2012 Corporate Criminal Liability Finland

Ari-Matti Nuutila: Corporate Criminal Liability in Finland – An addition to individual criminal responsibility. In Antonio Fiorella & Alfonso Stile (eds.): Corporate Criminal Liability and Compliance Programs (Rome 2012), c. 30 pages. In print.



CORPORATE CRIMINAL LIABILITY IN FINLAND 

– AN ADDITIION TO INDIVIDUAL CRIMINAL LIABILITY

 

Dr. Ari-Matti Nuutila

 

 

 

1.      History of Corporate Criminal Liability in Finland

 

Under the Finnish criminal code doctrine, crimes can be committed by individuals only. Collective guilt of corporations is not accepted. However, with chancing economic and social structures, pressures to adopt measures to impose punishments also to corporations and other legal entities increased during the 1970’s and 1980’s. Corporations had grown vastly in size and influence from small proprietorships to complex national or multinational power structures. This socioeconomic change had brought about two major paramount reasons for introducing corporate criminal liability.

First of all, individual criminal liability was no longer regarded as a sufficient deterrent in influencing decision-making in corporations. The people inside a company had turned from independent decision-makers into components of the company machinery making the identification of corporate practices with certain individuals either impossible or irrational. Also, sanctions designed for individual offenders were hardly in just proportion to serious offences committed in corporate operations. Furthermore, such sanctions were not able to influence or modify corporate behavior to desired direction.

Secondly, since corporate practices were often a result of interaction between several individuals and groups, the concept of some kind of structural, “collective guilt” had become a reality that had to be taken into account in the criminal justice system. Individuals tend to have only a relative autonomy in the corporal machinery. In the corporate decision making process, a violation is often caused by inadequate company policies which are a result of contributions made by several people on different levels of the corporate structure. A criminal corporation attitude may be the right expression for this behavior.[1]

In such cases, penalizing the corporation besides – or even instead of – individuals enables comprehensive evaluation of organizational behavior that led to the commission of the offence. The phrase “organized irresponsibility of all” depicts how the attribution of criminal responsibility only to individuals blocks the solution of many criminal policy problems.

The notion of corporate criminal liability was first introduced in several committee reports, and finally, in 1987, Finnish legal history was made when the Criminal Code Task Force published a proposal on the “Criminal Liability of Corporate Bodies”[2]. Following this proposal, in 1993 a Government Bill[3] was introduced to the Finnish Parliament as part of the total reform of the Finnish Criminal Code.

The new Chapter 9 of the Criminal Code contains the general regulations of corporate criminal liability and it entered into force the 1st September 1995. [4] Afterwards the Chapter has been revised several times. The scope of application of corporate criminal liability has been broadened to cover new offences and the option of waiving of charges and punishment has been restricted. After a rather careful introduction of the new form of criminal responsibility in 1995, positive experiences have led in Finland to general approval of corporate criminal liability even on new areas of criminality.

 

2.      Attributing Liability within a Corporation

 

Since a corporation as such cannot be criminally liable for its actions, liability still lies on the individuals working in or for the corporation. The starting point is the criminal law principle that the person whose conduct constitutes a crime is liable for the offence. With intentional offences, this principle is supplemented by the rules of participation provided in Chapter 5 of the Criminal Code[5]. This can be the case in, e.g., money laundering, abuse of insider information, security markets information offence, business espionage and bribery in business.

With negligent offences, the basis of liability must be sought elsewhere. Some of the statutes regulating the activities of legal entities, such as Chapter 6 in the Limited Liability Companies Act[6], regulate the general competence and duties of the Board of Directors and the Managing Director. These provisions are, however, rather general in nature. In criminal law practice, the Courts also put significant importance on internal regulations, instructions, and job descriptions in employment contracts. Another important factor is the actual prospects of the accused to influence the decision-making process. The further down on the corporate-ladder the employee stands, the more limited his authority normally is. It appears to be general practice that if the actor cannot be identified, the Courts use the Managing Director as their favorite scapegoat. Often the Courts do not even give reasons for singling out a certain individual as liable.

This ambivalent situation has encouraged the formulation of more specific and unified rules on attributing criminal liability inside a corporation. The Criminal Code Chapters on environmental offences and labor offences include nowadays provisions on apportionment of liability. According to them[7], the person on whose responsibility the act or omission belongs shall be sentenced. In the allocation of liability due consideration is given to the position of the said person, the nature and extent of his duties, his competence, and also otherwise his participation in the origin and continuation of the unlawful state.

 

3.      Scope of Application of Corporate Criminal Liability

 

According to Section 1, corporate criminal liability covers a large variety of legal entities. These include all kinds of companies, registered associations, foundations, religious communities, political parties, unions, municipalities, State departments and establishments. However, to my knowledge so far only private entities have been prosecuted.

The only limitation to criminal liability is exercising of public authority. Generally the term includes such public powers as judicature, police actions or public administration. However, this limitation does not include State or other public companies or faculties that perform business activities or provide public services such as public transportation or power plants. Therefore, the so called SOE’s (State-owned and State-controlled corporations) are usually no problem as they do not exercise public authority but rather operate on business areas where also private enterprises can and will operate.

