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 Law of 3 March 2010 (“2010 Law”) introduced the concept of corporate criminal liability into the Luxembourg legal system. Traditionally, a corporate entity had no individual liability and only natural persons could be held liable for crimes and offenses, pursuant to the principle “societas non delinquere potest.”
The enactment of the 2010 Law meant that corporate entities may be held liable for crimes and offenses. In case a crime or an offense has been committed by its corporate bodies, director(s) or shadow director(s) in the name of, on behalf and in the interest of a corporate entity, it may be held criminally liable and be sanctioned by criminal law. The crime or the offense should have been committed in the name and on behalf of the corporate entity, as well as in its interest in case the activities were undertaken to obtain a direct or indirect monetary benefit (gain or prevention from loss). Crimes or offenses that have been implemented for the sole personal interest of a manager, director or board member are excluded from the scope of corporate liability.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Since no specific catalog of such crimes or offenses exists, a corporate entity may be held liable for all crimes and offenses under the LCC and special laws such as the Law on Commercial Companies of 10 August 1915, as amended (“1915 Law”), the Law on Business Licenses of 2 September 2011, as amended, and the Law against Money Laundering and Terrorist Financing of 10 August 2004, as amended.
3. Identification of companies and entities to which liability may apply
Corporate liability applies to corporate entities with a legal personality. Such corporate entities include: (i) legal persons governed by private law, that is, commercial companies (public limited liability companies (société anonyme), general corporate partnerships (société en nom collectif), limited corporate partnerships (société en commandite simple), private limited liability companies (société en responsabilité limitée), companies constituted under civil law (société civile) and cooperative companies (société cooperative)); (ii) legal persons governed by foreign private law; (iii) nonprofit legal persons governed by private law; and (iv) public law corporations vested with a public service mission. Nevertheless, corporate liability neither applies to the state nor to local authorities.
Moreover, corporate liability does not exclude any individual liability of a natural person.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
There is the general rule according to which liability for crimes committed abroad may be based on Article 5 of the Luxembourg Code of Criminal Procedure (LCCP), providing that any Luxembourgian, committing a crime abroad being also incriminated under Luxembourg law, will be prosecuted and judged in the Grand Duchy of Luxembourg. In case a Luxembourgian has committed an offense abroad, the person may be judged in the Grand Duchy of Luxembourg in case this offense constitutes also an infringement in the country where it has been committed.
Whereas these rules expressly state a liability for crimes committed abroad, they do not clearly specify if such rules will solely apply to natural persons and Luxembourg citizens, or also to legal persons with Luxembourg nationality.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Corporate liability persists in general in case of the survival of the legal entity further to such transactions, eg,:
- Conversion of the entity form: A conversion does not give rise to a new corporate entity. Therefore, an entity may still be held liable after its conversion for infringements committed before.
- Merger by acquisition and by creation of a new entity: The absorbed entity ceases to exist and therefore cannot be held liable anymore for the infringement committed before the transaction.
- Demerger by acquisition and by creation of a new entity: The survival of the legal entity depends on whether, in the course of the transaction, the company transfers all of its assets and liabilities to one or more company with or without dissolution. It will persist if the demerged entity survives.
II. Applicable sanctions
1. Type of sanctions applicable to the company
In case the corporate entity is found liable for a crime or an offense, the courts may apply the following penalties:
- Pecuniary fines
- Offense: Minimum of EUR 500 and maximum corresponding to twice the maximum rate provided in the LCC for the commission of an offense committed by a natural person
- Crime: Minimum of EUR 500 and maximum of EUR 750,000
- If a judge can only impose a penalty of imprisonment for specific offenses or crimes committed by a natural person, the maximum fine that can be imposed on a legal person must not exceed a specific amount determined by applying the following formula stated by the LCC: twice the sum of the amount obtained by multiplying: (i) the maximum penalty of imprisonment, expressed in days, with (ii) the duration, expressed in days, foreseen in case of detention.
