regulators against managersand directors of legal entities inrespect of offences committed by suchentities (and which were attributed tothose managers and directors).

In general, the prosecution of corporateentities is more frequently used to set anexample and emphasise the importanceof having adequate compliance systemsin place to prevent violations. Having arobust compliance system is thereforegaining importance, including outsidethe more regulated business sectorssuch as financial services and chemical.Recent settlements have shown that thePublic Prosecution Office is no longerreticent in imposing very substantialfines, which on occasions are close insize to settlements in the US. Recentsettlements of EUR 70 million in aLIBOR manipulation case and twosettlements in foreign corruption casesof USD 240 million and USD 397 millioncan be considered ground breaking andmay be seen as precedents by entitiesseeking future settlements.



IntroductionA corporate entity may be subject tocriminal liability in the UAE for a widerange of offences.

The paragraphs below explore corporatecriminal liability under the federal law ofthe UAE as well as the law of Dubai. It isimportant to note that Dubai has its owncriminal code (which does not apply inand may be different in some respects tosimilar codes applicable in the otherEmirates of the UAE).

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Under Article 65 of Federal Law No. 3 of1987 concerning the Promulgation of thePenal Code (the Federal Penal Code), acorporate entity (which is a “judicial person”for the purposes of the Federal PenalCode) is responsible for any criminal actcommitted on its account or in its name byits representatives, directors or agents.

Accordingly, if an employee, director orother representative of the corporatecommits a crime whilst acting on itsaccount or in its name, then thecorporate may be criminally liable for thesame offence.

Similarly, under Article 23 of the DubaiPenal Law for 1970 (the Dubai PenalCode), a corporate (which is a “juristicauthority” for the purposes of the DubaiPenal Code) may be punished with a finefor any crime, whether committed alone orwith any other person as if they are anatural person. The provision states thatthe juristic authority shall be considered tohave committed a crime if personsrepresenting the corporate commit, orpermit or incite the commission of, a crime.

Accordingly, an employee, director orother representative of the corporate whocommit crimes whilst acting on thecorporate entity’s account or in its namemay attract criminally liability to thecorporate under the Dubai Penal Code.

Additionally, if a corporate entity has apresence in the Dubai InternationalFinancial Centre (the DIFC) (an offshorefreezone that has its own civil andcommercial laws), then it may be subjectto regulatory sanctions.

What offences can a corporate entitynot commit?In theory, there is no limit on the offencesfor which a corporate may be liable.

Are there any specific defencesavailable?There are no general defences thatexempt corporate entities from criminalliability in respect of UAE or Dubai laws,such as a general defence based on thecorporate taking all reasonable steps toprevent the commission of the offence.

There are, however, specific defences thatmay apply depending upon the particularoffence for which the corporate is charged.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?A corporate can only become liable if itsdirectors, representatives or agents havecommitted a crime whilst acting on thecorporate entity’s account or in its name.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?The Police in the relevant emirate areresponsible for investigating criminal

offences. Prosecution is conducted by thepublic prosecutor in the relevant emirate.

In respect of any regulatory offencescommitted under DIFC law, the DubaiFinancial Services Authority (the DFSA)would be the authority responsible forinvestigating any alleged breaches.It would also be the authority that wouldissue regulatory sanctions as a result ofsuch investigations.

PunishmentCorporate entitiesPursuant to Article 65 of the Federal PenalCode, the penalties that may be imposedon a corporate entity include fines,confiscations and criminal measures.

If the law imposing criminal liabilityspecifies a principal punishment otherthan a fine (for example, imprisonment)then, in the case of a corporate, thepunishment is to be restricted to a finenot exceeding AED 50,000 under theFederal Penal Code. Similarly, pursuant toArticle 23 of the Dubai Penal Code, acorporate may be liable for fines in placeof the penalty of imprisonment whererelevant, although no specific amount ismentioned in the Dubai Penal Code.

Anything used or which was due to beused for a crime or misdemeanour maybe ordered by the Court to beconfiscated, without prejudice to therights of any bona fide third party.6

Criminal measures are classified underArticle 109 of the Federal Penal Code aseither measures restrictive of liberty ordepriving of rights or material measures.These include:

n the closing of an establishment and aprohibition on carrying out a specificjob; and

UAE

6 Article 82 of the Federal Penal Code and Article 55 of the Dubai Penal Code.



n deprivation of the right to exercise aprofession or commercial activity forwhich it is required to obtain a licencefrom public official authorities.

Under the Dubai Penal Code,7 criminalmeasures such as suspending thecompany from operating apply if thecrime was committed intentionally, andwhere the crime is found to deserveimprisonment. Such suspension could befor a period not exceeding two years,which the court shall judge. A morestringent penalty applies in the form ofdissolving the company for any of thefollowing reasons:

n when the corporate does notcomply with the legal principlesof establishment;

n if the purpose of establishmentviolates laws or this was the aim ofestablishment; or

n if the corporate is suspended byvirtue of a concluded suspensionresolution that does not pass for morethan five years.8

Any violation of the suspension ordissolution order by an individual issubject to a penalty of imprisonment for aperiod not exceeding six months or witha fine not exceeding 1,000 riayls.9

IndividualsPossible consequences for the directorsor officers of the corporate includedisqualification, fines and imprisonment.

What factors are taken intoconsideration when determiningthe penalty?It is within the discretion of the judges inthe criminal courts to determine theappropriate penalty, subject to any

applicable provisions in the Federal PenalCode or the Dubai Penal Code.

In terms of regulatory sanctions imposedby the DFSA against corporates under itsauthority, a penalty guidance section isincluded in the DFSA’s Regulatory Policyand Process sourcebook. All relevantfacts and circumstances are taken intoconsideration when determining apenalty. Some of the factors that theDFSA takes into consideration include:the DFSA’s objectives; the deterrent effectof the penalty; the nature, seriousnessand impact of the breach; the benefitgained; the conduct of the person orentity after the breach; the difficulty indetecting and investigating the breach;the disciplinary record and compliancehistory; action taken by the DFSA inprevious, similar cases; and action takenby other domestic or internationalregulatory authorities. When determiningthe appropriate level of a financial penalty,the DFSA’s penalty-setting regime isbased on three principles: disgorgement(a firm or individual should not benefitfrom any contravention), discipline (a firmor individual should be penalised forwrongdoing) and deterrence (any penaltyimposed should deter the firm orindividual who committed thecontravention and others from committingfurther or similar contraventions).

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?There is no such mechanism in either thefederal law of the UAE or Dubai criminallaw. In respect of entities under theauthority of the DFSA, the DFSA allows forenforceable undertakings, which arewritten promises to do or refrain fromdoing a specified act or acts, to be given

by an entity. These may be provided to theDFSA before, during or after aninvestigation, the making of a decision orthe commencement of litigation orproceedings in court. Enforceableundertakings are an alternative mechanismfor regulating contraventions of the lawand may, amongst other things, includeremedial actions that are not otherwiseavailable under a notice of decision.

Current positionThere are currently no proposed changesto the manner in which corporate entitiesmay be subject to criminal liability underUAE law. Regulatory sanctions remain theprimary method of holding corporateentities to account. In the DIFC, the DFSAhas been diligent to some extent inpursing entities for breaches of theregulatory laws. There have been anumber of instances where the DFSA hasbrought action against DIFC authorisedindividuals or authorised firms that havebeen subject to DFSA investigation orthat have breached DIFC laws or rules.Examples of such regulatory sanctionsinclude the withdrawal of a licence of anauthorised firm, the fining of directors forfailing to disclose material information tothe DFSA, fining a former seniorexecutive of an authorised firm forproviding false information and fining anauthorised firm for market abuse.

7 Article 57 of the Dubai Penal Code.8 Article 58 of the Dubai Penal Code.9 Article 59 of the Dubai Penal Code.



IntroductionThere are many offences in the UKtargeted at corporate entities andconcerned with the regulation ofbusiness activity.

Recent examples of statutes focused onholding corporate entities liable underthe criminal law include the CorporateManslaughter and Corporate HomicideAct 2007 (CMCHA) and the Bribery Act2010 (the Bribery Act). A small numberof prosecutions of corporate entitiesunder the former have been concluded.Both acts focus attention on themanagement systems and controls of acorporate entity. In particular, section 7of the Bribery Act which imposes liabilityon a corporate entity for failure toprevent an act of bribery unless thecorporate entity can demonstrate that ithad adequate procedures to preventsuch an offence occurring, is aconsiderable change in the approachtowards corporate criminal liability.

November 2015 saw the first use of thelatter in the context of the first deferredprosecution agreement (DPA) to beconcluded in the UK. This was swiftlyfollowed by the first prosecution of acorporate entity in respect of thesection 7 offence. As exemplified bythese cases (which concerned conductin Tanzania and the UAE respectively),an important feature of the Bribery Actis its extra-territorial reach and itsapplication to non-UK companies. Aforeign company which carries on any“part of a business” in the UK could beprosecuted under the Bribery Act forfailing to prevent bribery committed byany of its employees, agents or otherrepresentatives, even if the bribery takes

place outside the UK and involves non-UK persons.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Two main techniques have beendeveloped for attributing to a corporateentity the acts and states of minds of theindividuals it employs.

The first is by the use of what is knownas the “identification principle” whereby,subject to some limited exceptions, acorporate entity may be indicted andconvicted for the criminal acts of thedirectors and managers who representits directing mind and will and whocontrol what it does. This concept hasdeveloped over decades. In the case ofan offence involving proof of a mentalelement (mens rea), such as manycorruption offences, it is possible tocombine proof of the act itself (the actusreus), on the part of an employee orrepresentative of the company whowould not form part of the controllingmind with proof of mens rea on the partof a person who does form part of thecontrolling mind.

The second technique, vicarious liability,was used from as early as thenineteenth century. Although, generallyspeaking, a corporate entity may not beconvicted for the criminal acts of itsinferior employees or agents, there aresome exceptions. The most important ofthese concern statutory offences thatimpose an absolute duty on theemployer, even where the employer hasnot authorised or consented to thecriminal act.

Wherever a duty is imposed by statute insuch a way that a breach of the dutyamounts to a disobedience of the law,then, if there is nothing in the statuteeither expressly or impliedly to thecontrary, a breach of the statute is anoffence for which a corporate entity maybe indicted, whether or not the statuterefers in terms to corporate entities.10

There are some recent statutes whichcontain offences specifically directed atcorporate entities. As described above,the Bribery Act imposes liability, incertain circumstances, on a corporateentity which fails to prevent an act ofbribery on its behalf. Similarly, acorporate entity is guilty of the offenceof corporate manslaughter if the way inwhich its activities are managed ororganised causes a person’s death andamounts to a gross breach of a relevantduty of care owed by the organisationto the deceased.

The trend towards increased criminalliability for corporate entities and theirsenior executives has continued sincethe enactment of these statutes andwith the subsequent passage oflegislation criminalising the manipulationof benchmark rates and, most recently,the offence of taking a decision causingthe failure of a bank introduced as partof the Senior Managers Regime(although the latter offence is unlikely tobe frequently prosecuted, if at all, owingto the likely significant difficulties inestablishing causation and otherevidential hurdles associated withattributing such a decision to oneindividual senior manager).11

UK

10 The word “person” in a statute, in the absence of a contrary intention, extends to corporate entities11 Financial Services (Banking Reform) Act 2013, section 36.

What offences can a corporate entitynot commit?A corporate entity can commit mostoffences except those which by theirnature can only be committed byphysical persons.

Are there any specific defencesavailable?Defences are generally set out in therelevant and applicable legislation.

However, many regulatory offences whichaffect corporate entities are offences ofstrict liability or offences which imposestrict liability subject to concepts such as“reasonable practicability”. For example,the Health and Safety at Work etcAct 1974 imposes strict liability on anemployer whenever there is a failure toensure his employees’ health, safety andwelfare at work. Similarly, every employermust conduct his undertaking in such away as to ensure, so far as is reasonablypracticable, that persons not in hisemployment who may be affected by itare not exposed to risks to their healthand safety. This creates absolute liability,subject to the defence of reasonablepracticability, and cannot be delegated.

