By Alexander Petsche and Georg Krakow (Baker McKenzie Austria)
I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)
The Austrian law on corporate criminal liability (Verbandsverantwortlichkeitsgesetz or VbVG) entered into force on 1 January 2006. It governs the prerequisites under which entities may be held liable for criminal offenses, as well as the proceedings and the possible sanctions.
a) General criteria for responsibility
Corporate criminal responsibility arises pursuant to Section 3, para 1 of the VbVG ― if the prerequisites of Section 3, para 2 or 3 of the VbVG (see below) are fulfilled ― in any of these two scenarios:
- The criminal offense was committed for the benefit of the entity.
- The commission of the criminal offense has violated the legal obligations of the entity.
If the entity is the victim of the criminal offense and no other legally protected right has been violated, it cannot at the same time be held accountable as perpetrator. This scenario may arise especially in cases when the commission of the criminal offense has indeed violated the legal obligations of the entity, but the violation was to the detriment of the entity only (see Hilf/Zeder, WK² VbVG Section 3, Rz 19).
As set out above, the two scenarios of Section 3, para 1 of the VbVG are as follows:
- Commission for the benefit of the entity: The commission of the criminal offense is considered to be for the benefit of the entity if the entity is or should have been enriched, as well as in cases where the entity has or should have received an economic advantage (see Hilf/Zeder, Section 3, Rz 8).
- Commission violating an entity’s duties: An entity’s legal obligation whose violation, together with the other prerequisites (see below), constitute the criminal responsibility of the entity can be found in the entire body of Austrian law. The majority, however, can be found in private law and administrative law. Duties can be contained in laws, decrees, decisions or contracts. Which particular duties are applicable to a certain entity depends on the entity’s field of activity (see Hilf/Zeder, Section 3, Rz 15). However, it has to be a legal obligation of the entity itself; it cannot merely be a legal obligation of an employee or an organ.
b)Criminal offenses committed by a decision maker
- Definition of decision makers:
According to Section 2 of the VbVG, decision makers are managing directors, board members and authorized officers, as well as persons ― de jure or de facto ― entitled to represent the entity in a comparable manner vis-à-vis third parties, supervisory board members, administrative board members, or persons exercising controlling powers in a leading position or otherwise factually exercising relevant influence on the management of the entity.
- Corporate liability for decision makers:
Criminal offenses committed by decision makers are directly attributable to the entity and directly lead to an entity’s criminal responsibility for the crimes if the prerequisites set out in I.1.a are met and the offense was committed in the capacity of the decision maker.
The entity may be held responsible for offenses committed by the decision makers in their capacity if the decision makers acted with the required actus and mens rea, unlawfully and culpably (see Hilf/Zeder, Section 3, Rz 24, 28 and 29).
c) Criminal offenses committed by an employee
- Definition of employees:
For the purpose of the VbVG, employees are persons working for the entity based on an employment relationship, apprenticeship or other training relationships. The definition of Section 2, para 2 of the VbVG furthermore includes persons working on the basis of the Austrian Outwork Act or on the basis of the Act on Temporary Provision of Employees.
- Corporate liability for employees:
The corporate liability of an entity for a criminal offense committed by an employee is established by a two-fold test. This means that if the general criteria set out in I.1.a are met, corporate criminal liability will arise if, additionally, these criteria are both met:
- The employee has committed the facts of the case corresponding to the statutory definition of a criminal offense in an unlawful manner. Section 3, para 3 of the VbVG draws a distinction between deliberate and negligent actions. For criminal offenses that require intentional commission, an entity will be liable if the employee has acted intentionally. If the criminal offense requires negligence only, the entity will be held liable if the employee failed to apply the necessary due care a diligent employee would have applied.
- Additionally, a decision maker has made the commission of the criminal offense possible or essentially facilitated it by showing disregard for the necessary due care, especially through the non-implementation of essential technical, organizational or personal measures concerning the prevention of criminal offenses (see Hilf/Zeder, Section 3, Rz 33-36, 41). This constitutes a reference to proper compliance systems.
It is not necessary for corporate criminal liability that the employee committed the criminal offense culpably (see Hilf/Zeder, Section 3, Rz 34).
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Criminal offenses, which may lead to the criminal liability of an entity (if the requirements set out under Question 1 are met), are all acts (or omissions) punishable by court that are provided in the Austrian penal code, supplementary laws, and federal or provincial statutes. Financial offenses are covered by the VbVG, if foreseen, in the Law on Financial Crime (Section 1 of the VbVG). Section 28a of the Law on Financial Crime declares the VbVG applicable. Calculation of the sanction is, however, based on the Law on Financial Crime.