Corporate criminal liability is not applied to all offences in Finland. A corporation may be sentenced only if a corporate fine has been specifically provided in the Criminal Code – not outside of it – for the offence. The list of offences has grown during the last decades. Some additions, such as work safety offence in 2003, are based on domestic criminal policy discussion. Several of the offences that now fall within the framework of corporate criminal liability are based on Finland’s international obligations in the European Union, the Council of Europe, or the United Nations. Mostly the offences belong to traditional economic criminality, but corporate criminal liability is also applied to a variety of areas of traditional criminality, such as many offences against personal liberty and sexual rights, offences against public authority and public order, terrorist offences, narcotics offences, alcohol offences and computer offences.[8]

 In Court practice, corporate criminal liability has been applied mostly on work safety offences, impairment of the environment and security markets offences.[9] In work safety offences and damaging of environment the financial proceeds of crime usually benefit solely the legal enterprise. In security markets offences a corporation can even be used as an instrument of crime.

At the moment there are two cases of corruption dealt in the Finnish Courts of law. In the first case a State-controlled corporation had negotiated an agreement with a foreign company which belongs to the organization of the Ministry of Defense of that country. Managers are accused of bribing foreign civil servants in order to facilitate the negotiations process. A demand of a corporate fine against the Finnish company was rejected in the District Court in June 2011. Another case form the area of military industries is still in police investigation.

Many other offences that fall under the scope of application of the Chapter 9 are so rare in Finland that the lack of corporate fines in Court statistics is no surprise. For example, terroristic offences, tax fraud and subsidy fraud affecting EU, illegal gambling, internet fraud, interference with communications systems, computer brake-in and message interception are internationally widely discussed modern types of criminality, which can be committed in operations of a corporation or other legal entity. They barely exist in the Finnish court statistics.[10]

 

4.      Primary Prerequisite for Liability

 

As noted above, the elements of a crime are built in such a manner that only a human being can commit a crime. Therefore, corporate criminal liability is not direct liability for wrongful acts and the guilty mind of the corporation itself, but indirect liability for the criminal conduct of its employees and agents. In fact, talking about corporate criminal liability is somewhat misleading because a corporation cannot be found guilty in the traditional sense. The corporation is only sentenced for crimes committed by someone else – that is for the criminal conduct of an individual. Consequently, corporate criminal liability is always secondary to individual liability, and in principle, finding and convicting a guilty individual is a prerequisite to sentencing a corporation. As well, penalizing a corporation in no way eliminates or affects personal liability of the natural person to whom the offence is attributed. He remains liable thorough.

Since a corporation is not considered “criminal” in the traditional sense, there must exist some kind of rationale or criteria for penalizing the corporation for the conduct and culpability of its individual agents. Section 2 provides for this basis of corporate criminal liability. Once the Court has established that the criteria exists, it must consider whether sentencing a corporation is appropriate in the particular case under the secondary criteria specified in Section 4.

There are two alternative footings for corporate liability. Firstly, the corporation can be made liable when someone belonging to the corporate management participates in the crime or allows the commission of the offence.[11]

In these cases, the guilty individual is part of the corporation’s statutory organ or other management or exercises otherwise actual decision-making authority therein. Usually the guilty individual is Managing Director, other Chief Executive Officer, Member of Board of Directors, partner, owner or shareholder of the corporation. These situations are rather simple. The individual has been an accomplice in an offence or allowed the commission of the offence.

Secondly, if the corporate management breaches negligently its duty to prevent the offence, the corporation can be sentenced besides the individual actor.[12] If the corporate management does not observe due care and diligence necessary for the prevention of the offence in the operations of the corporation, the corporate culture is often old fashioned and relies on the activity of employees on lower levels of organization.[13]

Corporate criminal liability of impairment of the environment was dealt in the Finnish Supreme Court in the case KKO 2008:33. Fortum Oil Oy (Neste Oil Corporation's oil refinery) had moved oil from one tank to another. The operator had forgotten to close one valve with the result that the transfer of approximately 300 cubic meters of oil leaked into the ground and also reached the sea. Ten kilometers of shoreline was stained. Cleaning tasks was attended by about 170 people. Operations Manager and an oil refinery Production Department Manager were sentenced to fines.

The Fortum Oil Oy Company was convicted to 500.000 Euros corporate fine.  The oil transfer equipment had not been equipped with special navigation and alarm systems, although similar risk of damage had occurred twice in the past. The company had failed to take adequate measures to prevent the consequences of failures occurring. The company's failure to act had this time contributed to a concrete environmental damage. Consequently, the company's operations had not complied with the requisite of due care and caution to prevent crime. Therefore, sentencing conditions of Chapter 9 (Section 2) were met.

Obviously, a corporation cannot be made liable if no offence has been committed. A mere breach of the duty to enforce laws and regulations of, e.g., environment protection or work safety, does not invoke criminal liability if no concrete crime has taken place. The commission of the offence and the breach of the duty to prevent crimes must also have a causal connection. The minimum requirement is that a breach of duty has at least considerably increased the possibilities for the crime being committed in the corporal activities.[14]

Thus, in order to convict a corporation, the prosecution must prove that the fact that the corporation, for example, neglected to supervise its personnel, organize education, draw procedure guidelines or provide sufficient finances for fulfillment of the regulations, caused or at least significantly increased the risk of the violation.[15]

It must, however, at the same time be noted that for example work safety offence or impairment of the environment do not require concrete damage or even concrete danger. For work safety offence it is sufficient that work safety regulations are violated in a significant way. Negligent homicide or negligent bodily injury is not required as can be the case in working place accidents. Likewise, impairment of the environment is fulfilled if someone introduces, emits or disposes into the environment an object or a substance in violence of the law so that the act is conductive to causing contamination of the environment. No concrete danger or damage to the environment is required. Hence, the criteria of raising of risk of breach of legal duties is usually easily fulfilled.

 

5.      Secondary Anonymous Guilt

 

Chapter 9 is based on the notion that a corporation cannot act or think “criminally” because it does not have a body to act or mind to have malice. Therefore, in principle, finding and convicting an individual, is always a prerequisite for convicting a corporation.