A corporate entity may be liable for failureto take reasonable precautions at storemanagement level, notwithstanding thatall reasonable precautions to avoid risk ofinjury to employees have been taken atsenior management or head office level.12

The Bribery Act also imposes strictliability on corporate entities subject tothe defence of having “adequateprocedures” in place to prevent bribery.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?Certain statutes provide that, where acorporate has committed an offence, itsofficers are in certain circumstances13 tobe deemed guilty of that offence.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?Numerous different authorities andregulatory bodies may investigate andprosecute offences committed bycorporate entities. Which authoritypursues proceedings will depend uponthe subject matter of the case.Prosecutions in respect of health andsafety offences are prosecuted by theHealth and Safety Executive (HSE), thoseunder the CMCHA may be prosecuted bythe HSE or the Crown ProsecutionService (CPS) and those under theBribery Act may be prosecuted by theSFO or the CPS (although in practice, it isthe SFO that prosecutes serious offencesinvolving corporate entities). It isbecoming increasingly common for theFinancial Conduct Authority (FCA) to useits powers to bring criminal prosecutionsin respect of criminal market abuse,unauthorised financial services businessand some money laundering offences,albeit so far the most high profileprosecutions have been againstindividuals rather than corporate entities.

Where a corporate faces a criminalcharge, it may enter in writing by itsrepresentative a plea of guilty or notguilty. If no plea is entered, the court

orders a plea of not guilty to be enteredand the trial proceeds as though thecorporate had entered a plea of not guilty.

PunishmentCorporate entitiesPenalties may include fines,compensation orders, debarment frompublic procurement processes14 and/orconfiscation orders. Indeed, where thereis evidence that an offender (which mayinclude a corporate entity) has benefitedfinancially from the offending, the courtmust, in accordance with the Proceeds ofCrime Act 2002, consider whether tomake a confiscation order. In caseswhere corporate entities are notprosecuted, a civil recovery order can beimposed if unlawful conduct of somedescription is proved, or, more usually,accepted.15 Civil recovery orders do nothave the same consequences (forexample in terms of debarment frompublic procurement) as convictions.

There has been a steady increase in thelevel of fines over recent years, and finescan now be so high that they put acorporate entity out of business. TheSentencing Guideline issued by theSentencing Council in respect ofcorporate manslaughter said that whilstthe question as to “whether the fine willhave the effect of putting the defendantout of business will be relevant, in somebad cases this may be an acceptableconsequence.” On 11 May 2011 theCourt of Appeal refused an application forleave to appeal against a sentenceimposed in the first statutory corporatemanslaughter case which had put thecompany out of business. The Court of



12 Gateway Foodmarkets Ltd [1997] 3 All ER 78, [1997] 2 Cr App Rep 40, CA.13 Generally where consent or connivance, or neglect can be shown eg Financial Services and Markets Act 2000, s 400.14 On 26 February 2015 new Public Contracts Regulations came into effect which cap the period of debarment at five years and allow blacklisted companies to bid for

public contracts if have self-cleansed which includes demonstrating that they have “taken concrete technical, organisational and personnel measures that are appropriateto prevent further criminal offences or misconduct.” (Public Contracts Regulations 2015, Regulation 57(15)(c))

15 Most recently, on 13 January 2012, the SFO announced that it had, for the first time, obtained a civil recovery order against a shareholder of a company involved inhistoric bribery, in which it was accepted that the SFO could trace property obtained through unlawful conduct into the shareholder’s hands.



Appeal held that the fine imposed wasappropriate and that to limit a fine to thelevel which the company was capable ofpaying would have resulted in a“ludicrous” penalty. It should be notedthough that the courts decide whetherinsolvency is an appropriate consequenceon a case by case basis. For example, inthe first prosecution of a corporate entityunder section 7 of the Bribery Act(see further details below), the Court,applying the relevant sentencing guideline,took into account the company’s financialcircumstances when opting to use arelatively low starting figure as the basisfor penalty calculation.16

In his ruling in the leading case ofInnospec17 Lord Justice Thomas (as hewas then) stated that he expected paritybetween the US and the UK where thefacts allowed; that “a fine comparable tothat imposed in the US would have beenthe starting point” and that “it would [...]have been possible to impose a fine thatwould have resulted in the immediateinsolvency of the company”.18 The caseconcerned a UK company, Innospec Ltd,which pleaded guilty to conspiracy tocorrupt in relation to contracts secured inIndonesia and which was also facingcharges in the US in relation tocorruption in Iraq.

Since then, and following theappointment in April 2012 of David GreenQC CB as Director of the SFO, thestance of the SFO in particular towardscorporate wrongdoing has toughened.The Director and others at the SFO have

been clear that their task, first andforemost, is the prosecution of seriousand complex fraud and bribery.

From 24 February 2014, certainprosecutors have been able to enter intoDPAs with cooperating corporates. DPAsare agreements between prosecutors andcorporate defendants that proceedingsfor alleged offences of economic crimewill be stayed and eventually discontinuedprovided the corporate complies withcertain conditions (which will usuallyinclude the imposition of a substantialfinancial penalty and will, in many cases,also involve other remedial measuresand/or the appointment of a monitor).Whether a DPA is appropriate is decidedby reference to relatively detailedprosecutorial guidance and its proposedterms are the product of negotiationsbetween the prosecutor and thecooperating corporate, although the DPAitself requires the approval of the Court.

As mentioned above, November 2015saw the first DPA concluded with acooperating corporate defendant.19 TheSFO has publicly stated that DPAs areunder consideration in a number of othercases. Nevertheless, the SFO has alsostated that a DPA is not a “short-cut tocorporate prosecutions”, that they will notbe appropriate in every case and that theSFO remains, first and foremost, aprosecution agency.20 This point wasamply demonstrated by another caseconcluded in early 2016, where the SFOdeclined to enter into a DPA in respect ofthe corporate offence under section 7 of

the Bribery Act and instead elected toprosecute (the first time it has done so inrespect of this offence) based upon itsassessment that the corporate entityconcerned, although it self-reported to theSFO, was not sufficiently co-operative.21

IndividualsPossible consequences for the directorsor officers of the company includedisqualification, fines, and imprisonment.Directors and other senior officers mayalso be vulnerable to civil claims andregulatory action for their action orinaction; for example, for a failure tomaintain “adequate procedures” under theBribery Act, leading to quantifiable losses.

Directors or senior officers could alsopotentially be liable for assisting orencouraging22 (or the common lawoffence aiding and abetting) orconspiring to commit crime23 whichwould also leave them open to civilclaims and regulatory action.

What factors are taken intoconsideration when determiningthe penalty?In considering the seriousness of anyoffence, the court must consider thecorporate entity’s culpability in committingthe offence and any harm which theoffence caused, was intended to causeor might, foreseeably, have been caused.

From 1 October 2014, sentencing ofcorporate offenders has been governedby a new Definitive Guideline for Fraud,Bribery and Money Laundering Offences

16 R v Sweett Group plc17 (2010) Crim LR 66518 See http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2010/innospec-judgment.aspx19 The SFO agreed and the Court approved a DPA with Standard Bank on 30 November 2015 – see the DPA, Statement of Facts and judgments at

https://www.sfo.gov.uk/2015/11/30/sfo-agrees-first-uk-dpa-with-standard-bank/20 Speech entitled “Enforcing the UK Bribery Act – The UK Serious Fraud Office’s Perspective” by Stuart Alford QC, Joint Head of Fraud at the Serious Fraud Office, dated

17 November 2014 – https://www.sfo.gov.uk/2014/11/17/stuart-alford-qc-enforcing-uk-bribery-act-uk-serious-fraud-offices-perspective/21 R v Sweett Group plc22 Serious Crime Act 2007, s 44-4623 Criminal Law Act 1977, s 1A

https://www.sfo.gov.uk/2014/11/17/stuart-alford-qc-enforcing-uk-bribery-act-uk-serious-fraud-offices-perspective/

https://www.sfo.gov.uk/2015/11/30/sfo-agrees-first-uk-dpa-with-standard-bank/

http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2010/innospec-judgment.aspx

issued by the Sentencing Council. It setsout a ten-step process for judges tofollow when deciding on the appropriatepenalties to impose on corporatesfollowing conviction. The quantum of thepunitive element of financial penalties isdetermined by reference to multipliers ofbetween 20 and 400 per cent of a figurerepresenting the financial “harm” causedby the particular offending in question.Higher levels of “culpability”,characterised by, for example,orchestrated or sustained wrongdoing,lead to the application of higher“multiplier” figures. The Guideline is clearthat fines will be high: “The fine must besubstantial enough to have a realeconomic impact which will bring hometo both management and shareholdersthe need to operate within the law.”Although this Guideline was followed byjudges assessing the appropriate level ofpenalty in the first DPA concluded in theUK and in the first prosecution of thecorporate offence under the Bribery Act(both referred to above), a substantialbody of case law is yet to develop inrelation to its application. In themeantime, some (relatively limited)guidance may be derived from penaltiesimposed by the courts in cases wherecorporate entities have been prosecutedfor other types of offences, for exampleunder environmental protection andhealth and safety legislation.24

The corporate entity’s level of cooperationwith the prosecuting and regulatoryauthorities is also a factor in assessing thecourse of action taken by a regulator25 or,in cases where DPAs may be available,a prosecutor26 and the level of penaltyappropriate where there has beencorporate criminal offending.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Cooperation and early acceptance of guiltare always mitigating factors in sentencing.Offenders can receive up to one third offtheir sentence for an early plea of guilty27

and can also be given immunity orreduced sentences for cooperating withthe prosecuting authorities in certainlimited circumstances.28

Under guidance issued by theCompetition and Markets Authority (CMA)(formerly the Office of Fair Trading, orOFT) a business which has participated ina cartel may receive total or partialimmunity from fines if it comes forwardwith information about the cartel,provided certain conditions for leniencyare met. Subject to certain conditions,the first cartel member to report andprovide evidence of a cartel will begranted total immunity, including immunityfrom criminal prosecution for any of itscooperating current or former employeesor directors and protection from director

disqualification proceedings for all of itscooperating directors.29

In addition, as noted above, self-reportingis one factor in the decision whether toinvite a corporate into DPA negotiations.Prosecutorial guidance suggests thatwhilst self-reporting will not guarantee aDPA instead of immediate prosecution, adeferred prosecution may be deemedappropriate as a means of disposal ofcriminal investigations involving corporatesif there is full cooperation. This will inpractice mean self-reporting early and thesubsequent disclosure of documents. Insome circumstances it may necessitatethe waiver of privilege over relevantdocuments and/or the provision of activeassistance such as giving evidenceagainst individuals in linked proceedings.The SFO has referred to the extremelyhigh level of cooperation provided in thecase where it concluded its first DPA as atemplate for future cases.30 In that case,the SFO was notified within days of thecorporate entity discovering themisconduct, given very extensive inputinto how the internal investigation wasconducted and provided with significantaccess to relevant source material. Assuch, some questions remain about thescope for corporate entities to challengedemands made by the SFO in caseswhere they may hope to enter into a DPA.Future discussions and cases will providea guide.



24 See, for example, R v Sellafield Limited and R v Network Rail Infrastructure [2014] EWCA Crim 49 and R v Southern Water [2014] 2 Cr App R (S) 23525 For example, the FCA has stated that one factor it will consider in making a decision as to whether to pursue criminal proceedings or regulatory proceedings for market

abuse includes whether the person is being or has been cooperative with the FCA in taking corrective measures.26 Joint CPS and SFO Deferred Prosecution Agreement Code of Practice, paragraph 2.8.2.27 Sentencing Guideline Council: Reduction in Sentence for a Guilty Plea (2007)28 Serious Organised Crime and Police Act 2005, s 71-7329 In 2007 British Airways admitted collusion with Virgin Atlantic over the price of long-haul passenger fuel surcharges and a penalty of £121.5m was imposed by the OFT.

Virgin Atlantic avoided any penalty as it qualified for full immunity under the OFT’s leniency policy and its employees were not prosecuted. In addition to the investigationinto British Airway’s corporate conduct under civil competition law, the OFT also commenced criminal proceedings under the Enterprise Act 2002 into whether any BritishAirways executives dishonestly fixed the levels of the surcharges. The prosecution subsequently collapsed following the disclosure of evidence, which only emerged afterthe start of the trial.

