Violations of law during the conduct of business activity may result in the criminal liability of persons managing the enterprise, quasi-criminal liability of business entities or entail broadly understood administrative sanctions. Depending on the character of the legal violation, the investigation or control proceedings may be conducted by law enforcement bodies or administrative bodies.
Criminal investigations are, as a matter of principle, carried out by a prosecutor’s office, as it is the key obligation of each prosecutor’s office to maintain law and order and to prosecute crimes. In particular, the purpose of the investigation is to establish whether a crime has been committed, the identity of the perpetrator, and subsequently – if the evidence collected seems to prove fault and perpetration – to file an indictment. The prosecutor’s office should also make sure that no indictment is filed against an innocent person; in such an event the case should be annulled.
The prosecutor is obliged to launch an investigation at every instance in which there is a justified suspicion of a crime having been committed. An investigation may be launched ex officio or at the initiative of the aggrieved party, who must submit a formal (oral or written) notification. For the institution of proceedings with respect to certain crimes, the aggrieved party must file a motion for prosecution. After such a motion has been filed, the proceedings are conducted by enforcement bodies, but it is the aggrieved party that decides whether it wants the perpetrators of the crime to be prosecuted. A motion must be filed for the prosecution of certain business crimes, such as mismanagement (if the State Treasury is not the aggrieved party), or the use of someone else’s business secrets in one’s own business. If such motion is not filed then no proceedings will take place.
At the beginning of 2016 a key reform was taken of the structure of the prosecutor’s office. The separation that had previously existed between the position of the Minister of Justice and the Attorney General’s Office has now been removed. The tasks of the Attorney General’s Office have been taken over by the National Prosecutor’s Office, headed up by the Deputy of the Attorney General’s Office – National Prosecutor. The place of the appeal prosecutor’s offices has been taken by the regional prosecutor’s offices, which are to deal with organised business crime and tax crimes.
In the regulation to date which provided for independence of the individual prosecutors an exception has been introduced which provides that a prosecutor is obligated to comply with directives, instructions and orders of the superior prosecutor. Orders may concern the content of tasks carried out in a specific case.
Crimes are also identified and prosecuted by the police, which has powers to institute preparatory proceedings for less serious crimes; the investigations carried out by the police are supervised by a prosecutor.2 In addition to the police, the powers to prosecute crimes are also enjoyed by the Internal Security Agency, Central Anticorruption Bureau, Central Investigation Bureau, Border Guard and bodies authorised to conduct preparatory proceedings in cases for fiscal offences (Tax Office, Tax Inspection Office, Customs Office).
The Code of Criminal Procedure imposes on business entities the obligation to assist law enforcement bodies at their request. During the course of an investigation the law enforcement bodies may request that business entities ‘voluntarily provide documents’ that could represent evidence in a case. If release of the documents is denied, they are most frequently secured through a search, but the law enforcement bodies are not able, for example, to impose a financial penalty for lack of cooperation. An alternative approach may be adopted with respect to obstructing criminal proceedings by helping the perpetrator of a crime avoid criminal liability. An action that consists, for example, of concealing or destroying evidence that supports a suspicion of a crime is also punishable and the perpetrator subject to the penalty of imprisonment from three months to five years. Therefore, one should distinguish between the instances of limited cooperation during which account is taken of company interests (for example, by demanding that the bodies respect company secrets) and the aforementioned crime, which entails intentional action with the purpose of another person avoiding liability.
Polish law does not provide for the obligation to self-report in relation to committing crimes. What is significant is that the lack of the obligation to self-incriminate is one of the key principles of criminal proceedings. Given that criminal liability may only be incurred by individuals, this principle is not directly applicable to business entities.
The obligation to report that an offence has been committed only applies to situations in which crimes have been committed by other parties, and these are serious crimes prosecuted under the Criminal Code or those that will harm national security. As regards any remaining crimes, the criminal procedure provisions do not provide for a sanction for failure to report them; in particular, Polish law does not provide for a general obligation to report internal irregularities in business entities.
With respect to fiscal crimes, it is only possible for the person responsible for committing the act to avoid criminal fiscal liability by making an ‘unprompted voluntary disclosure’ or adjustment to a tax return. The Act provides for a number of specific requirements for acts of ‘repentance’ that need to be met for any actions commenced to avoid responsibility to be effective.