In some cases, finding a guilty individual can be difficult or even impossible due to complex structures and delegation of powers in the corporation. Hiding the individual behind the corporate veil can also be done intentionally. Therefore, if finding and convicting of an individual was followed to the word, corporations who have neglected to arrange the power relations in a clear and exact manner could avoid liability while their more conscientious competitors were convicted. In order to avoid such unfair situations, Section 2 (Paragraph 2) allows a corporation to be sentenced even when the individual offender cannot be identified or otherwise prosecuted and convicted.

The provision is reserved for situations where it is obvious that the offence is committed by someone inside the corporation, but pin-pointing the guilty individual is not possible. Anonymous guilt can be applied, for example, when the only possible source of a toxic spill is the one and only factory by the lake, but it is not possible to establish the person(s) responsible for the violation of environmental regulations.[16] It may also happen that the individual offender is from abroad or has fled from Finland and cannot be brought to justice in Finnish Court. It is also possible that the corporation recruits someone who is mentally ill and lacks penal capacity, or has died before the court proceedings.

It must be stressed that anonymous guilt is really reserved to exceptional cases. Police and other investigative authorities must try to find the guilty individual with all measures available. Only if these measures have proven to be unsuccessful, anonymous guilt can be applied. To my knowledge, there are no cases so far from the Finnish Courts of justice.[17]

 

6.      Connection between the Offender and the Corporation

 

Evidently, any act committed by any individual is not imputable to the corporation. Certain qualifications must first be met. According to Section 3 (Paragraph 1), the first qualification is that the individual is acting on the behalf of the corporation, or for the benefit of it.

“Acting on the behalf of the corporation” includes those individuals who have a statutory or delegated power over the particular area to which the allegedly criminal conduct relates. The essential element is authority. Such authority is not dependant on the person’s status within the company, but it can be gained through a contract, even a tacit contract, if the individual is led to understand that committing an offence shall be expected or even required.

When someone acts ”for the benefit of the corporation”, he does not have formal authority for his actions. In fact, the action may not even be accepted. We can consider situations where the employees of a company in financial crisis try to help the corporation by breaking environmental and work safety regulations. Essential elements are the opportunity to act, and that the corporation benefits from the activity. In these cases the corporation may be held liable even though the acts were done in defiance of express corporate policy or due diligence program. However, the corporation must benefit de facto from the illegal conduct. A mere benefiting purpose is not enough to invoke corporate criminal liability.[18]

The second condition for corporate liability is that the offence has been committed by someone belonging to the management of the corporation or is in a service or employment relationship with it or has acted on assignment by a representative of the corporation. Offences committed for the benefit of the corporation by an outsider do not invoke corporal liability.

On the other hand, the actor can be anyone working or acting in or for the company.[19] To fulfill the requirement, the relationship must not even be formally correct, and the corporation can be made liable for hiring someone behind the scenes to commit a crime. Hiring such a “hit-man” can be done, for example, for the purpose of illegally exporting toxic waste.

The fact that the corporation can be sentenced to a fine for an offence committed by an individual offender raises the question of whether the corporation can later demand the individual to pay damages for the corporation’s financial loss. According to Section 3 (Paragraph 2), the corporation has no right to claim damages from the offender for the corporate fine it has paid, “unless such liability is based on statutes on corporate and foundations”. In practice, this denotes that corporate agents are divided into two categories with regard to their liability for corporate fines. The first group consists of ordinary employees and agents who are not liable for the corporate fines.

On the other hand, members of corporate management can be liable to the corporation of the financial damages. According to Chapter 22 (Section 1) of the Limited Liability Companies Act[20], a Member of the Board of Directors, a Member of the Supervisory Board and the Managing Director are liable in damages for the loss he has, in violation of the duty of care, in office deliberately or negligently caused to the company.

 

7.      Waiving of Charges and Waiving of Punishment

 

If the above discussed primary requisite for liability is fulfilled, the prosecution must prosecute and the Court must convict the corporation to a corporate fine.[21] The principle of procedural legality is applied in the same way as with individual criminal responsibility. Waiving of measures is, however widely accepted in corporate criminal liability, as it is also possible with individuals being prosecuted or convicted.

Firstly, according to Section 4 (Paragraph 1(a)) the Court may waive imposition of a corporate fine, if the omission of the corporation to take due care, or the participation in the offence by the management or by the person who exercises actual decision-making authority in the corporation is of minor significance. The nature and extent of the breach of the obligations as well as the role of the management of the company in the violation are taken into account.

When assessing the degree of the breach of corporate duties, the starting point is the legally expected standard of corporate behavior. The breach can hardly be regarded as slight if it has been going on for some time, or if such activity is widespread and common practice in the company. The more serious this breach of duty has been, the more justified it is to sentence the company.

 Similarly, direct involvement of the management in the crime must be regarded as a very condemnable factor. The involvement of the management can be slight, for example, if arranging supervision for the offending individual has been particularly difficult, or if the violation has been unpredictable. In such cases, the corporation’s contribution to the offence has been of minor significance. The more authoritative the position of the offender, the better he can be identified with the corporation – and the more justified it is to impose a fine on the company.

Both of these criteria have already been taken into account as the primary criteria listed in Sections 2 and 3. These criteria thereby become scrutinized twice; firstly, their existence is the very basis of corporate criminal liability, and secondly, they are very important in determining the blameworthiness of corporate behavior.

