CRIMINAL RESPONSIBILITY OF LEGAL PERSONS IN HUNGARY - THEORY AND (A LACK OF) PRACTICE Ferenc Santha PhD, associate professor, University of Miskolc, Faculty of Law, Institue of Criminal Sciencies The aim of this presentation is to examine the present situation about the criminal responsibility of legal persons in Hungary. In the first part a very short historical background is outlined and the developments before the legislation is described, examining the problems of the codification of this special type of liability. In the second the Hungarian Act (Act 104/2001 on Criminal Measures against Legal Persons) is discussed which was adopted in 2001 by the Parliament but came into force in 2004. It follows some theoretical remarks and a possible theoretical model of responsibility is outlined. Finally the third part is devoted to examine the questions of sanctioning from the aspects of the Act and I will try to explain the reasons of a special situation in court practice, namely since 2004 there is only one finished case in Hungary when a corporation has been sentenced by the criminal court. 1. Historical Background Perhaps it is a well-known fact that Hungarian criminal law largely roots in German legal traditions. Accordingly, one of the traditional criminal law principle in Hungary that only natural persons are subject to criminal responsibility, culpability and other elements of criminal responsibility apply only to human beings. Consequently criminal responsibility of legal persons is unfamiliar to our criminal justice system and our theoretical and practical lawyers had and have a strong aversion of it. The only limited exception to the abovementioned traditional principle in Hungarian legal history was in 1939 when the Abusing of Legal Currencies Act 192
made it possible for the judge to obligate a corporation to pay financial compensation jointly with the natural person if crime was committed on behalf of the corporation by its employee or agent. Actually the Act established an objective criminal liability of a corporation separately from the natural person s culpability. Nevertheless it is unquestionably a criminal sanction because it might be imposed within the framework of criminal procedure as a result of committing a criminal offence. In course of the preparation of the present Hungarian Penal Code (which has been existed since 1978) the general view was unambigous: only natural persons can commit a crime because culpability is a blamable psychical connection between the offender and his or her offence. Furthermore legal persons were not to be found in Hungary in the socialist legal system (apart from the state corporations and other state organs). In compliance of this traditional principle Hungarian criminal law has rejected the idea of legal persons criminal responsibility up to the very end of the twentieth century. (Between brackets but it should be emphasized that since the socalled system change in Hungary legal persons are possible subject of liability in other branches of law. Several Acts in the area of administrative and civil law contain such provisions and rather severe sanctions can be imposed againts them. For example regulatory fine in the Enviromental Protection Act and in the Consumer Protection Act, exclusion from public procurement or publication of the decision in the Public Procurement Act, winding-up in the Association Act. Consequently, organizational sanctions were not unknown legal institutes in Hungarian law.) What were the reasons of this radical change, i. e. the Hungarian legislator introduced the criminal responsibility of legal persons into our legal system? Several arguments can be mentioned, e.g. certain types of offences are committed typically in the framework of legal persons, the profit deriving from the criminal offences is realized directly by the organization, it must be drawn away from them too it is unfair to punish the employed who usually only execute orders etc. I mention in detail only one and the most important impetus: It is a common knowledge that legal acts of the European Union and other international organizations obligate its member states to take the appropriate measures in order to ensure that legal persons can be held accountable for the criminal offences committed in the institutional framework of the same legal persons. In the spirit of harmonizing criminal law on a European level the adoption of rules providing effective sanctions against corporate criminality as a part of the harmonisation program was a prerequisite for our membership in the EU. It is another fact that there is no international obligation for Hungary to introduce the 193
responsibility of legal persons for criminal offences specifically into the criminal law. According to the legal sources of the EU, sanctions against legal persons should be effective, proportionate and dissuasive. There is no doubt about that an administrative sanction e.g. a high amount of fine could also be effective and dissuasive. The Hungarian legislator had a possibility to change between the two types of sanctions and two type of responsibility. In December 2001 a (criminal) political decision was made in Hungary and the Criminal Measures Applicable againts Legal Persons Act 2001 was adopted (effective from 1 of May 2004, when Hungary became a member of the EU). The general international or European tendencies also played a great part in this decision because the majority of european countries codified this type of criminal responsibility (France, Netherland, Belgium, Finland, Norway, Denmark, Great-Britain, Slovenia, Estonia). 2. The Act 104/2001 on Criminal Measures Applicable against Legal Persons The legislator decided to enact a separate Act instead of placing the relevant provisions into the Criminal Code. The relation between the Act and the Criminal Code was established by the Section 70 of the Code which enumerates the criminal measures among others measures applicable against legal persons and refers to the separate Act in the footnotes. The Act is divided into two parts: the first six paragraphs are the Criminal Law Provisions, the second part (twenty paragraphs) are the Provisions of Criminal Procedure (and there are some closing provisons). I would like to emphasize only some important provisions of the Act: Article 2. (1) In case of committing an intentional crime (defined in the Criminal Code), legal measures regulated in this Act may be applied against a legal person when the perpetration of such a crime was aimed at or has resulted in the legal entity gaining financial advantage if a) the crime was committed in the scope of the legal person s activity by a member or officer of the legal person authorized to represent it or belongs to its management ( leading officer ), OR a member or agent of the board of supervisors; b) the crime was committed in the scope of the legal person s activity by a member or employee of the legal person AND the ommission of a leading officer who has an authority to controll or supervise it, has rendered the commission of the crime possible; c) the crime was committed by anybody AND a member or officer of the legal person authorized to represent it or belongs to its management had a knowledge on the commission of the crime. 194
