Despite the elections being held, the Polish legislator continues to work on a new bill defining collective entities’ liability for criminal acts committed by natural persons working for such entities. The purpose of this article is to summarise the concept of the new bill.
A collective entity in the bill means a legal person and an organisational unit without legal personality, to which separate regulations grant legal capacity, including a commercial company with State Treasury shareholding, a local government unit or an association of such units, a capital company in organisation, an entity in liquidation and an entrepreneur that is not a natural person, with the exception of the State Treasury, a local government unit and an association of such units.
The proposed new bill on collective entities’ liability for criminally punishable acts (hereinafter referred to as the “Act”) that is currently in preparation is to replace previous legislation in effect since 28 October 2002.
It follows from the justification of the bill that the underlying reason for the changes is low effectiveness of the current legislation. To date, the number of cases instituted under the current legislation has been insignificant, with merely 30 cases per year and the highest fine imposed was PLN12,000. Thus, in the legislator’s view, the law in force has failed to fulfil its duty – i.e. to discourage companies from taking advantage of criminal offences committed by individuals acting on behalf of such an entity.
The new regulation was supposed to come into effect in the third quarter of 2019; however, the bill is still at committee stage and is likely to be signed into law next year. The approach adopted by the legislator is indeed far-reaching, with the purpose of intensifying liability of so-called “collective entities”.
The new wording of the Act requires that entrepreneurs (small, medium and large) adapt to the new requirements, which will consist of creating an effective compliance system in order to protect the entity from liability resulting from the planned amendments. For this reason, it will be necessary to put in place a compliance system – the role of which is to create an organisation within the entity to ensure that it is run in accordance with the criminal law. Implementation of such compliance system consists of several stages, i.e. auditing the entity, defining risks and recommendations for adjusting the entity’s operations, creating compliance procedures and identifying their functioning within the organisation and training for the entity’s managerial staff and employees.
A significant change provided for in the bill is a departure from the previous definition of a “prohibited act”. The current law provides for a closed catalogue of offences, which, if committed by an individual acting on behalf of the entity, leads to penalisation of such entity. The new wording of the Act attributes a liability on the part of an enterprise for each act prohibited under the law and not for a limited catalogue of such acts.
Forms and Basis for Attribution of Liability
The proposed new wording of the Act provides for many innovative solutions, one of them being the abolition of a natural person’s prior conviction requirement.
Until now, liability on the part of a collective entity had been secondary and connected with first securing a conviction of a natural person acting on behalf of the entity.
The bill puts an end to such approach to liability and adopts the concept of direct liability. According to this principle, liability of the entity arises for acts and omissions on the part of such entity’s officers, proxies, lawyers and other individuals related to the operations of the collective entity (e.g. employees). Assignment of liability to a collective entity will also be possible for prohibited acts committed by the subcontractors of the collective entity or by the contractor or employees performing the contract with the collective entity, from which the entity has even indirectly benefited financially. The condition for attributing liability to a collective entity is at least failure, by such entity, to exercise due diligence in selecting the person entitled to act on behalf of an officer or entrepreneur. Another prerequisite is the absence of due diligence in supervising individuals acting on behalf of the entity or irregularities in the entity’s organisation, which have aided and abetted the criminal act, in a situation where a different organisation structure could have prevented the commission of such criminal act.
The planned law also provides that in the event that the collective entity achieves, even indirectly, financial gain exceeding PLN500,000, while not bearing liability for committing a prohibited act, the court may order forfeiture of assets or property rights of such entity in part or in their entirety. Such forfeiture may be ordered if the collective entity was used to commit the prohibited act or to conceal its benefits. Interestingly, incurring one of the forms of liability provided for in the bill will not exclude civil liability for the damage, but also administrative liability of the individual perpetrator of a prohibited act.
The new bill introduces, for the first time in Poland, protection of whistleblowers in wide, general terms. The bill introduced special protection for such persons, who are often employees of a specific entity, on account of protection provided for in the Labour Code not having been sufficient. In the justification for the bill, it was argued that whistleblowers often encountered repression, unequal treatment and discrimination, which often led to termination. Numerous irregularities that occurred in collective entities were not reported, because the employees were simply afraid of losing their jobs. Therefore, the legislator’s interference in this matter was necessary. Any communication by a whistleblower about possible irregularities in the operations of a collective entity will render it necessary for the entity to launch an internal inquiry in order to remove the irregularities. Failure to do so may result in a capped fine in the double amount, i.e. to PLN60,000,000. Commentators and practitioners rightly point out that the solutions adopted in the draft and the protection for whistleblowers are intended to increase detection of irregularities in collective entities and to prevent them more effectively. A person who has lost their job because of reporting misconduct in the activities of a collective body will be able to apply to the court for reinstatement or damages. This will be possible when the report is justified and contributes to detecting or preventing the offence. The whistleblowers may be awarded compensation in accordance with the Labour Code and, in cases deemed justified, it may be awarded for the entire unemployment period.
Extending and Strengthening the Level of Sanctions
The proposed Act, on the one hand, extends the scope of responsibility of collective entities and, on the other hand, provides for narrowing of the catalogue and the level of penalties. The contemplated regulation provides for a possibility of both fining and dissolving a collective entity (which is not possible under the existing regulations). In the current wording of the Act, the fine amount ranges from PLN1,000 to PLN5,000,000. The proposed wording increases the amount, which may range from PLN30,000 to PLN30,000,000, and in some cases even PLN60,000,000, while the penalty cap of up to 3% of revenues has been abolished. In addition, the new law provides for a possibility of dissolving or liquidating the collective entity, which is considered an ultimate measure. The court may decide to sanction the dissolution of a collective entity if such entity collectively liable, in whole or in part, was used to commit a criminal offence punishable by imprisonment of no less than five years and its continued operation jeopardises the security of economic turnover, or where a financial penalty has previously been imposed and the imposition of another penalty is not sufficient to achieve its objectives, in particular, it will not ensure compliance by the collective entity due diligence.
Such restrictive change was supported by the ineffectiveness of the penalties imposed under the existing statute, while entities with no or low income were not subject to a fine. Consequently, it was decided to decouple the fine amount from the collective entity’s revenue. In addition to these fines, it will be possible to impose one or more penal measures, such as security over a collective entity’s property or use forced administration.
The bill has been pending for more than a year and has not yet been finally adopted. At the moment, due to the principle of not continuing the work of the previous parliament, the work on the bill has been somehow suspended. However, it is assumed that due to the significance of the changes that are the subject of the bill, it is supposed to be processed again. Entry into force of this bill seems to bring many changes in economic turnover that are in line with the practitioners’ expectations. On the one hand, the proposed measures seem to address the problem of ineffective sanctions under the existing law, on the other hand, the new proposed law provides for certain risks increasing the level of liability and even providing for the possibility of dissolution of the collective entity. In addition, in order to maintain transparency of information on collective entities, the bill provides for an amendment to the Act on the National Court Register, under which penalties, preventive measures and the establishment of forced administration will be disclosed in the National Court Register. Due to the high importance of the proposed solutions, we will be monitoring the fate of the project and the entire legislative process.