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Corporate compliance in Spain: Procedural aspects of the criminal liability of legal entities.

Corporate compliance in Spain: Procedural aspects of the criminal liability of legal entities.

In 2010, a reform of the Criminal Code, introducing the criminal liability of legal entities in Spanish law; in 2015, a subsequent reform regulated the basic models of crime prevention; it has provoked a small revolution in the legal world and it has been the subject of many doctrinal articles, seminars, studies, newsletters of the Attorney General, and, recently, some Supreme Court decisions.
We have had opportunities to discuss some aspects of the new criminal charges that can be held against companies and other legal entities already. At this time, we want to dwell on some procedural issues that arose as a result of these reforms. Not only has the Penal Code been amended to enable legal entities to be charged criminally and to regulate the penalties that can be imposed on them, but also there has been a reform of the Criminal Procedure Act to determine how to proceed when investigating a legal entity. The Supreme Court has considered it appropriate to make a number of comments in regards to some procedural law issues that arise.

Formalities to investigate a legal entity

First, we refer to the provisions introduced in the Criminal Procedure Act for cases in which charges against a legal entity are brought.
Until the year 2010, since there was no possibility of criminal charges against partnerships, the Criminal Code provided that the criminal liability for the action must be the administrator of fact or by right. For example, if a company sold its assets to put them beyond the reach of creditors and thus prevent them from being seized (crime of concealment of assets), the law did not allow the crime to the legal entity to be charged, even though it sold the goods and defrauded any expectations of payment to the creditors. Solely the administrator of the company who had materially carried out the action or made the decision had to answer for the crime.
Consequently, when a possible crime of concealment of assets committed by a legal entity was being investigated, the judge cited to testify as a defendant, the representative of the partnership. Also, the individual that would be judged and eventually condemned was the individual representative and not the legal entity.

After the reform of the Criminal Code in 2010, the current situation could not continue to function as always, since criminal liability falls not only on the individual representative, but also on the legal entity represented. What is more, the legal entity would criminally respond to the crime, even if the individual who materially committed the crime could not be identified.
Therefore, in 2011 a reform of the Criminal Procedure Act was made to adapt the procedure to the innovations of the previous year. Thus, after this reform, when there is an investigation of a legal entity underway, the legal representative should not be served as a suspect, and a procedure consisting of the following steps should be initiated:

  • The court must send a communication to the registered office of the legal entity, requiring it to designate a special representative for the particular process and summoning the legal entity to appear in court by means of this special representative at a specific date and time. An attorney and  a “procurador” will also need to be appointed by the entity.
  • On the day assigned, the special representative appointed by the legal entity shall appear in the court room, where he will be informed of the facts of the accusation and the rights of the legal entity. Then the representative’s statement of the facts under investigation will be taken. The special representative must be accompanied by an attorney.
  • If on the appointed day, the special representative fails to appear, the information on the facts of accusation and the rights of the legal entity will be given to the lawyer. If the special representative fails to appear (or no such representative has been appointed), it will be considered that the legal entity exercises its right not to testify.

Surprisingly, more than a few judges continue to call the legal representative of legal entity as the prosecuted one, ignoring the procedure established by the law for such cases. On more than one occasion I have had to appeal a decision to call the legal representative of a company to take a statement as a person under investigation. In one occasion, after the Prosecutor had supported the appeal, the judge reluctantly accepted, but accused the plaintiff and the prosecutor to make a “literal and formalistic interpretation … which has led to unnecessary procedural delay”.