Secondly, according to Section 4 (Paragraph 1(b)) a Court may waive punishing the corporation if “the offence committed in the operations of the corporation is slight”. The criteria refer to the seriousness of the offence as well as the amount of the damages or danger caused by the offence. It is obvious that committing a crime having expansive and widespread consequences is more serious than a trivial one time regulatory violation. The starting point is an average offence of the same type. If the harm or danger has been clearly less than that of an average case, punishment may be waived.

According to Section 7 (Paragraph 1) already the prosecutor may waive the bringing of charges, if one of the above discussed criteria is fulfilled, and the corporation has voluntarily taken the necessary measures to prevent new offences. The measures do not need to have been initiated by the company itself, but they must have been voluntary. Such measures can include imposing internal regulations or due diligence programmes, developing employee training or investments in environmental protection and safety at work.

The Supreme Court case KKO 2008:61 illustrates corporate criminal liability in work safety offences. In a meat finery factory, an employee had worked in a meat mass mixer. He had lost one of his fingers while emptying the machine. A foreman and the Production Manager were responsible for workers’ adequate training, supervision and orientation, as well as monitoring of machinery and equipment safety. They were convicted to fines for work safety offence and negligent causing of bodily injury.

Also the company was convicted to a corporate fine of 20.000 Euros for work safety offence. The company had not taken due care and caution to prevent the crime. Previous similar kind of prosecutions of corporate activities showed at least some disregard for the prohibitions and commands of the law. The company had installed immediately after the accident the machine with a security switch which will prevent similar injuries in the future. The company had also otherwise taken measures to improve occupational safety and health. These measures could not, however, remove the previous lacks in the corporations work safety culture. The corporate fine of 20.000 Euros was not considered unfair.

Thirdly, according to Section 4 (Paragraph 2(a)) other consequences imposed to the corporation as a result of the offence are taken into account. Such collateral consequences may work as a mitigating factor when considering whether a corporation should be convicted or not. The consequences should primarily be of official nature, and they can include such measures as paying for damages[22], forfeiture[23] and administrative sanctions[24]. Such unofficial consequences as adverse publicity can only be taken into consideration in extreme situations where the combination of a fine and other consequences would mean an unreasonable hardship for the company.

In the case KKO 2011:17 a company was convicted to a corporate fine of 20.000 Euros for impairment of the environment.  The administrative fines, which had previously been convicted to the company, were not taken into account, because the offence was intentional.

Fourthly, according to Section 4 (Paragraph 2(b)) the measures taken by the corporation to prevent new offences, to prevent or remedy the effects of the offence or to further the investigation of the offence, can lead to waiving of punishment.  Such measures are of particular importance when their execution has become very expensive to the corporation.

Fifthly, according to Section 4 (Paragraph 2(c)) it can also be unreasonable to convict the corporation if a member of the management of the corporation is sentenced to a punishment, and the corporation is small, the sentenced person owns a large share of the corporation or his personal liability for the liabilities of the corporation are significant. This factor can even, according to Section 7 (Paragraph 2), lead already to waiving of charges, if the individual offender has already been sentenced to a punishment.

The criterion of the size of the company is primarily aimed at preventing unreasonable hardship in small companies. The decisive factor is the number of employees in the company. When the company has less than 20 employees, the need to sentence both the individual and the company should be at its smallest. This covers about 40% of Finnish companies[25].

The individual offender’s ownership in the company has great significance in determining whether the company should be punished. The core figure is 50 % of the company. If the offender’s share of the company is clearly less than a half, it should not normally affect corporate sentencing. The individual offender’s personal liabilities for the liabilities of the corporation refer to personal securities given by the individual. If such securities are significant, this must be taken into consideration.

In the case KKO 2003:39, the Managing Director of a small company was convicted to 9 months of suspended imprisonment for impairment of the environment. All of the company’s shares were owned by his parents. The only Members of the Board were the Managing Director and his wife. The Managing Director had decided the company policies alone and independently.

Although he did not own shares in the company, and although he was not responsible of the obligations of the company, a corporate fine would in reality have affected essentially only him. Therefore, the prosecutor’s claim of a corporate fine was rejected.

 

8.      Sentencing Corporations

 

In the Finnish criminal law thinking, the principle of predictability requires clarity and simplicity of the penal system. With this in mind, only sanctions officially termed as punishments can be used for punitive purposes. Administrative sanctions should never be used for such purposes. Calling sanction a punishment underlines the disapproving stigma attached to penal sanctions, which can have special importance for corporate criminal liability.[26]

According to Section 5, the minimum corporate fine is 850 Euros, and the maximum is 850.000 Euros[27]. This latitude applies to all offences a corporation can be sentenced to – defining a suitable sentence is left to the discretion of the Courts. There are no other corporate punishments. For example such as warning, suspended corporate fine, formal publication of the conviction, placement under judicial supervision and the dissolution of the corporation, which are partly in use in France, are in Finland considered unnecessary, ineffective, unsuitable and difficult to administer.

It should be noted that there are other sanctions in Finland which are convicted in the criminal procedure and are based on an offence committed within a corporation. Otherwise the penalty range might not meet the standard of effective, dissuasive and proportionate sanction.

If a Member of the Board of Directors or the Managing Director or a de facto director of the company is found liable for essential breach of his legal duties in the company, he can be convicted to a ban on business operations for 3-7 years.[28] An individual who is convicted for animal welfare offence can be banned on keeping of animals either temporarily or permanently.[29] The company is convicted to forfeiture of the net proceeds of the crime, which can be savings made with the environmental offence or work safety offence.[30]

In administrative procedure, a corporation can be convicted to severe punitive tax increase because of fraudulent or false information given to tax officials. The Finnish Competition Authority can impose an administrative fine for violations on Competition Act[31] or other antitrust legislation which can be 10% of the corporation’s annual revenue. Outside the criminal procedure, for example subsidy fraud and misuse of a subsidy can lead to disqualification of the company from applying and receiving new EU subsidies for several years.

