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2008

Criminal Liability of Companies NETHERLANDS Houthoff Buruma


CONTACT INFORMATION Jacqueline A. van den Bosch Houthoff Buruma P.O. Box 75505 1070 AM Amsterdam The Netherlands Tel: 31.20.605.6000 / Fax: 31.20.605.6700 j.van.den.bosch@houthoff.com www.houthoff.com

1. General 1.1. Can a company be prosecuted in your jurisdiction in a similar way as an individual offender? Please explain the main differences, if any. The following statutes and codes are relevant to corporate criminal liability in the Netherlands: Dutch Penal Code (Wetboek van Strafrecht) (DPC); Dutch Code of Criminal Procedure (Wetbooek van Strafvordering) (DCCP); Economic Offences Act (Wet Econmische Delicten) (EOA); General Tax Act (Algemene Wet inzake Rijksbelastingen) (GTA); and Dutch Corporate Governance Code (Tabaksblad Code). In the Netherlands, it has been possible for a legal person to be prosecuted for an economic offence under the EOA since 1951 and for any crime since art. 51 was introduced to the DPC in 1976. Conceptually, a legal person is treated in the same manner as a natural person: a legal person can be prosecuted for the same offences and is subject to the same sanctions.

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Art. 51 of the DPC states 1: 1. Criminal offences may be committed by natural persons and legal persons. 2. Where a criminal offence is committed by a legal person, criminal proceedings may be instituted and such penalties and measures as are prescribed by law, where applicable, may be imposed: (1) against the legal person (2) against those who have ordered the commission of the criminal offence and against those who directed such unlawful behaviour or (3) against the persons mentioned under (1) and (2) jointly. 3. In the application of the preceding sections, the following are deemed to be equivalent to legal persons: unincorporated companies, partnerships, shipping companies and special funds. Private law criteria are not decisive in determining whether a company is a legal person. A defect in the establishment or structure of a company, or the liquidation of a company, does not preclude criminal liability. 1.2. Can other types of sanctions under criminal law been imposed on companies? Describe the major types of sanctions and their legal prerequisites. See also 1.1. Any sanction that can be imposed on a natural person can also be imposed on a legal person, although a punishment that is impossible to impose on a legal entity (such as imprisonment) is not imposed. A legal person is subject to the following sanctions under art. 9 of the DPC: a fine, withdrawal of certain rights, forfeiture, public disclosure of the sentence, compensation of the victims.
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The Dutch text reads as follows: Strafbare feiten kunnen worden begaan door natuurlijke personen en rechtspersonen. Indien een strafbaar feit wordt begaan door een rechtspersoon, kan de strafvervolging worden ingesteld en kunnen de in de wet voorziene straffen en maatregelen, indien zij daarvoor in aanmerking komen, worden uitgesproken: 1. tegen die rechtspersoon, dan wel 2. tegen hen die tot het feit opdracht hebben gegeven, alsmede tegen hen die feitelijke leiding hebben gegeven aan de verboden gedraging, dan wel 3. tegen de onder 1 en 2 genoemden te zamen. 3. Voor de toepassing van de vorige leden wordt met de rechtspersoon gelijkgesteld: de vennootschap zonder rechtspersoonlijkheid, de maatschap, de rederij en het doelvermogen.

1. 2.

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1.3.

Sanctions such as closure of the business enterprise (art. 7(c) EOA) and legal restraint of the enterprise (art. 8(b) EOA). can also be imposed on a legal entity when it has been convicted for an economic crime. Are there any other kinds of sanctions in other fields of law which can be impposed on companies following the commission of an offence by its directors, managers or employees (e.g. fines, dissolution of a company, etc.)? Please describe the relevant sanctions and summarize the legal prerequisites. If the legal person itself is not criminally liable for a criminal activity committed by another, no sanction can be imposed on the legal person.

2. Criminal Liability of Companies 2.1. What types of sanctions can be imposed on a company? What is the minimum/maximum punishment for each sanction? If the sanctions distinguish between certain types of offences please describe the sanctions for the most relevant offences or groups of offences. See also 1.2. The type of sanction and the maximum that can be imposed depends on the offence for which the legal person is convicted. Criminal cases against legal persons often concern financially related offences, such as forgery, forgery of tax documents, environmental matters and other economic offences. In addition, it has become more common to prosecute companies for criminal offences such as money laundering and participation in a criminal organisation. 2 The maximum punishments for these offences are as follows: forgery (art. 225 DPC): 6 years imprisonment or 67,000 fine tax fraud (art. 68 GTA): 4 years imprisonment or 16,750 fine if proven that the offence was committed intentionally; money laundering (art. 420 bis DPC): 4 years imprisonment or 67,000 fine; participation in a criminal organisation (art. 140 DPC): 6 years imprisonment or 67,000 fine in case of economic offences the maximum sentence depends on the specific offence and whether the act is done intentionally.

