Change to liability of collective entities
On 2 September 2022, a new bill was published on the website of the Government Legislative Centre, concerning changes to the Act on liability of collective entities for commission of punishable offences. This is another attempt at making the regulations governing liability of collective entities stricter, and its purpose (as indicated in the explanatory memorandum) is to “increase the effectiveness […] in particular in respect of combatting serious business and fiscal crimes”. Let us have a closer look at the planned changes.
To start with, it should be said that, given the current legal status, the liability of collective entities is governed by the Act of 28 October 2002 on liability of collective entities for punishable offences (hereinafter: the Act). However, the effectiveness of this regulation is insignificant, because, as indicated in the explanatory memorandum to the bill (hereinafter: Bill), in 2021 prosecutors jointly filed 17 requests for acknowledgment of liability of collective entities and the court issued final judgments with respect to 19 such requests (primarily regarding previous years).
Definition of ‘collective entity’
The bill introduces a considerable change to the definition of a “collective entity”. It provides that collective entities are legal persons, organizational units having no legal personality (no corporate status), commercial companies with State Treasury shareholding, local government units, capital companies under organization, entities in the course of liquidation and entrepreneurs who are not natural persons, except for State Treasury, local government units and their unions/associations, churches and other religious associations and collective entities:
- which, during at least one year of the last two financial years employed fewer than 500 employees, or have the annual net turnover on sales of goods, products and services and on financial operations not exceeding the equivalent in PLN of EUR 100 million, which are not micro-entrepreneurs, small entrepreneurs or medium-size entrepreneurs within the meaning of the Law on Entrepreneurs;
- whose main statutory goal does not consist of operation of a business.
The amendment provides for a change to the list of entities by exclusion of micro-, small and medium-sized entrepreneurs. The authors of the bill assumed that the liability of collective entities should apply solely to sufficiently large entities (enterprises and other entities indicated in the Bill).
New list of offences subject to liability and no need to indicate the actual perpetrator (natural person) in advance
The legislator indicated that the existing list of offences subject to liability of collective entities is not legible and complex, and therefore it will be replaced with a simple rule of liability for each crime subject to public prosecution and fiscal crime. Crimes defined in the Press Law will be an exception to the rule. The change to the list of crimes seems to be one of the most essential changes introduced by the Bill, because it necessitates extension of internal procedures to cover all potential crimes.
The bill provides for “un-linking” the liability of a collective entity from the necessity of prior conviction of natural person. The basic requirement for liability of a collective entity for a prohibited act was obtaining a final ruling from the court on conviction, conditional discontinuation of proceedings, or providing a permit to a natural person for voluntary acceptance of liability or a court’s decision on discontinuation of proceedings against a natural person due to circumstances which exclude punishment of the perpetrator (natural person).
A collective entity can incur liability also in case of death of the perpetrator of a prohibited act or occurrence of other circumstances which exclude the perpetrator’s criminal liability and, last but not least, if the identity of the person who committed the prohibited act or permitted the perpetrator to act was not identified.
According to the Bill, evidentiary proceedings concerning liability of a collective entity will be pending before the court (no preparatory proceedings). However, if in a specific situation, there will be no prerequisites to open criminal proceedings against the perpetrator, the establishment of facts and verification of important circumstances as well as securing the evidence required to file a petition to the court, can be made in administrative proceedings and will be handled by the prosecution.
Conditions of liability
In place of conviction of a natural person, the Bill introduces two bases under the material law for liability of a collective entity:
- the collective entity will be liable for a prohibited act the features of which were met by the acts or omissions of the governing body of such an entity, directly linked to the business carried out by this entity;
- the collective entity will also be liable for a prohibited act which is directly linked with the business carried out by this entity, if it was committed by:
- a member of the governing body of such an entity;
- a natural person authorized to represent the entity, take decisions on its behalf or perform supervision, in connection with his acting in the interest of or for such an entity;
- a natural person permitted to act through its governing body, a member of its governing body or a person authorized to take decisions, as a result of abuse of rights or failure to perform obligations;
- a person employed by the entity, in connection with work provided to it – if such an act brought or could have brought a benefit to the collective entity, even if non-financial.
Additionally, the Bill indicates that the collective entity will be held liable if the prerequisites of a prohibited act are satisfied as a result of (as a minimum) the absence of due diligence in electing the person who committed the prohibited act or in supervision exercised by the collective entity over such a person, or in case of an inaccuracy in the origanisation of the business of the collective entity which facilitated or enabled commission of the prohibited act if another organisation of its business could have prevented such an act.
The new rules of liability of collective entities emphasize the necessity to adopt internal control procedures and to conduct the so-called background screening with respect to some persons. It seems, however, that in the latter case, it will be necessary to “ease” on the rules governing personal data protection and provide entrepreneurs with tools which enable selection of persons managing the organization in a way which would prevent the complaint of the lack of due diligence.
Development of procedures for internal control, supervision and proceeding in situations potentially giving rise to a crime, which is important also due to the fact that the Bill provides for the possibility of releasing a collective entity from liability if, despite some inaccuracies, all bodies obliged and persons authorized to act on behalf of or in the interest of such an entity exercised due diligence required in the circumstances, in the organization of such an entity or supervision of its business. Demonstrating the above circumstances will be considerably easier if they are subject to the relevant procedure, and the procedure is followed.
Change to the way of price calculation
The Bill provides for a change to the manner of calculation of cash penalty and waiver of limitation of the amount of cash penalties by linking them to the amount of revenue and adjusting the penalty based on the provisions of Art. 10 of the Bill, according to which the court should, without limitation, take into account the financial situation of the collective entity and the impact of the penalty on its continued operation.
Cash penalties imposed on collective entities under the Bill are to range from PLN 10,000 to 30,000,000. The additional upper limit of the penalty amounting to 3% of the revenue gained in the financial year in which the prohibited act was committed will be cancelled.
The bill is intended to increase the number of proceedings conducted against collective entities and ensure higher cash penalties for prohibited acts covered by the Bill. At the same time, the Bill introduces a number of possibilities to be released from liability: whether by exercising due diligence, or by demonstrating that the organization has adopted the relevant procedures which exclude “inaccuracies” that would facilitate or enable commission of a prohibited act. It seems that the addressees of the planned regulations (“collective entities”) will be forced to adopt specific internal standards concerning the scope of responsibility of their internal units and governing bodies, as well as rules of supervision and internal control of compliance therewith.
The Bill is now going to be assessed and sent to public consultations; the deadline for sending opinions ends on 23 September 2022. The Bill is available from the website of the Government Legislative Centre.