Corporatedirectors and criminal liability: in which ... · Project Participants in thisproject: §...

DECEMBER 2018 – WWW.BAROALTO.COM

Corporate directorsandcriminalliability:inwhichcountryareyoulessat risk?

Comparativestudyby theBaroAltoAcademy,withstudents fromPantheon-SorbonneUniversity

BaroAltoAcademyThis white paper is a collection directed studies and interviewsconducted by students in the Pantheon-Sorbonne’s Master 2Corporate andTax Law programme.

The objective of the Master 2 Corporate and Tax Lawprogramme at Pantheon-Sorbonne University is to providestudents majoring in corporate law with training in basic andapplied techniques, taught by academics and professionals(businesslawyers, in-houselawyers, fiscal lawyers, taxadvisors,etc.).Baro Alto Academy is an innovative practical and educationalinitiativeledbyBaroAlto’steamoflawyers.

In this framework, Caroline Joly, who teaches on the subject ofpenal practices in the Master 2 DFE programme at the Universityof Paris I Sorbonne, leads a community of professionals andstudents whowork together throughout the year to develop bestpracticesandanticipate futurebusiness trends.

WWW.BAROALTO.COM P. 2

ProjectParticipantsinthis project:§ Students ofthe2016-2017MASTER2CORPORATE

ANDTAXLAWprogramme,PANTHEON-SORBONNEUNIVERSITY(PARIS1)

§ BAROALTO- CarolineJoly,Founding Partner(projectmanager)

§ BAROKAS-MarkBarokas,Partner- (proofreader forSwitzerland)

§ BORNET&ASSOCIES- JeanBornet,Partner-(proofreader forBelgium)

§ EVERSHEDSSUTHERLAND- StefanSaerbeck,SeniorAssociate – (proofreader forGermany)

§ PETERS&PETERSSOLICITORSLLP- JasvinderNakhwal,Partner– (proofreader fortheUnitedKingdom)

§ BUIGAS-Mireia Blanch,Partner-(proofreader forSpain)

§ CDR&ASSOCIATI-MaurizioRuben,Partner(proofreader forItaly) WWW.BAROALTO.COM P. 3

The following key indicators were examinedwith the aim ofconductinganoverall comparisonof legislation in6Europeancountries:

1. Extension of directors' criminal liability for offences theydid not commit personally, but which are enforced as aconsequenceof theirmanagement liability

2. Extension of legal entities' criminalliability

3. Exemption from directors' liability throughsettingupadelegationof authority

4. Exonerating effectofcodesofconduct

5. Extension of directors' insurance to cover criminalliability enforcement

Overview 1


The comparison of the above key indicators leads to theconclusion that legislation on directors’ criminal liabilityvariesconsiderablyfromonecountryto another.

In some countries, such as Spain for instance, directorscannot be held liable for offences committed by theirsubordinates/employees.

In other countries, suchasBelgium for instance, directorsandlegal entities cannot be jointly held liable. As a matter of fact,company directors are rarely held liable for negligence orbreach of duty of care.

Overview 2


In some countries, the legislation ismore severeand directorscanbeprosecuted in the case of an “offencebyomission”, eveniftheydidnot personally commit the offence concerned.

In Germany, company directors can be charged with anoffence by omission if they fail to prevent an employee fromcommitting a criminal offence related to the company’sbusiness.

In Switzerland, if directors are recognised as being theguarantor of their subordinates / employees, they can be heldliable foranyoffencebyomissioncommittedby the latter.

In France, and in other countries, the legislation is much moresevere and directors can be held liable even if the commissionof the offence wasmade possible through their negligence orbreach of duty of care.

Overview 3


The same legal provisions apply for companydirectors in the United Kingdomand in Italy.

Under British law, companydirectorshaveaspecific dutyof “oversight over the general operations” and cannot bereleasedfromit bydelegating their authority.

In Italy, company directors have a duty to be vigilant andmustpreventcriminal actsasfar aspossible.

Except in Germany, legal entities can be held criminallyliable in all the other countries examined. In some countries,thisprincipleiswidelyapplicable.

In Belgium for instance, a company can be held liable for anyoffence committed on its behalf by a natural person –whatever the person’s position in the company – as long asthe offence is related to the corporate purpose or committedin the company’s interest.

Swiss lawalsoprovidesaverybroaddefinitionof legal entities’criminal liability, as it coversoffences committed in acompanybyanypersonwhohas a legal orhierarchical relationshipwithit.

In countries such as France, Spain and Italy, the legislationalso provides for legal entities’ liability although, to berecognised, it is subject to additional conditions.

Overview 4


In particular, the criminal offence must have beencommittedbyoneof the company’s legal representatives.

To agreaterextent, for acompany tobeheld liable underBritish law, the offence must have been committed by apersonwhoseposition is such that s/hecanbe consideredasthedirectingwill andmindof the company.

Several European countries consider that corporate codes ofconduct are legally binding.

Among all the European countries examined, Belgium andGermany are the only remaining countries that do not havespecific regulations for codesof conduct.

Regarding corruption, in countries such as France, Spain andthe United Kingdom, failure to prevent a criminal offence isconsidered as a specific offence. British and Spanish law goeseven further since companies can be exonerated fromcriminal liability if they effectively implement a plan or acode of conduct toprevent criminal offences.

Overview 5


In Switzerland and Italy, companies are not required bylaw to implement a code of conduct. However,legislation in both Switzerland and Italy exoneratescompanies from criminal liability if they can prove thatthey have implemented all necessary and reasonablemeasurestopreventcriminal conduct.

