Corporate Commitment and Corporate Compliance

Area: Corporate Compliance
Author: IN DIEM Team, Criminal, Corporate and Compliance Area

CORPORATE COMMITMENT INTERPRETED AND INTEGRATED BY CIRCULAR 1/2016 OF THE STATE
ATTORNEY GENERAL’S OFFICE ON THE LIABILITY OF LEGAL ENTITIES

CORPORATE COMMITMENT

1.- LEGISLATIVE SITUATION
Organic Law 5/2010 introduced criminal liability for legal entities into our legal system, resulting both from the ongoing process of international harmonization of Criminal Law and from the felt need to provide a more effective response to the advancement of corporate crime.
OL 1/15 was enacted with the purpose of clarifying and developing OL 5/10 despite the fact that no international regulatory requirement supports the need for the criminal reform that occurred.

Article 31 bis of the Criminal Code establishes a regulatory mechanism for attributing liability to legal entities by transfer or vicarious liability through a numerus clausus system that makes the imposition of punishment contingent upon express provision for the commission of the offense set forth in Book II of the Criminal Code.

Therefore, legal entities do not commit an offense, but legal entities “shall be criminally liable for offenses committed” by natural persons.

Criminal liability is attributed to the legal entity by virtue of a connecting fact consisting of the prior offense committed by the natural person in its name or on its behalf.

Article 31 ter makes clear the compatibility and autonomy between the sanction of the legal entity and that of the responsible natural person, whose effective punishment is not a necessary requirement for the entity’s liability.

2.- THE EXTRAORDINARY BENEFIT OF EXEMPTION FROM CRIMINAL LIABILITY.
The Criminal Code establishes in Articles 19 and 20 the grounds by which a natural person is exempt from criminal liability:

1. A person who, at the time of committing the criminal offense, due to any psychological anomaly or alteration, cannot understand the unlawfulness of the act or act in accordance with that understanding.

2. A person who, at the time of committing the criminal offense, is in a state of full intoxication from the consumption of alcoholic beverages, toxic drugs, narcotics, psychotropic substances or others that produce similar effects, or is under the influence of withdrawal syndrome, due to dependence on such substances, that prevents them from understanding the unlawfulness of the act or acting in accordance with that understanding.

3. A person who, due to suffering alterations in perception from birth or from childhood, has a seriously altered awareness of reality.

4. A person who acts in defense of their own or others’ person or rights, meeting the requirements established for that purpose.

5. A person who, in a state of necessity, to avoid harm to themselves or others, injures a legal interest of another person or breaches a duty, meeting the requirements established for that purpose.

6. A person who acts driven by insurmountable fear.

7. A person who acts in fulfillment of a duty or in the legitimate exercise of a right, profession or office.

The Criminal Code establishes in Article 31 bis 2 a) and b) the grounds by which a legal entity shall be exempt from liability for offenses committed by administrators/managers/executives as well as for offenses committed by employees/subordinates, meeting the requirements established for that purpose:

1. The governing body has adopted and effectively implemented, before the commission of the offense, organizational and management models that include appropriate monitoring and control measures to prevent offenses of the same nature or to significantly reduce the risk of their commission.

2. Supervision of the operation and compliance with the implemented prevention model has been entrusted to a body of the legal entity with autonomous powers of initiative and control or that is legally entrusted with the function of supervising the effectiveness of the legal entity’s internal controls.

3. The individual perpetrators have committed the offense by fraudulently evading the organizational and prevention models.

4. There has been no omission or insufficient exercise of supervisory, monitoring and control functions by the body referred to in condition 2.

Analyzing both, the notable benefit granted by the legislator to the legal entity as opposed to the natural person is clearly evident.

First, because it is a supervening benefit granted ad processum that was not previously defined or provided for until July 2015.

Second, because 6 of the 7 grounds relating to natural persons are reactive in nature, meaning the exemption is granted based on a prior concurrence of circumstances, many of which are uncontrollable and not plannable for the individual.

However, for legal entities, the grounds that allow exemption are all active in nature, meaning based on a prior concurrence of circumstances all of which are controllable, plannable and executable by the entity.

In summary, the legal entity is being rewarded for the mere fact of being committed to the law and diligent in its management by establishing its own organizational and management models aimed at preventing the commission of offenses within it or at least achieving their discovery.

The difference in requirements and their rigor demanded of natural persons and legal entities to achieve exemption is notable, since those required for the latter are almost a mandatory and inherent prerequisite for natural persons, who must always comply with the law, to the point that ignorance of the laws does not excuse their compliance as Article 6.1 of the Civil Code (CC) establishes, and must always act with the diligence of a good family head, as set forth in various articles of the CC.
Precisely for this reason, the legislator does not legally require or impose on legal entities those patterns of behavior aimed at preventing the commission of offenses within them or at least achieving their discovery.

Precisely for this reason, the legislator encourages and stimulates legal entities that voluntarily act in compliance with the law and with diligence aimed at preventing the commission of offenses within them or at least achieving their discovery, by granting the greatest benefit that exists, which is the granting of exemption from criminal liability.

Precisely for this reason, the Attorney General’s Office qualifies as a laudable objective that deserves positive assessment the fact of promoting that legal entities structure themselves by providing organizational and control systems that, among other things, aim to prevent the commission of offenses within them or, at least, achieve their discovery.