Although not exactly a self-reporting obligation, it is worth mentioning the obligation to report transactions that may represent acts of money laundering.3 The types of institution set out in the Act are obliged to immediately report such transactions to the General Inspector of Financial Information.
ii Internal investigations
Polish law does not directly provide for the obligation to carry out internal investigations once managers receive information on irregularities within an enterprise, nor is there any obligation to report any such results thereto. It is assumed, however, that the conduct of internal investigations represents fulfilment of the obligation to take care of the interests of the enterprise under management. Failure to verify signs of irregularity may represent grounds for liability for damages and, in extreme cases, for criminal liability for mismanagement. Internal investigations are not only conducted when the provisions of law have been violated to obtain benefits for the enterprise but also when, as a result of violation of the law, the enterprise has been harmed.
As there are no regulations pertaining to the principles of conducting internal investigations, the course of investigation in these two situations will not differ considerably; however, substantial differences appear in the position of the enterprise when law enforcement bodies institute official investigations or the company decides to report existing irregularities. Then, the enterprise may obtain the status of aggrieved party and enjoy the attributable rights within preparatory proceedings and, at a later stage, court proceedings if the indictment is filed. These rights include the right to inspect the files of the case, participation in the investigation or the right to appeal disadvantageous decisions taken during the proceedings (such as a decision on discontinuation of proceedings). At a court stage an aggrieved party may act as auxiliary prosecutor.
In recent years, the number of internal investigations regarding irregularities in the private sector has noticeably increased. In many instances, this is due to the operation in Poland of companies regulated by the strict rules of the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act.
Commonly, internal investigation measures encompass reviews of business email correspondence and electronic files, conversations with employers, and reviews of company documents.
The situation of whistle-blowers is not in any way defined by the provisions of Polish law. In turn, numerous firms have adopted measures to allow the anonymous reporting of irregularities noticed within firms. Sometimes, anonymous hot lines or e-mail boxes are made available through which to point out violations of law and standards.
When it comes to criminal liability, a person disclosing information to law enforcement bodies regarding crimes and the circumstances of the perpetration thereof may expect extraordinary mitigation of punishment. If a perpetrator discloses to law enforcement bodies new, previously unknown, circumstances relating to a crime that carries a penalty of more than five years’ imprisonment, he or she may submit a motion for extraordinary mitigation of punishment or even a conditional suspension thereof. Furthermore, in the event of corruption in business and in the public sector, a perpetrator of ‘active’ corruption is not subject to penalty if, after the fact of the corruption, such person notifies law enforcement bodies and discloses all significant circumstances of the deed, and all this takes place before law enforcement bodies have become aware of the facts.
It should be noted that the provisions of the Labour Code do not provide any protection for the people who were – in the capacity of employees – involved in illegal activities either. An employment contract with a whistle-blower who was involved in criminal activities may be terminated under ordinary procedures or even under dismissal procedures depending on the circumstances of an individual case, even though that person reported the irregularities.
Therefore, it should be considered that the introduction of regulations to the labour law while regulations protecting whistle-blowers are missing from the Labour Code, in many situations, potential whistle-blowers will not have any incentive to disclose irregularities.
i Corporate liability
Since 28 November 2003 the Act on Liability of Collective Entities for Acts Prohibited under Penalty has been in force, which regulates issues of quasi-criminal liability of commercial companies. This Act is applicable if a person acting in the name of a company committed one of the crimes specified in the Act, and the company gained or could have gained benefit from this act, even if non-financial.
The catalogue of crimes the commission of which may cause the commencement of proceedings include:
- a crime of mismanagement;
- b corruption in business;
- c credit and subsidy fraud;
- d money laundering;
- e crimes linked to making impossible and reducing satisfaction of creditors;
- f failure to file a bankruptcy petition on time;
- g insider trading; and
- h administrative corruption.
There are also numerous other crimes specified in Acts regulating specific areas of economic activity.
A condition for commencing proceedings against a company is that it has been established by a legally final guilty verdict that a crime has been committed, a verdict conditionally discontinuing criminal proceedings, or a verdict that discontinues criminal proceedings by stating that despite a crime having been committed, the perpetrator cannot be punished.
Liability on the basis of this Act may be imposed in the event that one of the following is proven: (1) at least a lack of due diligence in the choice of the person representing the entity, at the same time being the perpetrator of a crime; or (2) the defective organisation of the activity of the company, which did not ensure the avoidance or the commission of the crime, and this would not have occurred had due diligence been observed in organising the activity.
