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New, stricter rules for criminal liability of legal entities

2019-03-28

On 11 January 2019, a draft Act on the liability of collective entities for punishable acts was introduced to Sejm (the lower house of the Polish parliament). The bill covers a number of amendments concerning conditions for liability. It also provides for significantly more severe punishments and a changed in the manner of their imposition.

The proposed amendments set out to increase the efficacy of sanctions imposed on collective entities. They are supposed affect particularly economic and fiscal offences. According to the authors of the bill, the punishments currently imposed demonstrate a low level of severity. Also, they have been incapable of being adjusted to match the actual weight of an offence committed. The new regulations are supposed to result in a more efficient fight against crime. However, the proposed changes will undoubtedly increase substantially the risk of doing business.

What then is going to change? Below are what we think are the most important proposals.

Entities covered by the draft regulations

Covered by the bill will be legal persons, organisational entities that are not legal persons, but enjoy legal capacity under relevant regulations, companies with State Treasury participation, entities in liquidation and enterprises other than sole traders. The new regulations will also apply to foreign entities having their registered seats or doing business outside of the territory of the Republic of Poland where an offence was committed, or its result has occurred, on the territory of Poland, or if it was directed against the interests of the Republic of Poland or those of a Polish citizen or another entity.

List of punishable acts and conditions for liability

The bill applies to acts punishable with a penalty for an indictable offence or fiscal offence. Its regulations will not apply to private indictment offences, press-related offences and fiscal misdemeanours.

Liability of a collective entity will be above all for its own acts, but also acts of individuals directly related to the business of the entity in question. However, that is not all. Such an entity may be even responsible for acts committed by its subcontractors or their employees where such entity has derived a material gain, even if indirectly. A condition for being held liable for acts committed by individuals will be failure to exercise due care in selection or supervision, and the organisation’s fault understood as irregularities in its operations resulting, inter alia, from failure to exercise due care.

New rules for incurring liability

Under the law still in force a condition for a collective entity to be liable is a prior final conviction of an individual. In practice, it has proved to be an effective obstacle to enforcement of liability against companies.  The proposed regulations provide that this requirement be lifted so that a company could be subjected to severe sanctions regardless of the criminal liability of an individual, and in certain cases even where the perpetrator himself cannot be held liable on account of conditions for exclusion of liability.

Severe sanctions

The bill provides for substantially more severe penalties. Under the current regulations, the fines to be imposed are between PLN 1,000 and PLN 5,000,000. However, they are capped at 3% of a company’s annual turnover generated in a fiscal year. Under the bill, the punishments will be between PLN 30,000 and as much as PLN 30,000,000. Moreover, the turnover-related cap will also be lifted.

The draft provides at the same time for a wide spectrum of possible measures that can be applied at the preliminary proceedings stage. Instances include a ban on promotion and advertising, a ban on entering into certain types of contracts, suspension of subsidies or grants, or compulsory administration.  Yet the starkest scenario involves a ruling on a compulsory dissolution and seizure of assets.

Whistle-blower protection

The bill introduces an institution of whistle-blower, i.e. a person who reports information about a suspicion, attempt or actual commission of an offence, irregularities in an entity’s operations or failure to exercise due care.  Such persons will be afforded protection comparable to that applicable to leading trade union activists, and in the event of breach of employee rights a court will be capable of awarding him damages or reinstatement. On the other hand, the collective entity in question will be under an obligation to carry out an investigation and to remove or rectify any violations or irregularities reported by the whistle-blower.

The bill has been passed on for further consultations.

 

Ewa Pyrkosz, Tax Consultant, ATA Tax Sp. z o.o.

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