Corporate Criminal Liability: An Emerging Concern For Businesses In Ethiopia

Businesses are legally responsible for their actions as if they were individual. This concept, known as corporate criminal liability, looks at practically every commercial or industrial organization whose existence is to make profit. As to the concept, businesses are responsible as an entity separate from their shareholders or partners.

Nonprofit and public sector organizations like charities, schools, or religious institutions are treated differently.

They are usually excluded from the conceptual coverage of corporate criminal liability. Not only is the for profit status an issue in corporate law, each sovereign state can enforce its own regulations on businesses. Therefore the issues of which types of organizations are subject to criminal liability, for what types of acts and omissions and for the fault of which type of employees is always left to the criminal policy and specific regulatory concerns of each sovereign state.

The concept of corporate criminal liability is new to Ethiopia. It was only included in the federal penal code of 2004. In addition some parts of the law bring up moot questions. For example proclamations about value added tax (VAT) talk about the criminal liability of managers and business entities. However some lawyers and even prosecutors of the Ethiopian Revenue and Customs Authority argue that the corporate criminal liability has been in Ethiopia before the Federal Criminal Code was enacted in 2004. One case petitioned to the Federal Cassation Court arguing that there was corporate criminal liability before the code was enacted, but in general this concept is a recent one in Ethiopia

 

Corporate Criminal Liability under the Federal Criminal Code

To understand how the Federal Criminal Code conceptualizes corporate criminal liability you need to read article 34. It says that whenever it is clearly stated by law, juridical persons having legal personality can be punishable for any criminal participation as principal criminal, an instigator or as an accomplice. The word juridical person is commonly used interchangeably with words like body corporate, legal entities, legal persons and organizations. Juridical Persons include Private Limited Companies, Share Companies and other type of partnerships, charities and religious organizations established as legal entities. From practice it is not common to find a criminal case in which not for-profit organizations have been criminally charged as corporate bodies. Public sector organizations, however, are not subject to corporate criminal liability as per the federal criminal code

Even though this code does not define what constitutes a government institution, in practice most are established by proclamations or regulations. They are also budgeted partially or fully by the state. For instance, for crime of corruption purpose, such definitional approach has been used to identify what types of institutions are considered as government institutions. Corruption cases usually involve these types of organizations. Business organizations, on the other hand, are more exposed to Corporate Criminal Liability and it is more common to have criminal cases in which they are charged as the principal offender. For example tax offences and other criminal offenses related with the issuance of VAT receipts, use of duty free cars and cash register machine all fall under this type of liability.

 

Clear legal provision

It may seem obvious but a business can not be held criminally liable for something that is not expressly stated by law. This is important because it prevents frivolous lawsuits when for example people are unhappy with their customer service. It means that a business organization is only legally responsible for following the specific laws in the criminal code. This is addressed in the first paragraph of article 34. This principle is also incorporated in the criminal code under article 2.

Corruption and customs crime is dealt with in other articles. For instance Article 92(2) of the customs proclamation no 622/2009 states that “if the corporate body commits the criminal act referred to under sub article 1 of this same provision it shall be fined and additional measures will also be taken against it” . The Cassation Bench of the Federal Supreme Court also gave a binding decision in a case to the effect that there has to be a clear legal provision to make juridical persons liable for criminal acts like the provision in the customs proclamation.

 

Who is legally responsible?

Legal persons are abstract entities. They do not have a physical presence and identity. It is the people – who make up the business entity that are legally responsible for the actions of the organization. For instance, private limited companies may have a board of management as a matter of choice but share companies should have a board of directors as a matter of legal criteria, without them the company cannot be registered.

Anyone involved in the business can be the responsible person for a certain act. If someone involved in the company commits a criminal act the business organization can be responsible.

Partners or shareholders should be aware that their business entity can be exposed to criminal liability for any acts of the employees and managers which are condemned by the law as a crime.

In practice, there are many cases in which the business entities are charged and sentenced because of the faulty acts of their managers and employees. If none of the charged employees and managers are found guilty, the trial of the business entity can not proceed. Therefore, partners or shareholders should be aware that their business entity can be exposed to criminal liability for any acts of the employees and managers which are condemned by the law as a crime.

 

The act must be committed in connection with the activity of the business entity

However, the act committed by the employees or managers must be connected in some way with the work of the business organization. A typical example is criminal liability associated with failure to issue a VAT receipt by a cashier. A business organization registered as a VAT payer has legal obligation to issue a VAT receipt immediately after each transaction. If a cashier fails to do this, the company and the employee will be both subject to criminal prosecution. VAT is directly related to the sale of goods and services which is the principal activity of businesses. If a staff does something that has no relationship to the company then it can not be held liable. Managers should make sure then that employees activities that have anything to do with the operation of the company are legal.

 

The requirement of intention

What intention, motive, purpose and anticipated results made the employees commit the act is a vital element for establishing corporate criminal liability. This is true for ordinary crimes also. Intention is often labelled the moral element of offenses, that is, the subjective conditions in the absence of which anyone who takes part in the commission of an unlawful act is not answerable. This is because of the legal philosophy that human beings should not be punished for what they have not intended to do. This legal philosophy is also applicable for corporate criminal liability that the corporate body should only be blamed for the intentional acts of its staff. That means the corporate body should not be liable for the negligent or accidental acts of its employees. Therefore, if there is no intention, except recourse for civil action, criminal liability can not be established against the corporate body.

According to the criminal code, the moral element of the act of the employees qualify as intentional if it can be proven that the staff committed the act with the intent of promoting the interest of the business entity or themselves through unlawful means.

 

Final Remarks

Corporate criminal liability is becoming an emerging concern for businesses with the coming into force of the federal criminal code and the ever growing complexity of tax laws and their strict application including; customs laws, trade laws, intellectual property laws and similar regulations. The bulk of laws have been operational for the last ten years and more will be promulgated in the forthcoming periods as the economic, social and political dynamics demand further regulatory measures. Accordingly, the role and participation of body corporate in the economic and social life of the nation will be more pronounced than ever which in turn leads to the regulation of their operation by the government. The regulatory measures can expose the body corporate to more civil and criminal liabilities as has been witnessed in the practical criminal cases against them. Therefore, business entities should develop the culture of sensitivity for corporate criminal liability issues so that they can be more alert to the risk of financial fines, bankruptcy and other types of unnecessary consequences.

Abebe Asamere

Abebe Asamere holds an LLB in Law and BA in Political Science and International Relations from AAU. He was a member of the executive committee and pro bono legal advisor of the Ethiopian Consumers Protection Association for six years. Later on he became president of the Association for about a year. Since 2000, he has been working as consultant and attorney at Law. He was also teaching business law at the School of Commerce at AAU on part time basis for several years. Comments can be sent to abebe.a@ethiopianbusinessreview.com or aasamere@yahoo.com

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