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Criminal Liability of Companies: Monetary Fines More Painful for Corporations Than for People

Criminal Liability of Companies: Monetary Fines More Painful for Corporations Than for People

23.2.2012 12:53
Autor: Milan Šperl, KSB

A monetary fine may mean billions

The punishment most frequently imposed on corporations will be monetary fines, the sense of which is to remove financial means and thereby to restrict the company’s standard operations, both for intentional offenses and for acts committed due to negligence. However, the restriction should not cause the company to go into liquidation.

As in the Criminal Code, the punishment concerning the criminal liability of legal entities is assessed through a system of so-called daily rates. Unlike the rates applied to individuals, the daily rates for companies have been increased: the minimum rate has been increased from CZK 100 to CZK 1,000 and the maximum rate has been increased from CZK 50,000 to CZK 2,000,000. As the new act does not set forth the number of daily rates, it is necessary to look to the Criminal Code, which sets forth a number of rates ranging from 20 to 730, depending on the nature and significance of the criminal act committed. The monetary fine imposed on a company may be up to almost CZK 1.5 billion.

If the corporation being punished is a bank or a foreign bank whose branch operates in the Czech Republic on the basis of a bank license granted by the Czech National Bank (CNB) or on the basis of the uniform license principle pursuant to another legal regulation, the court may impose a monetary fine only after CNB provides a statement on when it is possible to impose such punishment and on the consequences thereof. The court must take such statement into account. A similar principle applies to insurance companies, branches of insurance companies, reinsurance companies, branches of reinsurance companies, pension funds, investment companies, investment funds, securities traders, branches of securities traders, savings and credit cooperatives, central depositories, electronic money institutions, branches of foreign electronic money institutions, payment institutions, settlement system operators and organizers on the investment products market.

Asset forfeiture

Asset forfeiture operates as a punishment that may be imposed on a company which has committed an especially serious criminal act, such as obtaining or trying to obtain a property-related benefit for itself or another entity or person. As in the case of the liability of individuals for criminal offenses, asset forfeiture applies to a company’s entire assets or any part thereof identified by the court. Intentional offenses are considered by the Criminal Code to be especially serious criminal acts, for which a sentence of up to 10 years in prison may be imposed.

One example of an intentional offense is the criminal act of credit fraud committed by a company. If, in such a case, damage were caused in the amount of a “mere” two million crowns, i.e. significant damage, the act would not constitute an especially significant criminal act; however, damage exceeding five million crowns would constitute such an act. When imposing this type of punishment, the court must take into consideration the rightful interests of the damaged party in respect of the compensation for damage.

The above-mentioned requirement of a statement from CNB applies to the imposition of punishments on banks and other institutions. It also applies that the punishment of asset forfeiture cannot be imposed together with a monetary fine and vice versa.

Forfeiture of an item or other assets with a property-related value

The same rules set forth by the Criminal Code when imposing such punishment also apply to individuals. The rationale is (i) to seize the item that was or was to be used for committing an offense or (ii) to withdraw the benefit deriving from a criminal act and prevent another criminal act from being committed. Such punishment, however, must be differentiated from the protective supportive measure of confiscating an item or other assets with a property-related value. This protective measure can be applied if the punishment of forfeiting an item or other asset with a property-related value cannot be imposed, for example because the item or other asset with a property-related value belongs to an offender who cannot be prosecuted or sentenced.

Items include items of movable or immovable property as well as securities or funds on an account; other assets with a property-related value include, for example, receivables or ownership interests in private limited companies.

Prohibition on performance of activities

Such prohibition may be very efficient for individuals than for corporations. The reason is the prevention of further offences the conditions for which are created by certain activities. The Criminal Code differs from the new Act on Criminal Liability of Companies practically only in the length of punishment. In other words, the maximum length of the prohibition on the performance of activities was increased from 10 to 20 years for corporations.

The above-mentioned principle of requiring a statement from CNB also applies to cases where banks and other institutions are prohibited from performing activities. Because of the conditions for imposing such punishment, as well as the right to establish and join political parties, it is impossible to impose such punishment on a political movement or party.

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