Liability of collective entities - big changes are coming to Poland

Works are currently underway in Poland on a new Act on the liability of collective entities for offenses, which will definitely lead to changes in the functioning of virtually all companies in Poland. For the first time in history, the liability of collective entities will no longer be pure theory and the scale of new obligations (and the resultant sanctions) will force companies in Poland to change in terms of compliance. If on top of that we mention that over the past several years, the activity of law enforcement bodies in the prevention of business crime has been the highest in the past 30 years, companies and their legal departments need to brace for a revolution.

The backdrop of the changes

By way of introduction, it is worth pointing out that in free Poland law enforcement bodies have never been so active in the prevention of business crime as in the period since 2015. According to the latest police statistics, the number of identified business crimes in 2017 comes to nearly 190,000, i.e. by 40,000 more than in the preceding year. At the same time, in 2017 detectability of such crimes increased by as much as 5.1 percentage points in comparison with 2016. Having assumed growth in "white collar" crime, the Police has expanded its business division to include over 4,000 officers and intensely works with other services, in particular, the National Tax Administration.  

Every day, the papers report on new persons who were charged with business crimes such as acting to the detriment of the company, bribery, VAT return extortions or tax evasion. Recently, we have witnessed several well-publicized arrests of e.g. a former CEO and two directors of PKN Orlen in connection with organization and incorrect settlement of tickets to one of the events organized for the concern or a former CEO of PKP Cargo who was arrested and charged with mismanagement in connection with a transaction of acquiring shares in a foreign entity. 

The most important changes

The new Act on the liability of collective entities provides for a number of changes, in particular:

1. liability of the company for every offense prohibited under the Act as a crime or tax crime, except for crimes indicted on private request (such as libel, slander) and the offenses specified in the Press Law - to date, it has been a very limited scope of offenses of tax, business and financial nature,
2. increase of fines to PLN 30 million and in strictly specified cases even up to PLN 60 million (negligence concerning whistleblowers) - at the moment, they range from PLN 1,000 to 5 million, however, no more than 3 percent of the revenue generated in the financial year in which the offense was committed,
3. application of the Act to entities seated outside of the territory of Poland if the offense was committed in Poland or its consequences materialize in Poland even though it was committed abroad,
4. introduction of a penalty in the form of dissolution or liquidation of the collective entity or a wide range of means of prevention, in particular a ban on promotion and advertisement, ban on engaging in specific activity, ban on applying for public procurement, use of the company's assets as collateral or introduction of administration for the duration of the proceedings,
5.  introduction of the obligation to implement effective solutions with respect to the detection and prevention of offenses (compliance regulations).

At the moment (June 2019), the draft has been submitted with the Sejm and forwarded for public consultations.

Potential consequences for companies

The introduction of the new principles of liability of collective entities will force all companies which are interested in minimizing the risk of liability to specify clear principles of ensuring compliance of their operations with applicable law, in particular by adopting proper procedures. Compliance procedures should first and foremost apply to the principles of appointing attorneys-in-fact for the management board, holders of commercial powers of attorney, employees, supervisors of implementation of procedures or proceedings in case of risk of an offense.

It will be very important to implement procedures for reporting improprieties in the functioning of a collective entity by members of its bodies, attorneys-in-fact or employees (the so-called "whistleblowers") as negligence with that respect will be connected with the risk of exorbitant fines.