The aim of the corporate fine is to show official disapproval towards corporate illegal activities, encourage obedience in the future in the convicted company (special deterrence) and influence in the corporate practices in general (general deterrence). The purpose of the fine is not to influence legal and acceptable corporate activities. In reality, separating the two is hardly possible. Therefore it is emphasized that the fine should never be set so high that the corporation cannot continue its activities or ends up in bankruptcy[32].

The basis for calculation of the corporate fine is regulated in Section 6.[33] The extent of the omission and the participation of the management are taken into account. For example, intentional encouragement of the employees into non-compliance must be regarded as more serious than neglecting employee training or developing due diligence programmes. The extent element refers also to how many employees are involved in the activity and for how long the illegal practices have been continuing. A further possibility is that the illegal activity has become almost habitual in the corporation, although none of the specific acts are very serious as such. Criminal activity is extensive also when it affects a large geographical area or vast number of people.

In the above referred oil refinery case KKO 2008:33 the Supreme Court emphasized that oil had reached a considerable amount of soil and shoreline of the sea, the damage was widespread and the offence serious. Despite previous similar oil transfer errors, and thus of known environmental risks, and although required security arrangements could have been built at a reasonable cost, the company had left environmental safety to depend on the caution of the employees.

The company had suffered a loss of 4 million Euros in repairing the damages and investing in new environmental technology. This sum was not considered to be unexpectedly high or significant. Such investments should not be taken into account when considering sentencing a corporate fine. The Supreme Court concluded that the convicted individuals were two company Managers. The offence had demonstrated significant deficiencies in the company's operations. The environmental consequences were significant. The company's sales were over 7 billion Euros and thus remarkably high, and the company's solvency and earnings were good. A corporate fine of 500.000 Euros was considered to be in a fair proportion to the nature of the offence and the company's financial position.

The type of offence must be taken into account, and the aggravated form of an offence must be sentenced more severely than the basic offence.

The status of the perpetrator is also essential. The higher up in the organization the perpetrator is, the easier it is to identify his actions with those of the corporation. Hence, an offence committed by a person with a considerable amount of authority must be regarded as more condemnable than an offence committed by someone farther down on the corporate-ladder. It is justifiable to require a corporation to be particularly careful when selecting management who will be responsible for corporate policy and decision-making.

The case KKO 2009:1 concerned corporate criminal liability for security markets offences. TJ Group Oyj had offered to the public new shares to the company. At the same time, the Managing Director and a Member of the Board had sold their own stake in the shares in the Stock Exchange.

The Managing Director and the Member of the Board were convicted to over two years of imprisonment of security markets information offences and abuse of insider information. They had published stock exchange releases, listing prospects and interim reports of the company’s performance and prospects, which were untrue and misleading and were likely to materially affect the value of the securities. The accused had been aware of the reality of the company's earnings, financial position and prospects of the listing. The company had claimed, e.g., that it belonged to the few global internet consulting companies, whose operational profits would remain extremely positive. The company's interim financial report had expected it to reach the European market leadership within two years of preliminary results.

The Supreme Court noted TJ Group's financial situation to be weak especially because the negative publicity of the criminal case. On this basis, the corporate fine should be lower than what it otherwise would be, taken into account the size of the company and the nature and extent of the crime. However, because the Managing Director and a Member of the Board had used their responsible positions in the company to commit intentional and serious offences, the company was convicted to 100.000 Euros corporate fine.

The violation of the duties of the corporation can be deemed “heedless”, if breach of rules, regulations and administrative supervision has been continuous, or if specific orders or recommendations by administrative agencies are violated intentionally. Such breaches reflect a general negative attitude towards a standard set in legal order and can thus be defined as “heedless”.

The general grounds for sentencing provided elsewhere in the Criminal Code are also taken into account. The sentence shall be determined so that it is in just proportion to the harmfulness and dangerousness of the offence, the motives for the act and the other culpability of the perpetrator manifest in the offence.[34] The uniformity of sentencing practice is given special emphasis. [35]

For example the methodical nature of the criminal activity, commission of the offence as part of organized crime, commission of the offence for remuneration, and the criminal history of the perpetrator may increase the punishment.[36] Regarding deliberate planning and risk taking as an aggravating factor, the criminal conduct must have required more planning than an average crime of the same type, or that the offender has sought avenues to avoid disclosure of the crime. Corporate activities can be regarded as organized crime when a corporation’s main purpose is to act as a shield covering illegal activities. Such cover up corporations can be used in, e.g., subsidy frauds, business crimes and money laundering. An offence is committed for remuneration when the corporate offender receives financial benefits from someone outside the company. Such a situation can take place, for example, if a corporation “hires” another corporation to illegally dumb hazardous waste. Criminal history in corporal activities can increase the punishment if the new offence is similar to the older ones and the time interval between them is not too long.

On the other hand, for example significant pressure, threat or a similar influence that has affected the commission of the offence, exceptional and sudden temptation that has led to the offence, and the exceptionally great contribution of the affected party to the crime can decrease the capability of the perpetrator to confirm to the law. These factors reduce the punishment.[37] Particularly small and financially dependent companies can come under such pressure from a larger company that they are practically forced to commit a crime. The subsidy procedures can be so unprofessionally organized that companies applying for benefits are nearly “invited to cheat” the administrative bodies.

Also voluntary attempts of the perpetrator to prevent or remove the effects of the offence or his attempt to further the clearing up of the offence can reduce the punishment.[38]  Voluntary attempts to mitigate the damages and help investigators are important to secure fast and efficient reparation of damages.