MAPOFSTATUTESOFLIMITATIONSFORCRIMINALPROSECUTIONINEUROPE(2017)

The reform of criminal prosecution in France hassignificantly increased the risks incurred by directors andcorporations. The following table shows the countries inwhich the statutes of limitations for criminal prosecutionare the most restrictive.

Statutes of limitation for criminal prosecution (years)


DETAILSOFTHESTUDYBYCOUNTRY

SWITZERLAND................... p. 11BELGIUM….......................... p. 17GERMANY…......................... p. 23UNITED KINGDOM........... p. 28SPAIN….................................. p. 34ITALY…................................... p. 40


Study carried outby:• AliceBattaglia• GustaveBorde• AgatheLaporte• MarieSemaan

Students inthe2016-2017MASTER2CORPORATEANDTAXLAWPROGRAMME, PANTHEON-SORBONNEUNIVERSITY

PROOFREADERFORSWITZERLANDBAROKAS- MarkBarokas ,[email protected] /Tel:+41227359164

No1- Switzerland


CANADIRECTORBEPROSECUTEDFORSOMETHINGS/HEISNOTPERSONALLYRESPONSIBLEFORINTHECONTEXTOFCOMPANYMANAGEMENT? YES

Switzerland strictly adheres to the principle that criminal

offenses and penalties are personal. Directors are only consideredliable forpersonaloffences.

Nevertheless, under Article 11 of the Swiss Criminal Code andArticle 6, paragraph 2 of the Administrative Criminal Law, a

company director can be held liable for an offence committed by

a subordinate insofar as this is considered as an offence byomission.

According to the law and case law (Federal Court Judgement ofJune 3, 1998, ATF 122 IV 103), for a company director to be

found guilty of an offence by omission, two conditions must bemet:

- The company director must be considered as the guarantor of

the person having committed the offence. In other words, s/he

musthavealegaldutyto act.

- The offence must have been committed by the subordinate in

thenormal courseof his/her duties.

Furthermore, Article 12, paragraph 2 of the Swiss Criminal Code

stipulates that “a crime is considered as intentional if the personwho commits it acts consciously and voluntarily. A person acts

intentionally insofar as he/she considers the offence as being

possible and accepts it if it is committed”.

Thismakes Swiss lawmore strict than French lawwith respect to

adirector’s criminal liability.


CANLEGALENTITIESBEHELDCRIMINALLYLIABLE?YES

Since 1 October 2003, the principle of criminal liability of legalentities is recognisedbyArticle 102of the Swiss Criminal Code.

Underwhat conditions can legal entities be held criminallyliable in Switzerland?

Traditionally, there are two types of corporate criminal liability:subsidiary liability (Article 102, § 1 of the Swiss Criminal Code)and primary liability (Article 102, § 2 of the Swiss CriminalCode).

A legal entity can incur subsidiary liability if a crime or offenceis committed within the company by a person, in the scope oftheir duties, who has an organic, hierarchical link with thecompany, and if the crime or offense cannot be attributed to anatural person.

A legal entity can incur primary liability if certain serious offencesare committed within the company by a person, in the scope oftheir duties, who has an organic, hierarchical link with thecompany, and if the company did not take all reasonable andnecessary organisational measures to prevent such criminalconduct.

With respect to the conditions under which liability can beincurred, the persons who can be held liable, and the maximumpenalties imposed, the French system of criminal liability of legalentities is somewhat stricter than thatof Switzerland.

What are the risks for legal entities in Switzerland whentheir liability is incurred?

The company is fined a maximum of five million Swiss francs. Itmust also surrender the assets acquired through the commissionof the offence or pay off a claim for compensation if these assetsareno longeravailable.


CANACOMPANYDIRECTORBEEXONERATEDFROMCRIMINALLIABILITYTHROUGHDELEGATIONSOFAUTHORITY?YESANDNO

Delegations of authority exist under civil law in Switzerland.According to Swiss law, civil law applies mutatis mutandis tocriminalmatters.Whereas delegations of authority in France focus on thedirector, in Switzerland they focus on the boardof directors.Delegations of authority are governed by Article 716 et seq. ofthe Swiss Code of Obligations.

Key criteria pertaining to delegations of authority inSwitzerland:• Certain powers are not transferable: the board of directors

is boundbyobligations and tasks that cannot be delegated.• Delegations of authority must be provided for in writing in

the articles of incorporation.• Delegations of authority are subject to rules established by

the boardof directors.• It is possible to provide for horizontal delegations of

authority, based on each member’s competencies (legaldirector, internal auditor, compliance officer, etc.), ortraditional vertical delegations of authority.

Delegations of authority are commonly used, in view of thecorporate landscape in Switzerland, where the majority of verylarge companies are banks. This is why they are addressed inethical charters and codes of conduct, which are widely used inSwitzerland.

Consequences for criminal liability of directors:• Criminal liability is maintained if:

- the form of the delegation of authority does notcomply with requirements- the delegate does not, in practice, have the requiredlatitude and competencies to complete the tasksassigned.

• Criminal liability is reduced if:- the delegation of authority is valid from the formalviewpoint- the delegator correctly chooses the delegate(professional and personal competencies) and gives thedelegate the required autonomy.


DOCODESOFCONDUCTHAVEANEXONERATINGEFFECTONLEGALENTITIES'LIABILITY?ORCANTHEYREDUCELIABILITY?YES

In Switzerland, Article 102 (2) of the Swiss Criminal Code

specifies that a legal entity can be held criminally liable “if it hasbeen charged with not having taken all necessary and

reasonable measures” to prevent criminal conduct

(participation in a criminal organisation, financing of terrorism,money laundering, corruption, etc).

