Businesses are legally responsible for their criminal 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 usually excluded from the conceptual coverage of corporate criminal liability. Details on issues of which types of corporate entities are subject to criminal liability, for what types of acts and omissions and for the fault of which type of employees and management teams, however, is always left to the criminal policy and specific regulatory concerns of each sovereign state for various considerations ranging from protection of public interest to protection of businesses.
The concept of corporate criminal liability is a recent introduction into the Ethiopian legal system with the promulgation of the federal penal code of 2004. In addition some parts of the law bring up moot questions. For example the value added tax (VAT) proclamation talks about the criminal liability of managers and business entities. However some lawyers and even prosecutors argue that the corporate criminal liability has been in Ethiopia before the Federal Criminal Code was enacted in 2004, 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 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, tax evasion all fall under this type of liability.
Clear legal provision
As a matter of principle a corporate entity cannot be held criminally liable for something that is not expressly stated by law. Accordingly, article 34 of the federal criminal code has stipulated the same principle that corporate entities will be accountable for violation of criminal provisions only if it is specifically stated by law. For instance the customs proclamation states that “if the corporate body commits the criminal act, it shall be fined and additional measures will also be taken against it.” Similar provisions of corporate criminal liability have been inserted in the new corruption crime proclamation and income tax law. The Cassation Bench of the Federal Supreme Court also gave a binding decision 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 shareholders – 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. The other important part of the corporate entity participating in the day to day business activities of the company are the employees.
Anyone involved in the business activities of a company can be held responsible for certain acts. If someone involved in the company commits a criminal act, the business organization can be responsible.
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 may not proceed. This is, however, still a delicate area in the field of corporate liability laws. 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 may be subjected 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’s business activity then the company may 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 legally considered as 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.
Corporate criminal liability is becoming an emerging concern for businesses with the coming into force of the federal criminal code and the new laws governing complex issues of tax, customs, trade, intellectual property, corruption and similar issues. 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 following criminal prosecution.
5th Year • September 2017 • No. 54