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1 Constitutional Law and Human Rights as Boundaries to Policy Options

1.1 Introduction

The different choices taken worldwide in the fight against corporate crimes show that it is primarily a question of criminal policy whether to introduce a genuinely criminal liability against corporationsFootnote 1 into criminal codes.Footnote 2 Furthermore, there is—de lege lata— no requirement of European primary or secondary law to introduce corporate criminal liability, even though many EU secondary law provisions call for “effective” and “dissuasive” sanctions.Footnote 3 On the other hand, I do not see a prohibition to introduce some concept of genuine criminal liability for legal persons in Germany—neither a prohibition stemming from constitutional law, nor from logic,Footnote 4 nor from dogmatics.

However, the legislator is not free to introduce just any regulatory model that comes to his mind. In those countries where the legislator is bound by constitutional law—that is when there is some form of entrenchment clause and constitutional codification—such higher-ranking norms provide “crash barriers” to the legislative when enacting statutes on corporate criminal liability and to the judiciary when they implement these statutes.Footnote 5 Moreover, most states have agreed to oblige to global (UN International Covenant on Civil and Political Rights—ICCPR) and/or regional (such as the European Convention on Human Rights, as amended—ECHR) human rights instruments. It is a much more blurred picture to what extend these instruments contain normative and factual obligations to the legislative and to the judiciary. At minimum, they contain “traffic lines” which legislators tend not to cross; at maximum, there is a primacy of the international instrument leading to violating statues being derogated or being inapplicable.Footnote 6

But do these “crash barriers” or “traffic lines” actually apply to laws governing corporations? The picture in Germany—which shall serve as an example in the following discussion—is mixed.

1.2 German Constitutional Law

In Germany, Art. 19 III GGFootnote 7 stipulates that the fundamental rights also apply “to domestic artificial persons to the extent that the nature of such rights permits”. Three aspects are important here: First of all, the level of protection differs from natural persons, depending on the “nature” of the fundamental rights. Secondly, only some legal persons enjoy explicit protection by fundamental rights—only domestic and, by reasons of EU law, EU legal persons, but not foreign legal persons. Thirdly, it is argued that this provision only applies to the fundamental rights enshrined in Art. 1 to Art. 18 GG, such as the right to property (Art. 14 GG) and to occupational freedom (Art. 12 GG). In contrast, the other, (few) procedural and criminal justice guarantees, such as the specific provisions on nulla poena sine lege (Art. 103 II GG), ne bis in idem (Art. 103 III GG) and especially to a right to a hearing in court (Art. 103 I GG), are considered to be applicable to all judicial persons, domestic and foreign, as long as they are capable of being party to a legal proceeding in Germany.Footnote 8 The extent of this procedural protection, however, may still be reduced as compared to natural persons.Footnote 9

1.3 ECHR

The ECHR draws a somewhat clearer picture: The jurisdiction ratione personae of the ECtHR extends to “any person, non-governmental organisation or group of individuals”—therefore also to legal persons—“claiming to be the victim of a violation … of the rights set forth in the Convention or the protocols thereto” (Art. 34 ECHR). Moreover, the Charter does not distinguish between foreign or domestic legal entities.Footnote 10 Regarding ratione materiae, one provision specifically mentions that “every natural or legal person” is entitled to a specific right (Art. 1 I ECHR-Protocol No. 1). For other provisions—such as the right to a fair trial (Art. 6 ECHR)—the jurisprudence of the ECtHR tends to extend the protection to legal persons again depending on the “nature” of the fundamental right.Footnote 11 Again, the level of protection may differ between natural and legal persons.Footnote 12

1.4 CFR

The Charter of Fundamental Rights of the European Union (CFR) is less explicit on this matter. Following from its roots—especially the ECHR and the jurisprudence by the ECtHR—the CFR is interpreted to also extend its protection to legal persons whenever the “nature” of the fundamental right fits also to them.Footnote 13 More problematic and beyond the scope of this contribution, though, is the question whether the CFR is applicable to criminal proceedings and to national criminal policy decisions.

1.5 ICCPR

In contrast, the ICCPR completely excludes legal persons from its system of protecting fundamental rights, as they lack standing under the ICCPR and the Optional Protocol to bring forward complaints that their rights have been infringed.Footnote 14 According to the Human Rights Committee (HRC), this procedural finding also means that the ICCPR does not contain material protection to legal persons.Footnote 15 With the position of the HRC being clear on this matter, I will exclude the ICCPR from the following analysis.

2 Whether a Criminal Procedure Is Required Depends on the Legal Consequences

These barriers to policy decisions exist not only regarding criminalization—that is, the question of whether some behavior by a corporation is a crime and may be sanctioned—but also regarding the procedure leading to the legal consequence. Therefore, a fundamental question needs to be addressed first, before tackling specific criminal procedure guarantees: Does the imposition of a legal consequence against a corporation actually need to occur in a criminal proceeding?Footnote 16 This question depends—at least from a constitutional and human rights perspective—on the kind of legal consequence to be imposed.