3. Identification of companies and entities to which liability may apply
Entities, according to the VbVG, are legal corporations as well as registered commercial partnerships and European Economic Interest Groupings. Corporate groups in their totality are not considered an entity, according to the VbVG. Criminal responsibility always has to be examined in relation to the single entity.
The following entities are not considered entities for the purpose of this statute: an (deceased person’s) estate; the Federal State, provinces and municipalities and other legal corporations to the extent they implement laws; and recognized churches, religious societies and religious communities to the extent they are engaged in pastoral care.
However, companies owned by a state or any other exempt body are subject to corporate criminal liability.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
Criminal liability for crimes committed abroad by representatives
The principles leading to Austrian jurisdiction are set out in Section 62 et seq. of the Austrian Criminal Code. Pursuant to Section 12, para 1 of the VbVG, these principals are also applicable to entities.
Austrian jurisdiction of course applies to criminal offenses committed in Austria. This is the case, if at least one act of the offense has taken place on Austrian territory, on an Austrian ship or Austrian plane or, if the acts lead to consequences that are by legal definition part of the criminal offense in Austria (eg, deceit abroad, damage of fraud in Austria).
Section 64 of the Austrian Criminal Code extends the applicability of the Austrian criminal law to criminal offenses committed abroad (ie, not committed in Austria) for certain specified offenses. The offenses listed in Section 64 of the Austrian Criminal Code fall under Austrian jurisdiction, irrespective of whether the acts in question are also punishable by the law in the country where the offense has been committed. Pursuant to Section 65 of the Austrian Criminal Code, offenses committed abroad that do not fall under Section 64 of the Austrian Criminal Code will be under Austrian jurisdiction only if the criminal offense is also punishable by the law in the country where the offense has been committed.
Since the principles leading to Austrian jurisdiction apply to entities, liability of the entity may arise for these crimes. However, insofar as Sections 64 and 65 of the Austrian Criminal Code require that the perpetrator has a domicile or residence in Austria or has Austrian citizenship or Austrian interests that have been violated, then the place of business or the place of operation or establishment of the entity is of relevance to establish Austrian jurisdiction for the entity (see Section 12, para 2 VbVG; Salimi, WK2 StGB Section 64, Rz 1, 4).
Criminal liability for crimes committed abroad by subsidiaries
A corporate group, in its totality, is not considered an entity, according to the VbVG. Hence, the VbVG does not provide specific provisions governing corporate groups. Only the single companies constituting the group themselves are considered entities. This is valid for the corporate parent as well as for the subsidiary. It is important to note that criminal responsibility always has to be examined in relation to the single entity.
However, the criminal liability of an Austrian entity for criminal offenses committed abroad by a subsidiary may arise, due to the Austrian rules of participation in the crime pursuant to Section 12 of the Austrian Criminal Code. This may, for example, be the case if a decision maker in the Austrian entity influences or commands an employee of the subsidiary to commit a crime or, in other ways, aids and abets the commission of the crime.
Furthermore, participation through omission also comes into consideration, due to a possible guarantor position of the parent company towards the subsidiary due to the influence on the administration of the subsidiary’s business. The criteria of Section 3 of the VbVG (set out under I.1) have to be met by every participating entity (see Hilf/Zeder, Section 1, Rz 30).
If the subsidiary is located abroad, the provisions leading to the Austrian jurisdiction (set out above) will have to be adduced, depending on the specific facts of the case.
Whether or not corporate criminal liability may arise for the Austrian company based on the laws of another country will have to be assessed based on the laws of that other country.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
If the rights and legal obligations of an entity are transferred to another entity by way of universal succession, the legal consequences of the VbVG will apply to the successor. Any legal consequences imposed on the legal predecessor will apply to the legal successor.
Cases of individual succession will be considered equivalent to universal succession if essentially the same ownership structure of the entity exists and the operation or activity of the entity is, in essence, continued.
A fine imposed on a legal predecessor can be enforced vis-à-vis any legal successor, in cases where more than one legal successor exists. Other legal consequences may be attributed to individual legal successors to the extent this is in line with their area of activities.
II. Applicable sanctions
1. Type of sanctions applicable to the company
Pecuniary fines:
Pecuniary fines range from a minimum of EUR 2,000 to a maximum of EUR 1,800,000. The number of the daily rates will depend on the time of imprisonment set for the criminal offense. The assessment of the daily rate will be based on the profit situation of the entity, taking into account its economic capacity. The lowest daily rate is, however, set at EUR 50 while the highest is EUR 10,000.
