by ACI Partners

Publications7 September 20150 comments

Criminal liability of a legal entity: why and how

I. What is the background of criminal liability of legal entities?

When a new Penal code was adopted in Moldova in 2002 some of its ideas were rather revolutionary. Based on the old Penal code only individuals could have been subject to criminal liability. Starting from 2003 when the new code came into force, legal entities were made subject of criminal offense as well. Such legal institution as ‘criminal liability of legal entities’ was a novelty for both our legal system and for law enforcers.

Legal entity per se is a legal fiction, since it only a medium of realization of certain individuals’ will. But it works rather well. In civil relations, and not only, a legal entity has and acts from a distinct position. Although it is an abstract creation, it can be a party to a legal relationship. Since it stands as a separate subject of legal social relations, one could conclude that it appears to be natural that it should be able to be held accountable for its “own behavior”. Based on the gravity of improper behavior, it could be held criminally liable as well. This was just some of the reasoning behind the legislator’s intent to introduce in the Penal code of the Republic of Moldova ‘legal person’ as a subject of criminal liability and therefore criminal punishment as well.

Criminal liability of a legal entity has acquired a new dimension in Europe especially after the International Congress of Compared Penal Law held in Budapest in 1978, as well as following the debates dedicated especially to economic financial or competitive criminality.

Based on the Recommendation R (88) on 20 October 1988 of the Committee of Ministers of the Council of Europe by which states were invited to admit criminal liability of legal entities, several states, including the Republic of Moldova, have decided to provide for this institution at the legislative level.

A legal entity can be subject of criminal offense starting from the date of its registration by the state, until its removal from the state register of legal entities.

II. Does criminal liability of a legal entity exclude criminal liability of a natural person for the same act?

Criminal liability of a legal entity does not exclude the liability of the natural person for the committed crime. This means that for the same offense both the legal entity as well as natural person employed by such legal entity may be held criminally liable. Such natural person could be company’s director, chief accountant, and any other employee.

Following the links below you can find some examples of judicial practice of the Republic of Moldova where both the legal entity and an individual were held criminally liable.

http://jurisprudenta.csj.md/search_col_penal.php?id=3421; http://jurisprudenta.csj.md/search_col_penal.php?id=325;

    III. What types of legal entities are liable to criminal liability and punishment?

Initially only business legal entities were subject to criminal liability. That is criminal liability was limited to lucrative entities, e.g., limited liability companies, joint stock companies, etc. Not-for-profit organizations (e.g., foundations, the public associations were not covered by the provisions of the new Penal code. However, officers or employees of a not-for-profit organizations were subject to ordinary liability in case when their activity was falling under the provisions of the code. For example, for committing the offense of money laundering using such NPO as public association, the respective officer of the NPO was held responsible. The not-for-profit organization the use of which facilitated committing a crime, in our example, money laundering, remained intact and continued its activity.

Subsequently, through the Law No 136 of 19 June 2008 the legislator has revised its position towards the types of legal entities subject to criminal liability and criminal punishment. Thus, the following rule was established: all legal entities, including not-for-profit legal entities, except for public authorities, are subject to criminal liability. Today, for example, a foundation may be found guilty of a criminal offense.

An interesting legal paradox was created as far as such special types of entities as ‘individual entrepreneur’ and ‘farmer’s household’ are concerned. According to the national law such entities are not deemed legal entities and should be treated as natural persons. In legal relations that have the status of natural persons. However, the criminal violations could be committed by means of such entities as well. In such cases ‘individual entrepreneur’ and ‘farmer’s household’ are not passible of criminal liability. The individuals standing behind such entities would be subject to criminal liability instead.

IV. What are the preconditions of criminal liability of a legal entity?

A legal entity, except for public authorities, shall be subject to criminal liability for an act stipulated in a criminal law if one of the following conditions is applicable:

• the legal entity is guilty of failure to comply or improper compliance with direct legal provisions defining obligations or prohibitions to perform a certain activity;

• the legal entity is guilty of carrying out an activity that does not comply with its founding documents or its declared goals;

• the act causes or threatens to cause considerable damage to a person or society, or to the state and was committed for the benefit of this legal entity or was allowed, sanctioned, approved, or used by the body or the person empowered with the legal entity’s administrative functions.

