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rutland ježek, a Czech law firm in Prague on Criminal liability of legal entities – crimes, sanctions, international context

Prague, March 27, 2012

The act on criminal liability of legal entities and proceedings against legal entities became effective on 1 January 2012. Although it is a highly controversial law disrupting the established criminal law principles, the Czech Republic was one of the few EU member states whose laws did not embed criminal liability of legal entities in its laws at the end of 2011. On the one hand, parliament was pushed to adopt this law by the international community, requiring "effective, adequate and deterrent" sanctions for any violations of the act by a legal entity; and on the other hand, it was the growing real power of corporations and expansion of their illegal activities that played its role.

Adoption of the law on criminal liability of legal entities was considered as early as in 2004, but it was swept down in the Chamber of Deputies in the first reading. The discussion started anew when it became one of the items of the coalition agreement among the ruling parties ODS, TOP 09 and VV. An explanatory report to the law states: "The Czech Republic is thus the last EU Member State without liability of legal entities for the acts that are to be criminalised under the EC/EU legislation". The law was also probably approved thanks to the coalition cohesion, as there are many ambiguities in the statute if it is read in more detail, which was also highlighted by the president in his veto.

The institute of criminal liability of legal entities was laid down in a separate law (No. 418/2011) with subsidiary application of the Criminal Code and Criminal Procedure Code. However, as many opponents of this institute point out, there is a problem that the Czech criminal law is based on the principle of individual criminal liability. Criminal liability of legal entities introduces ‘collective guilt', punishing also those who did not commit any crime (e.g. employees who lose their jobs, creditors through the company's winding-up). A legal entity may also be punished if no specific offender is established. By law, criminal liability of individuals remains unaffected by criminal liability of a legal entity and vice versa.

The law penalises illegal acts of all legal entities, except for the Czech Republic (including the state branches) and local self-governing units when executing public authority. Sui generis exclusion of the Czech Republic as a legal entity from the scope of this law is absolutely legitimate; the state cannot punish itself; it cannot dissolve itself, and the sentence of property forfeiture would absolutely not hit home (the property would be forfeited to the sentenced). Application of the other punishments would also be absurd. This means that the law has a very wide scope, and any property interest of the state, region or municipality does not exclude criminal liability of the legal entity.

The law sets out an exhaustive list of almost 80 crimes for which legal entities may be liable, and individual facts are in detail regulated by the Criminal Code. The list mostly includes property crimes, economic crimes and environmental crimes. Logically enough, legal entities cannot be punished for crimes against life and limb, crimes against compulsory service or military crimes. However, the law also lists crimes where it is appropriate to consider whether they could be committed by a legal entity at all. They include sexual pressure or sexual abuse where application of the collective guilt could have absolutely fatal consequences for the criminal law concept built on the continental legal culture, i.e. the liable individual could cover himself with the legal entity's liability and avoid individual punishment, which is absolutely inadmissible in this case. The institute of effective regret is also worth mentioning - prosecution of a legal entity is terminated if the legal entity voluntarily quits any additional illegal acts.

A legal entity has legal personality and competence to acquire rights and duties, procedural capacity and liability in delict. However, we have to realize that still, it is only a legal construct. This is why the law also speaks about "imputability" of a crime to a legal entity. A legal entity commits a crime if the crime is committed on its behalf or in its name or within its activities and if it was committed by a governing body or its member or someone performing management or control activities in the legal entity or someone having a significant influence on the management of the legal entity (i.e. actual influence not arising from the legal status), but also by an employee in certain cases.

The lawmakers were highly generous when defining the crimes and possible sentences. A legal entity may be subject to eight sentences, including its dissolution, forfeiture of property, fine, forfeiture of a thing or another property value, prohibition of activities, prohibition to perform public contracts and prohibition to accept aid and subsidies, up to the publication of the sentence in the media at the legal entity's expense, and a protection measure including seizure of a thing or another property value. The sentences and protection measures can be imposed separately or next to each other. The explanatory report states that the fine should be the mostly used type of punishment. It is related to the solvency of legal entities and possibly higher fines adequate to the damage caused by the legal entity's crime.

As the act on criminal liability of legal entities and proceedings against legal entites has been in effect only for a few months, it is hard to anticipate the direction this innovation will take. It will definitely be up to the cleverness of lawyers, benevolence of judges and rigidity of prosecutors. It is especially the vague formulations of imputability of a crime to a legal entity or ambiguities in respect of proceedings against legal entities (primarily the issue of their dissolution, termination or transformation within criminal proceedings) that allow for a tornado of criminal complaints against legal entities. Only the future will tell whether the president's concerns about the new law will come true or not. But legal entities should definitely undergo the risk assessment process and implement precautionary measures, as it is becoming greatly risky to employ unreliable persons.

Monika Rutland, partner

rutland ježek, law firm
t: +420 226 236 600
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