Different rates will apply if the entity serves charitable, humanitarian or churchly purposes, or if it is a not-for-profit organization. In these cases, the lowest daily rate is EUR 2 while the highest is EUR 500.
Under specific circumstances ― in principle the absence of preventive necessity ― the conditional remission of the pecuniary fine is possible. In these cases, the court has to set a probation period and may give additional instructions to the entity.
The conviction of the entity will also be registered in the criminal record.
Forfeiture (Section 20 et seq. of the Austrian Criminal Code):
Any assets acquired for or through an offense may be forfeited by an order of the court.
2. Interim measures, cease and desist orders, bans and confiscatory measures
Interim measures can be imposed by the competent court under the following circumstances:
- There is a strong suspicion that the prosecuted entity is responsible for a certain criminal offense.
- A fine is expected to be imposed on the prosecuted entity.
If these two requirements are met, the court can ― based upon a request by the prosecutor ― order the sequestration, pursuant to the Austrian Criminal Procedure Code in order to secure the pecuniary fine. However, the sequestration can only be ordered by the court if and to the extent that it is feared ― based on specific facts ― that the collection of the fine will otherwise be put at risk or be made essentially harder.
In addition, if the entity is sanctioned, it may face administrative, public procurement or tort law consequences.
Forfeiture (Section 20 et seq. of the Austrian Criminal Code):
Any assets acquired for or through an offense may be forfeited by an order of the court.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Distinction has to be drawn between civil and criminal liability.
Directors or managers that do not adopt sufficient measures to prevent the crime may face civil liability.
As stated in I.1., in order for an entity to be considered liable for criminal offenses perpetrated by one of its employees, a decision maker must have shown disregard for the necessary due care, especially through the omission of essential technical, organizational or personal measures concerning the prevention of criminal offenses and thus has made the commission of the criminal offense possible or has essentially facilitated the commission of it. Therefore, not adopting measures for the prevention of a criminal offense leads to risk for corporate criminal liability.
A characteristic of this provision is, therefore, that the decision maker who disregarded the necessary due care has no intent concerning the realization of the employee’s criminal offense (Hilf/Zeder, Section 3, Rz 46). Austrian law does not provide for criminal liability of directors or managers for simply not having adopted these measures; it merely constitutes a violation of the duty of supervision but is not subject to prosecution (see Hilf, Section 2, Rz 126).
However, if the decision maker who has disregarded the necessary due care has intent concerning the criminal offense committed by the employee, then corporate criminal liability may arise for the entity (Hilf/Zeder, Section 3, Rz 46). The decision maker themself may ― in rare circumstances and mostly regarding negligence ― be held criminally liable for participating in the commission of the employee’s crime by omission because he might be considered a guarantor, according to Austrian criminal law.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Discretion to prosecute (Section 18 of the VbVG):
Under certain circumstances (eg, depending on the seriousness of the offense, weight of the breach of duty or care, consequences of the criminal conduct, the conduct of the entity after the offense, amount of fine to be expected, etc.), the prosecutor can decide to not (further) prosecute the entity.
Among other criteria, the prosecutor will take into consideration the conduct of the entity after the offense. In relation to the conduct of the entity, the prosecutor will, inter alia, factor in not only the making good the damage and cooperating with regard to the investigation of the offense, but also take prevention measures. The adoption or improvement of a compliance system will be considered as such a prevention measure.
Conditional withdrawal from prosecution (Section 19 of the VbVG):
In cases where the proceedings cannot be merely terminated, based on Section 18 of the VbVG or provisions in the Austrian Criminal Procedure Code, it is still possible for the entity to not be indicted and sanctioned, and there is a conditional withdrawal from prosecution. Certain prerequisites will have to be fulfilled and the entity will still have to pay a certain amount, but it will not be considered “convicted” for corporate criminal liability. The adoption of a compliance model will constitute a positive factor to be taken into account when deciding on the applicability of Section 19 of the VbVG.
Mitigation of the sanction (Section 5 of the VbVG):
In relation to compliance models, two mitigation factors are of relevance: The first mitigating factor relates to compliance models that have been introduced in a company before the criminal offense was committed. According to the VbVG, the sanction imposed on an entity should be lowered if the entity established preventive measures in order to minimize the risk of criminal offenses being committed or if the entity has urged its employees to observe the laws. Therefore, existing compliance models will be a mitigating factor.