It is therefore in the company’s best interests to establish a codeof conduct. It is required to prove that it regularly updates its

compliance programme. The judge will assess the company’s

true intention to actually adopt compliancemeasures.

The penalty imposed on the legal entity can thus be significantly

reduced; it is evenpossible that it not be held liable.

In France, the Sapin II law has instituted a court settlement

procedure through which the public prosecutor proposes tolegal entities charged with corruption or influence peddling an

agreement under which they are required, inter alia, toimplement a compliance programme that consists of certain

mandatorymeasures.

After the agreement has been validated, the criminal chargeagainst the legal entity is lifted and it no longer has to bear the

financial consequences of a criminal sentence.

In Switzerland, the effect of codes of conduct on theexoneration or reduction of legal entities’ liability is stronger.


CANADIRECTORBEINSUREDAGAINST

THEEFFECTSOFCRIMINALLIABILITY,IF

NECESSARY?YES

Swiss law does not expressly provide directors with the optionto insure themselves against the risks and consequences of

criminal liability. In the absence of any statutory provision, it is

generally agreed that members of management – the company

director, the board members and the chairman of the board of

directors – can take out insurance coverage.

A director can effectively take out an insurance policy with an

insurance company in order to transfer the financial risks

associated with incurring liability: the insurer agrees to pay

indemnities if the director incurs criminal and/or civil liability.

Policyholders§ All the members of a board of directors can be insured.

However, the insurance is subject to an excess.

§ A company can take out an insurance policy of which the

directors are the beneficiaries.

Insurance coverageIn Switzerland, the insurance system is based on D&O

insurance as practiced in Anglo-Saxon countries. Insurers have

developed an insurance policy called Directors’ & Officers’

Liability (D&O).

Exclusions → There is no coverage for fines, social security

charges and taxes, or wilful destruction. Damage caused by

gross negligence is therefore covered.

Extensions → The policy can include coverage extensions, in

particular, fees for legal proceedings and for restoring the

company’s reputation.


Study carried outby:§ SarahDirani§ Melodie ElMekdad§ Ines Henchiri§ Kalina Mincheva

Students inthe2016-2017MASTER2CORPORATEANDTAXLAWPROGRAMME,PANTHEONSORBONNEUNIVERSITY

The following comments donot take into account theproject toreform thecourtsystem,which should comeinto effect during theyear.

PROOFREADERFORBELGIUMBORNET&ASSOCIES- JeanBornet ,[email protected]/Tel:+3223471840

No2- Belgium


Note :Article5oftheBelgianCriminalCodewasrecentlymodifiedbythelawofJuly11th2018,modifyingtheCriminalCodeandthePreliminaryTitleoftheCodeofCriminalProcedureconcerningthecriminalresponsibilityoflegalpersons.Henceforth,thecriminalresponsibilityoflegalpersonsdoesnotexcludethecriminalresponsibilityofprivatepersons,perpetratorsofthesamefactsorwhoparticipatedinthem.Therefore,theaccumulationofbothlegalandprivatepersons’criminalresponsibilitieshasbecomethenorm.ThislawisapplicabletofactscommittedafteritsentryintoforceonJuly30th2018.

CANADIRECTORBEPROSECUTEDFOR

SOMETHINGS/HEISNOTPERSONALLY

RESPONSIBLEFORINTHECONTEXTOF

COMPANYMANAGEMENT?YES

In Belgium, the law does not provide for directors’ criminal

liability. The principle is that members of corporate bodies are

not personally responsible for the company's commitments.

(Article 61of theBelgianCompanies Code).

However, Belgian courts acknowledge directors’ criminal

liability in cases of vicarious liability. This liability involves

anyone who holds the power to manage a legal entity (de jure

or de factomanagers).

Directors are held criminally liable insofar a they must prevent

the commission of the offence (including in the case they fail to

report the illegal behaviour of their peers). They are considered

at fault for not providing instructions that guarantee compliance

with the law. Directors incur liability if they commit an offence

intentionally and throughnegligence.

On the other hand, they are only held liable for carelessness or

negligence if the breach concerned is more serious than that

committedbythe legal entity.

In France, a director can incur criminal liability jointly with the

legal entity, evenin casesof negligenceorcarelessness.

In conclusion, the Belgian principle of directors not being jointly

liable with legal entities reduces a director’s liability in cases of

carelessness or negligence and thus renders Belgian law less strict

thanFrench law.



In Belgium, the principle of criminal liability of legal entitieswas introduced under the Act of 4 May 1999 (Article 5 of theBelgian Criminal Code). It concerns sole proprietorships andmember-run corporations aswell as other entities with no legalpersonality, such as partnerships, but excludes non-profitorganisations under formation, unions, political parties as wellas public entitieswith democratically elected governingbodies.

A legal entity can be held criminally liable for three types ofcriminal offence:§ offences linked to the performance of its corporate purpose,§ offences linked todefending its interests,§ offences committedon its behalf.

In France, for a legal entity to be held criminally liable, not onlymust the representatives of the legal entity have committed acriminal offence, but this criminal offence must also have beencommitted on behalf of the legal entity (Criminal Chamber of theFrenchCourtofCassation,27April2011).

In conclusion, Belgian law is more strict than French law, as itbroadens the scope under which criminal liability of legal entitiesapplies, which is not limited to criminal offences committed on itsbehalf. However, Belgian law is less strict than French law withrespect topublicentities.