(2) Provisions of this Act shall not apply to State of Hungary, foreign states, institutions enumerated in the Constitution of Hungary, the Office of the Parliament, the Office of the President, the Office of the Ombudsmen, bodies assigned by the law to perform administrative, municipial or executive duties and international bodies established under international treaties. (An unofficial translation by the author) Measures applicable against legal person Article 3. If the court has imposed a punisment on the person committing the abovementioned intentional crime, it may take the following measures against the legal person: - winding-up of the legal person, - restriction the activity of the legal person, - fine. 2. 1. The criminally responsible entities According to the Act criminal responsibility can be attributed to the legal persons of which definition is regulated by the Code as well. Legal person in a criminal sense means almost all kind of legal persons existed in civil law (share company, limited liability company and other legal persons displaying economic activity and having financial rights and obligations; e. g. a foundation or as well a social organization). It is evident that states or organizations of the state shall not be subject to criminal responsibility but it is problematic whether public organization (e.g. municipality) shall be or not. This question sould be examined in the view of the sanctioning because some criminal measures e.g. winding up or suspension of the operation are not applicable againts legal persons of this type. But these organizations have a right to perform business activities as well and in the course of this activity they can commit a crime like a corporation. 2. 2. Theoretical questions of responsibility According the Hungarian theory only natural persons can commit a crime. It is obvious that the Act did not intend to make radical departures from this traditional 195
principle and organizational responsibility is an indirect responsibilty for the criminal conduct of a natural person. The first question: who will be the natural person offender? The provisions of the Act are rather complicated. In the first case the offender is a person belonging to the management or a representative of the entity (in the Hungarian civil or company law it is practically a senior officer). He or she must act on behalf of the organization. In the second case the organization is criminally liable for the act of any member or employee. Committing the crime in the scope of the organization s activity and the benefitcriterion is also necessary but further criterion is a special organizational guilt, namely an ommission committed by a leading officer of the corporation. The ommission of a controlling officer can be intentional or negligent as well. In the third case the offender is an outsider, a person not belonging to the legal person. The further criterion is the knowledge about the commission of the crime by a member or a leading officer of the corporation. It may be a simple knowledge but also a permission or approval of the commission of the crime. According to an important and criticizable provision of the Act only an intentional crime can entail the responsibility of the organization. As in most European legislation the Act provides for both the organization and the natural person offender to be prosecuted. 2. 3. The problem of guilt Introduction of this type of responsibility into the Hungarian legal system was not a simple decision because it required the abandonment or at least the rethinking of certain traditional principles. Theoretical questions should be made clear and theoretical basis of criminal responsibility should be worked out in a detailed manner before introducing any legal instrument. Several theoretical models were developed in connection with criminal liability and guilt of the legal person in European and American criminal laws, e.g. the identification theory prevailing in England, Canada and France, the doctrine of respondeat superior (a type of vicarious liability which is a leading concept in the federal criminal law in the USA), or the theory of collective knowledge. The common element of these models is that both the act and culpability of the organization are explained in a specific ways which is very different from the concept concerning natural persons. It should be emphasized that all of these models are well-constructed, logical and applicable in practice. Moreover, one or other of these models is accepted by the foreign legal systems. But in my view these solutions are unsolvably opposed to the traditional principle of the Hungarian criminal law, namely that crime is a human act and culpability is a psychical connection. A legal person has no mind and is uncapable of acting sinfully and committing a crime. What could be the solution? There is nothing to prevent us 196
from accepting that a legal person can be legally responsible in the area of criminal law as well, without touching the problem of culpability. Responsibility or liability is a quality that a corporation can possess. The basic element of this special criminal responsibility is the fact that crimes committed within the framework of a legal person (when an employee or officer commits a crime on behalf or for the benefit of the legal person) reflects a special illegal state. This state can be formulated in a way that the management failed to take the necessary steps to prevent criminal conduct inside the organization or the crime was committed by using the organization, but we can simply say that the operation of the legal person is illegal. Since to my opinion there is no room for guilt in the criminal law of legal entities, punishment based on a guilty mental state shall not be applicable againts the legal persons. Consequently, the adequate sanctions in this area are criminal measures. 