Corporate criminal liability

Enterprises have been increasingly affected by white-collar crime investigations in recent years. In the none too distant past, there have only been a few convictions of enterprises, referred to as "associations", under the Corporate Criminal Liability Act (VbVG), which came into force in 2006 (eleven convictions in 2019 and ten in 2020). However, even the threat of criminal liability, which often takes years to investigate and can result in a considerable fine, can be extremely unpleasant for a company. The following section gives an overview as to when enterprises can be held criminally liable, providing simple practical examples for the purpose of illustration.

When does the VbVG apply?

For the VbVG to apply, an association within the meaning of the act and a connection between the criminal offence and the association are required. Associations under the VbVG are in particular defined as companies and partnerships. Clubs or legal entities under public law such as chambers or regional authorities are also covered by the VbVG, provided they are not acting in a sovereign capacity. Only criminal offences under the Criminal Code (StGB) or ancillary criminal laws or financial offences can give rise to corporate criminal liability (therefore, there is no corporate liability for administrative offences). This is how the connection between the offence and the association comes about: 

• the offence was committed by a decision-maker[1] (e.g. a member of the board of directors or managing director) or employee and
• the association benefited from this or obligations affecting the association were breached, thus making made the criminal act possible.

For decision-makers’ criminal conduct to be imputed, it is necessary for their actions not only to fulfil the facts constituting a criminal offence, but also that there is no justification for the act or reason to exclude guilt under the Austrian Criminal Code. By contrast, it is sufficient for an employee's actions to be attributed to the association if they are criminal and unlawful. It would therefore e.g. also be possible to attribute a criminal act to an association if the employee concerned was of unsound mind at the time of the offence and therefore it was impossible to establish culpable behaviour or if he acted in an excusable emergency situation. However, in these cases it would in any event be required that a breach of duties attributable to the association occurred and enabled or facilitated the employee's criminal behaviour.

Examples of criminal offences benefiting the association

Criminal offences benefiting an association should primarily be thought of as offences against property committed by a decision-maker in favour of the association. The following striking examples serve to illustrate this better:

• The managing director of a limited liability company overprices low-value goods he sells to the company's customers - if the customers are deceived about the value and characteristics of the goods, the offence of fraud has been committed.
• The management board of company A borrows electronic equipment from company B, but does not return it on the agreed return date, but keeps it for company A - in this case, the offence of misappropriation has been committed.
• A company has mistakenly received too much money from a business partner. The managing director decides not to return the amount wrongly received, but to use it for the company - this is a case of embezzlement.

For the purpose of comparison, some examples are now also presented in which no liability of the association comes into play:

• The managing director of a limited liability company pays inflated or fictitious invoices he receives from a business partner - in this case, the company did not benefit, but was harmed. Therefore, there are grounds to suspect breach of trust to the detriment of the company, which cannot justify any liability on the part of the association.
• A member of the board of directors of a stock corporation illegally grants discounts to business partners he is close to – again, there are reasons to suspect that breach of trust to the detriment of the company, thus excluding criminal liability on the part of the association.

Examples of criminal offences breaching obligations incumbent on an association

Criminal offences breaching duties incumbent on the association are often acts involving negligence, such as negligent bodily injury or involuntary manslaughter. The duties breached may be rooted in the entire legal system. In practice, breaches of the Occupational Health and Safety Act or the Working Hours Act are most relevant. Other relevant cases include those in which employers fail to fulfil their obligation to protect employees from sexual harassment; these have significantly come to the fore as punishable offences in recent years.

The prerequisite for corporate criminal liability in such a case is that organisational fault can be established within the association. Such cases of corporate liability can be found reflected in the following scenarios, for example:

• In a limited liability company producing substances hazardous to health, insufficient attention is paid to protective clothing and protective devices; as a result, an employee suffers serious damage to his health. In this case, it is indicated to impute that the offence of negligent bodily injury (by omission) was committed. Even if it is not possible to determine whose responsibility it actually was to prevent such injuries, it is sufficient for the association to be held liable if organisational fault has been identified within the enterprise.
• The employees of a transport company are forced to work overtime regularly, contrary to the provisions of the Working Hours Act. Due to acute fatigue, employee A runs over his colleague B. This may constitute a case of involuntary manslaughter attributable to the company if it cannot be ruled out that disregard for the Working Hours Act was a contributory cause of the accident.

On the other hand, attribution to the association does e.g. not apply in the following case:

• In a physical altercation between two employees of a company, one of the employees is injured. There is no indication of organisational fault on the part of the association and no connecting factor pursuant to the Corporate Criminal Liability Act.

Course of the proceedings

If the public prosecutor assumes that the association is responsible as described above, the association will be charged just like the natural persons involved. During the trial, the court must then decide on the criminal liability of the natural persons on the one hand and the criminal liability of the association on the other. The criminal liability of the natural persons will be decided on first. In the event of a guilty verdict regarding the natural persons,the trial will continue against the association and a decision will then be made on the liability of the association. In most cases of corporate liability, there is also criminal liability on the part of a decision-maker or employee.

However, it is also conceivable that the trial ends in the acquittal of the accused individual/s and continues against the association. This is for example possible if the association's responsibility due to organisational fault was established in the trial whilst it was not possible to attribute such fault to a specific decision-maker. In this case, an explicit declaration by the prosecutor is required that the application for the imposition of a fine on the association is to be decided in independent proceedings.

Sanctioning of the association

If an association is convicted by the court, it will be ordered to pay a so-called association fine. This fine is calculated on the basis of the prison sentence which would be imposed for the offence in question and the intensity of the damage/hazard or the amount of the benefit obtained in the specific case. The net profits of the association generated in the past financial years are also relevant for calculating the amount of the fine.

When calculating the association fine, mitigating factors to be taken into account include, without being limited to, subsequent behaviour within the association, for example, making amends for the consequences of the offence or taking significant steps to prevent similar offences in the future.

Furthermore, under certain circumstances, payment of the fine may be (partially) suspended if the court assumes that the association will not be liable to prosecution in the future. If the association is not subsequently found to have committed another offence within the period of probation, the fine or part of the fine which was conditionally suspended will finally waived at the end of probation and thus does not have to be paid by the association.

Finally, it should be pointed out that proceedings against an organisation may also be settled by diversion at the stage of investigation or trial, provided that the conditions for this are met. The procedure is like a settlement by diversion involving individuals; this is particularly conceivable in cases with a minor or moderate degree of criminality if the association has never been prosecuted before. In such cases, the proceedings are discontinued in return for some consideration by the organisation. Such consideration is usually a fine, however, one that is significantly lower than an association fine in the event of a conviction. It is also possible for diversion to involve instructions to the association to take certain technical, organisational or staff-related measures so as to prevent further offences.