CANACOMPANYDIRECTORBEEXONERATEDFROMCRIMINALLIABILITY

THROUGHDELEGATIONSOFAUTHORITY?

YES

In Belgium, delegations of authority are one of the most

effective tools for preventing the risk of criminal liability within

a company. It exonerates the director from criminal liability if

the latter provides evidence that a delegation of authority

effectively existedprior to the criminal offence.

To be valid, a delegation of authority must meet the following

conditions:

§ Only delegations of authority that are specific and limited in

scope are recognised;

§ The delegate must have the necessary competencies,

authority andmeans to effectively performthemission;

§ Nowritten document is formally required.

Sub-delegationsareauthorised,butco-delegationsareprohibited.

In France, delegations of authority are also used to prevent

criminal liabilityand their validity is subject to the sameconditions

asunderBelgian law.

In conclusion, French and Belgian law is exactly the same on this

point and exonerate directors from criminal liability if they have

validly delegated their authority. Nevertheless, even if valid, a

delegation of authority can be questioned if there is evidence that

thedelegator in fact interferesbygiving instructionsor counteracts

thedelegate’sdecisionswithrespect todelegatedmatters.


DOCODESOFCONDUCTHAVEANEXONERATINGEFFECTONLEGALENTITIES’LIABILITY?ORCANTHEYREDUCELIABILITY?NO

In Belgium, the law does not provide for penal transactions orcodes of conduct that reduce the liability or exonerate a legalentity from criminal liability, although some legislators call fortheir implementation along the lines of what exists in France.On 2 June 2016, the Constitutional Court partially amended thepenal transaction lawwithout questioning its principle.

In France, the “Sapin II” Act reduces legal entities’ criminalliability in respect of corruption, influence peddling, moneylaundering and tax offences by introducing a penal transactionsystem that imposes a number of obligations on legal entities,including a “public interest fine” and the implementation of acode of conduct.

The validation of the penal transaction by the President of theParis High Court results in the termination of the criminalproceedings against the legal entity, which thus avoids theconsequences of a sentence, including a five-year ban fromsubmitting bids for public procurement contracts. On the otherhand, the natural persons found liable canbeprosecuted.

The newmitigationmechanism implemented in France,which is apioneer in Europe, could encourage Belgian legislators to dolikewise.


CANADIRECTORBEINSUREDAGAINSTTHEEFFECTSOFCRIMINALLIABILITY,IFNECESSARY?YES

In Belgium, directors’ liability insurance covers the defencecosts and civil liability of directors. On the other hand, wilfulmisconduct, illegal private profit, awareness of the facts (if theinsuredwas aware of the proximate cause at the time the policywas takenout) and fines are not covered.

The coverage is maintained for a period of sixty months fromthe date of termination of the insurance contract. It includes allclaims filed during this period and concerning an offencecommittedprior to the endof the contract.

In France, the insurance contract covers sentences to pay claimsand damages issued by a civil or criminal court only if theoffence alleged against the directorwas unintentional, aswell ascriminal defence costs. The insurance does not cover sentencesfor wilful misconduct, fines and awareness of the facts (ArticleL124-5of the French Insurance Code).

The claim must be filed against the director during the period ofvalidity of the contract or during a subsequent period of five yearsafter the terminationof thecontractor itsexpiry.

In conclusion, directors’ liability insurance policies in France andBelgiumaresubject tothesameconditions.


Study carried outby:§ CarolineGarcia§ FlorianCoustal§ MarieSébrier§ SarahTantin

Students inthe2016-2017MASTER2CORPORATE ANDTAXLAWPROGRAMME, PANTHEON-SORBONNEUNIVERSITY

PROOFREADERFORGERMANYEVERSHEDSSUTHERLAND– StefanSaerbeck,[email protected]:+498954565167

No3- Germany


CANADIRECTORBEPROSECUTEDFORSOMETHINGS/HEISNOTPERSONALLYRESPONSIBLEFORINTHECONTEXTOFCOMPANYMANAGEMENT?YES

German criminal law not only punishes the commission ofoffences (fraud, forgery, bankruptcy, etc.) but also non-performance and offences by omission: violation of book-keeping duties (§283 b Item 1 of the German Criminal Code)and tax evasion (§370 of the German Fiscal Code).

The scope of offences by omission is very broad, as thelegislation even addresses crimes of omission (unechteUnterlassungsdelikte): according to §13 of the GermanCriminal Code, “whosoever fails to avert a result which is anelement of a criminal provision shall only be liable underthis law if he is responsible under law to ensure that theresult does not occur, and if the omission is equivalent to therealisation of the statutory elements of the offence througha positive act.”

It is on this basis that a director can be sentenced for offencescommittedbyhis/heremployees.

Thus, a director who does not prevent criminal behaviour by anemployee commits anoffencebyomission.

French law limits offences committed by omission to specificcases. However, the question arises as to whether the differencebetween French and German law is as big as it seems. In bothcountries, company directors can be punished: German lawapplies commission by omission and French law applies criminalliability through “vicarious liability”, to quote Professor Larguier’sexpression.


CANLEGALENTITIESBEHELDCRIMINALLYLIABLE?NO

The German legal system does not establish criminal liability

for legal entities, by virtue of the constitutional principle of guilt

by association (Schuldprinzip), whereas in France this concepthas been in existence since 1994.

