On 1 July 2016 the new corporate criminal liability law (Act No. 91/2016 Coll.) will take effect in Slovakia. The corporate criminal liability law will not only introduce a sweeping change to the legal services market but it is also expected to shake up the day-to-day business of corporations and entrepreneurs.
One of the most difficult provisions is the qualification of persons whose action may be considered as an action of the corporation and thus possibly establishing corporate criminal liability.
Pursuant to § 4 of the said Act, a crime has been committed by the corporation (offender) if the crime was committed for the benefit or on behalf of, or through the corporation, if the corporation was represented by (or the person below facilitated the crime, be it by reason of poor supervision or control or through negligence):
- A statutory body or statutory body member, or
- A person in charge of control or supervision within the corporation, or
- Another person authorized to represent the corporation or adopt decisions on behalf of the corporation.
Further to the above, the Act introduces a new principle which stipulates that corporate criminal liability is not conditional on an individual being held criminally liable (it applies even if an individual clearly exceeded his/her competences) and it is not conditional on identifying the individual responsible for misconduct. In practise this means that the statutory body member may be held liable for criminal action of others, whereby not only the corporation is to be held criminally liable, but later on also the respective board member who is to be held liable as a result of its objective civil liability for not acting with special care and professional diligence.
By itself, the above puts great pressure on corporations and their control/supervisory body implementation measures. Corporations will be forced to audit and review their control mechanism, internal rules and will need to consider actual effectiveness of these. We also see a potential increase of financial burden related to preventive measures which will increase even more, if actual criminal proceedings are opened. Increased sensitivity of individuals serving on boards of Slovak corporations is another issue which will be tackled, not mentioning the fact that under certain circumstances the Act shall have extraterritorial effects mainly applicable to foreign corporations with branches in Slovakia.
In the weeks ahead, corporations and other legal entities will have to decide whether, and to what extent, they need to adopt precautions to avoid incurring criminal liability or whether to opt for a hands-off approach and leave it to the market to sort things out, waiting to act until after the corporate criminal liability issue is addressed by the media.
The scope of the anticipated precautions is expected to be vast and their implementation will be nothing short of a huge challenge. Corporations will have to assess the specific risks they face and balance these risks with the costs of implementing solutions to eliminate such risks. One thing that appears crystal clear so far is that no corporation wants to be the first to face criminal action or have the police knocking on its door and seizing its property.
We believe that it is impossible to comply with all requirements as indicated in the Act, but it will be and already is essential for corporations to assess risks connected with their business, select those which are crucial and then implement whatever is required. It will not be perfect, but tolerable. To select those risks and measures to be implemented to actually protect the corporation also from the legal point of view, the helping hand of an external lawyer is a must. There can be no doubt about this. External views always help to limit internal operational blindness and when assessing the risk related, a perfect combination of external and internal assessment is an imperative.