- For the following particularly serious crimes and offenses, the minimum and maximum fines will be multiplied by five:
- Crimes or offenses against state security
- Acts of terrorism or financing of terrorism
- Violation of laws relating to detention of arms
- Trafficking of human beings
- Drug traffic
- Money laundering
- Misuse of public funds
- Facilitation of unauthorized entry to the country and residence
2. Exclusion from participating in public tenders
3. Specific confiscation (Confiscation spéciale)
The competent court may order the confiscation of the proceeds of a crime or an offense, and of the assets used to commit the crime or offense.
4. Dissolution of the entity
This severe sanction applies only in these special circumstances:
- In case the corporate entity has only been incorporated in order to implement the infringements, or if its corporate object has been intentionally circumvented in order to commit the incriminated acts
- If for such infringement, if committed by a natural person, a penalty of imprisonment of at least three years applies
It shall not apply to public law corporate entities.
2. Interim measures, cease and desist orders, bans and confiscatory measures
If the investigating judge (juge d’instruction) discovers during the instruction serious indications of guilt, he can, depending on the specific circumstances, pronounce the following interim measures:
- Suspension of the procedure of dissolution or liquidation of the legal entity, in case it appears that it was dissolved or liquidated for the sole purpose of shirking its corporate liability
- Prohibition of specific sales of assets that may cause the insolvency of the legal person
- Provision of a security deposit, the amount which the judge will fix in order to guarantee compliance with the ordered measures
The suspension of these interim measures can be requested in any case by the accused corporate entity or the public prosecutor during the instruction.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
No specific provision of Luxembourg law addresses the liability of directors and managers for not having adopted measures for the prevention of the crime. General director liability rules apply.
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)
Neither the LLC nor any specific law allows a legal entity to benefit from an exemption from liability for implementing an effective compliance function.
For completeness, banks and financial sector professionals are required to have sound administrative and accounting procedures and effective control mechanisms in place. These requirements consist of the implementation of a compliance function that will control, on a regular and continuous basis, the company’s operations and their risks.
In general, a functioning compliance model certainly mitigates liability risks.
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.)
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
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
The competent court that may decide the liability of a legal entity and the applicable penalties depends on the nature of the infringement. The correctional or criminal chambers of the Tribunal d’arrondissement are competent to decide the liability of a legal entity and the applicable penalties for all committed crimes and offenses (crimes et délits). Moreover, the local competence of the public prosecutor and the investigating judge (juge d’instruction) depends on the corporate entity’s registered office.
2. Possibility of the application of interim measures
Please refer to Section II.2. above.
3. Plea bargains and related effects on the corporate liability
No specific provisions of Luxembourg law address the possibility of settling proceedings with a plea bargain.
4. Permanence of corporate liability if the crime is extinguished
A corporate entity may be held liable for the same crimes and offenses as a natural person, whose crimes or offenses are subject to the same reasons of extinction. In case a crime or an offense is extinguished due to the statue of limitations, a corporate entity can no longer be held liable for having committed the crime/offense.
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
The 2010 Law does not provide specific regulations for when criminal offenses are committed in the context of a corporate group. Hence, as of today, no provisions of law clarify if and subject to which conditions a parent company may be held liable for infringements committed by any of its subsidiaries. General principles as set out below will therefore apply.
2. Basis of liability and applicable sanctions
In case a crime or an offense has been committed by its corporate bodies, director(s) or shadow director(s) in the name and on behalf and in the interest of a corporate entity, it may be declared criminally liable and be sanctioned by criminal law. Corporate entities may act for corporate bodies (eg, as director or shadow director) and may be held liable on that basis.
A shadow director shares in the management of a legal entity and exercises the powers of an appointed director, without being empowered by the company’s shareholders to do so. The existence of a shadow director cannot be presumed and an analysis of the actions taken by the potential shadow director has to be carried out. Indeed, a shadow director will take positive actions, in contrast to abstention, on a lasting and reiterated basis. In fact, the sole concept of control (ie, as a majority shareholder), will not be sufficient to qualify a shadow director. In the context of corporate groups, a parent company may be qualified and act as a shadow director in the absence of autonomy of the subsidiary and in case of interference of the parent company in the management of its subsidiary.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
We are not aware of any significant precedents.
2. Proposed or contemplated new legislation
As of today and based on our knowledge, there are no proposed or contemplated new legislation as regards corporate liability in view.