The risk for an organisation of being held liable for criminal activity is high on the agenda for directors, company officers and shareholders alike. The impact of a criminal conviction can be severe, potentially resulting in financial penalties, operational sanctions and considerable damage to a company’s reputation.
For international businesses, an understanding of current global trends and how corporate criminal liability is regarded in different jurisdictions is key to managing corporate risk. However, the question of whether and how a corporate entity can be held responsible for criminal wrongdoing independently from the individuals whose actions actually constitute the crime is something of a technical and legal conundrum which is answered differently across jurisdictions.
In our comparative review of corporate criminal liability, we examine the position of companies across 22 jurisdictions and assess the risks they face in each. For each jurisdiction the review provides at-a-glance answers to 12 specific questions:
- Can companies be criminally liable for wrongdoing?
- For what kind of wrongdoing can a company be held criminally liable?
- How far does criminal liability extend?
- Does criminal liability extend to foreign companies?
- Is the company legally obliged to disclose criminal offences to the competent prosecution authorities?
- Are the prosecution authorities legally obliged to conduct a criminal investigation into corporate wrongdoing?
- What is the position of the defendant company in criminal proceedings?
- Is the company legally obliged to cooperate with the prosecution authorities in the proceedings?
- What kind of sanctions can be imposed on companies?
- What is the relevance of an effective compliance system?
- How are criminal proceedings against companies conducted in practice?
- What is the likely future scope and development of corporate criminal liability?
Basis for liability
All the jurisdictions covered in our review have enforcement mechanisms in place by which companies may be held responsible for wrongdoing. However, the basis for liability differs across countries:
- Not every jurisdiction recognises criminal liability for companies. In many countries, companies may only incur administrative or civil liability. In practice, however, the process of enforcement and sanctions may be similar in effect to criminal proceedings.
- In some jurisdictions, a company’s liability for criminal wrongdoing results from specific statutes or provisions in the jurisdiction’s criminal code.
- Where a jurisdiction’s criminal law is founded on common law principles, liability may arise more generally through the doctrines of attribution, vicarious liability and/or the identification principle. These doctrines will require conduct by a person or body in control of the company’s affairs, such as could be described as the company’s “alter ego”, or by someone who was associated with the company and who committed the criminal act intending to obtain a benefit for the company.
Corporate vs individual liability
There are major differences in how individual liability translates to corporate liability. In some jurisdictions, it will be necessary to determine who was responsible for the wrongdoing in order to hold a company criminal liable. In others it is not even necessary to identify an individual wrongdoer before the company may be held to account.
Foreign companies
Criminal liability does not only concern domestic companies but may also extend to foreign companies. In most jurisdictions covered in our review, liability will extend to a foreign company in circumstances where a nexus to the wrongdoing alleged can be established. In some cases, extraterritorial jurisdiction also applies in relation to certain specific offences (e.g., bribery).
Importance of compliance policies
There is an increasing requirement across jurisdictions for companies, groups of companies and other business organisations to have in place appropriate policies and procedures to prevent wrongdoing by their workforce and agents. The effect of such policies on a corporate’s potential liability appears to be moving from simply having a bearing on the sanctions that might ultimately be imposed, to providing a defence, in part or in whole, to criminal wrongdoing. Prevention policies can even be a sword, i.e. their absence may itself lead to liability for the company.
Nonetheless, precise requirements for an appropriate policy are rarely spelt out in local legislation, leaving it to the courts to decide whether the policy in place can mitigate the company’s liability in any particular case.
Outsourcing of enforcement by central authorities
Where they exist, the obligations on companies to implement compliance policies and self-report wrongdoing can be seen as part of a strategy by enforcement authorities to push the burden of policing corporate compliance onto the corporates themselves. Corporate wrongdoing can be difficult to uncover and expensive and time-consuming for an authority to investigate. Increasingly, corporates appear to be expected to carry out the legwork themselves.
Intensified enforcement
Authorities across the globe are intensifying enforcement action for corporate wrongdoing, incentivising companies to prevent criminal conduct occurring in their organisation and beefing up the fines and penalties meted out to companies when misconduct occurs. And although the number of actual prosecutions still remains low, where companies are found liable for wrongdoing, penalties and fines may be significant.
For further information, please contact:
Dr. Kerstin Wilhelm, Partner, Linklaters
kerstin.wilhelm@linklaters.com