V. For which crimes legal entities can be held responsible?

Legal entities, except for public authorities, shall be criminally liable for crimes punishable pursuant to the special part of Penal code. Not all violations are applicable to legal entities but only those the sanction of which specifically mentions the liability of a legal entity. If such indication is missing, then it is considered that for the respective crime, a legal entity cannot be subject to criminal liability.

Thus, the Penal code does not contain a separate section where all the crimes of legal entities are collected.

Below one can find just a few examples of offenses for which a legal entity may be liable and, therefore, may be subject to criminal punishment:

– trafficking in human beings (art.165 PC), corruption of voters (art.181¹ PC), violation of copyright and associated rights (art.185¹ PC), production (counterfeiting), transport, storage, marketing, offering goods (services) for payment or free of charge, and providing services dangerous to the life or health of consumers (art.216 PC), violation of environmental security requirements (art.223 PC), soil pollution (art.227 PC), water pollution (art.229 PC), acquiring the credit, loan or compensation / indemnity by deception (art.238 PC), use of means from internal or external loans guaranteed by the state contrary to their purpose (art.240 PC), illegal practicing an entrepreneurial activity (art.241 PC), pseudo entrepreneurship (art.242 PC), money laundering (art.243 PC), tax evasion by enterprises, institutions, and organizations (art.244 PC), abuse in issuing securities (art.245 PC), manipulation on the securities market (art.245¹ PC), violation of legislation on keeping the register of securities holders (art.245² PC), unfair competition (art.246¹ PC), falsification and counterfeiting products (art.246² PC), smuggling (art.248 PC), evasion from customs payments (art.249 PC), transportation, storage, or marketing of excised goods without marking them with control stamps or excise stamps (art.250 PC), low quality construction work (art.257 PC), illegal access to computerized information (art.259 PC), violation of data system security rules (art.261 PC), unauthorized access to telecommunication networks and services (art.261¹ PC), active corruption (art.325 PC), influence peddling (art.326 PC), giving bribes (art.334 PC), false in accounting documents (art.335¹ PC).

VI. What is the punishment for criminal liability of a legal entity?

The following punishments may be applied to legal entities:

• fine;
• deprivation of the right to practice certain activities;
• liquidation.

Fines shall be applied as a main punishment. The deprivation of the right to practice certain activities and the liquidation of the legal entity may be applied both as main and complementary punishments.

Amount of a fine for legal entities shall be set within the limits of 500 and 10,000 conventional units (i.e., from MDL 10,000 to MDL 400,000) depending on the nature and the gravity of the crime committed, the extent of the damage caused, and considering the economic and financial condition of the legal entity. In the case of intended evasion by a legal entity from payment of the fine, the court may substitute the unpaid amount of the fine with a seizure and forced sale of the assets of the evading entity.

Deprivation of the right of a legal entity to practice certain activities consists in setting a prohibition to make specific transactions; to issue shares or other bonds; to receive subventions, facilities, and other advantages from the state or to practice other activities. The deprivation of the right to practice certain activities may be limited to a certain territory or to a certain period of the year and shall be set for a term of up to 5 years or for an unlimited time.

Liquidation of a legal entity consists in its termination with the consequences provided for by civil legislation. The liquidation of a legal entity shall be imposed when the court finds that the gravity of the crime committed makes it impossible for such a legal entity to continue its activity.

Although liquidation is the most severe punishment applicable to legal entities, however, the national courts have already resorted to apply such punishment.

Following the links below you can find some examples of judicial practice of the Republic of Moldova when the court applied liquidation as a sanction to crime committed by a legal entity.

http://jurisprudenta.csj.md/search_col_penal.php?id=229

Stanislav Copetchi, ACI Partners Attorney-at-Law, PhD

Should you be interested to find out more or benefit of a qualified advice or representative in criminal or administrative matters, litigation with public authorities and controlling bodies, please contact our Litigation Department, headed by Daniel Martin, Attorney-at-Law, PhD.