30 See, for example, a speech entitled “First use of DPA legislation and of s. 7 Bribery Act 2010” given by Ben Morgan, Joint Head of Bribery and Corruption at the SFO, on1 December 2015 - https://www.sfo.gov.uk/2015/12/01/first-use-of-dpa-legislation-and-of-s-7-bribery-act-2010/



31 UK Anti-Corruption Plan, December 2014, action 36.32 In March 2015, the UK Government announced that it is to establish a strict liability offence for offshore tax evasion including a criminal offence for corporates which fail to

prevent tax evasion on their watch. In April 2015, the UK Government commenced a consultation exercise on, inter alia, the introduction of new tighter arrangements inrelation to the ultimate beneficial ownership of offshore companies and a proposed new offence of “illicit” enrichment of public officials.

Current positionDespite the increase in the number ofcriminal offences which are targeted atcorporate entities, many of these offencescreated are not being used or are beingused very little. So far, there have onlybeen a small number of convictionsunder the Bribery Act in relation toindividuals; the corporate offence forfailure to prevent bribery has only recentlybegun to be tested.

Nonetheless, legislation such as theBribery Act, and, in particular, the section7 corporate offence have been givenconsiderable prominence by prosecutingbodies, which has not been lost on thecorporate consciousness. It is fair to saythat there is an increasing focus byprosecuting and regulatory agencies onbringing corporate entities to account fortheir actions.

More recently, David Green has called foran extension of the principle contained insection 7 of the Bribery Act to otherfinancial crimes which would significantly

increase the SFO’s reach in criminalisingcorporates for failure to prevent fraudand other financial crime; such potentialexposure is in turn likely to increase theattraction and use of DPAs. Althoughthere is considerable scepticism that thisrepresents an appropriate extension ofthe criminal law, nevertheless it appearsthat there is the political will for thischange – in December 2014 theUK Government published its“UK Anti-Corruption Plan” which set outthe actions that the Governmentintended to take to tackle corruption inthe UK. One action point listed is for theMinistry of Justice to “examine the casefor a new offence of a corporate failure toprevent economic crime and the rule onestablishing corporate criminal liabilitymore widely.”31 There have previouslybeen strong indications of cross partysupport for an extension of the law,particularly following allegations thatbanks have helped clients with Swissaccounts to avoid or evade tax and,most recently, with proposals forlegislative reforms in that area having

been reinvigorated by the “PanamaPapers” leaks.32 It therefore seems thatthere is a significant likelihood that thelaw will be extended in this area althoughthe timescales are unclear.

The position of the SFO appears moresecure than has been the case in recentyears, with public commitments bygovernment ministers to the RoskillModel under which it operates, althoughneither has the prospect of it beingsubsumed into an overarching fraudprevention and prosecution authoritybeen entirely eliminated.

Asia Pacific



IntroductionCorporate liability under Australia’scriminal legal system can arise in manyways and there are few offences whichcannot be committed by a corporateentity. Depending on the type of offence –for example, whether it relates to financialmarkets, anti-competitive conduct,bribery, customs or tax – an Australiancorporate entity may be subject toinvestigation and prosecution by a rangeof different authorities, each operatingpursuant to distinct statutory regimes.The procedure for a criminal investigationand prosecution of a corporate entity aswell as the subsequent penalties to whichit may be exposed where it hascommitted an offence, will also varyaccordingly.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?A corporate entity may be convicted byvicarious liability or by attribution to itof the state of mind of an employeeor agent.

Vicarious liability may apply even thoughstatutes may not expressly refer tocorporate entities, as the word “person”in a statute includes a body corporate. Inthese circumstances, a corporate entitywill become liable so long as theemployee or agent is acting within thescope of employment or agency and hadthe relevant state of mind. Liability will beimposed regardless of whether theemployee occupies a senior or juniorposition. Statutes in Australia under whicha corporate entity may be foundvicariously liable of a criminal offenceinclude the Proceeds of Crime Act 1987(Cth) and the Competition and ConsumerAct 2010 (Cth).

Vicarious liability is often, but not always,imposed for absolute or strict liabilityoffences, where a corporate entity can beconvicted without the need to prove aguilty mind or simply if it is unable torebut the appearance of an honest orreasonable mistake or unable to showthat it acted reasonably to prevent theharm. For example, environmentaloffences commonly involve vicarious andstrict or absolute liability. Nevertheless,there are instances where vicariousliability has been imposed for offenceswhich have a mental element, such as anintent to defraud the Revenue undercustoms legislation.

By contrast, the relevant state of mind ofa natural person (generally seniormanagement of a company) may bedirectly attributed to a corporate entity byway of the “identification principle”. Inthese circumstances, the criminalconduct is treated as being that of thecompany itself and, as such, this form ofcorporate criminal liability may apply tomore serious offences such as homicide.

What offences cannot be committedby a corporate entity?A corporate entity cannot be made liablefor an offence for which the only penaltyis imprisonment unless statute hasexpressly provided that a corporate entitycan also be guilty of such offence.In Australia, such statutes usually providefor the conversion of a term ofimprisonment into a fine. Arguably thereare also certain crimes which can only becommitted by natural persons and not bycorporate entities. However, case law indifferent jurisdictions may take differentviews. For example, unlike in the UK, theauthorities in Australia state thatcorporate entities cannot commit perjury.

Are there any specific defencesavailable?Specific defences are set out in therelevant and applicable legislation. Inmany instances, due diligence in ensuringcompliance with the law is available tocorporate entities as a defence. Evenwhere the statute does not provide forsuch a defence, due diligence may alsobe a relevant factor in giving rise to areasonable doubt as to whether asubjective fault element has beenestablished. However, in the case ofno-fault offences, the defence would needto be made expressly available understatute. The Commonwealth CriminalCode, for example, makes this defenceavailable for strict liability offences but notfor an absolute liability offence.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?An officer or agent may be liable as anaccessory in relation to an offencecommitted by a corporate entity.Conversely, where the law imposescriminal liability on a director or officeras principal, it may also be possible forthe corporate entity to be foundvicariously liable as a principal or liableas an aider and abettor. Accessorialliability is generally established byproving knowledge on the part of thedirector or officer. The statute may alsoreverse the onus of proof so that, wherea corporate entity is convicted of theoffence, the director or officer is alsodeemed to have contravened the lawunless they prove that they had noknowledge of the contravention or useddue diligence to prevent it.

The Federal and State Governments in2009 agreed to adhere to a set ofprinciples proposed by the Ministerial

Australia



Council for Corporations as the basis forimposing personal liability for corporatefault going forward. In addition tooutlining the threshold circumstances inwhich personal criminal liability should beimposed on a director for the misconductof a corporate entity, the principles alsostate that liability should only be imposedon directors where they have encouragedor assisted the commission of the offenceor have been negligent or reckless inrelation to it; directors may also in someinstances be required to prove that theyhave taken reasonable steps to preventthe offence. Legal reform in recent yearshas occurred in line with these principles.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?A number of different regulatory bodiesmay investigate and prosecute offencescommitted by corporate entities,including the Australian Federal Police(AFP), Australian Securities andInvestments Commission (ASIC), theAustralian Competition and ConsumerCommission (ACCC), the Australian TaxOffice (ATO) and the Australian CrimeCommission (ACC).

The ACC is a Commonwealth body thataims to prevent serious and organisedcrime and which has a mandate toinvestigate any matter deemed federallyrelevant criminal activity. The ACC worksclosely with many other authorities,including the AFP, various State policeforces, and regulatory bodies. While theCommonwealth Director of PublicProsecutions (CDPP) or the relevant stateDirector of Public Prosecutions (together,the DPPs) do not have formalinvestigative functions, they may provideadvice and assistance on an informalbasis during investigations and they may

also decide to prosecute following aninvestigation by one of theaforementioned agencies.

The prosecution policies of the DPPs setout the guidelines for determining whenprosecution should be pursued.Guidelines and memoranda ofunderstanding also exist between theagencies and DPPs to establishcooperative relationships and clarify areasof overlap in power and duties.

PunishmentCorporate entitiesFines are commonly imposed oncorporate entities as an alternative toimprisonment. Legislation often sets amaximum fine as the greater of a specificamount or a multiple of the benefitobtained by the corporate entity andattributable to the offence or apercentage of the annual turnover of thecorporate entity. The maximum penaltyfor foreign bribery of a public official isAUD18 million, three times the value ofbenefits obtained (if calculable) or10 per cent of the previous 12 months’turnover of the company, includingrelated corporate bodies. The maximumpenalty for cartel conduct isAUD10 million, three times the value ofbenefits obtained (if calculable) or, ifbenefits cannot be fully determined, 10per cent of the previous 12 months’turnover of the corporate entity, includingrelated corporate bodies. There havebeen substantial increases in themaximum penalty cap in recent years.Minor offences may also attract “on thespot” fines, the payment of whichprecludes further criminal proceedings.

The Proceeds of Crime Act 2002provides a scheme to trace, restrain andconfiscate the proceeds of crime againstCommonwealth Law. In some

circumstances, it can also be used toconfiscate the proceeds of crime againstforeign law or the proceeds of crimeagainst State law.

Other forms of punishment includerestraint of trade orders, adverse publicityorders, community service or remedialorders, injunctions or orders directing thecorporate entity to establish a complianceor education programme or revise certaininternal operations.

Although not technically a criminalpenalty, if ASIC concludes that it wouldbe in the interests of the public,members, or creditors that the corporateentity be wound up, the Court may alsomake such an order.

While ASIC accepts enforceableundertakings as an alternative to civilproceedings it will not acceptundertakings in place of commencingcriminal proceedings.

IndividualsDirectors or officers of a company whoare found guilty of committing an offencemay be sentenced to a period ofimprisonment and/or subject to a fine.Further, a person is automaticallydisqualified from managing corporateentities if he or she is convicted of certainoffences. Civil liability and penalties mayalso be available against an individual.

What factors are taken intoconsideration when determiningthe penalty?The fundamental principle which informssentencing is that the penalty should beof a severity appropriate to theseriousness of the offence. Therefore,the degree of culpability of thecorporate entity and the seniority of theofficers involved are relevant todetermining the penalty.



Other factors which Australian courtstake into consideration when sentencinga corporate entity are largely the same asthose applicable to sentencing ofindividuals. Such considerations includeany prior criminal history, the degree ofharm caused, whether any steps weretaken to remedy the harm and preventfuture occurrences, early guilty plea,cooperation with authorities and thedegree to which the corporate entity hasdemonstrated remorse. Law reformcommissions have recommendedintroducing sentencing provisionstargeted specifically at corporate entitiesbut there has not been any indication thatsuch recommendations will beimplemented in the near future.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Immunity from prosecution may begranted to a corporate entity that firstexposes serious cartel offences and fullycooperates with the ACCC and theCDPP. Related corporate entities mayalso seek derivative immunity. Where thecriteria set out in the ACCC Immunity andCooperation Policy for Cartel Conducthave been met, the CDPP will provide aletter of comfort and prior to thecommencement of a prosecution, theCDPP will provide a written undertakinggranting criminal immunity. While similarimmunity policies in relation to cartelconduct can also be found in otherjurisdictions around the world, it is onlyavailable in the very limited circumstancesdetailed in the relevant competitionregulator’s policy.

In Australia, cooperation policies generallydo not provide for immunity. ASIC’senforcement policy states that earlynotification of a violation or cooperationwith an investigation may be relevant toASIC’s consideration of what type of

action to pursue, including whether torefer a matter to the CDPP. Additionally,ASIC may provide a letter of comfortinforming a cooperating entity that it isnot the subject of an investigation. TheProsecution Policy of the Commonwealth,which sets out the guidelines followed bythe CDPP in its prosecutions, listscooperation as a relevant considerationwhen deciding whether or not to agree toa charge negotiation proposal. Past andfuture cooperation is identified inlegislation as a mitigating factor indetermining sentencing.

Current positionAs a result of the multi-layered anddispersed nature of this area of law inAustralia, the landscape of corporatecriminal liability is fragmentary andconstantly changing.