It seems that, for some judges, complying with the procedural guarantees the law establishes for the parties is nothing more than excessive formalism, which produces unnecessary delay. Nothing unusual, if we consider that for the lawmaker, promptness prevails over any other consideration and thus has established that the investigation of criminal cases must be completed within six months, in any case. It is clear that in this pseudo rule of law country, neither the procedural guarantees, nor the seriousness or the depth of investigation of crimes matter to some judges and to some lawmakers too. The most important thing is to discharge the workload to the judicial bodies, or to hold harmless corrupt politicians. In the same spirit, the Supreme Court has lately been devoted to establishing the maximum number of pages that you must have in a cassation appeal and the font with which it must be written, so it can be admitted.
I apologize to the reader for this outburst, and I will now continue the theme that interests us … The Supreme Court, in a high-profile judgment in February of this year has had to rule on criminal liability imposed on two companies and, although it was not necessary to resolve the specific appeals, he has also taken the opportunity to explain the criteria of the Court on criminal liability of legal entities.
Among the considerations of this important ruling, the Supreme Court   precisely addresses the question of the appointment of a special representative for a legal entity under investigation, and warns that both investigating judges and trial judges must pay timely attention to this issue in future cases.
The Supreme Court highlights a major problem: how should the legal entity designate the individual who must act on behalf of the investigation? A conflict of interest between the legal entity and physical person who represents it can happen, and it often does occur. If both can be held criminally responsible for the unlawful action, it is more than likely that the defense strategies are mutually incompatible: a legal entity may be interested in collaborating in the investigation, to avoid or reduce their liability, which would put the blame on a particular individual. If this turns out to be precisely the person, designated to represent the company, there is no doubt that the defense of both cannot take the same route.

While acknowledging that it is not within the hand of the Supreme Court to resolve this issue, it warns that in future cases, a whole criminal proceeding could eventually declared invalid, if the individual representative has not been properly picked and this has caused a lack of proper defense for the legal entity.

Burden of proof and accusatory principle

In regards to proof, an interesting discrepancy occurs between the criteria the Supreme Court stated in the ruling to which we have referred before, and the memorandum issued by the State Attorney General one month before.
As it is known, the Criminal Code provides that legal entities shall be exempt from criminal liability if, before the crime, a model of effective crime prevention – meeting the requirements stated by the lawmakers – has been implemented.
Well, at this end, the controversy arises over whether the investigated legal entity is the one who must show that it had taken the measures required by the Criminal Code or, on the contrary, it is the prosecution that has to prove that no such measures were adopted.
The prosecution understands that, when investigating a legal entity, the latter will have the burden of proving that it had implemented the necessary measures and controls to prevent the commission of the offense, and if an offense was committed, it would only be because someone has managed to skip these controls.

In short, the criterion of the prosecution is due to the consideration that the criminal liability of the legal entity resides in the fact that an individual has committed a crime within the scope of the legal entity, and it directly or indirectly benefit from this. When this fact is proven, the partnership will be criminally liable, unless it establishes that it has implemented the necessary measures and controls, therefore, it will conclude what is technically called “special immunity for prosecution”, meaning that a sentence cannot be given even  though the offense has been committed.
However, the Supreme Court considers that the criminal offense, when talking about legal entities, consists precisely in not having implemented these measures and controls. And, from that point of view, it states that it is the prosecution that has to prove that there was no system for crime prevention, that there was no culture of compliance in the investigated company.

Ultimately, the Supreme Court brings back the general and fundamental principles of criminal law: If there is no violation, there can be no conviction. Under the accusatory principle that governs in Spain, and the presumption of innocence guaranteed by the Spanish Constitution, it is not the person under investigation, who has to prove that he/she has not committed an offense, but the prosecution that has to prove that the offense has been committed.

Be as it may, let’s remember that the mentioned judgment of the Supreme Court sets no legal precedent. First because it is the first to address these issues; and secondly, because the considerations contained therein are not the argument that the final decision is based upon (not the ratio decidendi), but are mere peripherals or explanatory arguments (obiter dicta).
It should be noted that, until the Supreme Court has a chance to establish a body of case law on the subject, prosecutors will still prosecute and to do so, they will follow the criteria established by the Attorney General.

Therefore, it will be more than convenient to have the proper crime prevention systems, with the controls and the economic and personal means foreseen in   the Criminal Code in order to avoid any possible criminal responsibility. One should not forget, in any case, during a minimally serious investigation, it will not be difficult for the prosecution to prove that there was no real culture of compliance in the company or that an efficient model for crime prevention failed to be implemented.

By Ramon Gutierrez del Alamo, Partner, Director Adarve Abogados Litigation Department

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