Liability of collective entities – the bill

by Joanna Jurasz, Łukasz Sokołowski

1 February 2019

At the beginning of January 2019, the Council of Ministers adopted a bill on liability of collective entities for punishable offences. Compared to the existing regulations, the new bill significantly extends the list of situations in which a collective entity may be held liable for an offence and raises the minimum threshold/ceiling of statutory fines.

Inefficient regulations

The liability of collective entities, and more specifically the liability of legal persons, for punishable offences is part of the mechanism of preventing and prosecuting economic and fiscal crimes, including corrupt practices. Regulations in this respect have been in force in Poland for more than ten years (the current legislation was introduced in 2002), but the government has now concluded that they are inefficient. The government has substantiated its conclusion with the low number of court cases prosecuted under the current regime. As indicated in the explanatory notes to the bill, only 25 cases of this kind have been brought to court in 2016 and 14 in 2017 based on the current regulations. The authors of the bill also indicate that the inefficiency of the regulations is also reflected in the insignificant amount of imposed penalties, which results from the fact that the current regulations apply in practice only to smaller entities.
Efficient regulations on the liability of collective entities are very important in view of the international obligations arising from the legal instruments of the European Union, the Council of Europe and the Organisation for Economic Cooperation and Development (OECD), which are also binding on Poland. These instruments obligate the country to put in place a well-functioning liability regime for legal persons and to ensure that such persons can be punished by effective, dissuasive sanctions commensurate to the seriousness of the offence/crime committed.

Proposed changes

In the light of the bill, a collective entity will be held liable for offences directly related to its business activities. The bill extends the list of entities whose acts or omissions may trigger the liability of a collective entity. Under the bill, it is sufficient that the offence is committed even by an employee or a subcontractor, and not only by the governing body of the entity (e.g. the management board), its member, a natural person authorised to represent it or a natural person authorised by the governing body or by a member of the body to act for the company.

In the light of the new regulations, a collective entity may be held liable for an offence even if the natural person was not previously convicted. It will be sufficient to demonstrate that the natural person performing a particular function for the collective entity committed an offence which gave or could have given the collective entity an advantage.

The new bill also increases the minimum threshold and the ceiling of the statutory fines and unlinks the amount of the fine from the amount of revenue generated by the collective entity. Thus, a fine may be imposed on an entity that owns property and does not generate any revenue.

In future, courts will be able to impose a fine of PLN 30,000 to PLN 30,000,000 on a collective entity. In special cases, where the conduct of a collective entity threatens the security of economic transactions, the court will also be able to order the dissolution of such a collective entity. Nonetheless, the fact of imposing a fine on a collective entity does not waive its liability for damages for the committed offence.

In addition to the above-mentioned sanctions, the bill provides for a broad list of other sanctions (e.g. disqualification from public contracts, prohibition on the promotion and advertising of the entity’s business, prohibition on carrying out certain business activities).

Further work on the bill

The bill has been referred to the lower chamber of parliament (Sejm) and is currently at the stage of consultations, which means that it could be significantly modified in the further course of the legislative process. However, it is worth noting where the legislative changes are heading to. The proposed new regulations lead to a stricter liability of collective entities and thus of their managers. In this context, what is increasingly important is to ensure that the management can effectively control the entire activity of the enterprise by implementing a compliance policy and by skilfully using its tools. 

Alongside these potential risks associated with non-compliance with the law, such as financial crime, breach of anti-trust law, manager and employee fraud, corruption or personal data breach, new sources of violations have recently emerged - the violation of mandatory procedures for preventing money laundering and of the obligation of mandatory disclosure of tax schemes, including cross-border arrangements (MDR). The introduction of compliance procedures in an enterprise seems unavoidable if it wants to fulfil regulatory obligations and reduce the risk of criminal liability. This is all the more important as the failure to comply with the law may adversely affect the financial situation of the collective entity, as well as its image and reputation.

We will keep you posted on the further developments relating to the bill. If you have any questions or doubts regarding the planned amendment of the Act on Liability of Collective Entities do not hesitate to contact our experts.