As outlined above there are a widerange of areas in which corporateentities are vulnerable to criminal liability.However, the extent to which regulatorshave pursued criminal remedies varies.It has to date been more common forthe ACCC to pursue civil, quasi-criminalremedies rather than refer matters tothe CDPP. In the years 2013 and 2014to date, the CDPP did not receive anybriefs from the ACCC in relation toalleged criminal cartel conduct. Yet, inthe year 2012-13, the ACCC reportedthe largest penalties obtained for cartelconduct in Australia, being orders for atotal of AUD98.5 million in civil penaltiesfrom 13 airlines in respect of collusionon fuel surcharges for air cargoservices. The current ACCC chairman,Rod Sims, has commented that anumber of investigations are being



conducted and cases would be referredto the CDPP if serious cartel conductis uncovered.

Australian competition laws haveundergone a comprehensive review by aCompetition Policy Review Panel with thefinal report (known as the Harper Report)released on 31 March 2015. The HarperReport recommends a simplification ofcriminal sanctions in relation to cartelconduct. The Australian governmentsupports this simplification.

On the other end of the spectrum,between 2012 and July 2015, ASICreported obtaining 2736 enforcementoutcomes of which 1607 were criminal. Itis unclear what proportion of theserepresents prosecutions againstcorporate entities but there is noevidence of a preference on the part ofASIC to focus on individuals ororganisations in its enforcementactivities. ASIC has called for thepenalties available to it to be increasedand in a 2014 Senate report, theEconomics Reference Committeerecommended that criminal and civilpenalties available to ASIC be revisited.

In March 2016, one of the longestsentences for insider trading in Australiawas handed down to Hui Xiao, the formermanaging director of Hanlong Mining. Hewas sentenced to eight years and threemonths imprisonment. Xiao wasextradited from Hong Kong after failing toreturn to Australia from permitted travel toChina. In 2013, the former Vice-Presidentof Hanlong Mining was convicted ofinsider trading and sentenced to twoyears and three months imprisonment.

In the foreign bribery arena, the OECDhas expressed concerns over theeffectiveness of the enforcement offoreign bribery legislation in Australia. Forexample, the AFP has historically facedcriticism for not pursuing enforcementaction over the Australian Wheat Boardscandal. However, more recently, greaternumbers of corporate entities andindividuals have been prosecuted underanti-bribery legislation.

On 1 March 2016, amendments to theCriminal Code (Cth) came into forcewhich introduced new offences for falsedealing with accounting documents. Itremains to be seen whether the scope of

these offences will extend beyondconduct relating to bribery of foreignofficials and how successful theenforcement of these provisions will be.

The Federal Senate is currentlyconducting an inquiry into the measuresgoverning the activities of Australiancorporate entities, entities, organisations,and related parties with respect to foreignbribery. The report from his inquiry is dueto be released on 1 July 2016.

The ATO pursues both individuals andcorporate entities. However, criminalliability is mainly attributed to individualsdirectly involved. Recently ProjectWickenby, a cross-agency taskforcetargeting international tax evasion, haswith the cooperation of ASIC involvedextensive investigations into Australiancompanies. Of the 46 convictions to date,8 have been of directors. Similarly, theACC mainly pursues groups or individuals,not corporate entities. The ACC reportsregularly on the arrests that result from itsinvestigations. The ACC reported thatfrom the work in 2014-2015 and previousyears, 450 people were convicted.



IntroductionThere are a number of offences inHong Kong targeted at corporate entitiesand concerned with the regulation ofbusiness activity. Most notable amongstthese are the Companies Ordinance33

(which deals with failures to performadministrative steps in relation to theoperation of companies), the Securities andFutures Ordinance34 (which regulatesmisconduct in financial markets), the TradeDescriptions Ordinance35 (which criminalisesvarious acts of consumer misselling), andthe Theft Ordinance36 (in particular thoseprovisions dealing with false accounting).

It is noteworthy that, unlike in some otherjurisdictions, there is no specific statutoryoffence of corporate manslaughter inHong Kong. In October 2012, 39 peopledied when a ferry collided with anotherboat and sank.

Whilst the two vessels’ captains were eachcharged with 39 counts of manslaughter,their respective employers, HongkongElectric and Hongkong and Kowloon Ferrysubsidiary Island Ferry Company, were notcharged, but were fined HKD4,500 andHKD5,000 respectively for criminalbreaches of marine safety rules. Whilst itwould have been possible to haveattempted to charge the respectivecompanies with manslaughter under thecommon law rules (see below), suchprosecutions are notoriously difficult.

Such prosecutions under the commonlaw have taken place in Hong Kong37, butare extremely rare.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Under section 3 of the Interpretation andGeneral Clauses Ordinances38, the term“person” in any statute is defined asincluding any public body and anybody ofpersons, corporate or unincorporated.Accordingly, wherever a duty is imposedby statute in such a way that a breach ofthe duty amounts to a disobedience ofthe law, then, if there is nothing in theordinance either expressly or impliedly tothe contrary, a breach of the ordinance isan offence for which a corporate may beliable, whether or not the statute refers interms to corporate entities.

The law of Hong Kong has followed thecommon law of England and Wales inascribing corporate liability for criminality,and has developed two main techniques forattributing to a corporate the acts andstates of minds of the individuals it employs.

The first is by use of what is known asthe “identification principle” whereby,subject to some limited exceptions, acorporate entity may be indicted andconvicted for the criminal acts of thedirectors and managers who represent itsdirecting mind and will, and who controlwhat it does. Following the leadingEnglish authority of Tesco SupermarketsLtd. V. Nattrass39, the Hong Kong Courtof Appeal in R v Lee Tsat-pin40 held that:

“[I]n order to attach liability to a limitedcompany for the act of an officer of thatcompany the officer who committed the

offence must be a person who was incontrol of the company so that hiscriminal act could be identified as that ofthe company.”

The second technique of vicarious liabilitywas used from as early as the nineteenthcentury. Although, generally speaking, acorporate entity may not be convicted forthe criminal acts of its inferior employeesor agents, there are some exceptions, themost important of which concernsstatutory offences that impose an absoluteduty on the employer, even where theemployer has not necessarily authorised orconsented to the act (see for exampleoffences relating to misleading consumersunder the Trade Descriptions Ordinance).

What offences can a corporate entitynot commit?A corporate entity can technically commitmost offences except those for whichimprisonment is the only penalty (such asmurder), and those which by their naturecan only be committed by physicalpersons in their personal capacity andnot acting as an agent for the corporateentity (such as rape or bigamy).

Unlike in other jurisdictions, Hong Kong’santi-bribery and corruption legislation, thePrevention of Bribery Ordinance,41 has nospecifically drafted corporate offence.


Hong Kong

33 Cap 32.34 Cap 571.35 Cap 362.36 Cap 21037 In 1995, Ajax Engineers and Surveyors Ltd pleaded guilty to charges of manslaughter arising out of the deaths of 12 workers on a site, caused by the collapse of a lift.38 Cap 139 [1972] AC 153 (HL)40 CACC000315/1985 (Li VP)41 Cap 201.

Many regulatory offences which affectcorporate entities are offences of strictliability or offences which impose strictliability subject to concepts such as“reasonable excuse”.42 For example, theTrade Descriptions Ordinance imposesstrict liability on a corporate entity not tomislead consumers with the descriptionsof its goods, subject to a defence that thisoccurred by “mistake...default ofanother…accident or some other causebeyond [its] control”, in circumstanceswhen “all reasonable precautions and…alldue diligence” had been taken to avoidthis. This defence was specifically draftedas an incentive for corporate entities toimplement compliance systems with stafftraining, which could then be pointed to inthe event of a breach.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?Certain statutes provide that, where acorporate has committed an offence, itsofficers are in certain circumstances43 tobe deemed guilty of that offence.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?A variety of agencies within Hong Kongmay initiate and conduct prosecutions,beyond the main criminal prosecutor, theDepartment of Justice.44 The Securitiesand Futures Commission, for examplehas the power to prosecute less seriouscriminal breaches of the Securities andFutures Ordinance, although more seriouscases, in the higher courts, will beprosecuted by the Department of Justice.

Where a corporate faces a criminalcharge, it may enter in writing by itsrepresentative a plea of guilty or notguilty. If no plea is entered, the court shallorder a plea of not guilty to be enteredand the trial shall proceed as though thecorporate had entered a plea of not guilty.

PunishmentCorporate entitiesPenalties may include fines, andcompensation or forfeiture orders. Unlike inother jurisdictions, there is no formalscheme of mandatory debarment frompublic procurement processes for corporateentities convicted of criminal offences.

IndividualsPossible consequences for the directorsor officers of the company includedisqualification, fines, and imprisonment.

Directors and other senior officers may alsobe vulnerable to civil claims and regulatoryaction for their action or inaction.

Directors or senior officers could alsopotentially be liable for aiding andabetting or conspiring to commit crime45

which would also leave them open to civilclaims and regulatory action.

What factors are taken intoconsideration when determiningthe penalty?In considering the seriousness of anyoffence, the court must consider thecorporate entity’s culpability incommitting the offence and any harmwhich the offence caused, was intendedto cause or might, foreseeably, havebeen caused.

Unlike in other jurisdictions, thereare no specific guidelines forsentencing corporate entities.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Cooperation and early acceptance of guiltare always mitigating factors in sentencing.Offenders can receive up to a third off theirsentence for an early plea of guilty.46

Under the Trade Descriptions Ordinance ascheme of Undertakings operates, underwhich a corporate entity may volunteer itsguilt, and agree to abide by various conditions,in exchange for non-prosecution. In relation tobreaches of the Securities and FuturesOrdinance, as the Securities and FuturesCommission has a discretion as to whether todeal with matters by way of criminalprosecution or regulatory breach, self-reportingby corporate entities is an effective way ofmitigating the risk of criminal prosecution.

Current positionDespite the availability of criminal offenceswhich are targeted at corporate entities,many of these offences are not beingused or are being used very little. Asregards the criminal prosecution ofcompanies for offences under theSecurities and Futures Ordinance, forexample, the SFC has generally adoptedan approach of prosecuting individualscriminally, whilst dealing with thecompany in the regulatory sphere.

The exception to this may be the TradeDescriptions Ordinance, which cameinto force on 19 July 2013, and hasalready seen a number of corporateentities prosecuted. It is anticipated thatthis will continue.


42 See for example, s114(8) Securities and Futures Ordinance, in relation to the offence of carrying out a regulated business activity without a licence.43 Generally where consent, connivance, or neglect can be shown eg Trade Descriptions Ordinance (Cap 362) (s.20(1)). Certain more serious offences require the higher

standard of consent, connivance or recklessness (the Securities and Futures Ordinance (s.390)), or consent or connivance alone (such as the Weapons of MassDestruction Ordinance (Cap 526), the Biological Weapons Ordinance (Cap 491) and the Theft Ordinance (Cap 210)).

44 In relation to the Trade Descriptions Ordinance, for example, the Office for the Communications Authority has the power to prosecute matters relating to thetelecommunications industry, and Customs and Excise has jurisdiction over all other breaches.

45 Crimes Ordinance (Cap 200), s159A46 Secretary for Justice v Chau Wan Fun [2006] 3 HKLRD 577




IntroductionIndian law imposes both civil and criminalliability on corporate entities. Criminalliability was earlier not associated withcorporate entities due to the absence ofmens rea in Indian law, and Indian Courtswere of the view that corporate entitiescould not be criminally prosecuted.However, the case of Standard CharteredBank and Ors. v Directorate ofEnforcement47 the Supreme Court heldthat corporate entities are liable forcriminal offenses and can be prosecutedand punished, at least with fines. Thisdecision has settled the position of lawregarding the criminal liability of acorporate entity.

The Companies Act 2013 (CompaniesAct) has enhanced corporategovernance requirements. It has alsoexpanded the definition of “officer indefault”. The Companies Act has alsobroadened the range of circumstancesunder which, if the obligations imposedon the corporate entity under the Act arenot complied with, the company and/orits officer in default could either be finedor imprisoned.