It should be emphasised that it follows from practice to date that the law enforcement bodies do not commence proceedings in every case in which such a possibility arises. The statistics of the Ministry of Justice show that each year only a couple of dozen proceedings of this type are commenced. This figure is very low, especially taking into account the fact that each year over 10,000 people are sentenced for committing business crimes.
As regards criminal proceedings, although in the strict sense a company cannot be the accused, during the course of such proceedings it is nonetheless possible to hand down a judgment ordering a company to reinstate any benefits gained thanks to a crime committed by an individual. In this case, the company becomes a quasi-party and may defend itself against liability by availing itself of certain rights to which the accused is usually entitled. An entity obligated to return benefits has the right to study the case files of the proceedings, may take part in the hearing before the court, file motions to admit evidence, put questions to the witnesses, as well as appealing unfavourable decisions and verdicts.
In turn, in criminal-fiscal proceedings the company may face auxiliary liability. An entity that is liable on an auxiliary basis is liable for a fine imposed on the perpetrator of a fiscal crime if, when committing the crime, the perpetrator acted in the name of the company, and the company gained or could have gained financial benefit.
The Act on Liability of Collective Entities for Acts Prohibited under Penalty provides for the possibility of a judgment with regard to a company imposing a fine of between 1,000 and 5 million zlotys (which cannot exceed 3 per cent of the revenue gained in the year in which the crime that forms the basis for liability was committed). The court will mandatorily order the forfeit of any financial benefits gained from the crime, even indirectly.
In addition, the following punishments are possible with regard to collective entities:
- a a ban on promotion and advertising;
- b a ban on availing of public aid;
- c a ban on availing of aid of international organisations;
- d a ban on applying for public tenders;4 and
- e making public information about the judgment handed down.
In the event of auxiliary liability for a tax crime, the scope of liability is determined by the amount of the fine ordered with regard to the accused. Essentially, fines for a fiscal crime range from 560 to 16.1 million zlotys for crimes committed in 2014 and these change each year in line with the increase in the minimum wage. In ruling practice, however, it is very unusual for fines to exceed 100,000 zlotys.
iii Compliance programmes
Legal provisions do not impose the obligation on business entities to implement compliance programmes, although such programmes operate in many firms. They are particularly common in firms with foreign capital and in the financial sector.5
In reality, the existence of a compliance programme and ensuring its existence may significantly limit the risk of liability under the Act on Liability of Collective Entities for Acts Prohibited under Penalty, even if the commission of a crime resulted from inappropriate organisation of work.
A functioning compliance programme is helpful in cases of actions contrary to the law that harm the interests of enterprises. A frequent problem that appears in criminal proceedings involving crimes harming enterprises is the lack of internal regulations clearly laying down the procedures and scope of duties, as a result of which it is difficult to show the actions or omissions of the guilty party.
iv Prosecution of individuals
As has already been mentioned, the position of a company in proceedings conducted by law enforcement bodies against an individual depends to a large extent on whether the company gained any benefit from the crime or whether it was harmed by the crime.
At present, the Code of Criminal Procedure provides that an aggrieved party is an entity whose interests have been directly harmed or threatened by a crime. Not every crime as a result of which an enterprise suffers damage will allow it to exercise its rights as an aggrieved party in criminal proceedings.
On the other hand, newly amended provisions of the Code of Criminal Procedure grant a firm the right to appeal decisions of the prosecutor on discontinuing an investigation if the firm notified the prosecutor about a crime that harmed its interests, even if only indirectly. To date, only a directly aggrieved party has had the right to file a complaint against decisions on discontinuing an investigation, while a person indirectly aggrieved has not had the right to any control of the court. The new regulation should be viewed positively as it grants greater litigation guarantees and may lead to more effective crime prevention.
If proceedings against an individual involve a breach of law that may lead to a company being held liable, a question arises as to the legitimacy of cooperation between the accused and the firm. In the vast majority of cases a judgment favourable to the accused rules out the risk of sanctions for the firm. There are no prohibitions whatsoever on joint defences, so cooperation within the proceedings is admissible. It should be noted, however, that situations may occur when the accused’s line of defence will not be consistent with the interests of the firm. This may be the case, for example, when the accused bases his or her defence on pointing to another company employee or manager who is indeed guilty of committing a crime.