Over the past few years, the German authorities have examined

the possibility of introducing the concept of criminal liability for

legal entities, without success. Nevertheless, Germany signed

the Council of Europe’s Criminal LawConvention onCorruption,

which provides that legal entities must be subject to effective,

proportionate and dissuasive penalties, under criminal law or

otherwise, including financial penalties.

Thus, legal entities are punished in Germany by a non- criminal

sanction, in accordance with Article 30 of the German Act on

Regulatory Offences, which provides the possibility for the

administrative authorities to sentence a legal entity to a fine if

one of its governing bodies, a corporate officer, or a partner

authorised to represent the legal entity concerned, commits a

criminal offence.

Furthermore, article 75 of the German Criminal Code (§75 StGB)

provides that a legal entity can be deprived of its ownership of

assets that were instrumental in or are the result of a crime on

condition that one of its representatives gave rise to the crime and

that the legalentitydrewbenefit fromthe latter.

German law is therefore less strict than French law, as corporate

criminal liability is still not recognised; this fact is however

compensated for by an administrative system which provides

sanctionsagainst themthatare justaseffective.




YES

In Germany, to be considered as exonerated from liability, the

delegator must ensure that the delegate holds the capacity to

perform the delegated duties; the delegation must not be

fraudulent and the delegate must have the technical

competencies required.

In addition, delegations of authority only have a limited

exonerating effect insofar as the company director always has a

duty to supervise.

Thus, delegations of authority only exonerate from liability if it

is proved that the company director performed his/her duty to

supervise to the greatest extent possible.


DOCODESOFCONDUCTHAVEANEXONERATINGEFFECTONLEGALENTITIES’LIABILITY?ORCANTHEYREDUCELIABILITY?NO

Under the French system, the "Sapin II" Act creates anobligation to prevent the risk of corruption. This act includes anew form of penal transaction that provides for a certainnumber of obligations for legal entities such as, in particular, theimplementation of a code of conduct.

As in France, Germany has a Corporate Governance Code forfinancial matters for German listed companies. Its aim is tomake the German corporate governance system transparentand comprehensible. The scope of application of codes ofconduct in Francemainly covers corruption, influence peddling,money laundering, tax offences, aswell as financial transactions.

However, as the German legal systemdoes not establish criminalliability for legal entities, the latter cannot be exoneratedtherefrom.


Study carried outby:§ VictoriaDurando§ PaulGrandet§ LoïcBustos§ CyrielleFauconnet

Students inthe2016-2017MASTER2CORPORATEANDTAXLAWPROGRAMME,PANTHEON-SORBONNEUNIVERSITY

PROOFREADERFORTHEUNITEDKINGDOMPETERS&PETERSSOLICITORSLLP-JasvinderNakhwal,[email protected]:+44(0)2078227753

No4–UnitedKingdom



Although numerous rules under Common Law continue toapply in England, the introduction of the 2006 Companies Act,which defines the duties of company directors under Sections171 to 177, resulted in reforming corporate law and codifyingthe rules regarding company directors’ liability under Englishlaw.

Directors also havemore general duties which, if breached, canincur their liability (gross negligence,murder for instance).

As in French law, English lawdifferentiates between de jure andde factodirectors, both ofwhomcan incur liability.

Thus, these two categories of directors can incur personalliability if they personally commit unlawful acts in performingtheirmanagement duties.

With regard to acts committed under their responsibility, if theydid not personally commit the offence, directors can in generalincur liability under applicable rules if they aid, abet, counsel orauthorise anoffence (in termsof liability, theyare consideredas a“secondary party” to the offence). Directors can also be heldliable for offences committed through negligence, if they arebelieved to have breached the duties pertaining to their position.Certain offences (mainly those concerning corporate entities)may also be interpreted more broadly and incur the corporateofficers’ liability if the offence is committed by the legal entitywith their consent or complicityor through theirnegligence.

As under French law (Article 121-2 item3of the French CriminalCode), joint criminal liability between the director and the legalentity ispossible andpunishable.

In conclusion, the framework of English law is exactly as strict asFrench law.



Under English law, a company can incur liability if an offence iscommitted by a person whose position is such that they can beconsidered as the controlling mind and will of the company.Boardmembers are an obvious example of such a person. Withregard to corruption, rules of amore general nature apply and acompany will incur liability if it did not take sufficient steps toprevent corruption.

A legal entity can also incur criminal liability whenever astatutory provision imposes an absolute duty on the employerto the effect that any breach by the latter of such a duty wouldincur the liability of the legal entity that the employerrepresents.




YES

Intentional crimes are not the most dangerous for directors,but crimes that may be attributed to them in their capacity as

company directors are, in particular homicide or injury due to

negligence potentially resulting from non-compliance with

safety standards, as well as anything relating to health and

safety in theworkplace.

It is common for directors to delegate authority to an employee

(salaried employee, etc.) who has the required competencies,

authority and means, thereby exonerating the delegator from

criminal liability as a director. This concept is established by

case law.

In some cases, the delegation is no longer valid: the delegator

does not stop exercising the delegated powers, the delegate

evades their responsibilities (tax fraud), or the employee is

considered incompetent. Across the Channel, delegations of

authority can exonerate from criminal liability, but with the

2006 Companies Act (as well as the 1974 and 2007 Acts),

directors who are granted managerial powers by the

shareholders cannot delegate authority as freely as in France.

Moreover, directors are expected to keep control over all the

company’s operations and to implement adequate policies and

procedures for thoseoperations.Dependingon theoffenceand the

particular circumstances, failure todosocan incur their liability for

gross misconduct or negligence, regardless of any delegation of

authority inrespectofaspecificduty.