For a company to be successfully prosecuted for participation in a criminal organisation, it is by no means necessary for the company's core business goals and practices themselves to be illegitimate.

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The concept of a minimum sentence is unknown to Dutch law. Under art. 9a of the DPC, the absolute minimum is a conviction without any punishment imposed at all. 2.2. What are the legal requirements for each type of sanction? Every sanction described in 2.1 can be imposed on a legal person. There are no additional legal requirements. 2.3. Is the prosecution of a company confined to certain types of offences or to offences committed by certain hierarchy of company staff? If yes, please explain in more detail. No. See 1.2. 2.4. How will acts (or omissions) of individuals (directors, managers, employees) be attributed to a company? Can acts or omissions been attributed if the individual violated only internal (but not statutory) rules or regulations? Companies act through natural persons. Whether the criminal actions of a natural person can be attributed to a legal person depends on whether the company had control over the criminal activity and accepted it. 3 This means that if the criminal activity of a natural person is part of the normal business of the company, or is part of the companys official or unofficial policy, or is more or less accepted by the company, the criminal offence can be attributed to the company. If the criminal actions of a natural person also violate the company's internal rules and regulations, the criminal activity can still be attributed to the company if people in control within the company knew of the activity and had the means to stop it, but refrained from doing so. Criminal activity is more than an isolated incident. A single criminal act committed by a single employee will generally not result in the company being found criminally liable. 2.5. How will mens rea of the company be established? A difference exists with respect to mens rea where it concerns more serious offences: felonies and minor offences: misdemeanours. In the case of a felony, to establish that the legal person acted with mens rea, it is necessary to prove that people within the management were aware of the criminal activity itself or of the risks of such activity (in other words, dolus eventualis is sufficient) and recklessly neglected to take adequate measures to address the problem(s) that led to the criminal activity. Intent need not have been present
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Supreme Court 1 July 1981, NJ 1982, 80 ("The Kabeljauw case")

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throughout the company, but depending on the size of the legal person the awareness of one or two persons may not be enough. To establish mens rea in case of a misdemeanour, the requirements are very low. Intent is not required. Merely failing to see a potentially risky situation, even though no grave mistakes have been made, is sufficient for criminal liability (culpa). 2.6. Is there a strict liability of a company for certain kinds of offences for which mens rea is not required? Please describe for which kind of offences mens rea is necessary and for which not. No, but see the description in 2.5 of the difference in mens rea for felonies and misdemeanours. 2.7. Is it necessary to identify and/or convict the individual offender in order to prosecute a company? No, but it may be more difficult for a prosecutor to prove that the criminal activity of a natural person is attributable to the company if the natural person is unknown. 2.8. What additional defenses (except of lack of offence) can a company raise? See 2.5 for the legal requirements for attributing criminal activity to a legal person. A company mounting a defence should focus on: the general and specific measures taken to avoid criminal activity, the management's lack of knowledge of the criminal activity, if the latter is not possible, showing that adequate measurements were being taken (or about to be taken) against the criminal activity. 2.9. Can a company avoid punishment if it is sufficiently organized, has duly instructed its directors, managers or employees and has taken reasonable care to exert control on its directors, managers or employees? What extent or organizational requirements and control are necessary to avoid conviction? Due instruction of the employees and adequate exertion of control over the employees will certainly make it less likely that criminal activity can be attributed to the legal person. However, as indicated in the answers to 2.4 and 2.5 above, even if these measures are taken, it will still be possible for criminal activity to be attributed to the company if management has knowledge of the criminal activity and more or less accepted it. The Dutch Corporate Governance Code ("Tabaksblad Code") entered into force in 2004. 4 This code aims to reform the management of corporations listed on the stock exchange and to enhance the transparency of annual reports. Violation of the Dutch
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An English version of the Tabaksblad Code is available at: http://www.corpgov.nl/page/downloads/CODE%20DEF%20ENGELS%20COMPLEET%20II.pdf