The basic duty of the lawyer towards a client in criminal proceedings is to act exclusively for his or her benefit. Pursuant to the position of the judiciary and doctrine that has dominated for years, a defence lawyer must disclose all circumstances that are favourable to the client, even if the client does not consent to this him or herself.
As regards employee issues, commission of a crime undoubtedly entitles an employer to terminate the employment contract under a disciplinary procedure. What is important is that in a written termination of the employment contract the reasons for termination of the contract should be precisely indicated, which reasons can be verified by the court if the employee appeals to the Labour Court. In the event that the reasons given in the termination of the contract prove groundless, the employee may be reinstated to work by the court or may be entitled to a compensation claim, or both.
i Extraterritorial jurisdiction
Polish criminal law provisions essentially provide for the liability for crimes committed in Poland. Pursuant to the provisions of the Criminal Code, a crime is deemed to have been committed at the place perpetrator acted or omitted to perform an act he or she was obligated to perform it, or where the effects of the crime were felt or were to intended to occur.
With regard to crimes committed abroad, the rule of the ‘double criminality’ of an act applies. This means that law enforcement bodies may conduct criminal proceedings only with respect to acts that constitute a crime both in Poland and in the country in which they were committed. Polish citizens are liable for crimes committed abroad in all instances where an act constitutes an offence under Polish law and at the place it was committed. As regards foreigners’ liability for acts committed abroad, Polish criminal law may be applied if a crime harms the interests of Poland, a Polish citizen or a Polish company, and at the same time the requirement of double criminality is satisfied.
The requirement of the double criminality of an act does not apply, inter alia, to a situation where a crime harms the internal or external safety of Poland or its material economic interests, or is aimed against Polish offices or officials, nor does it apply to a situation where a financial gain (even an indirect one) was derived in the territory of Poland.
ii International cooperation
Polish law enforcement bodies cooperate with the authorities of other countries. The rules and scope of cooperation vary due to the fact that in some cases of cooperation, bilateral international agreements, multilateral conventions or international organisation regulations (including primarily the European Union law) will apply with some countries, whereas in the absence of an international agreement the provisions of the Code of Criminal Procedure apply.
The possibility of handing over a Polish citizen as part of an extradition procedure is excluded in principle. By way of exception, the court may decide to extradite a Polish citizen if such possibility follows from an international agreement ratified by Poland. An additional condition is that the crime that the subject of the extradition procedure is charged with must have been committed outside Poland, and that the act such person is charged with must constitute a crime under Polish law, both at the time the court decision is taken and at the time it was committed.
V YEAR IN REVIEW
On 1 July 2015 amendments to the criminal procedure entered into force, which introduced significant changes to the model of criminal proceedings. The main assumption was the possibility of hearing evidence at the initiative of the court in exceptional cases only. The burden of proving a crime was to lie with the prosecutor’s office. The change also concerned the resolution of doubts in favour of the accused. Pursuant to the amended provisions, the court is obligated to resolve in favour of the accused not only doubts that cannot be removed, but also doubts that were not removed because of the lack of a pertinent evidence-related initiative on the part of the prosecutor. As part of the changes a rule was also introduced whereby the prosecutor who conducted the investigation was obligated to pursue the indictment in person before the court.
A consequence of the introduction of the changes in the criminal procedure was the significant drop in the number of cases in which an indictment was filed in the period from July to September. Initially the number of indictments fell several times.6 As pointed out by representatives of the justice department, this was linked to a change in the manner of formulating indictments, as well as to the introduction of new formal requirements such as that of attaching information about the accused person’s income. As stated by the Attorney General, courts returned 3.9 per cent of indictments precisely because of formal omissions. Also noted was a significant increase in the number of cases which were ended under a consensual procedure. When comparing the number of indictments that contained a motion for a consensual ending of the case with the total number of cases sent to the court a significant increase was noted from 45.9 per cent to 71.8 per cent.