Other relevant statutes include theEnvironment Protection Act 1986, theIndustrial Disputes Act 1947 and theWater (Prevention and Control Pollution)Act 1974, which lay downcircumstances under which corporateentities may be prosecuted. Under thesestatutes, when a “person” committing anoffence is a company or other bodycorporate, every officer or personconcerned with or in charge of themanagement shall, unless he proves thatthe offence was committed without hisknowledge or consent, be deemed to beguilty of such offence.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?The decision of the Supreme Courtreferred to above holds that corporateentities are liable for criminal offences andcan be prosecuted and punished, at leastwith fines, and overrules all priordecisions to the contrary. Corporateentities may be convicted of criminaloffences and are criminally liable even ifthe recommended punishment for suchan offence is imprisonment alone. Thedefinition of “person” in the Indian PenalCode 1860 (IPC), the principal lawgoverning criminal law in India, includes acompany or a body corporate. Manyother statutes in India such as theIncome Tax Act 1961 and the ForeignExchange Management Act 1999 alsoinclude corporate entities within theirdefinition of the word “person”.

One of the circumstances under which acorporate entity can incur criminal liabilityis when the company is liable for the actsof its employees, agents or any otherperson responsible for its affairs. In otherwords, a company will be vicariouslyliable for the actions of its employees andagents in the ordinary course of business.

A corporate entity may also be heldcriminally liable for the criminal acts of itsdirectors or other key managerialpersonnel who are in charge of theday-to-day affairs of the corporate entityand are its directing minds.

Under the Companies Act, criminal aswell as civil liability can arise againstcorporate entities for non-compliancewith requirements under the Act such as:

(i) filings of annual returns, financialstatements, registration of charges, etc;

(ii) failure to comply with pre-requisites tobe followed in respect of thepurchasing by a company of its ownsecurities, loans and investments bycompanies, etc;

(iii) and for violations such asmisstatements in prospectuses, andinvestments of company to be held inits own name etc.

The Companies Act has also introducedthe concept of fraud (section 447) thoughfraud is defined as any act orconcealment or omission or abuse ofposition in relation to the affairs of acompany, committed with an intent toinjure the interests of a company or itsshareholders or creditors or any otherperson, whether or not there is wrongfulgain or loss. Punishment for fraud shallinclude imprisonment for the personsassociated with the fraud and fine.

Persons or officers in default shall also beliable for action under section 447 in thefollowing circumstances:

(i) Furnishing false or incorrect particularsin relation to the registration of acompany (section 7(5));

(ii) Misstatements in prospectus(section 34);

(iii) Fraudulently inducing persons toinvest money (section 36);

(iv) Depository or depository participanttransfers shares with an intention todefraud a person (section 56 (7))

(v) The auditor of the company shall beliable if it has conducted in afraudulent manner (section 140);

(vi) Where business of a company hasbeen or is being carried on for afraudulent or unlawful purpose(section 206);

India

47 Standard Chartered Bank and Ors. v Directorate of Enforcement (2005) 4 SCC 530

(vii) Furnishing false statements,mutilation, destruction of documents(section 229);

(viii)Application for removal of name withan intent to defraud creditors(section 251);48

(ix) Fraudulent conduct of business(section 339);49

(x) Making a false statement(section 448); and

(xi) Intentionally giving false evidence(section 449).

Furthermore, the criminal intent of acorporate entity can be derived from thepersons who guide the business of thecompany such as the managing director,the board of directors, or any otherperson who has been authorised by thecompany to take decisions on behalf ofthe company.

What offences can a corporate entitynot commit?Under the IPC, the offences which acorporate entity cannot commit aremurder, bigamy and sedition.

Are there any specific defencesavailable?Statutes generally provide for defenceswherever applicable. For instance, undersection 34 of the Companies Act, whichprovides for criminal liability in case of amisstatement in a prospectus, if a personproves that such statement or omissionwas immaterial or that he had reasonablegrounds to believe, and did up to thetime of issue of the prospectus believe,that the statement was true or theinclusion or omission was necessary, the

penal provisions provided under thesection would not be applicable. Similarly,section 33650 which relates to offences byofficers of companies in liquidation, itshall be a good defence if the accusedproves that he had no intent to defraudor to conceal the true state of affairs ofthe company or to defeat the law.

Generally, relevant statutes state that it isa defence to show the offence wascommitted without knowledge or consent.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?Relevant statutes generally provide thatofficers who are in charge of theday-to-day operations of the companymay be liable. The Companies Act definescertain officers may be deemed to be indefault of the provisions of the Act.

The liability of the corporate entity and thedirectors and officers is limited. In certaincases the corporate veil of the companycan be lifted under section 213(b)51 of theCompanies Act, if it is proved that thebusiness was carried out with theintention to defraud creditors.

Directors, managers and officers of thecompany will be personally liable forfraudulent conduct of the business asprovided under section 339.52

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?Various authorities are empowered toinvestigate and prosecute offencescommitted by corporate entities.

Under Chapter XIV of the Companies Act2013, the Registrar of Companies hasthe power to investigate the mattersconcerning companies.

Some of the other investigationauthorities are the following:

(i) jurisdictional police authorities.

(ii) the Central Bureau of Investigation, acentral investigative agency thatinvestigates and prosecutes cases ofserious fraud or cheating that mayhave ramifications in more than onestate. Where needed, the CBI can beassisted by specialised wings of thecentral government especially ineconomic or cross-boarder crimes. Italso becomes involved in seriouscrimes where it is necessary to use anagency that is independent of localpolitical influence.

(iii) the Serious Fraud Investigation Office,a multi-disciplinary organisation underthe Ministry of Corporate Affairs,consisting of experts in the fields ofaccountancy, forensic auditing, law,information technology, investigation,company law, capital markets andtaxation, and is responsible forinvestigation and prosecuting whitecollar crime and fraud.

(iv) the Securities and Exchange Board ofIndia which mainly deals withsecurities fraud to protect theinterests of investors in securities andwhich is responsible for promoting thedevelopments of the securities marketand regulating the securities market.

(v) the Central Economic IntelligenceBureau (for economic offences andimplementation of the Conservation of



48 Yet to be notified by the Ministry of Law & Justice, Government of India49 Yet to be notified by the Ministry of Law & Justice, Government of India50 Yet to be notified by the Ministry of Law & Justice, Government of India51 Yet to be notified by the Ministry of Law & Justice, Government of India52 Yet to be notified by the Ministry of Law & Justice, Government of India



Foreign Exchange and Prevention ofSmuggling Activities Act(COFEPOSA)).

(vi) the Directorate of Enforcement(for foreign exchange and moneylaundering offences)

(vii) the Central Bureau of Narcotics(for drug related offences).

(viii) the Directorate General ofAnti-evasion (for central exciserelated offences).

(ix) the Directorate General of RevenueIntelligence (for customs, excise andservice tax related offences).

PunishmentCorporate entitiesCorporate entities can be punished bythe imposition of fines and otherpenalties. In the Standard CharteredBank case, the Bank was prosecuted forthe alleged violation of certain provisionsof the Foreign Exchange Regulation Act1973. The Supreme Court did not followthe literal and strict interpretation rulerequired for penal statutes. Rather it heldthat the corporate entity could beprosecuted and punished with fines,regardless of the mandatory punishmentrequired under the statute.

Since the decision of the StandardChartered Bank case, courts havegenerally taken the view that companiesare not exempt from prosecution merelybecause the prosecution is in respect ofoffences for which punishment prescribedis mandatory imprisonment.

IndividualsIndividuals such as the directors andofficers can be punished withimprisonment or a fine or both. Directors,key management personnel and senior

officers could be liable for misconductincluding non-compliance with regulatoryrequirements, aiding and abetting crimesand for falsifying records, financialstatements. Directors may also be liablefor regulatory action if a director (includinga nominee/independent director) wasaware of a default or wrongdoing by thecompany, either by participation in boardmeetings or receiving the minutes of themeeting and not objecting to a default orwrongdoing. Consent or willingness bythe directors may also make them liableto prosecution.

What factors are taken intoconsideration when determiningthe penalty?In most cases, the statute itself provides forthe minimum or maximum penalty to beimposed upon the accused. The CriminalProcedure Code 1973 provides widediscretionary powers to sentencing judges.

Generally, the court, in determining thepenalty, considers: (i) seriousness of theoffence; (ii) any prior transgressions; (iii)the intent with which the offence wascommitted; and (iv) the likelihood of theoffence being repeated by the offender.

Section 19(4) of the Competition Act2002 sets out the factors required to betaken into account when imposingpenalties in respect of abuse ofdominant market position. However, ithas taken an expansive view. Forexample, in January 2013, theCompetition Commission of India (CCI),in its assessment of abuse of dominancein the case of Belaire Owners’Association v DLF Limited, imposed apenalty of 6.3 billion Rupees on DLFLimited for having abused itsdominance. The CCI took into accountvarious factors other than market share,

such as statements issued by DLFLimited in the public domain relating toits dominance in the market in its redherring prospectus and annual report,the size of its fixed assets and capital,turnover and brand value. InDecember 2013, the CCI imposed apenalty of 17.73 billion Rupees on CoalIndia Limited and its subsidiaries inMaharashtra State Power GenerationLimited v Coal India Limited and Othersfor abuse of its dominant position inthe market.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?For certain offences under the Indian PenalCode, plea bargaining can be used. Pleabargaining was introduced [in the Code ofCriminal Procedure by the Criminal Law(Amendment) Act 2005 (Actz 2 of 2006)through Chapter XXIA to the Code havingsections 265 A to 265 L]53 with effect from5th July 2006 in respect of offencespunishable by imprisonment belowseven years.

Plea bargaining is not available:

n if the accused has been previouslyconvicted of a similar offence byany court;

n for offences which might affect thesocio-economic conditions of thecountry; or

n for offences committed against awoman or a child below fourteenyears of age.

Current positionCorporate criminal liability is stilldeveloping as a concept in India.Although the Companies Act 2013 hasincreased the liability of corporate entities,levels of enforcement activity remain low.

53 [sec. 265-A CrPC]



In Iradium India telecom ltd v. Motorolaincorporated and Ors [AIR 2011 SC] thecourt held that a corporate entity is virtuallyin the same position as any individual andmay be convicted under common law aswell as in respect of statutory offencesincluding those requiring mens rea.

The Supreme Court in Iradium appears tohave crystallized the law, placingemphasis on the theory through which theintention of the directing mind and will of acompany is attributed to the company,and confirming that a corporate entity canbe held liable for crimes of intent. Thejudgment further clarifies that a companyis not immune from any prosecution foroffences for which a sentence ofmandatory imprisonment is prescribed, asa fine can be imposed instead.

In another recent case of Sunil BhartiMittal v Central Bureau of Investigation &Others54 the Supreme Court, whilereferring to the Standard Chartered Bankjudgment (supra) observed that thecriminal intent of the “alter ego” of thecompany, that is the personal group ofpersons that guide the business of thecompany, can be imputed to thecompany/corporate entity.

In the Sunil Bharti Mittal case, however,this principle was applied in an exactlyreverse scenario. In this regard, the Courtheld that it is the cardinal principle of thecriminal jurisprudence that there is novicarious liability unless the statutespecifically provides so. Thus, anindividual who has perpetrated thecommission of an offence on behalf of a

company can be made accused, alongwith the company, if there is sufficientevidence of his active role coupled withcriminal intent. Individuals may also beprosecuted in cases where the statutoryregime itself attracts the doctrine ofvicarious liability, by specificallyincorporating such a provision. Hence,when the company is the offender,vicarious liability on the part of theDirectors cannot be imputedautomatically, in the absence of anystatutory provision to this effect.

The Companies Act has emphasised theimportance of good corporategovernance and effective fraud preventionmeasures. Audit committees have beengiven more stringent regulatory duties tolook into potential corporate fraud.

54 [Criminal Appeal No. 35 of 2015 (arising out of Special Leave Petition (Crl.) No. 3161 of 2013)]



IntroductionThe Indonesian Criminal Code does notspecifically establish criminal liability forcorporate entities. Under the IndonesianCriminal Code, the principle is that onlyindividuals can commit criminal offences.