Principle: Delegatus non potest delegare. A clause in the articles ofincorporation may allow this, although it would seem that

delegationsofdiscretionarypowersdonotappeal totheEnglish.

In thiscontext, thesituation inEnglandismorestrict.


DOCODESOFCONDUCTHAVEAN

EXONERATINGEFFECTONLEGAL

ENTITIES’LIABILITY?ORCANTHEY

REDUCELIABILITY?YES

The “Sapin II” Act aimed to bring France up to date in terms of

anti-corruptionmechanisms and is similar to the Englishmodel

adopted in 2010.

Since 2010, English law punishes corruption with a fine of an

unlimited amount, while allowing companies to exonerate

themselves from liability by providing evidence that they have

implemented adequate procedures toprevent suchoffences.

However, the law does not allow a legal entity to be released

from liability if it is found guilty under the general rules of

attribution of liability (i.e. the “controlling mind and will”

principle).

French law has implemented a similar mechanism through the

creation of an obligation for large corporations to set up an anti-

corruptionprogrammethat includesacodeofconduct.

Companies chargedwith corruptionmay thereforebepunishedby

an obligation to execute their programme so that the related costs

do not exceed the amount of the fine incurred for the offence

committed, while taking into account the measures already

implementedbythecompany.



As in France, English companies can take out a specific civilliability insurance for directors in order to cover their criminalliability.

The legal entity thus protects them against compensationclaims potentially issued against them by shareholders,investors, employees, regulatory bodies or interested thirdparties.

Commonly referred to asDirectors’ andOfficers’ (D&O) LiabilityInsurance, this type of policy allows insured directors to benefitfrom personal protection and therefore protects their privateassets; which are only concerned if the alleged offences arecontrary topublic policy.

In other words, taking out a D&O insurance allows directors to bereimbursed not only for fees relating to the preparation of theirdefence, the defence fees proper (in both civil and criminal courts),but also for compensation and damages due in respect ofsubstantiatedandunsubstantiatedclaimsagainst them.

As inFrance, this insurancedoesnot covergrossmisconductor thefinesandpenalties imposedbycriminalcourts.

Nowadays, this type of insurance policy appears to be an essentialmodeofprotection forall companies,whether FrenchorEnglish.


Study carried outby:§ MehdiSoum§ AxelSintes§ HélèneSequero-Carmona§ HortenseMichel


PROOFREADERFORSPAINBUIGAS- Mireia Blanch,[email protected] /Tel:+34932001277

No5– Spain



Neither the Spanish nor the French criminal code contain ageneral provision establishing directors’ liability for a materialoffence committed by a subordinate. However, in France, aswellas in Spain, directors can be held criminally liable as the mainperpetrator of an offence materially committed by asubordinate.

The liability system is different in the two countries. In France,its scope is very broad and it is derived from various sources,whereas in Spain, its scope is limited and it is solely derivedfrom legal sources. In France, the law can hold a director to bethe perpetrator of an offence materially committed by others –underArticle 433-18of the Criminal Code, for instance – or holda director to be the perpetrator of an offencewithout specifyingif s/he is to be held liable when the offence is committed byothers.

In cases where the law is silent, case law frequently attributescriminal liability to the director. In Spain, the law does not ingeneral hold directors liable for offences committed by asubordinate, except in specific cases provided for by the law andsubject to the facts constituting the offence (seeArticle 316of theCriminal Code). The same applies to offences committed byomission. Therefore, liability is borne by the person who shouldhave prevented the occurrence of the result but did not, thusbreaching his/her duty as guarantor; the Supreme Courtconsiders that the guarantor is the director (decision of 3 July1992).


CANLEGALENTITIESBEHELD

CRIMINALLYLIABLE?YES

In France, since the amendment of Article 121-2 of the CriminalCode by the Law of 9 March 2004, all groups with corporate

status canbeheld criminally liable, except the state.

Spain was the last European country to recognise the liability of

legal entities under the Organic Law of 22 June 2010 (which

entered into force on 23 December 2010), henceforth defined

underArticle 31bis of the newSpanishCriminal Code.

As is the case for criminal liability in France, which cannot be

filed against a legal entity unless an offence was committed by

its governing bodies or representatives, Spanish lawasserts that

the offence must have been committed on the behalf of a

company and in its interest by the representatives, board

members or anyother personunder their authority.


Furthermore, a French legal entity can be held guilty of any

offence, even in the absence of specific legal provisions in this

respect, whereas the Spanish criminal code contains an exhaustive

list of offences that can result in a legal entity being held

criminally liable.

Lastly, the Spanish criminal code provides for a reduction of

criminal liability in certain strictly-defined cases (confession,

collaboration, indemnification, implementation of effective

measures, etc.), whereas in France, certain specific statutes

provide for the non-accountability of legal entities (breach of

freedomof thepress), butnoneof themspecificallyprovide forany

suchreduction.

CANACOMPANYDIRECTORBEEXONERATEDFROMCRIMINALLIABILITYTHROUGHDELEGATIONSOFAUTHORITY?YES

Under Spanish law, the delegation of authority concept doesnotexist assuch; however, there is anact of “voluntary representation”that is similar to a delegation of authority. Voluntary

representation is when a company gives powers to a natural or

legal person to act in the name and on behalf of this entitythrough apowerofattorney(apoderamiento).

In France, as well as in Spain, delegations of authority must beeffective: delegatesmust have the necessary

competencies, authority and means to perform their mission.

However, the basic requirements are less stringent in Spain: infact, generaldelegationsof authorityare possible.