The newly elected parliament adopted amendments to the criminal procedure in March 2016 which to a large extent reversed the reform that entered into force on 1 July 2015. A key assumption is a return to the obligation imposed on the court to comprehensively clarify the circumstances. The legislator also restored the rule that doubts which cannot be removed should be resolved in favour of the accused. An entirely new regulation is the decisive rejection of the theory of ‘fruits of the poisoned tree’. Pursuant to the new provisions, evidence obtained in a manner which is contrary to the law in breach of the provisions on conducting evidence, as well as obtained by way of a crime, may constitute grounds for handing down a verdict. However part of the provisions introduced on 1 July 2015 remain in force. The Act which reverses the adversarial (audi alteram partem) model of criminal proceedings entered into force on 15 April 2016.
As a result, at present criminal court cases are conducted on the basis of a number of different procedures which impose on the parties to the proceedings and the court various obligations, including in particular obligations concerning the rules for distribution of the burden of proof. The application of individual provisions was defined in a non-uniform way. Some provisions are applied to proceedings where the indictment was sent to the court after 1 July 2015, other provisions if the indictment was filed after 15 April 2016, while some provisions are applied from the day of entry into force of the new provisions. This causes serious difficulties with regard to specifying the appropriate legal state, and as a result may lead to many irregularities in decisions of courts.
VI CONCLUSIONS AND OUTLOOK
The new government is still carrying out extensive work concerning criminal law and procedural provisions. As part of its legislative work, the government plans to introduce changes including more severe sanctions for serious crimes against life and health, but also in business cases. A key priority of the legislative work is that of strengthening the prosecuting authorities in the fight with tax evaders, and above all ‘VAT carousel’ frauds. One of the solutions which is aimed at improving the effectiveness of the fight against tax evasion is the introduction of the institution of the ‘extended confiscation’. This instrument assumes the possibility of confiscating an asset that was transferred by the perpetrator onto another person, also in a situation where the crime has been barred by the statute of limitation, the perpetrator is in hiding, or in the event the perpetrator has died.
It is most likely that provisions will be amended which provide for the liability of commercial law companies for business crimes committed by employees of these companies. More detailed solutions to be introduced are not yet known.
The Minister for Justice has also announced that the government is working on the adoption of a new Criminal Code. One of the assumptions of the new Criminal Code is to be the introduction of the possibility of handing down penalties in a more flexible manner.
A key change which the government is working on is the Anti-Terrorist Act. The solutions presented in the draft Act allow anti-terrorist units, inter alia, to block websites and obligate sellers to register the identity of persons who buy pre-paid telecommunication cards. If these anti-terrorist units suspect that a terrorist attack is being prepared, they will benefit from significant freedom with regard to gathering evidence making it possible to prevent the attack. The Act provides, for example, for the possibility of using operating control (e.g., bugging, phone-tapping, as well as obtaining information about the use of the internet) without the consent of the court, which is the case in proceedings conducted in accordance with general rules. The Internal Security Agency (ABW) will also have the possibility of obtaining information which is the subject of banking secrecy without the consent of the court. The Act provides, inter alia, that the ABW may keep a list of persons who could have links with terrorist activity. The government plans to make foreign trips taken for the purpose of terrorist training or terrorist activity carried out outside of Poland subject to criminal liability. The assumptions of the Act give rise to doubts on the part of the opposition and NGOs that deal in protection of human rights and citizens’ freedoms.
It should be emphasised that the legislative changes are accompanied by serious changes in the organisation of prosecutor’s offices and changes in personnel. As reported by the media, changes in personnel include transfers of prosecutors from higher prosecutor’s offices to lower ones (from national and regional to district ones), and vice versa. As a result of the scale of the reforms, a temporary slowing down of the work of the prosecuting authorities is noticeable.
1 Tomasz Konopka is a partner at Sołtysiński Kawecki & Szlęzak.
2 The amendments to the criminal procedure introduce serious changes in the rules on supervision of proceedings conducted by the police. A questioning of a witness together with the preparation of a full record of the questioning (as was the case to date) will be carried out only if the police file an application with the prosecutor for such a questioning to be carried out. In the remaining cases, the record will be confined to just a record of the most important statements of the witness.
3 As per the Act of 16 November 2000 on Counteracting Money Laundering and Terrorism Funding.
4 These bans may be ordered for a period of one year to five years.
5 The Financial Supervision Authority issues a range of recommendations concerning the activities of banks and financial institutions which concern issues such as safety. Although the recommendations are not considered to be legal regulations, the FSA demands that they be complied with and in this respect it has at its disposal a range of instruments, including that of prohibiting the conduct of a banking activity.