Furthermore, the introduction and maintenance of a proper compliance model after the commission of a criminal offense will also constitute a mitigating factor. According to the VbVG, the court has to take into consideration if essential steps, like strengthening of the internal controls, are undertaken by the entity in order to avoid such criminal behavior in the future. Therefore, the introduction or improvement of a compliance model after the commission of a crime can also be beneficial for the entity.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
There are no legal provisions establishing the type of compliance model that has to be adopted in Austrian law. At present, there is also no jurisprudence that sets out criteria. However, recourse can be made to the requirements set out in ONR 192050, a compliance management system standard published by Austrian Standards in 2013.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
There are no legal provisions establishing the type of compliance model that has to be adopted in Austrian law. There is no such function like a “monitor” in Austrian criminal law.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
Pursuant to Section 15 of the VbVG, in principle, the prosecutor or the court will have jurisdiction over the proceedings against the entity that has jurisdiction over the proceedings against the physical person.
2. Possibility of the application of interim measures
Interim measures can be imposed by the competent court under the following circumstances:
- There is a strong suspicion that the prosecuted entity is responsible for a certain criminal offense.
- A fine is expected to be imposed on the prosecuted entity.
If these two requirements are met, the court can ― based upon a request by the prosecutor ― order the sequestration pursuant to the Austrian Criminal Procedure Code in order to secure the pecuniary fine. However, the sequestration can only be ordered by the court if and to the extent that it is feared ― based on specific facts ― that the collection of the fine will otherwise be put at risk or be made essentially harder.
Forfeiture (Section 20 et seq. of the Austrian Criminal Code):
Any assets acquired for or through an offense may be forfeited by an order of the court.
3. Plea bargains and related effects on the corporate liability
The VbVG does not provide for plea bargaining. Generally, plea bargaining does not exist in Austrian criminal law. However, Austrian law does provide for a principal witness regulation, applicable also to entities. However, this regulation has only been used very rarely.
4. Imposition of sanctions against the company
The trial proceedings against entities are initiated with a motion to impose a fine. The following two scenarios have to be distinguished concerning the imposition of the sanctions:
- Proceedings against the entity joined with the proceedings against the physical person
- Proceedings against the entity conducted separately from the proceedings against the physical person
Generally, proceedings against the entity will be conducted jointly with the proceedings against the physical person. In this case, the court will first deliver the verdict against the latter. In the case of a conviction, closing arguments concerning the prerequisites of a responsibility of the entity, as well as the relevant circumstances for the assessment of a fine and the determination of other sanctions, will be held. The court will then issue its verdict concerning the entity.
In the case of an acquittal of the physical person, the prosecutor has to pronounce within three days whether a decision on the imposition of a fine on the entity in separate proceedings should be made. If such a declaration is not issued by the prosecutor, the right of prosecution is lost. If such a declaration is made by the prosecutor, the court will proceed as stated above.
The judgment against the entity has to state the criminal offense upon which the conviction is based and the underlying circumstances; if it does not, the judgment will be void.
If the prosecuted entity is not represented at the trial hearing, the court can conduct the trial proceedings, hear evidence and issue a verdict, (ie, conduct a trial in absentia). However, this is only possible if the summons have been effectively served and the consequences of not attending the trial have been stated therein.
If the trial cannot be conducted jointly with the trial against the physical person, the prosecutor has to submit a separate motion seeking the imposition of a fine. The court has to decide about this motion by judgment in separate proceedings after a trial hearing.
5. Permanence of corporate liability if the crime is extinguished
If the decision maker or the employee dies after the commission of a criminal offense, it will not have a favorable impact on the corporate criminal liability of the entity. The actual punishment of the decision maker or the employee is not relevant; if the decision maker or employee is a fugitive, the entity may still be sanctioned. If the statute of limitation prohibits the prosecution of the decision maker or the employee, it will depend on the specific circumstances of the case whether or not the statute of limitations also applies to the entity. A case-by-case analysis will be required.
The VbVG does not include provisions concerning the grounds for the revocation of punishment. However, the preparatory works state that the objective of the provision concerning decision makers calls for an applicability of these grounds also to the entity, some of them even directly, when not applied to the decision maker (see Hilf/Zeder, Section 3, Rz 22-23, 26).
Neither the VbVG nor the preparatory works make explicit reference to whether the grounds for the revocation of punishment applicable to the employee should also apply to the entity. However, scholarly writing appears to suggest that they should apply (see Hilf/Zeder, Section 3, Rz 39).