Moreover, the delegate does not necessarily have to belongto the company; it can be a third-party not bound to the

delegator by a hierarchical relationship. The requirements

in terms of form are more strict: a written document ismandatory and must be registered with the Spanish Trade

Registry. In France, on the contrary, to be valid, a delegation

of authority does not have to be made in writing.

With respect to the effects of delegations of authority under

Spanish law, criminal liability is almost always borne by the

delegator: in fact, in practice, Spanish courts consider that thedelegator committed an error in choosing the delegate or through

lack of supervision. The delegator and the delegate can therefore

be held jointly liable. Therefore, the system for delegations ofauthority inSpain is less favourable fordelegatingdirectors.


DOCODESOFCONDUCTHAVEANEXONERATINGEFFECTONLEGALENTITIES’LIABILITY?ORCANTHEYREDUCELIABILITY?YES

Since the reform of the criminal code on 1 July 2015, theintroduction of the new Article 31 bis of the Spanish CriminalCode makes Spain one of the first European countries toprovide for the possibility of reducing a legal entity’s criminalliability or even exonerating a legal entity from criminal liability,when a company has effectively and previously implemented aplan to prevent criminal offences. With the introduction of the“Sapin II” Act on9December2016, France has a similar system.

The crime prevention plan is drawn up by an independent“compliance officer” who holds the required authority, andtakes the form of an ad hoc commission or an externalsupervisory body. In small companies with streamlinedfinancial statements, these duties can be assumed directly bythe governingbody.

In the case where offences are not avoided, the "complianceofficer" does not seem to incur liability, but this issue has not yetbeendefinitivelysettled.

The crime prevention plan must include the following keyelements:§ Identification of the activities in which offences could be

committed;§ Obligationto informandreport tothecomplianceofficer;§ Disciplinary system punishing any non-compliance with the

preventionplan;§ Regular updates and tailoring of the plan to the company’s

organisation.

This provision is more far-reaching in Spain as it is not onlydirected at large corporations and allows for exoneration, whereasinFrance, thissameprovisiononlyserves to lessen liability.



As discussed earlier, directors are liable not only for their ownmismanagement, but also for offences committed by theiremployees, even if theydidnot personally breach the rules.

In France, there is a personal liability insurance that protects dejure and de facto directors against claims brought against thempersonally during the performance of their duties andpotentially jeopardising their personal assets.

In Spain, there is a similar insurance that covers directors forfines and compensation for damage caused (including legalfees) in case of mismanagement of routine operations (badinvestments, failure to submit tax returns or pay taxes) anderrors committedby employees.

As is the case in France, this insurance also excludescompensation in the case ofwilfulmisconduct.

However, this coverage is only possible if the company hascomplied with its auditing requirements. It must also provideevidence that all the auditing requirements have been met viaregular audits. It is the insurance company’s role, and not thecourt’s, toassesswhetherall theprecautionshavebeentaken.

This insurance is not verywell knownof. In fact in 2013, only39%ofSME’swereawareof this typeof insurance.


Study carried outby:§ LiseBlanchard§ AudeCassaigne§ Annaëlle Derhy§ MathieuMichno


PROOFREADERFORITALYCDR&ASSOCIATI- MaurizioRuben,[email protected] /Tel:+390297382100

No6– Italy



De jure directors: There are two main types of obligationsthat the director is subject to:§ general obligations pertaining to their managerial and

supervisory duties: Articles 2392 and 2476 of the ItalianCivil Code require, firstly, that directors act in compliancewith the law and the articles of association of the companyand, secondly, that they remain vigilant and report anyprejudicial action by other directors or endeavour toprevent this to the extent possible;

§ specific obligations under the law for certain specificmatters. Under the Health and Safety Act (No 9 of 9 April2008), directors are criminally liable for all violations,whether or not theywere committedby them.

Anybreachof the aboveobligationswill incur:§ the criminal liabilityof de juredirectors for offences that they

personally commit. Examples of offences: any breach of the2012 anti-corruption act, false claims, illegal distribution ofprofit andreserves.

§ the civil liability of directors on the basis of Articles 2392 and2476 of the Italian Civil Code, in case of breach of theirobligationsunder the law.

De facto directors: This concept is recognisedunder Italian law inArticle 2639 of the Italian Civil Code. De facto directors musteffectively exercise their management duties with minimumregularity. Case Law assimilates them to de jure directors inrespect of civil and criminal liability. Their liability does notexclude the liabilityof thede juredirectors.

ComparisonwithFrench law:Italian law is similar to French law, under which directors canincur liability for offences that they did not personally commit,but also for offences committed by their employees, as stipulatedunderArticle121-1of theCriminal Code.

In summary:Frenchand Italian lawareequally strict.



Italian law:Legislative decree No 231 of 8 June 2001 introduced direct

administrative liability for legal entities for criminal offences. It

concerns companies with independent legal status, as well as

associations, even private, non-incorporated partnerships. The

law excludes the state, the local authorities and organisations

performing“dutiesof constitutional significance”.

Articles 24 and 25 of the decree list the offences that can be

attributed to a legal entity. These include fraud with the intent of

obtaining public funds, fraud against the Italian government,

extortion, corruption,market abuseorenvironmental crimes.

Two cumulative conditionsmust bemet for a legal entity to incur

liability:

§ The offence must have been committed in its interest or for

itsbenefit;


§ The offencemust have been committed by persons holding a

representational, administrative or management position

within the company or one of its independent entities, or by

persons responsible, even de facto, for the management or

supervision of any of the above persons. The legal entity is

criminally liable in the event of any breach of the company’s

internal management rules intended to prevent the

commissionof offences.