A number of laws in Indonesia, includingthe Environmental Law, the AntiCorruption Law, the Insurance Law andthe Anti Money Laundering Law haveintroduced corporate criminal liability forspecific offences. In most cases, despitethe clear language used in the laws, lawenforcement agencies have beenreluctant to bring charges againstcorporate entities and focus their effortsmore on bringing charges againstindividuals who are involved orresponsible for the criminal acts.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Depending on the relevant and applicablelaws, generally, a corporate entity canincur criminal liability when the criminaloffence is committed on its behalf orcommitted by an employee or a personwho has a relationship with the corporateentity acting within the scope of thecorporate entity’s activities.

Specific examples under theEnvironmental Law, the Anti CorruptionLaw, the Insurance Law, and the AntiMoney Laundering Law are as follows.

The Environmental LawThe Environmental Law provides that if acriminal offence is committed by, for or onbehalf of a corporate entity, the criminalcharges and sanctions can be imposedon (i) the corporate entity, and/or (ii) theperson who gave the order to commitsuch criminal offence or the person whoacted as the leader in committing such

criminal offence. If the criminal offence iscommitted by an employee, or anindividual based on a relationship with thecorporate entity, the criminal sanctions willbe imposed on the individual who gavethe order or the leader.

The Anti Corruption LawThe Anti Corruption Law provides that acriminal act of corruption is taken to becommitted by a corporate entity if thecriminal offence is committed by anemployee or other individual based onthe relationship with the corporate entity,acting alone or together, within the scopeof the corporate entity’s activities.

The Insurance LawThe Insurance Law provides that acorporate entity can be criminally liablefor a criminal offence if: (i) committed orordered by the controller and/ormanagement acting for and on behalf ofthe corporate entity; (ii) committed in theframework of the purpose and objectiveof the corporate entity; (iii) committed inaccordance with the duties and functions

of the person who committed the offenceor the person who gave the order; and(iv) committed for the purpose ofbenefitting the corporate entity.

The Anti Money Laundering LawThe Anti Money Laundering Law providesthat a corporate entity can be criminallyliable for money laundering crimes if: (i)committed or ordered by the managementof the corporate entity; (ii) committed in theframework of the purpose and objective ofthe corporate entity; (iii) committed inaccordance with the duties and functionsof the person who committed the offenceor the person who gave the order; or (iv)committed for the purpose of benefittingthe corporate entity.

What offences can a corporate entitynot commit?Indonesian laws do not specifically setout offences that a corporate entitycannot commit. However, as mentionedabove, offences based on theIndonesian Criminal Code can only becommitted by individuals.

Indonesia

Are there any specific defencesavailable?All defences available to individuals canbe relied upon by corporate entities.

There are no specific defences availableto corporate entities, beyond arguing thatan offence should not be attributed to it,but to the individuals instead.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?In general, all individuals connected to anoffence can be prosecuted separatelyincluding the perpetrators, anyaccomplices and anyone who may beliable for incitement to commit the offenceor aiding, abetting and so on.

Specifically under the Environmental Law,if the corporate entity is liable, then theBoard of Directors will be liable and thecriminal sanctions will be imposed on theBoard of Directors since the Board ofDirectors will be deemed to haveauthority over the perpetrators or to have“assented to” the offence. The meaningof “assented to” the offence would coverapproving or allowing the commission ofthe offence, insufficient supervision,and/or having policies which make thecommission of the offence possible.

Under the Insurance Law, if a criminaloffence is committed by a corporateentity, the criminal sanctions will beimposed on the corporate entity, thecontroller, and/or the management actingfor and on behalf of the corporate entity.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?In Indonesia, there is no specific judicialbody dedicated to investigating andprosecuting corporate entities.

In general, criminal investigations areconducted by the National Police of theRepublic of Indonesia. However,investigations can also be conducted bythe internal investigators of certainauthorities, such as for environmental,competition, tax, corruption and financialsector offences.

Prosecution of criminal offences isconducted by Public Prosecutors (Jaksa).

PunishmentCorporate entitiesPunishment differs for each offence underthe relevant and applicable law. Forexample, under the Anti MoneyLaundering Law, a corporate entity canbe fined a maximum of Rp100 billion, aswell as subject to the following sanctions,announcement (publicising) of the courtdecision, freezing of part or all activities,revocation of business licence,dissolution, seizure of assets, andtakeover of the corporate entity by theState. Under the Anti Corruption Law, acorporate entity can be fined themaximum fine for individuals plus onethird of the maximum fine.

Under the Environmental Law, acorporate entity, in addition to fines, canalso be subject to restoring theenvironment in the event of environmentaldamage arising from the offence, as wellas freezing or revocation of theenvironmental permit.

IndividualsPunishment differs for each specificoffence under the relevant law and theIndonesian Criminal Code. Under theIndonesian Criminal Code, individualsmay be subject to the death penalty,imprisonment (up to life), fines,revocation of certain rights, seizure ofcertain assets and announcement(publicising) of court decision(s).

What factors are taken intoconsideration when determiningthe penalty?There are no sentencing guidelines inrelation to cooperation of offenders. Therelevant court has discretion to considermitigating or aggravating factors.Cooperation by the offenders can be takeninto consideration as a mitigating factor.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?There is no mechanism for entities todisclose violations in exchange forlesser penalties.

Current positionAs mentioned above, the currentIndonesian Criminal Code does notspecifically recognise offences committedby corporate entities. It has been suggestedthat the future revision to the IndonesianCriminal Code should include a provision oncorporate criminal liability (the Governmenthas designated the bill amending theCriminal Code as a priority bill for 2016).

While the Environmental, the AntiCorruption, the Insurance and the AntiMoney Laundering Laws (among others)permit the bringing of charges againstcorporate entities, law enforcementagencies in most cases remain reluctantto invoke the relevant provisionsagainst corporate entities as opposedto individuals.





IntroductionHistorically, only individual persons couldbe criminally liable under Japanese law.The Japanese Criminal Code, which isthe key criminal statute in Japan, doesnot expressly provide for the criminalliability of a corporate entity.

However as the scope of activities ofcorporate entities has been rapidlyexpanding, there has been a growingneed to regulate the actions of suchentities. Therefore, separately from theCriminal Code, many provisionsprescribing criminal liability for corporateentities (approximately 570 provisions asat 2012) have been enacted in variousspecific pieces of legislation applicable inthe areas of company law, anti-monopolylaw, employment law, anti-bribery law,corporate taxation law and so on.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?A corporate entity can incur criminalliability only when there is a specificstatutory provision expressly imposingsuch liability on it and where a director,officer or employee has been found tohave committed the offence in question inconnection with the corporate entity’sactivities or assets (eg Article 975 of theCompanies Act, Article 22 of the UnfairCompetition Prevention Act). A corporateentity may not be convicted for thecriminal acts of its directors, officers oremployees committed outside the scopeof the entity’s activities.

What offences can a corporate entitynot commit?Japanese law does not specifically setout offences that a corporate entitycannot commit. There has beentheoretical contention over whether a

corporate entity generally has the abilityto commit an offence but to date, thereare no established court precedents inrelation to this issue.

However, as mentioned above, there arespecific statutory provisions imposingcriminal liability on corporate entities.

Are there any specific defencesavailable?All defences available to individuals canbe relied upon by corporate entities.

Moreover, in the event that the offencewas committed without any negligence(including, but not limited to, negligencein connection with appointment andsupervision of a director, officer oremployee) on the part of the corporateentity, the corporate entity cannot be heldliable. Accordingly, a corporate entity mayrely on the defence that it took allreasonable measures to prevent theoffence (eg by providing in-housetraining), although in practice it has beenvery rare for such a defence to succeed.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?As discussed above, all of the currentstatutory provisions creating criminalliability for a corporate entity require that adirector, officer or employee of thecorporate entity to have been found guiltyof having committed the relevant criminaloffence in order for the corporate entity tobe found criminally liable.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?There is no specific judicial bodydedicated to investigating and prosecutingcorporate entities. The Police, the PublicProsecutor’s Office and (if authorised byspecific law) any relevant regulatory bodyhave the power to conduct investigations.However, the ability to prosecute a partyfor an offence is limited to the PublicProsecutor’s Office.

Japan



PunishmentCorporate entitiesPenalties on corporate entities take theform of fines only. The maximum penaltydiffers for each offence and fines forcorporate entities are usually higher thanthose for individuals who committed thesame crime.

For example, while the maximumstatutory fine on corporate entities forsecurities-related fraud is JPY 700 million(Article 207 of the Financial Instrumentsand Exchange Act), the fine for anindividual for the same offence isJPY 10 million (although, the individualmay also be subject to imprisonment forup to 10 years).

There has been an increasing trend forlegislation to prescribe ever higher finesfor corporate entities. For instance, theJapanese Cabinet decided in March 2015to introduce a draft bill to Parliament toincrease the maximum penalty for unfairobtainment and abuse of trade secretsfrom JPY 300 million to JPY 1 billion.

IndividualsThe most common penalties forindividuals are imprisonment or fines orboth. Civil liability and penalties may alsobe available against an individual.

What factors are taken intoconsideration when determiningthe penalty?A number of factors are taken intoaccount for the purposes of determiningthe penalty.

The continuation of an unlawful activitynotwithstanding a request from thecompetent authority to desist and therepeated committing of the same orsimilar offence within a single year areexamples of aggravating circumstances.

Mitigating factors include the preventionof the offence’s harmful consequences,the voluntary reimbursement of damagesand cooperation during investigation.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Japanese law does not provide for anysuch mechanism. However, there ispresently a draft bill before Parliamentthat may provide lower penalties forcorporate entities in exchange fordisclosures concerning certain offencescommitted by a third party. Nevertheless,in general, voluntary disclosure may leadto a more favourable outcome, includingno prosecution at all or a lower penalty.

Current positionNotably, on 3 July 2013, the TokyoDistrict Court sentenced OlympusCorporation to a fine of JPY 700 million intotal in connection with its filing of annualsecurities reports with false statements.Moreover, as described above, there hasbeen an increasing trend for legislation toprescribe higher and higher fines forcorporate entities.

Under such circumstances, criminalprosecution is now seen as a real risk bythe vast majority of corporate entities inJapan and this has undoubtedly had animpact on corporate consciousness.

The best way for corporate entities toavoid criminal prosecution in Japan is toimplement robust internal complianceprogrammes to prevent or catch volatileconduct early and to help with providingthe company with a defence to criminalprosecution.



IntroductionIn the People’s Republic of China (PRC),a corporate entity may be held liable onlyfor crimes that specifically provide forcorporate criminal liability. Such crimesare considered “entity offences” underArticle 30 of the Criminal Law. Article 30sets forth what types of organisations canbe charged with entity offenses, includingcorporate entities, enterprises, state-owned non-profit entities (eg, publichospitals and universities), governmentauthorities, and social organisations. Theycan be either legal or non-legal entities.Thus, to determine whether a crime canbe committed by a corporate entity, onerefers to the relevant section under theCriminal Law to find out whether itspecifies entities as potential offenders.Entity offenses are primarily included inthe Criminal Law Chapters of Damagingthe Order of the Socialist MarketEconomy, infringing upon Citizens’ Rightof the Person and Democratic Rights,Obstructing the Administration of PublicOrder, and Corruption and Bribery.

In 2014, one multinational company wasfined nearly USD 500 million by PRCauthorities, the largest criminal fine inhistory in China.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Chinese law is unclear about whatconstitutes an entity offence, as opposedto a personal or individual offence. Legalauthorities on this issue are very limitedand not definitive. A corporate entity mightbe held liable based on a collectivedecision made by the management of theentity. In practice, a corporate entity canbe liable for crimes committed by its

officers, employees, or agents if a decisionis made on behalf of the entity, for thebenefit of the entity, or if the entity gainsillegal income.

What offences can a corporate entitynot commit?A corporate entity cannot be chargedwith any crime that is not specificallyprovided as an entity offense under theCriminal Law. Examples for which acorporate entity cannot be chargedinclude homicide or manslaughter.

Are there any specific defencesavailable?The relevant defences, if any, are providedunder each of the provisions relating tothe specific entity offences. There is nostatutory provision that sets forth ageneral defence to entity offences. Inaccordance with a judicial interpretationissued by the Supreme People’s Court in1999, however, an offence should not beregarded as an entity offence if 1) theentity is established for the purpose ofcommitting criminal offences or its primaryactivities are criminal activities or 2) theillegal gains obtained by the entity fromthe criminal activities are allocated to theindividuals who actually carry out thecriminal activities.

