"Defective organisation": who is liable and for what?
If criminal charges are brought against a company in Switzerland, they are often for “defective organisation”. This is due to the two-tier system in which – in line with Article 102 of the Swiss Criminal Code – corporate criminal liability is regulated as follows:
- Secondary liability applies to all offences or crimes that are committed within a company, but for which no natural person can be held accountable due to inadequate organisation. The primary liability applies to the natural person; the company is only liable if it is so inadequately organised that it is not possible to identify the person responsible. The company is not accused of having committed a crime in the course of its activities, but of the fact that it is not clear who is responsible for the offence.
- Primary or ‘parallel’ corporate criminal liability applies in cases of specific offences, including supporting a criminal organisation, financing terrorism, money laundering, active and passive corruption involving Swiss officials, bribery of foreign officials and bribery of private individuals. Essentially, it applies to cases where Switzerland is bound by international law to apply corporate criminal liability. The liability applies if a company has not taken all the reasonable organisational measures that are required to prevent the criminal offence in question. The accusation is therefore that, due to inadequate organisation, it was not possible to prevent the crime. The company is then liable irrespective of the criminal liability of the natural person – both the natural and the legal person can be convicted.
Necessary and reasonable organisational measures include carry out due diligence as required by civil law when selecting employees as well as organising and monitoring the company’s operations. Additional responsibilities apply, such as the standard practices in the industry in question and international ‘soft law’, i.e. agreements or declarations of intent that are not legally binding. Fundamentally, company leadership must analyse operational threats and risks on an ongoing basis and implement corresponding mitigation measures. The law clearly requires a risk-based approach.
In Switzerland the Office of the Attorney-General is standard-setter in terms of defining the legal requirements imposed on corporate organisation. By way of an example, the conviction of commodity trader Gunvor demonstrates what the Swiss Attorney-General expects from Swiss companies in terms of adequate organisational measures to prevent corruption:
- Assess the risk of corruption in the company in light of its (business) activities; the context in which these activities are undertaken (in particular country risk and cooperation with Politically Exposed Persons, PEPs) and the size of the company;
- Implement anti-corruption measures, namely an adequate compliance programme;
- Implement a code of conduct (‘tone from the top’), internal guidelines with a particular focus on the management of agents and other intermediaries and processes on fighting corruption;
- Raise awareness internally and provide training on the fight against corruption;
- Run internal checks on compliance with anti-corruption guidelines and process and on corresponding disciplinary procedures;
- Run a process to assess and continuously improve the anti-corruption system;
- Implement internal processes that encourage and protect whistle blowers.
These requirements meet internationally recognised minimum standards and apply to money laundering and the other offences for which primary liability applies.
Corporate criminal liability may have been in place in Switzerland since 2003, but it only just meets the minimum standards required of Switzerland by the international community.
History of corporate liability in Switzerland
Until the turn of the century, the fundamental principle of societas delinquere non potest (meaning ‘legal persons (i.e. corporations) cannot commit a crime’) was generally recognised in Swiss criminal law. This was justified by the line of argument that corporations are not capable of acting in the manner required for criminal law to apply, especially since they lacked culpability or accountability. Another justification is that terms of imprisonment cannot be applied to them. Critics of this argumentation counter that corporations are capable of acting under civil law – so there is no reason why they would not also be capable of acting under criminal law.
In 1986, a fire at the chemical factory in the Schweizerhalle industrial complex triggered a discussion in Switzerland around corporate criminal liability. In 1991, the Federal Office of Justice (FOJ) presented a preliminary draft on corporate criminal liability (available in German), according to which companies would be responsible for the behaviour of their legal and de facto entities or management. However, following the consultation process the Federal Council decided against introducing corporate criminal liability due to resistance from business associations. In particular, the associations had opposed the possibility to impose sanctions that would have included: forfeiture of assets, fines of up to CHF 10 million, directives, forms of supervision, activity bans and even dissolution of the company.
Criminal corporate liability was put back on the agenda by the signature of the OECD Anti-Bribery Convention and the UN’s International Convention for the Suppression of the Financing of Terrorism. A first draft – this time put forward by business associations – provided for purely secondary liability, i.e. under the draft primary liability would continue to apply to natural persons. However, it was clear that this draft would not meet the aforementioned international standards. Therefore, the Council of States came up with a compromise and developed the two-tier model: secondary liability for general offences and primary liability for those offences for which Switzerland is obliged under international law to apply consistent corporate criminal liability. The bill adopted by parliament entered into force on 1 October 2003.