Criminal liability, in the strict sense of the term, for violating a rule of criminal law is incurred by a natural person. However, liability of the punitive type, in so far as it belongs to the sphere of criminal law, may be borne by legal persons and other corporate legal entities. The principles of the current model of corporate liability are laid out in the Act of 28 October 2002 on the Liability of Collective Entities for Acts Prohibited under Penalty (ALCE) (consolidated text: Dziennik Ustaw [Journal of Laws] of 2018, item 703, as amended). In this model corporate liability is seen as secondary with respect to the liability of the individual whose conduct constitutes a breach of a specific provision of criminal law. Attribution of liability to a corporate body is contingent on the cumulative fulfilment of the following fundamental conditions:
- an individual acting on behalf or in the name of the collective entity is convicted by a final court judgement of any one of the offences listed exhaustively in ALCE;
- the offence has benefited or could have benefited the collective entity financially or otherwise;
- the relationship between the individual who committed the offence and the collective entity meets the criteria specified in Article 3 ALCE;
- the offence was committed in circumstances where the collective entity failed to exercise due diligence in appointing the natural person or where its bodies or representatives failed to exercise proper supervision over that person, or where the fault lies with the organization of the activities of the collective entity.
As a follow-up to a negative assessment of the effectiveness of the measures used to impose sanctions on corporate entities work was undertaken to develop new legislative proposals. Currently, the government is working on the draft act on the liability of collective entities for acts prohibited under penalty submitted by the Minister of Justice in May 2018.
According to the authors of the project, both data regarding proceedings conducted under the act still in force and the amount of sanctions imposed under ALCE imply low efficiency of the present model and point the direction for the changes advanced in the bill. For instance, in 2017 only 14 cases were brought before Polish courts, while in 2016 the corresponding number was only marginally higher and stood at 25. Between 2013 and 2016, fines were imposed in a mere 16 cases across Poland, with the minimum financial penalty provided for in ALCE, PLN 1,000 (USD 260), being levied in a majority of those cases.
The new regulation is intended to apply to corporate entities domiciled or operating in Poland as well as entities that do not meet these criteria as long as the prohibited act is committed or its effect occurs in the territory of Poland or the act is directed against the interest of the Republic of Poland or against the interests of Polish citizens, Polish companies or other Polish bodies, corporate or unincorporated.
The proposed bill extends the category of offences giving rise to corporate liability. The current exhaustive enumeration of acts resulting in such liability (Article 16 ALCE) is to be replaced by a general provision that corporate liability derives from any criminal or fiscal offence.
Elimination of the requirement that a final criminal conviction should identify a specific individual as the actual perpetrator of the offence plays a key role in the major shift concerning the basis of the liability of collective entities. The authors of the project argue that the low efficiency of the current regulation was brought about precisely by the secondary nature of corporate liability. In the absence of a prior court ruling against the individual offender, often due to procedural reasons, collective entities have been able to avoid responsibility. It is pointed out in the explanatory memorandum to the bill that this state of affairs came under severe criticism from international organizations dealing with corporate liability.
According to the position adopted in the project, a collective entity shall bear liability for:
- offences committed by the entity itself in the course of pursuing its activities,
- offences committed by employees and other persons performing tasks for the entity.
Corporate liability for a prohibited act committed by the entity itself applies if an offence is perpetrated in direct connection with the activities of the entity and in consequence of the entity’s conduct, a deliberate action of a member of the entity’s management or the entity’s failure to exercise the due care required in circumstances where the commission of the offence could have been predicted.
Under the proposed regulations, the corporate entity will also be held liable for offences committed by individuals who are not members of its management, in particular by persons entitled to represent the entity, providing that they commit those offences in the course of pursuing their activities in the interest or for the benefit of the entity. The latter will also be liable for offences committed by its employees in connection with the work they perform for the entity.
An offence committed by the subcontractor or its employees in connection with the performance of a contract concluded by the corporate body will also incur liability on the part of the latter if it derives a material gain from the offence (Article 6.2 of the project). This liability will be premised on knowledge – held, in particular, by persons representing the collective entity – or ability to obtain knowledge of an attempt to commit or of the commission of the prohibited act.