In addition, punishment can be mitigated for example if the punishment would be unreasonable because of a considerably long period that has passed since the commission of the offence.[39] Of course, the statute of limitations[40] applies also to corporate criminal liability. Usually the offences that fall under corporate criminal liability cannot be charged at all after two or five years of their commission, depending on the type of offence.

When evaluating the financial standing of the corporation, consideration shall be taken of the size and solvency of the corporation, as well as the earnings and the other essential indicators of the financial standing of the corporation. It is a general criminal law principle that the offender’s ability to pay shall be taken into account when determining the size of the fine[41]. When assessing the size of a corporation, the criteria can be the number of the employees or the corporate yearly income. The size as well as the solvency of the corporation must be judged as they are at the time of the sentencing. Assessment of the earnings, however, requires information of at least one accounting period.[42]


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ANNEX 1. Unofficial translation of Chapter 9 (743/1995) of the Finnish Criminal Code (39/1889) (updated to May 2011)


Chapter 9 - Corporate criminal liability (743/1995)

Section 1 – Scope of application (61/2003) 

(1)    A corporation, foundation or other legal entity (hereafter “corporation”) in whose operations an offence has been committed may on the request of the public prosecutor be sentenced to a corporate fine if such a sanction has been provided in this Code for the offence. 

(2)    The provisions in this chapter do not apply to offences committed in the exercise of public authority.

Section 2 – Prerequisites for liability (61/2003)

(1)    A corporation may be sentenced to a corporate fine if a person who is part of its statutory organ or other management or who exercises actual decision-making authority therein has been an accomplice in an offence or allowed the commission of the offence or if the care and diligence necessary for the prevention of the offence have not been observed in the operations of the corporation. 

(2)    A corporate fine may be imposed even if the offender cannot be identified or otherwise is not punished. However, no corporate fine shall be imposed for a complainant offence which is not reported by the injured party so as to have charges brought, unless there is a very important public interest for the bringing of charges.

Section 3 – Connection between offender and corporation (743/1995)

(1)    The offence is deemed to have been committed in the operations of a corporation if the perpetrator has acted on the behalf or for the benefit of the corporation, and belongs to its management or is in a service or employment relationship with it or has acted on assignment by a representative of the corporation. 

(2)    The corporation does not have the right to compensation from the offender for a corporate fine that it has paid, unless such liability is based on statutes on corporations and foundations.

Section 4 – Waiving of punishment (61/2003)

(1)    A court may waive imposition of a corporate fine on a corporation if: 

(a)    the omission referred to in section 2(1) by the corporation, or the participation in the offence by the management or by the person who exercises actual decision-making authority in the corporation is of minor significance, or

(b)    the offence committed in the operations of the corporation is slight. 

(2)    The court may waive imposition of a corporate fine also when the punishment is deemed unreasonable, taking into consideration: 

(a)    the consequences of the offence to the corporation,

(b)   the measures taken by the corporation to prevent new offences, to prevent or remedy the effects of the offence or to further the investigation of the omission or offence, or

(c)    where a member of the management of the corporation is sentenced to a punishment, and the corporation is small, the sentenced person owns a large share of the corporation or his or her personal liabilities for the liabilities of the corporation are significant.

Section 5 – Corporate fine (971/2001)

A corporate fine is imposed as a lump sum. The corporate fine is at least 850 Euros and at most 850.000 Euros.

Section 6 - Basis for calculation of the corporate fine (743/1995) 

(1)    The amount of the corporate fine shall be determined in accordance with the nature and extent of the omission or the participation of the management, as referred to in section 2, and the financial standing of the corporation.

(2)    When evaluating the significance of the omission and the participation of the management, consideration shall be taken of the nature and seriousness of the offence, the status of the perpetrator as a member of the organs of the corporation, whether the violation of the duties of the corporation manifests heedlessness of the law or the orders of the authorities, as well as the grounds for sentencing provided elsewhere in the law.

(3)    When evaluating the financial standing of the corporation, consideration shall be taken of the size and solvency of the corporation, as well as the earnings and the other essential indicators of the financial standing of the corporation.

Section 7 – Waiving of charges (61/2003) 

(1)    The public prosecutor may waive the bringing of charges against a corporation, if: 

(a)    the omission referred to in section 2(1) by the corporation, or the participation in the offence by the management or by the person who exercises actual decision-making authority in the corporation has been of minor significance in the offence, or

(b)   only minor damage or danger has been caused by the offence committed in the operations of the corporation 

and the corporation has voluntarily taken the necessary measures to prevent new offences. 

(2)    The bringing of charges may be waived also if the offender, in the case referred to in section 4, paragraph 2(c), has already been sentenced to a punishment and it is to be anticipated that the corporation for this reason is not to be sentenced to a corporate fine. 

(3)    Service of a decision not to bring charges against a corporation or to withdraw charges against a corporation shall be given by post or through application as appropriate of what is provided in chapter 11 of the Code of Judicial Procedure. The provisions of chapter 1, sections 10 and 11 of the Criminal Procedure Act (689/1997) on the waiving of charges apply correspondingly to the decision. In the case referred to in chapter 1, section 10, paragraph 1 of the Act the prosecutor shall instead of the question of culpability, submit to the consideration of the court the question of the existence of grounds for corporate criminal liability. 

(4)    The provisions of chapter 1, section 12 of the Criminal Procedure Act on the revocation of charges applies to the revocation of charges on the basis of paragraph 1. However, service of the revocation shall be given only to the corporation.