What is the relationship between theliability of the corporate entity andthat of its directors and officers?For crimes designated as entity offences,both the relevant individuals and entitiesmust be penalized together, unlessotherwise provided in respect of anyspecific crime under the law. An entity issubject to criminal fines and/orconfiscation of illegal profits. In addition,any individual who is the person-in-chargeof the entity or directly responsible for the

criminal offence of the entity is subject toseparate criminal penalties as provided bythe law. Whether a director or officer shallbe criminally liable for a criminal offencecommitted by the corporate entitydepends on whether he/she falls intoeither of the above two roles. The head ofthe entity or its internal department thatcommits the criminal offence is likely to beregarded as the person-in-charge. Aperson who directly carries out the criminalactivity would likely be regarded as aperson directly responsible for the offence.

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?Investigations for most crimes areconducted at the local, provincial, andcentral levels by various agencies withinthe PRC police force, headed by theMinistry of Public Security. However, forcrimes involving government officials,government entities, or state secrets,such as bribery of government officials orleaking state secrets, prosecutors, thePeople’s Procuratorates, conduct theinvestigation, as well as the prosecution.

PunishmentCorporate entitiesCorporate entities are subject to criminalfines and confiscation of illegal profits,but not any penalties restrictingpersonal freedom such as criminaldetention or imprisonment.

IndividualsAn individual charged and convicted of acriminal offense would be subject to anytype of criminal penalties provided by theCriminal Law, such as fines, confiscationof illegal profits, criminal detention,imprisonment or even the death penalty.

Mainland China



What factors are taken intoconsideration when determiningthe penalty?To determine a penalty, the specificfacts, the merits, the nature of theoffence, and the degree of social harmcaused by the crime are the fourelements to be considered.

Self-surrender before any of the judicialauthorities discovers the offence,reporting another’s criminal offence, orproviding important evidence orinformation that leads to a successfulcriminal investigation of another’scriminal offence may be considered forleniencies, including a penalty below theminimum penalty required by the law or

a penalty in the lower range of therequired penalties. Repeated offenceswill be subject to more severe penaltieswithin the discretionary range, exceptfor negligence.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Yes, if the disclosure is made before thepolice or the prosecutor discovers theviolation. Under this circumstance, thepenalty can be reduced or appliedlightly. If the offence is minor, the penaltymay be exempted.

Current positionThe interpretation of an entity offence isunclear, especially in the area where acriminal offence can be committed byeither an entity or an individual, eg thecrime of giving bribes to a governmentofficial or entity. Generally speaking, forthe same type of criminal activities, thepenalty imposed on an individual for anindividual offence would be more thanthat imposed on the same individual if theoffence is regarded as an entity offence.Therefore, a conflict of interest may easilyarise when determining whether it is theindividual manager or the company whocommits the offence.



IntroductionThere are many criminal offences inSingapore targeted at corporate entitiesand concerned with the regulation ofbusiness activity.

An example of a statute which holdscorporate entities liable for the acts oftheir employees or officers is theSecurities and Futures Act55 (Cap 289,2006 Rev Ed) (SFA) which provides thatcorporate entities may be liable for insiderdealing activities56 carried out by theiremployees or officers via attributedliability if the act is:

(a) done with the consent or connivanceof the corporate entity and for thebenefit of the corporate entity57 or;

(b) committed for the benefit of thecorporate entity and attributable to thenegligence of the corporate entity58.

LiabilityIn what circumstances can acorporate entity incur criminal orquasi-criminal liability?Two main techniques have beendeveloped for attributing to a corporateentity the acts and states of minds of theindividuals it employs.

The first is by use of what is known asthe “identification principle”. As is thecase in the UK, under this principle,subject to some limited exceptions, acorporate entity may be charged andconvicted for the criminal acts of thedirectors and managers who representthe directing mind and will and whocontrol what it does.59 In such a case, theliability is not vicarious, but primary, sincethe person in question is an embodimentof the company60. This concept hasdeveloped over decades.

The second technique of vicarious liabilityapplies where a person is not regardedas “the company”, but merely as thecompany’s “servant”. In such a case, thecompany can only be liable if theperson’s acts are within the scope ofmanagement properly delegated to him.61

Although, generally speaking, acorporate entity may not be convicted forthe criminal acts of its employees oragents,62 there are some exceptions, themost important of which concernsstatutory offences that impose anabsolute duty on the employer, evenwhere the employer has not authorisedor consented to the act.63 An example isthe SFA discussed above.64

Wherever a duty is imposed by statute insuch a way that a breach of the dutyamounts to a breach of that statute, then,if there is nothing in the statute eitherexpressly or impliedly to the contrary,such a breach is an offence for which acorporate entity may be charged,whether or not the statute refers in termsto corporate entities. This is because theInterpretation Act65 expressly states that a“person” and “party” includes “anycompany or association or body ofpersons, corporate of unincorporate”,unless the relevant Act expressly providesotherwise. Singapore’s main criminalstatute, the Penal Code66 also bears thisout. Section 2 states “Every person shallbe liable to punishment under this Code”while Section 11 states that “The word“person” includes any company orassociation or body of persons, whetherincorporated or not.”

There are various statutes which containoffences specifically directed at companies.For example, criminal liability can ariseagainst companies under the CompaniesAct67, for various offences such as makinga false and misleading statements as to theamount of its capital.68

Singapore*

55 Cap 289, 2006 Rev Ed56 Sections 213 to 231 of the SFA (insider trading provisions)57 Section 236B of the SFA58 Section 236C of the SFA59 Tom-Reck Security Services Pte Ltd v Public Prosecutor [2001] 1 SLR(R) 327; (Tom-Reck Security Services) at [14] to [19]. See also Airtrust (Singapore) Pte Ltd v

Kao Chai-Chau Linda and another suit [2014] 2 SLR 673 for more on the “controlling mind” doctrine60 Tom-Reck Security Services at [17]61 Tom-Reck Security Services at [17] to [18]. Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and another and

another appeal [2011] 3 SLR 540 (Skandinaviska) at [75] and [86] where the Court of Appeal held that the applicable test for determining whether vicarious liability fortorts committed by an employed during an unauthorized conduct was the “close connection” test (ie whether the tortious conduct of the employee was so closely relatedto his employment that it was fair and just to hold his employer vicariously liable for such conduct); and Hin Hup Bus Service (a firm) v Tay Chwee Hiang and another[2006] 4 SLR(R) 723 at [58] and [59]

62 Skandinaviska at paragraph 100; Walter Woon on Company Law (Sweet & Maxwell 2005, 3rd Ed) at paragraph 3.94 (Woon)63 Yeo, Morgan and Chan, Criminal Law in Malaysia and Singapore (LexisNexis 2012, 2nd Ed) at paragraph 37.6 (Yeo et al)64 Sections 213 to 231 of the SFA (insider trading provisions)65 Cap 1, 1997 Rev Ed66 Cap 224, 2008 Rev Ed67 Cap 50, 2006 Rev Ed68 Section 401 of the CA


What offences can a corporate entitynot commit?A corporate entity can commit mostoffences except those for whichimprisonment is the only penalty69 or thosewhich by their nature can only becommitted by natural persons (such asbigamy and rape).70

The Singapore courts have held that acompany and its controlling director cancommit the tort of conspiracy to injure athird party by unlawful meansnotwithstanding that the director may bethe “directing mind and will” of thecompany.71 This principle has not beenspecifically discussed or applied in reportedcriminal proceedings in Singapore. UnderEnglish law, a company cannot be heldliable in criminal proceedings for conspiracyif the only two alleged conspirators are a“one-man” company and the same personacting in his individual capacity as adirector of the company.72


For instance, under the SFA, the corporateentity has defences against the offence ofinsider trading if it communicated therelevant information pursuant to a legalrequirement73 or if it can prove parity ofinformation with the counterparty.74

What is the relationship between theliability of the corporate entity andthat of its directors and officers?Certain statutes provide that, where acorporate has committed an offence, itsofficers are to be deemed guilty of thatoffence if the prosecution can provethat the offence was committed withthe consent or connivance or attributableto the neglect on the part of the relevantofficer, as seen in section 331 of the SFA.75

Other statutes requires the officer todisprove his complicity, that is proof bythe accused that the offence wascommitted without his consent orconnivance and that he exercised all suchdiligence to prevent the commission ofthe offence as he ought to haveexercised, having regard to the nature ofhis functions in that capacity and to allthe circumstances; for example, seesection 48 of the Workplace Safety andHealth Act (“WSHA”).76

ProcedureWho is responsible for investigatingand prosecuting offences committedby corporate entities?There is no one agency responsible forthe investigation of offences committedby corporate entities. The principalinvestigating agencies are:

n The Singapore Police Force: If criminalproceedings are deemed likely, the

matter will be referred to theSingapore Police Force or theCommercial Affairs Departmentpursuant to the Police Force Act77;

n The Corrupt Practices InvestigationBureau is responsible forcorruption-related offences under thePrevention of Corruption Act78;

n The Competition Commission ofSingapore investigates allegations of acompany’s anti-competitive behaviourunder the Competition Act79; and

n The Monetary Authority of Singapore(MAS) may commence inspections orinvestigations if it is of the view that abank has contravened the provisionsof the Banking Act80.

The main prosecution authority inSingapore is the Attorney-General’sChambers. Notwithstanding this, variousauthorities and regulatory bodies may bringproceedings for offences committed bycorporate entities. For instance, the MAStakes enforcement actions for breaches ofthe SFA, the Financial Advisers Act81 andthe Insurance Act.82 Another examplewould be the Legal Services Department ofthe Ministry of Manpower whichprosecutes offenders of legislation withinthe Ministry’s purview, such as theImmigration Act83, the Employment Act84

and the Work Injury Compensation Act.85

69 Girdharilal v Lalchand AIR 1970 Raj 145; Yeo et al at paragraph 37.870 State of Maharashtra v Syndicate Transport Co Ltd AIR 1964 Bom 195, citing R v ICR Haulage Ltd [1944] KB 55171 Nagase Singapore Pte Ltd v Ching Kai Huat [2008] 1 SLR(R) 80 at [17] and [20] to [23], Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd [2009] 2 SLR(R) 318

at [29] and [30]72 R v McDonnell [1966] 1 QB 233.73 Section 225 of the SFA74 Section 231 of the SFA75 See Madhavan Peter v Public Prosecutor and other appeals [2012] 4 SLR 613 where the accused’s conviction under section 331 of the SFA was eventually set aside.76 Cap 354A, 2009 Rev Ed77 Cap 235, 2006 Rev Ed78 Cap 241, 1993 Rev Ed79 Cap 50B, 2006 Rev Ed80 Cap 19, 2008 Rev Ed81 Cap 110, 2007 Rev Ed.82 Cap 142, 2002 Rev Ed.83 Cap 133, 2008 Rev Ed.84 Cap 91, 2009 Rev Ed.85 Cap 354, 2009 Rev Ed.




PunishmentCorporate entitiesPenalties generally take the form of fines. Ithas been observed that, when corporateactivity causes harm, the preference of thestate prosecutor appears to be to proceedon the basis of a specific statutory offenceinstead of a more general Penal Codeoffence, or to proceed against theindividuals concerned instead of thecorporate entity behind them.86 Forinstance, when an underground train tunnelbeing constructed at Singapore’s NichollHighway collapsed in 2004, resulting in fourdeaths, proceedings were taken againstthe main contractor company and three ofits senior executives for contravening theFactories Act,87 and another individualunder the Building Control Act.88

In light of corporate entities beingincapable of receiving physical punishmentsuch as imprisonment and caning, variousstatutes differentiate the punishmentmeted out to natural persons andcorporate entities. For example, under theSFA,89 a natural person may be fined up toS$250,000 or sent to jail for up to sevenyears. A corporate entity may be fined upto twice the maximum amount prescribedfor the relevant offence (ie S$500,000) 90.

IndividualsIndividuals such as the directors andofficers of a corporate entity can bepunished with imprisonment or fineor both.