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Corporate Governance Code may play a role in a finding that criminal activity is attributable to the company. 2.10. Can certain kinds of sanctions been executed during the investigative phase of a criminal proceedings (e.g. preliminary seizure of bank accounts, attachment of claims)? Yes. For example, during the investigative phase, the assets, records and other goods of the company may be seized. If it is suspected that economic crimes were committed, an order to refrain from all or some business activities may be given and certain rights of the company may be suspended. 2.11. Can both the individual offender and the company been convicted for the same offence? Yes. 2.12. Can a parent/group company been prosecuted for offences being committed within a subsidiary? Yes. See 2.5. The same criteria apply. 3. Criminal Sanctions on a Company 3.1. What other types of sanctions but a criminal punishment can be imposed on a company? Please describe the types of sanctions and their legal requirements. Regulatory procedures and measures exist in Dutch law, but these are not imposed in criminal proceedings. 3.2. Is the imposition of these sanctions confined to certain types of offences? Describe the most relevant sanctions and types of offences? N/A 3.3. What defenses can a company raise against these offences? N/A 3.4. Can such sanctions been executed during the investigative phase of a criminal proceedings? N/A

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4. Procedural Issues in Cases of Corporate Liability 4.1. Does the prosecution have discretion to prosecute or not a company? Which aspects will the prosecution take into account? In the Netherlands the right to prosecute is exclusively held by the public prosecutor. This right is linked to the exclusive right to decline to prosecute a case and/or to settle a case out of court. A prosecutor will take two main factors into account when deciding whether a case should be prosecuted. First, the prosecutor will estimate whether there is enough evidence to bring the case to a conviction. Second, the prosecutor will take the public interest into account. Other factors to be taken into account are: the seriousness of the offence committed, the amount of negative publicity for a company that would come with a public trial, the way in which the company and its structure have evolved since the criminal activity took place or was discovered, and the cooperation of the company with the criminal investigation (although this factor is much less prominent than one might expect). 4.2. At what stage during an investigation/proceeding does a company have the status as a suspect or similar status? The status of a suspect starts as soon as there is - objectively considered on the basis of the facts and circumstances - a reasonable suspicion that criminal activity has taken place within the company. There is no requirement to inform the company of this status. A company has the suspect status irrespective of the nature of the investigation taking place (i.e. regulatory, criminal or tax). 4.3. Does a company have the rights to remain silent (nemo tenetur se ipsum accusare), to refuse production of documents, to deny access to company site without search warrant, to refuse testimony, to answer questions or to any other suspects rights? Who exerts these rights if investigations are made against the companys directors? In the case of the right to remain silent upon questioning, the authorities have the obligation to inform the person representing the company and in any case the management of the company, that there is no obligation to answer questions. (Art. 29(2) DCCP) There is debate whether all employees have this right if the company is considered suspect. In any case, the directors and higher management (if not already suspect themselves) have these rights.

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The principle of nemo tenetur is accepted in the Netherlands, but apart from art. 29(2) DCCP there is no specific provision in which it is expressly stated. In the case of the right to refuse to hand over documents, there is no obligation on a suspect company to provide documents. However, a company may choose to comply with a request for documents as the prospect of a search of the companys premises may not be appealing. If there is suspicion of an economic offence, the situation is entirely different. If requested, documents must be provided. Failing to do so constitutes an offence under arts. 24a and 26 of the EOA. It is worth noting here that various Dutch authorities are entitled to see corporate documents on various grounds. This right continues to apply when the company is the subject of a criminal investigation. If the request is legally valid, a company cannot refuse to hand over these documents even if it is foreseeable that the documents will be used in the criminal investigation. 5 A warrant is not required under Dutch criminal procedure to enter or search a company site and a company cannot legally deny access. A public prosecutor or deputy public prosecutor must be involved in the search. The latter requires a warrant from the former to conduct the search, but in an urgent case this warrant may be obtained after the search. For a search to take place, however, there must be a suspicion of a more serious felony (e.g. forgery, participating in a criminal organisation and money laundering) (art. 96c(2) DCCP) or a situation of in flagrante delicto. 4.4. When will a company be informed that it is or can become prosecuted? In the Netherlands, there are no provisions or practices relating to this. 4.5. Can the directors, managers or employees be witness in proceedings against a company? Yes, although the right to remain silent may be exercised. 4.6. Does this also apply if the directors, managers or employees are suspects themselves? Yes. In addition, they have the right to refrain from answering questions if the answer would pose a potential risk of providing evidence against themselves in their own criminal investigation.

The Saunders case, European Court of Human Rights (ECHR) 17 December 1996, para 69 and JB case, ECHR 3 May 2001.

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4.7.

Will there be a joint proceeding against the company and the individual offender? Often, yes.

4.8.

Does the proceeding against a company differ from that against an individual suspect? If yes, describe the elemental differences. No.