Section 8 – Joint corporate fine (743/1995) 

(1)    If a corporation is to be sentenced for two or more offences at one time, a joint corporate fine shall be imposed in accordance with the provisions of sections 5 and 6. 

(2)    No joint punishment shall be imposed for two offences, one of which was committed after a corporate fine was imposed for the other. If charges are brought against a corporation which has been sentenced to a corporate fine by a final decision, for an offence committed before the said sentence was passed, a joint corporate fine shall also not be imposed, but the prior corporate fine shall be duly taken into account when sentencing to the new punishment.

[Section 9 has been repealed; 297/2003]

 Section 10 – Enforcement of a corporate fine (673/2002) 

(1)    A corporate fine is enforced in the manner provided in the Enforcement of Fines Act (672/2002). 

(2)    A conversion sentence may not be imposed in place of a corporate fine.

 

ANNEX 2. List of offences falling under corporate criminal liability in Finland (updated to May 2011)


Economic crimes

Employment offences (Ch 47)

-          Work safety offence

Environmental offences (Ch 48)

-          Impairment of the environment

-          Nature conservation offence

-          Building protection offence

Security markets offences (Ch 51)

-          Abuse of insider information

-          Market price distortion

-          Security markets information offence

Business offences (Ch 30)

-          Marketing offence

-          Unfair competition offence

-          Business espionage

-          Misuse of a business secret

-          Bribery in business

-          Acceptance of a bribe in business

Violation of incorporeal rights (Ch 49)

-          Copyright offence

Regulation offences and smuggling (Ch 46)

-          Regulation offence

-          Smuggling

Receiving and money laundering offences (Ch 32)

-          Receiving offence

-          Money laundering

Offences against public finances affecting the European Communities (Ch 29)

-          Tax fraud

-          Subsidy fraud

-          Misuse of a subsidy

Forgery (Ch 33)

-          Forgery

-          Possession of forgery materials and instruments

Means of payment offences (Ch 37)

-          Counterfeiting

-          Preparation of counterfeiting

-          Use of counterfeit money

-          Means of payment fraud

-          Preparation of means of payment fraud


Crimes against personal liberty, sexual rights, public authorities and public order

Sex offences (Ch 20) and offences against personal liberty (Ch 25)

-          Trafficking in human beings

-          Pandering

Offences against the public authorities (Ch 16) and offences against public order (Ch 17)

-          Giving of bribes

-          Giving of bribes to a member of Parliament

-          Participation in the activity of a criminal organization

-          Arrangement of illegal immigration

-          Animal welfare offence

-          Organized gambling

-          Distribution, marketing and possession of sexually obscene pictures depicting children, aggravated violence or bestiality

-          Possession of sexually obscene pictures depicting children

 

General endangerment

Endangerment (Ch 34)

-          Nuclear device offence

-          Preparation of nuclear device offence

Terrorist offences (Ch 34a)

-          Offence made with terrorist intent

-          Preparation of a terrorist offence

-          Directing of a terrorist group

-          Promotion of a terrorist activity

-          Training for the commission of a terrorist offence

-          Recruitment for a terrorist offence

-          The financing of terrorism

 

Intoxicant crimes

Narcotics offences (Ch 50)

-          Narcotics offence

-          Preparation of a narcotics offence

-          Abetting a narcotics offence

Alcohol offences (Ch 50a)

-          Alcohol offence

 

Computer crimes

-          Endangerment of data processing (Ch 34 Sect 9a)

-          Criminal damage to computerized data or other recording (Ch 35 Sect 1(2))

-          Computerized fraud by interfering with the operation of a data system (Ch 36 Sect 1(2))

-          Message interception (Ch 38 Sect 1)

-          Interference with communications (Ch 38 Sect 5)

-          Interference in a computer system (Ch 38 Sect 7)

-          Computer break-in (Ch 38 Sect 8)

 

ANNEX 3. Corporate fines convicted in Finland 2005-2009, all court instances

 

Offence

Convictions of natural persons

Convictions of corporate fines

Medium corporate fine, €

Work safety offence

877

82

5 208

Impairment of the environment

140

8

68 750

Abuse of insider information,

security markets information offence

7

3

55 333

Business espionage,

misuse of business secret

15

3

21 000

Distribution, marketing and possession of child pornography

107

2

1 000

Animal welfare offence

463

2

20 000

Money laundering

63

1

100 000

Total

1672

101

13 347

 


[1] Especially, in an association of individuals such as a corporation, a team spirit is established by numerous learning processes. The Milgram Experiment (see Stanley Milgram, Das Milgram-Experiment (1974)) has shown very clearly the extent to which hierarchical structures are able to exert pressure on individuals to act in ways they never would act in the private sphere.

[2] Oikeushenkilön rangaistusvastuu. Rikoslakiprojektin ehdotus. Oikeusministeriön lainvalmisteluosaston julkaisu 13/1987 (”The Criminal Liability of Corporate Bodies”), in Finnish.

[3] Government Bill number 95/1993, in Finnish. See unofficial translation to English in ANNEX 1.

[4] Parliament Act number 743/1995.

[5] Parliament Act number 515/2003.

[6] Parliament Act number 624/2006.

[7] Chapter 47 (Section 7) and Chapter 48 (Section 7) of the Criminal Code, Parliament Act number 578/1995.

[8] The total list can be found as ANNEX 2.

[9] See ANNEX 3 of the corporate fines convicted in Finland in 2005 – 2009.

[10] However, it remains unclear why no corporate fines have been convicted in cases of, e.g., arrangement of illegal immigration, pandering and human trafficking, copyright offence or giving of bribes. It is possible that these crimes are not committed on behalf or in the operations of a corporation, but are solely individual criminality. It is also possible that the police have not investigated the role of the legal persons behind the crimes, because they are often foreign companies or other legal entities. Furthermore, the prosecutors may be reluctant to claim corporate fines in cases which do not fall within the scope of a typical corporate offence.