3.- CORPORATE COMMITMENT FOR THE ATTORNEY GENERAL’S OFFICE
The Attorney General’s Office’s criterion is that COMPLIANCE or organizational and management models have the object and purpose of promoting a true corporate ethical culture rather than avoiding criminal sanctions for the company.

Based on that criterion, compliance programs must be focused on reaffirming a corporate culture of respect for the Law where the commission of an offense constitutes an accidental event and exemption from punishment a natural consequence of such culture.

Therefore, it will always be the responsibility of the company’s governing body to establish the company’s risk control and management policy and its supervision, which in listed companies has the status of a non-delegable power [Article 529 ter b) LSC].

The prosecutor will investigate and penalize if COMPLIANCE is implemented as a type of criminal insurance, as that is not the objective of the legislation.

Likewise, the prosecutor will penalize and will not facilitate the benefits that the law establishes for companies that only implement merely formal or facade compliance programs that are not aimed at creating a culture of compliance.

For the Attorney General’s Office, the exemption from criminal liability granted to the company with respect to offenses committed by subordinates based on the prior existence and effectiveness of COMPLIANCE is fully justified.

However, for the Attorney General’s Office, the exemption from criminal liability granted to the company with respect to offenses committed by administrators/managers based on the prior existence and effectiveness of COMPLIANCE is less justified.

The reason is that the transfer of liability to the legal entity, which in this case is automatic and does not require deficient control, should not be nullified by invoking proper organization that, ultimately, such persons embody.
For this reason, the bar of requirement set by the Attorney General’s Office for granting exemption from criminal liability to the company with respect to offenses committed by administrators/managers is very high, reflected in very demanding conduct and patterns of action demonstrating the corporate will of the company.

The Attorney General’s Office is categorical in establishing that any effective COMPLIANCE depends on the unequivocal commitment and support of the company’s senior management.

The behavior and involvement of the Board of Directors and senior executives are key to conveying a culture of compliance to the rest of the company.

The Attorney General’s Office seeks to ensure that the idea does not exist or is not maintained in the company that non-compliance is merely a risk that may be worthwhile to achieve greater economic benefit.

Therefore, for the Attorney General’s Office, the mere fact of having COMPLIANCE does not exempt the company from liability, but without COMPLIANCE such exemption cannot be achieved.

The key to assessing the true effectiveness of COMPLIANCE lies in the existence within a prevention program of these two aspects:

– the importance it has in the decision-making of its managers and employees
– to what extent it is a true expression of its culture of compliance.

For this reason, the Attorney General’s Office reduces the effectiveness of COMPLIANCE if it detects in the company hostility toward these programs, ambiguity, equivocal messages or even indifference to their implementation.
The detection of offenses is an essential element that must shape the content and grant validity to COMPLIANCE, and the Attorney General’s Office so establishes, although such detection is not expressly included in the enumeration or requirements of organizational and management models.

Based on such substantive character, if criminal conduct is detected by the legal entity and brought to the attention of the authority, the Prosecutors shall be obliged to request exemption from punishment for the legal entity, as this evidences not only the effectiveness of the model but its consonance with a culture of corporate compliance.

The corporation’s reaction and behavior in relation to previous conduct is also relevant to deduce the legal entity’s will to comply and to what extent the offense represents a one-time event unrelated to its ethical culture or, conversely, evidences the absence of such culture, exposing the organizational model as a mere exculpatory artifice.

Firmness in response to prior violations also conveys to employees a clear message of intolerance toward unethical conduct.

Conversely, and by way of example provided by the Attorney General’s Office itself, maintaining in office an administrator or executive who has been subject to criminal proceedings in which the commission of the offense has been proven blurs the purported ethical commitment.

That is, any administrator or executive convicted of an offense must be irremediably removed from the entity so as not to harm the entity’s ethical commitment.

Immediate review of the program to detect its possible weaknesses, introducing necessary modifications where appropriate, is another demonstration of the corporation’s leadership commitment to the compliance program.

The Attorney General’s Office is obliged to positively assess the fact that the company proceeds to restitution and immediate repair of damage, active collaboration with the investigation, and carrying out an internal investigation and contributing it to the criminal proceedings.

In this way, the level of ethical commitment of the company is revealed as evidence.
The Attorney General’s Office is obliged to negatively assess the fact that the company delays reporting criminal conduct or conceals it and adopts an obstructive or non-cooperative attitude toward justice, the fact
that criminal conduct has been authorized or tolerated by the governing body, the fact that it has spread throughout the company or has been of long duration.

COMPLIANCE that meets legal requirements will operate as an exculpatory excuse, as a cause of personal exclusion from punishability and not suppression of punishability.

It is the company itself that has the resources and the ability to prove its level of commitment to the law and that, despite the commission of the offense, its program is effective and meets legally required standards.

That commitment is demonstrated by providing in a unique and irreplaceable manner the data pertaining to its organization, especially those related to some requirements very difficult to assess for the Prosecutor or Judge, such as the availability of protocols or procedures for forming the will or adopting and executing decisions of the legal entity (second requirement of paragraph 4) or “financial resource management models adequate to prevent the commission of offenses.”

The Attorney General’s Office itself recognizes that the preventive value of a compliance program, even when properly designed and implemented, is limited in the face of the decision to commit an offense and that its deterrent effect will be lower than that represented by the threat of criminal sanction itself.