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
At the outset, it has to be stated that a corporate group, in its totality, is not considered an entity according to the VbVG; hence, the VbVG does not provide specific provisions governing corporate groups.
Only the single companies constituting the group themselves are considered entities; this is true for the corporate parent as well as for the subsidiary. It is important to note that the criminal responsibility always has to be examined for the single entity.
If a subsidiary faces corporate criminal liability for a criminal offense, it is possible that corporate criminal liability will arise for the parent company or another subsidiary, taking into consideration the Austrian rules of participation in the crime, pursuant to Section 12 of the Austrian Criminal Code. This may, for example, be the case if a decision maker of the parent company influences or commands an employee of the subsidiary to commit an offense. Then, the parent company may be held liable. Furthermore, participation through omission also comes into consideration, due to a possible guarantor position of the parent company toward the subsidiary due to the influence on the subsidiary’s conduct of the business. The criteria of Section 3 of the VbVG (set out under I.1) have to be fulfilled by every participating entity itself (see Hilf/Zeder, Section 1, Rz 30).
Under the VbVG, if the parent company is located abroad, liability will arise if it falls under Austrian jurisdiction. Generally, a company will be considered to be under Austrian jurisdiction if an instigation takes place from abroad, or if the success of the instigation is realized in Austria or should have been realized in Austria according to the perception of the instigator. Since the rules on jurisdiction are, however, rather complex, a case-by-case analysis will be required.
2. Basis of liability and applicable sanctions
Pursuant to Section 12 of the Austrian Criminal Code, not only the direct perpetrator commits the criminal offense, but also any person that instigates another person to commit a criminal offense, as well as any person that aids and abets the commission of the criminal offense.
For the sanctions see Section II.1.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
Constitutional challenges:
Almost since its inception in 2006, critics doubted the legality of the VbVG. Finally in 2015, the VbVG was challenged in the Constitutional Court and had to withstand a constitutional review. The Constitutional Court issued its ruling in October 2016, finding that the responsibility of a corporate entity for (unlawful and culpable) acts of a individual person is not objectionable under constitutional law, if a sufficient nexus exists between the corporate entity and the individual person [see Constitutional Court G497/2015, 2. October 2016].
Excerpts of established jurisprudence:
Even though the prosecution is making considerable use of the VbVG and sanctions have been imposed on Austrian entities, case law is, unfortunately, still limited since the Supreme Court of Justice has either not been addressed or the cases are still pending. In addition lower level courts’ decisions are rarely published.
Even though final convictions are still few, several hundred entities are currently investigated in economic crime cases. It has become common practice to conduct investigations not only against the individuals involved but also against the entities. These investigations are related mostly to allegations of corruption, capital market fraud, accounting fraud embezzlement.
On 6 November 2014, the Supreme Court of Justice ruled in Case 13 Os 56/14f that in corporate criminal proceedings due to financial crimes, a complete conditional remission of the fine is not permissible.
The Supreme Court of Justice also held that the penalty for corporate entities in financial crimes proceedings are based on the systems of sanctions included in the Law on Financial Crimes and not the VbVG. Additionally, the aggravating and mitigating factors set out in the VbVG, however, can also be adduced in financial crimes proceedings [13 Os 10/16v, 27. June 2016].
On 17 November 2015, the Supreme Court of Justice confirmed in Case 14 Os 97/15w that criminal offenses committed by decision makers will only lead to criminal liability if committed in their capacity as decision makers.
On various occasions, the Supreme Court of Justice held that even if the proceedings against the individual person and the corporate entity are held together, the written judgments have to be executed separately [13 Os 42/16z].
Last but not least, the Regional Court St. Pölten (Lower Austria) recently imposed corporate liability on a borough over negligent killing and negligent assault. The incident occurred at a renaissance fair where two people were killed and several injured due to a falling tree crown. The Regional Court reasoned, inter alia, that the borough had enabled/facilitated the commission of the offense since the decision makers showed disregard for the necessary due care, especially through the non-implementation of essential measures for the prevention of the offense. The non-availability of the respective ÖNORM regulations and suitable material for the tree care and safeguarding (eg, lashing straps) were considered a lack of technical measures. The delayed outsourcing of the control and care to an external professional provider was also considered a lack of organizational measures. The lack of training of the responsible person or his replacement was considered a lack of personal measures [20 Bl 82/16p, 19. August 2016 – Summary published in Journal für Strafrecht, January 2017. ]
2. Proposed or contemplated new legislation
Amendments to the existing legislation are currently not being discussed in Austria.