[11] The recommendations of the Council of Europe focus solely on the behavior of persons who have significant leadership responsibilities in the corporation. This is a very restricted approach to corporal criminal liability, as it leaves the vicarious responsibility in the company mostly aside.

[12] Gross negligence is not required as, e.g., in the Model Penal Code (28 May 2009), Section 2.5.3..

[13] This ”responsible corporate officer doctrine” is widely applied in the USA. See, e.g., concerning environmental legislation U.S. v. Brittain, 931 F. 2d 1413 (19th Circuit 2001) and U.S. v. MacDonald & Watson Waste Oil Co., 933 F. 2d 35 (1st Circuit 1991).

[14] The requirement resembles closely the German criteria and theory of ”raising the risk” of violation. See, e.g., Bernd Schünemann, Die Strafbarkeit der juristischen Personen aus deutscher und europäischer Sicht, in Bausteine des europäischen Wirtschaftsstrafrechts – Madrid-Symposium für Klaus Tiedemann (1994), p. 156-159. See also Roland Hefendehl, Corporate Criminal Liability: Model Penal Code Section 2.07 and the Development in Western Legal Systems, in Buffalo Law Review 2000, p 299-300.

[15] What is a “significant increase of a risk” can naturally not be expressed in exact percentage. The Courts must rely on general rules of experience. The most critical factor is, whether fulfilling the obligations would have had any significance in preventing the crime from taking place.

[16] If there are several suspect factories by the lake, the source of the toxic spill must of course be established.

[17] Anonymous guilt is as such apparently inconsistent with the requirement of individual guilt. Therefore it must be stressed that also in these cases the prosecution must prove that a crime has taken place – that both the wrongful act and the required culpability are fulfilled. Showing that someone was negligent should not cause overwhelming problems. To give proof to ”anonymous intentionality or gross negligence” can, however be more difficult.

[18] The requirement of benefiting purpose excludes those offences in which an individual has acted solely for his own benefit; for example, by evading EU subsidies aimed at the company to his own pocket. Clearly, cases of sabotage are similarly outside the scope of liability.

[19] This expansion of ”respondeant superior doctrine” is accepted also in the USA. See Model Penal Code (28 May 2009) Section 5.5.3. See already U.S. v. Hilton Hotels, 467 F. 2D 1000 (9th Circuit 1972).

[20] Parliament Act number 624/2006. Auditors and shareholders fall outside this provision.

[21] In the beginning, the prosecution had never an obligation to bring charges or the courts to convict the corporation. Both could evaluate whether prosecuting and sentencing were appropriate and reasonable in the particular case. However, it turned out that the prosecutors and Courts did not use this possibility in a uniform manner. Hence, in 2003 the corporate criminal liability was enacted to be compulsory.

[22] For example, impairment of the environment can lead to huge compensations for damages.

[23] Forfeiture of proceeds of crime is applied, e.g., to a company which has saved money by violating work safety regulations or environment protection regulations. The money saved by the offence is convicted to the State.

[24] Conviction for subsidy fraud or misuse of a subsidy leads usually to disqualification of the company from applying and receiving new EU subsidies for several years. Conviction for animal welfare offence can lead to banning on keeping of animals temporarily or permanently.

[25] In Finland, 38 % of the corporations were in 2009 such small legal entities. Source: Tilastokeskus Toimiala Online (Statistics Finland).

[26] In Sweden a sanction called ”corporate fine” (företagsbot) is classified as ”other special consequence of a crime” (annan särskild rättsverkan av brott). Its amount is 5.000 – 10.000.000 SEK (approximately 550 – 1.100.000 Euros). In reality the effects of a företagsbot are very close to those of a penalty. See the Swedish Criminal Code (Brottsbalk (1962:70)), Chapter 36 (Sections 7 – 10a) (2006:283). According to the Finnish approach, such ”hidden” punishments tend to confuse the criminal law system and threaten legal safeguards of the individual offender and the corporation.

[27] In the preparatory bodies some argued that it would be better to leave the maximum open, because it is impossible to forecast how serious the ”worst case” could possibly be. However, the principle of legality required also the maximum to be defined in the law.

[28] The Act on Ban on Business Operations, Parliament Act number 1059/1985.

[29] Chapter 17 (Section 23) of the Criminal Code.

[30] Chapter 10 (Section 1) of the Criminal Code.

[31] The Act on Competition Restrictions, Parliament Act number 480/1992.

[32] As an anecdote it can be mentioned that Finland was the first State to abolish death penalty during peace time, which happened in 1825. Therefore it is only natural that there is no ”death penalty on corporations” either.

[33] The medium corporate fines are, e.g. in work safety offences around 5.000 Euros and impairment of the environment around 70.000 Euros. See ANNEX 3.

[34] Chapter 6 (Section 4) of the Criminal Code.

[35] Chapter 6 (Section 3(1)) of the Criminal Code.

[36] Chapter 6 (Section 5) of the Criminal Code.

[37] Chapter 6 (Section 6(a-b)) of the Criminal Code.

[38] Chapter 6 (Section 6(c) of the Criminal Code.

[39] Chapter 6 (Section 7(c)) of the Criminal Code.

[40] Chapter 8 of the Criminal Code.

[41] The principle has influenced strongly the Finnish sanctioning system. The most common individual punishment is day-fines, the amount of which is determined on the basis of the offenders’ incomes and wealth.

[42] See above KKO 2008:33.

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