5. Procedural Issues on Other Criminal Sanctions 5.1. Does the prosecution have discretion to impose or not a sanction on a company? Which aspects will the prosecution or court take into consideration? Not yet. But a new act will come into force under which a public prosecutor may independently impose certain sanctions. It will be introduced on a gradual basis, starting at the end of 2007, for certain types of criminal offences. For the near future, it is unlikely that the act will affect companies. 5.2. Does the company, have the status of a suspect or a similar status and at what stage in proceedings? N/A 5.3. When will the company been informed that the prosecution is considering to impose sanctions or have sanctions imposed? N/A 5.4. Which procedural rights does a company have when it is at risk that sanctions might be imposed? N/A 5.5. Will there be joint proceedings against the company and the individual offender? N/A 5.6. Does the proceeding against a company differ from that against an individual suspect? If yes, describe the elemental differences. N/A

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6. Criminal Liability of Directors or Managers 6.1. Can directors or managers be criminally held liable for offences committed by other individual directors, managers or employees? Which legal concepts apply in your jurisdiction? Yes. See 1.1. Art. 51(2) DPC states that directing the criminal acts of a legal person is punishable. 6.2. What are the legal requirements for a criminal liability of directors and managers for offences committed by others? The Dutch Supreme Court has ruled that a natural person is responsible for crimes committed by a legal person when that natural person is in a position to direct and is reasonably speaking required to do so, but fails to take action to prevent the illegal activity and/or accepts the risk of the illegal activity taking place. 6 The natural person need not per se be in a position in the top of the organisation. It can even be someone outside the organisation. A legal relationship between the natural person and the legal person is not required. There must be a certain degree of power, influence and responsibility as described above. Specific knowledge of the particular criminal activity having taken place is not necessary. It is sufficient that the person generally knows that this type of criminal activity is committed within the company. If criminal activity cannot be attributed to the legal person itself, art. 51(2) DPC does not apply to a natural person. (However, this does not require that the legal person be convicted of the act). Note that directors and managers are often prosecuted on a different basis than that described above. Under art. 47 of the DPC, a directors or managers can quite easily be held criminally liable as a participant or co-perpetrators without actually having physically committed the criminal act itself. Art. 47 of the Dutch Penal Code states 7: (1) The following persons are liable as principals:
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Supreme Court 19 November 1985, NJ 1986, 125 and Supreme Court 16 December 1986, NJ 1987, 321. The Dutch text reads as follows: 1. Als daders van een strafbaar feit worden gestraft: 1 zij die het feit plegen, doen plegen of medeplegen; 2 zij die door giften, beloften, misbruik van gezag, geweld, bedreiging, of misleiding of door het verschaffen van gelegenheid, middelen of inlichtingen het feit opzettelijk uitlokken.

2. Ten aanzien van de laatsten komen alleen die handelingen in aanmerking die zij opzettelijk hebben uitgelokt, benevens hun gevolgen. 10

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i. Those who commit a criminal offence, either personally or jointly with another or others, who causes an innocent person to commit a criminal offence. ii. Those who, through gifts, promises, abuse of authority, use of violence, threats of deception or providing the opportunity, means or information, intentionally solicit the commission of an offence. (2) With regard to the last category, only those actions intentionally solicited by them and the consequences of such actions are to be taken into account. Criminal liability under art. 47(1)(i) (joint commission) is based on a person contributing to the commission of an offence, either previously or simultaneously. This offence entails the person knowingly and willingly collaborating (in the broadest sense) with a view to committing the offence. Personal involvement in the offence is certainly not necessary, provided the collaboration is intimate and complete. No explicit agreements need to have been made. A person may even be deemed to have intended the joint commission of an offence by being present at its commission and not distancing himself from it. 6.3. Does a criminal liability arise only from the fact that another director, manager or employee was not adequately selected, instructed, supervised or the company not adequately organized? Although this is not entirely unthinkable, it is unlikely. 6.4. What recommendations do you have to exclude or minimize criminal liability risks of directors of a company? Avoid criminal activity Companies and directors should be aware of potential risks. Areas within a company where criminal behaviour may be appealing are often easy to recognise: these are the areas where employees and management directly perceive that internal rules and regulations can work contrary to the commercial goals of the company. Examples of these rules include safety rules and reporting requirements. Adequate internal control mechanisms are important. Avoid criminal liability Effective action must be taken as soon as a director becomes aware of an indication of criminal conduct in the past or present or the potential of this in the future. Have a criminal defence lawyer on standby, especially if the company operates in high risk areas or if there are signs that the company may be the subject of a criminal investigation.

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Have a detailed instruction prepared for the reception staff explaining the "dos and donts", in case of a visit from the police or other authorities with questions, orders or warrants.

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