3. Sanctions Three criminal measures are applicable against legal persons under the Act: winding-up, restriction of the activity of the legal person and fine. In my regard these legal consequences are different from our traditional sanctions (punisments and measures) and shall be considered as the third new type of criminal sanctions. In maintenance of this opinion I refer to the placement of the sanctions (into a separate Act) but two further characteristics of these sanctions can also be mentioned: - the aim of corporate sanctions is emphasically to promote the law-abiding attitude, namely to influence the behaviour of natural persons working within the framework of the organization. The effectiveness of the sanctions can justify among other things the introduction of the criminal responsiblity. - the other trait is the result or effects of the sanctions. Perhaps the most important result is the decrease or loss of the organization s reputation. In other words, the stigmatic effect may be very significant. a) Fine. It is well-known that fine is the traditional sanction againts corporation in most legal systems. Fine can be imposed from 500.000 HUF to an amount which is maximum the treble of the benefit resulting from the offence. (It is a rather unfortunate name because in Hungarian the word pénzbírság means the administrative fine and pénzbüntetés means the criminal fine. The Act uses the former.) b) Restriction of the activity of the legal persons. During the exclusion legal person is not allowed to carry out certain activities, namely to participate in a public 197
procurement procedure, enter into a concession contract, become a non-profit company and obtain subvention from the European Union, the Hungarian State and foreign countries. It is not necessarily a light sanction because loss of subvention may lead to forcible closure of the legal person if its operation is decisively built on external budgetary sources. c) Winding-up is the capital punishment againts legal persons. It is the most severe sanction for the purpose of defending the society but shall not be imposed against special organizations which have a strategic importance from the point of view of national economy or organization of National Defence. In future it would be advisable to apply this sanction to the most serious cases. It is worth mentioning finally that one of our tradional criminal measures in the Criminal Code, namely the confiscation of property is also applicable againts corporations. 3. 1. The problem of sanctioning (the lack of practice) The Hungarian Act came into force in May of 2004. In principle for four years Hungarian criminal courts can apply a criminal sanction against a legal person. In principle, because two prosecutions of legal persons had taken place up to now and there is only one finished case (The case was the red pepper (paprika) forgerycase, when polluted spice pepper was introduced to the market by a corporation which got sentenced to fine by the court.) The lack of court practice was apparent for the representatives of the criminal justice system and the problem was also noticed by the OECD and the Group of States against Corruption (GRECO) established by the Council of Europe. In the Second Evaluation Round the GRECO adopted several recommendations for Hungary. In connection with the criminal liabilty of legal persons the GRECO emphasized the following: in order to properly implement the new legislation in practice the level of awarness of corporate liability of the Police, the Prosecution authorities and the Judiciary is to be increased. The Evaluation Team recommended to ensure that the abovementioned authorities are given the necessary training in order to fully apply the existing provisions on corporate criminal liability. I am sure that training and quality of working of the relevant authorities could and should be improved but - to the old of my belief - the roots of the problem should be sought in one procedural provison of the Act. It is the Article 12 of the Act: If any evidence is found in the course of investigation to the effect that measures can be taken againts the legal person in the course of the criminal procedure, the investigative authority shall immediately notify the prosecutor of the fact. The prosecutor shall decide whether the investigation should extend to exposing connections between the investigated crime and the legal person. 198
This rule provides a great deal of discretion for the prosecutor in initiating and continuing the procedure againts the legal person. This solution is not problematic in itself but for the reason that the legislator failed to define the conditions of exercising of this discretionary power. Since the offices of prosecutors are usually overcharged in Hungary, it was an obvious reaction of a prosecutor that he simply and solely did not extend the investigation to the legal persons. The problem was recognized by the legislator as well and a draft modification of the Act was made in March of 2008 by the Ministry of Justice. According to the new Article of 12 if any evidence is found in the course of investigation to the effect that measures can be taken againts the legal person, the investigative authority is obliged to extend the investigation to the legal person. This rule of course should not be taken to mean that the prosecutor will lose his right to decide whether charges should be brought againts the legal person. He will lose only the possibility to hinder the prosecution againts the legal person in the initial stage of the procedure. In full possession of the informations resulting from the investigation, the prosecutor will be capable of making a well-established decision to prosecute or not. On the other hand the role of the investigative authorities will become more important, they will have a right and obligation to investigate the legal persons. As I have mentioned at the beginning of the presentation, organizational sanctions against legal persons are existing in Hungarian administrative and civil law. This is the reason why some experts emphasize in Hungary that these administrative and civil sanctions should be applied if a criminal offence is committed within the framework of the legal person instead of introducting and using criminal liability. But I think that criminal responsibility of legal persons is a reality in Hungarian criminal law, effective and deterrent measures againts legal persons were established and our duty is to implement these provisions into practice. I am sure that the abovementioned modification of the Act will properly serve this purpose and the number of the investigations but not necessarily the finished cases - against legal persons will increas significantly. 199