What factors are taken intoconsideration when determiningthe penalty?Various factors are taken intoconsideration when determining thepenalty to be meted out to acorporate entity, depending on theoffence in question and theoverarching circumstances.

In general, the High Court of Singaporehas articulated a non-exhaustive list offactors to be considered vis-à-vis acorporate offender:91

n Degree of contravention ofthe statute;

n The intention or motivation ofthe statute;

n The steps taken by the companyupon discovery of the breach and thedegree of remorse shown bythe company;

n Whether the company was merely analter ego of its directors; and

n Whether the company was a smallfamily business, of which theimposition of a heavy fine wouldbe oppressive.

Is there a mechanism for entities todisclose violations in exchange forlesser penalties?Cooperation and early acceptance of guiltare mitigating factors in sentencing,whereby offenders can receive reducedsentences.92 On occasion, the

prosecuting authorities may decide not toprefer charges on compassionate orsome other grounds, based on theaccused’s written representations.

Alternatively, the prosecuting authoritymay compound certain offences whichare prescribed as compoundable suchthat the charge is considered settledwithout conviction being entered.93

Current positionThere is greater regulation of financialinstitutions and finance-related offences inSingapore, with investigating andprosecuting authorities being givenincreased investigative and enforcementpowers. In particular, the marketmisconduct enforcement regime inSingapore has been steadilystrengthening, with increased powers ofenforcement provided to the MAS andrecord-high penalties imposed in relationto insider trading in 2015. Thus far, therehas been no reported case in Singaporeinvolving the attributed liability provisionsin the SFA in relation to marketmisconduct, as these provisions are fairlynew (being implemented in 2012). Giventhe strengthened enforcement regime, itis possible that we may start to see a risein corporate criminal liability cases andregulatory investigations in the context ofthe attributed liability regime in the SFA.

86 Yeo, Morgan and Chan, Criminal Law in Malaysia and Singapore (LexisNexis 2012, 2nd Ed) at paragraph 37.187 Cap 104, 1998 Rev Ed. N.B.: The Factories Act has since been repealed and replaced by the Workplace Safety and Health Act (Cap 354A, 2009 Rev Ed)88 Cap 29, 1999 Rev Ed.89 s 204, SFA90 s 333, SFA91 Lim Kopi Pte Ltd v Public Prosecutor [2010] 2 SLR 413 at [14], [18] and [19]92 Angliss Singapore Pte Ltd v Public Prosecutor [2006] 4 SLR(R) 653 at [74]93 Criminal Procedure Code; Section 41 of the Monetary Authority of Singapore Act; Section 69 of the Banking Act* Criminal law advice is provided through Cavenagh Law LLP, our Formal Law Alliance partner in Singapore.



Our aim, across our international network of offices, is to combine first class local expertise withthe ability to provide a cross-border team that can manage complex multi-jurisdictional projects.

Our criminal expertise centres on financial and economic crime and extends to many othertypes of corporate crime, such as corruption. We have particular experience of acting for banksand corporate entities in cross-border investigations into breaches of securities law, mis-selling,market abuse, money laundering, compliance failings and economic sanctions contraventions.

We have represented leading clients in proceedings involving law enforcement agencies,regulators, and other investigators in the US, the EU, the Middle East and Asia, and the teamincludes former regulators and prosecutors from many different agencies.

The team is at its best working alongside our internationally based network of experts oncross-border investigations involving multiple-authorities who may be responding to events withcriminal, regulatory and administrative actions against the world’s largest companies.

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Corporate crime

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““

2

Indonesia

3 US

2 Australia

1

Singapore

2 Japan 3 China

2 Russia

2

India

1 UAE

The Netherlands

2

Hong Kong

Belgium

3 2

Romania

Spain

3

2

Germany

3

Italy

2

Luxembourg

Poland 2

3

2

Slovakia

2

3 3

UK

France

Czech Republic

Corporate Criminal Liability exists

Quasi Criminal/ Administrative liability exists

No Liability Exists

2 Some interest

1 No or little interest

3 Very enthusiastic

Key:



Source: Clifford Chance reviewed the corporate criminal liability landscape in 22 major markets and ranked them according to their level of corporate criminal liability and their enthusiasm for enforcing it.

Heat mapTo accompany our recently published Corporate Criminal Liability report we have drawn together some of the high level trends. We have ranked the various jurisdictions on thebasis of whether or not corporate criminal liability exists and the enforcement enthusiasm of the authorities.



Australia: An Australian corporation may be subject to investigation and prosecution by a range ofdifferent authorities, each operating pursuant to distinct statutory regimes, as a result of which thelandscape of corporate criminal liability is fragmentary and constantly changing. Although the trend is stillto pursue individuals rather than corporates, there are current high profile corporate investigations suchas the investigations by the Australian Federal Police and the Australian Securities and InvestmentsCommission into allegations of foreign bribery involving Leighton Holdings Limited.

China: Whilst corporate criminal liability is a longstandingconcept under PRC law, the high criminal fines beingimposed on corporations is a newer phenomenon. Thedistinction between corporate and individual liability isblurred so that companies need to have strong corporategovernance policies to avoid this risk.

Hong Kong: Whilst corporates may be held criminally liable for most offences, the Hong Kongauthorities tend to target individuals for criminal prosecution, whereas corporates will face greaterregulatory enforcement action. Unlike in some other jurisdictions, there is no specific statutory offence ofcorporate manslaughter which meant that following the ferry disaster in October 2012 when 39 peopledied, although the two vessels’ captains were prosecuted, their respective employers were not, but wereinstead fined for criminal breaches of marine safety rules.

India: Corporate criminal liability is a relatively new concept inIndian law (established by a Supreme Court decision in 2005). TheSupreme Court has recently confirmed that a corporate is invirtually the same position as an individual in terms of prosecutionand can be convicted for most common law and statutoryoffences. Nevertheless, criminal enforcement remains focused onindividuals, although there is a growing emphasis on goodcorporate governance under the Companies Act.

Indonesia: Currently, under the Indonesian criminal code, onlyindividuals can be prosecuted although corporate criminal liabilityexists for certain specific offences including bribery and moneylaundering. Despite this, law enforcement agencies have beenreluctant to bring charges against corporate entities and insteadfocus their efforts on bringing charges against culpable individuals.There is currently a draft bill before Parliament to amend the codeto establish corporate criminal liability more broadly.

Japan: Corporates can only incur criminal liability pursuant to specific statutorylanguage expressly imposing such liability and where a director, officer or employeehas been found to have committed the offence in question in connection with thecorporate entity’s activities or assets. The trend is increasingly high maximum fines tobe set out in legislation for corporates. Criminal prosecution is now seen as a realrisk by the vast majority of corporate entities in Japan. In July 2013 Olympus, one ofJapan’s most well known corporates, was convicted of submitting false statementsin its annual securities filings.

Singapore: Corporate criminal liabilityoperates in a similar way to the UK.Financial institutions are subject toincreasing scrutiny in Singapore.Legislation is being amended to createnew offences and sanctions createdrelating to the manipulation or attemptedmanipulation of financial benchmarks.

Belgium: Since the adoption of legislation in 1999 enablingcorporate entities to be prosecuted a significant number ofcorporate entities have faced criminal investigations and/orprosecutions and public prosecutors have enthusiastically usedtheir powers to prosecute. Criminal prosecution is now seen as areal risk by the vast majority of corporate entities in Belgium.

Czech Republic: In 2012, legislation was introduced enabling the prosecution of corporates as part of the Czechgovernment’s anti-corruption strategy and its international commitments. Since its enactment, there have beenapproximately 30 convictions and some severe sentences imposed – including dissolution and, in another case, prohibitionof business activities for a period of 10 years. Also in 2012 DPAs were introduced although have not been used with anygreat frequency so far. As DPAs become a greater feature of the international prosecutorial landscape, it is likely that theuse of DPAs for corporate offending in the Czech Republic will increase.

France: The principle of corporate criminal liability in France was introducedin 1994 since when the number of prosecutions and convictions ofcorporates has grown significantly, in particular more recently. The level offines on corporates is also increasing. In December 2013 a new prosecutor’soffice was created dedicated to financial crime which has recently been veryactive in investigating corporate and financial institutions.

Germany: Currently, corporatescannot be held criminally liable inGermany although whether Germanlaw should be amended to includecriminal liability for corporate entities isthe subject of increasing debate. Thereis a draft law on corporate criminalliability for the State of North Rhine-Westphalia due to be debated in theGerman Parliament in the near future.

Italy: Law 231 enables a corporate to be prosecuted if an offence has been committed for its benefit by an employee, even if thatemployee is not prosecuted. Italy's appetite for prosecuting crime committed for the benefit for the benefit of corporations continues toremain high. Moreover, following recent events damaging the environment, Italy has increased its interest and efforts in prosecutingcorporate for actions and conducts that harm the environment and in 2015 has enacted a piece of legislation that expands thepunishable offences and increases sanctions, which now also include a temporary suspension from business activity. Italy has seen apositive trend in this area with the number of prosecutions of corporates increasing.

One of the most high profile recent cases before the Italian Supreme Court related to the Thyssenkrupp fire in which seven employeesdied. The company was convicted for failing to implement adequate management and organisational control protocols for the preventionof the offence and fined 1 million Euros, banned from bidding for government contracts and from advertising products for six months.It had to disgorge profits of € 800.000,00 and publicise the sentence.

Luxembourg: Corporatecriminal liability was onlyintroduced intoLuxembourg law in 2010and is largely untested inpractice. However, theLuxembourg legalcommunity expects thatpublic prosecutors willutilise the new law.

Poland: Corporate criminal liability was introduced inPoland in 2003. Unlike Italy, a corporate can only be heldcriminally liable after the person who committed the offenceon its behalf has been convicted. It is a defence for acorporate to prove that due diligence was conducted in thehiring or supervision of the alleged offender. There hasbeen a growing number of corporate prosecutions andrecently the Polish anti-corruption authorities haveindicated that they want to start taking tougher actionagainst corporates including banning those guilty ofcorruption from taking part in public tenders.

Romania: Although corporate criminal liability isa relatively new concept in Romania, numbers ofcases are growing rapidly. There is a shifttowards pursuing foreign corporate entities doingbusiness in Romania and prosecutors areshowing a degree of pragmatism, entering intoarrangements similar to deferred prosecutionagreements in some cases.

Slovakia: A new lawproviding for corporatecriminal liability in Slovakiawill become effective on1 July 2016. It will replacethe existing quasi-criminalliability regime for a rangeof offences.

Spain: Corporate criminal liabilitywas introduced in Spain in 2010.New legislation came into force inJuly 2015 which will provide adefence to a corporate if it canshow that it has an hasimplemented a crime preventionor compliance programme.

UK: Historically few prosecutions have been brought against corporates in the UK (other than smallcompanies) given the legal challenges of having to establish culpability of a senior director. However,this is changing: recent legislation, including the Bribery Act 2010, has changed the basis ofcorporate criminal liability for certain offences; the Serious Fraud Office is specifically targetingcorporates; and the UK Government is currently considering the case for a new offence of corporatefailure to prevent economic crime and the rule on establishing corporate criminal liability more widely.2015 saw some important developments, with the conclusion of the first deferred prosecutionagreement and the first use of the corporate offence of failing to prevent bribery.

Russia: Currently corporates cannot be criminally liable in Russia but can be liable under theRF Administrative Offences Code if crimes are committed by their management or employees.The question of criminal liability for corporates is currently of great interest in Russia becausethe current “quasi-criminal” administrative liability has proved quite ineffective.

UAE: Whilst corporate criminal liability exists, it isregulatory sanctions which are most frequentlyimposed against authorised firms by the DubaiFinancial Services Authority.

United States: The aggressive pursuit of corporates continues unabated in the US. US prosecutors, including the USAttorney General, have made repeated public statements that no entity or institution is “too big to jail”. Furthermore, theDepartment of Justice recently emphasised that if a company wants full cooperation credit they need to secure for thegovernment the evidence sufficient to prosecute individuals, including their senior most executives.

The Netherlands: In the last few years,the pace of the authorities in prosecutingand reaching substantive settlementswith corporate entities has picked updramatically. The Prosecution Office hasentered into unprecedented settlementswith internationally operatingDutch companies.

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