Liability for offences committed by employees and other individuals working for the corporate entity hinges on the entity’s failure to exercise due care in appointing individuals to carry out its tasks or in supervising those persons and on irregularities in the organization of the entity’s operations. Consequently, proving that all the individuals and bodies acting on behalf of the entity or in its interest applied due care, as required, in organizing and supervising the entity’s activities will relieve the corporate body of liability. In the light of the proposed regulations it becomes crucial for corporate entities to establish and implement compliance policies to detect and correct irregularities, to determine the scope of liability of the particular units in their organization structure and to designate units responsible for ensuring internal and external compliance.
The bill also provides for an extended inventory of penalties and other punitive measures that may be imposed on corporate bodies and amends the principles governing the application of those measures.
Firstly, the project raises the upper limit of the fine that may be imposed on a collective entity from PLN 5 million (USD 1.3 million) to PLN 30 million (USD 8 million). Importantly, the bill removes the provision that the penalty may not exceed 3% of the revenue generated by the entity in the financial year in which the offence was committed. Thus, the amended regulation clears the way for imposing fines on entities which report no revenue but own corporate assets. The authors of the project argue that the principles for determining penalties set out in the bill, in particular the requirement for the court to take due account of the corporate entity’s assets and the impact of the sanctions on its future operations, will ensure that the degree and severity of the penalty are commensurate with those of the offence.
The project not only increases the maximum fine, but also introduces another severe sanction: liquidation or dissolution of the corporate entity by the court. This measure is conceived of as a last resort, applicable (in the circumstances stipulated in the bill) only in those cases where a fine or another sanction provided for in the bill are deemed insufficient to warrant observance of due care by the entity.
In addition to these two types of sanction, the proposed regulation provides for a number of other punitive measures the stiffest of which include:
- a ban on using financial support from public funds;
- an obligation to fully reimburse the State Treasury for the financial support from public funds received between the date of the offence and the date of the determination of corporate liability by a court decision;
- a ban on seeking public contracts;
- a ban on promoting or advertising the entity’s activities, products or services.
An important novelty advanced by the project is the attempt at regulating the financial liability and liability for damages of a collective entity that is not subject to punitive liability for a prohibited act. With respect to such an entity, the court may order forfeiture of assets, property rights or their equivalent. This sanction may be imposed on an entity which has derived a material gain exceeding PLN 500,000 (USD 130,000) from an offence if the entity was used or was meant to be used to commit the offence or to conceal the gain. Furthermore, an entity which does not bear responsibility for a prohibited act but still derives a financial gain from the act may be ordered to return the gain as long as the members of the entity’s management or persons authorized to act on the entity’s behalf or to exercise internal control knew or could easily have obtained knowledge of the commission of the act.
According to the project, the amended act is to apply in part to factual circumstances which arose before its entry into force. It is therefore worth examining the transitional provisions.
The amended regulation takes effect three months after its publication in the Polish Journal of Laws, resulting in the expiry of the current act.
Under Article 71 of the bill, the new act will apply to liability for offences listed in and committed under ALCE provided that the substantive conditions of liability set forth in Article 3 ALCE are met simultaneously, i.e. the relationship between the individual who committed the offence and the corporate entity satisfies the criteria set out in the current act and the offender’s conduct benefited or could have benefited the entity. The current act will apply, however, if its provisions are more lenient to the entity, except where liability under the provisions of the current act is not contingent upon a prior final court decision convicting the individual of the offence. Once the bill becomes law, the requirement of prior conviction of the individual will no longer apply regardless of which act is relied upon to enforce punitive liability against the entity.
Introduced by the project, financial liability and liability for damages are not subject to the principle of applying the more lenient regulation. Assuming that the relevant legal conditions are satisfied, the court will be able to order – with respect to an entity which does not bear punitive liability for the offence but has benefited materially from it – forfeiture of assets, property rights or their equivalent (possibly also exemplary damages to be paid to the State Treasury) and to impose the obligation to return the obtained gain even if the offence was committed under the act about to be repealed.
The new act will thus have retroactive effect in some respects. Internal irregularity procedures and systematic compliance monitoring with regard to both the employees and persons cooperating with the corporate entity acquire vital importance in this context.
In addition, the bill’s provisions have numerous procedural implications, which, however, merit a separate discussion.