The importance of compliance with regard to the reform of the Spanish Penal Code

Organic Law 5/2010 of 22 June 2010, reforming the Spanish Penal Code, treats legal entities as subjects of law that are likely to commit crimes, on which real criminal sanctions can be imposed.

In order to impose criminal liability on legal entities, several conditions must be met. These different conditions constitute a penal status. In this article, we will examine some of these conditions to understand how vital it is for companies to act in accordance with the standards that are applicable to them.

Criteria

In order for a company to be held criminally liable for a crime, the following must have occurred:

  • The crime was committed by the company’s legal representatives, or its de facto or legal administrators, in the name or on behalf of the company; or
  • The crime was committed by one or more employees in the scope of their employment in the name of or for the company.

However, a company may not have to answer for crimes if its legal representatives or directors duly exercised the control expected of them over these illegal activities.

This potential relief from liability makes the presence of a compliance officer imperative because of the officer’s ability to promptly detect and avoid the risk of crimes.

Legal disclaimer

A company will be exempt from criminal liability if the following conditions are met:

  • The administrative body adopts and effectively implements, before the commission of the crime in question, an organizational and management model including surveillance and control measures designed to prevent the commission of crimes of the same nature or to significantly reduce the risk of their commission;
  • An independent corporate body, with the power of initiative and control, monitors the operation of and compliance with the existing prevention model or a legally designated person monitors the effectiveness of internal controls of the company;
  • The commission of the crime was in violation of the organizational and prevention model; and
  • There was an absence of negligent or insufficient exercise of the oversight, monitoring, and control functions of the company’s supervisory body.

The organizational and management model must serve the following purposes:

  • Identify activities within which crimes can be committed
  • Establish protocols or processes that embody the process of formation of the will of the corporation, decision-making, and execution
  • Provision of financial resources for the management model to be capable of preventing the commission of crimes
  • The obligation to inform the corporate body responsible for monitoring the operation and compliance of all the possible risks and failings of the prevention model
  • Set up a disciplinary system that appropriately sanctions the breach of the measures planned by the model
  • A periodic verification of the model and possible changes in case of major violations thereunder, changes in the organization or control structure of the company or when a new activity requires it.

Effects of liability

In the event that the company is deemed criminally liable:

  • A criminal financial punishment will be imposed and/or an order of dissolution issued. There may also be a temporary suspension of the company´s activities, temporary closure of its premises, the banning of certain activities of its corporate purpose, and the legal inability to obtain grants and state aid (Art. 33.7 Penal Code)
  • In addition to the sanctions that the Spanish Courts of Justice may impose, other consequences with the same severity include:
    • Damage to the reputation and prestige of the company in the eyes of customers and suppliers
    • Reluctance of financial institutions to grant credit or any other financial operations
    • In the case of publically traded companies, a substantial drop in its share price
    • A poor social and business image in the media.

Since the reform of the Penal Code came into effect on 1 July 2015, it is strongly recommended that companies develop, in the shortest possible amount of time if this has not yet been done, protocols in order to exonerate themselves from any liability for criminal violations on the part of its employees in the scope of their employment and functions.

Inès Ducom & Nicolás Melchior

This article is not considered as legal advice

Nicolás Melchior

A Law graduate from the Universidad Carlo III de Madrid, Nicolás Melchior specialises in corporate Law, commercial contracts and electronic commerce. Working languages: Spanish, German, English and French. For any further enquiries please Contact us