ComparisonwithFrench law:In France, the scope of application of ratione personae is broader.On the other hand, an Italian legal entity can be charged for an

offence committedbyamuchwider spectrumof individuals.

However, the causes for non-liability under criminal law, as well

as the system for reducing sentences, mitigate the dissuasiveness

of administrative/criminal liability for legal entities.

In summary: French law is stricter.

CANACOMPANYDIRECTORBEEXONERATEDFROMCRIMINALLIABILITYTHROUGHDELEGATIONSOFAUTHORITY?YES

Italian law:In Italy, delegations of authority mainly concern the areas ofhealth and safety and the environment. Italian law (legislativedecree No 81 of 9 April 2008) recognises that a delegation ofauthority can result in a transfer of liability, including directors’criminal liability.

However, the decree requires the delegation to meet certainconditions to guarantee its validity, such as its formalisation inwriting, a specific term and the written consent of the delegate,or confirmation that the delegate holds the competencies andexperience necessary to perform the delegated duty. In rarecases, case law is based on de facto delegations. Case lawtherefore considers that delegations of authority are a meansbywhich directors can be exonerated fromcriminal liability.

ComparisonwithFrenchlaw:In France, delegations of authority result in a transfer of authority;in other words, both decision-making powers and the relatedcriminal liabilityare transferredtothedelegate.

They thus have an exonerating effect for directors with respect tocriminal liability, since a decision of the Criminal Chamber of theFrenchCourt of Cassationdated28 June1902: the liability is solelyborne by the delegate, provided that the delegator does notinterferewiththedelegatedauthority.

In summary: Italian law is in linewith French lawwith respect todelegationsofauthority.


DOCODESOFCONDUCTHAVEANEXONERATINGEFFECTONLEGALENTITIES’LIABILITY?ORCANTHEYREDUCELIABILITY?YES

Italian law:As previously discussed, legal entities can be charged with directadministrative liability for the criminal offences they commit.Italian law also provides the possibility for companies to beexonerated from liability for offences committed by employees orexecutive officers. This results from the adoption andimplementation of codes of ethics and codes of conduct; thesecodes impose compliance requirements on companies and theirmanagement,andmustbecompliedwithtopreventunlawfulacts.

Comparisonwith French law:In France, the "Sapin II" Act of 9 December 2016 introducesnew rules intended to better combat breaches of ethicalconduct. In particular, it requires the implementation ofcodes of conduct, integrated into the company’s internalrules and regulations, which define and illustrate thevarious types of prohibited behaviour.

These rules can reduce a legal entity’s criminal liability by allowingit tomaintain that it cannotbeheldentirely liable for thebehaviourof oneof its employees that lead to theoffence insofaras its codeofethicsspecificallyprohibitedthiswrongfulbehaviour.

In summary: Italian law seems less strict than French law on thisissue.


CANADIRECTORBEINSUREDAGAINST

THEEFFECTSOFCRIMINALLIABILITY,IF

NECESSARY?YES

Italian law:According to Italian law, a director’s criminal liability cannot be

insured. On the other hand, it is possible to take out an insurance

policy tocoveradirector’s civil liability.

In particular, Italian insurance lawprovides for insurance policies

that cover directors’ civil liability subject to certain restrictions.

Article 1900 of the Italian Civil Code stipulates that the insurer is

not required toprovide coverage in case ofwilfulmisconduct bya

director or in case of damage resulting from gross negligence.

Concerning the latter point, it can be overridden by contract:

Article 1917, section 1 expressly provides for this. On the other

hand, the insurerwill in no event indemnify a director in the case

ofwilfulmisconduct.

Companies frequently bear the cost of the insurance for the

benefit of the director. The “Directors’ and Officers’ Liability”

insurance covers the directors’ acts in case of breach of an

obligation that causesdamage.

With respect to French law, the principle is exactly the same.

Directors must take out a civil liability insurance policy to cover

the financial consequences of their liability, i.e. damages awarded

against thembya civil or criminal court,with the same limitations

regardingsentences forwilfulmisconduct.

ComparisonwithFrench law:Insurance under French and Italian law does not cover sentences

forwilfulmisconductor finesawardedagainstdirectors.

Finally, it is worth noting that, in practice, legal entities

customarily take out and bear the cost of an insurance policy for

thebenefit of theirdirectors.

Insummary:The lawinbothcountries is the same.


This white paper is first and foremost a university studyconducted by mentored and directed students to create asummary regarding directors’ criminal liability and theconsequences thereof on the reputation of the directors andthe corporation. The authors of this summary report do notguaranteeorcertify thesuitabilityof the informationcontainedherein for any purpose. All information and material isprovided on an ‘as is’ basis, with no warranty, whetherintentionalor implied, includingbutnot limitedto itssuitabilityforaspecificpurpose.

The documents and/or information and material herein maycontain technical inaccuraciesor typographicalerrors.

In no event may the authors be held liable for any damageincurred, whether direct or indirect, incidental, economic orconsequential arising out of the use of or inability to use theinformationormaterial containedin thisdocument.

Foradditional information,kindlycontact: [email protected]

Importantnotice


ContactCAROLINE JOLYPARTNER- ATTORNEY

BAROALTOLAWFIRM4Placedel’Opéra,75002 ParisTel+33(0)1446989 40

Linkedin profile

http://linkedin.com/in/caroline-joly-2007b631

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