2.1 Incapacitation

In regard to natural persons, incapacitation—that is the prevention of future offending by the same offender—is most prominently achieved by incarceration or by death penalty. Both options are obviously not applicable to legal persons. In the economic area, however, other incapacitation means are readily available and utilized, such as decisions disqualifying someone to run a business or dissolving a legal person—i.e. winding it up—or forfeiting contraband and tools of crime.

2.1.1 Incapacitation by Disqualification to Run a Business, by Winding Up the Entity or by Supervision

In Germany, but also in other countries, businesses may be closed or business licenses be withheld if the entrepreneur is not “reliable” (e.g. § 35 GewO) or “suitable”Footnote 17; alternatively, businesses may have to be handed over to an agent who is reliable (e.g. § 35 II GewO).Footnote 18 These are preventive measures par excellence, which aim at whether the entrepreneur will in future act in accordance with the laws and minimum business standards. When trying to predict the future, one aspect taken into account regularly is past or present business-related criminal behavior, such as tax evasion or social security fraud.Footnote 19 Even if the entrepreneur was not culpable for these crimes, he may be found “unreliable” to conduct business in future.Footnote 20 All these—extensive—provisions apply to natural and legal persons alike.Footnote 21 Therefore, the special provisions on the dissolution of legal persons (e.g. § 62 GmbHG, § 38 KWG, §§ 7, 17 VereinsG) have hardly any relevance in practice.

From a constitutional and human rights perspective, such measures do not infringe in property but only in business expectations. Therefore, such actions are to be reviewed on the basis on the right to occupational freedom (Art. 12 GG).Footnote 22 In contrast, while Art. 1 I ECHR-Protocol No. 1 “does not guarantee the right to acquire [more] possessions”,Footnote 23 it considers business licenses to be a possession in the meaning of this provision.Footnote 24

Even though a disqualification to run a business is a very severe legal consequence, the proceedings leading to such a decision are not considered to be criminal.Footnote 25 The decision may be made by administrative authorities, to whom a broad margin of appreciation is given to pursue the “general interest of the community”.Footnote 26 However, § 35 III GewO stipulates that if a criminal proceeding was completed beforehandFootnote 27 and if a criminal court speaks on the facts or the prognosis of future crimes in its decision, the authorities are bound by this decision. In general, though, all that is procedurally required from the perspective of German and European human rights law is the right to legal review in a fair trial (Art. 19 IV GG, Art. 6 ECHR).

2.1.2 Incapacitation by Forfeiture of Contraband

A different measure directed at incapacitation is forfeiture of contraband (e.g. § 75 StGB). This is considered to be a “non-punitive preventive measure, regardless of culpability and ownership” and aiming at “restor[ing] legality”.Footnote 28 As dangerous, harmful or otherwise illegal property is affected, owners enjoy less protection under constitutional and human rights law. Therefore, forfeiture of contraband is rightly seen as “a natural candidate for a ‘police’ or ‘administrative forfeiture’ [where only] judicial review must be guaranteed – but not necessarily in criminal courts and in criminal procedures.”Footnote 29

2.2 Monetary Restitution of Victims and Forfeiture of Proceeds of Crime

As far as someone enjoyed unjust enrichment to the detriment of another, it is a common principle to hold them liable to restitution. While this is a classic aspect of private law, authorities more and more step into this area (§ 111b V StPO; § 73 III StGB): On the one hand, they freeze or forfeit property with the aim to alleviate the restitution of victims. On the other hand, any unjust enrichment not claimed by victims remains unjust—and it is therefore “at least a matter of equity that the property-holder is not entitled to retain ill-gotten gains.” Because of this civil law background, the “constitutional regime which governs proceeds forfeiture is shaped by the constitutional protection of property”.Footnote 30 Therefore, in principle, only the procedural guarantees known from civil proceedings apply, most importantly the right to a fair trial (Art. 6 ECHR).

2.3 Punishment

Leaving aside the minefield of cases where incapacitation measures are intertwined with punitive elements, I will now address legal consequences which may constitute punishment from the German and from the ECHR perspective; regarding the latter, we need to take the Engel criteriaFootnote 31 of the ECtHR into account.

2.3.1 Forfeiture of Instrumentalities or Tools of Crime

Forfeiture of instrumentalities or “neutral” tools of crime cannot fully be justified by incapacitation or by unjust enrichment.Footnote 32 That by itself does not make forfeiture unconstitutional or incompatible with human rights, but it “must achieve a ‘fair balance’ between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental right”.Footnote 33

From a procedural perspective, it is clear that at least civil justice procedural protections—including the right to judicial review and to a fair trial—apply in these cases,Footnote 34 but the protections actually need to be elevated to the level of criminal justice: One weak indication is whether the national legislature chose to consider forfeiture of instrumentalities to be criminal punishment.Footnote 35 Regarding the second Engel criterion—the nature of the offense—the ECtHR looks at whether the measure is targeted at someone suspect of wrongdoing, as only then the measure can punish and deter.Footnote 36 In regard to the third Engel criterion, which considers the “degree of severity of the penalty that the person concerned risks incurring [, the] … seriousness of what is at stake”,Footnote 37 the ECtHR regularly refers to the risk of imprisonmentFootnote 38—which is, however, not present in case of forfeiture proceedings against innocent third parties.

What follows from this? According to the ECtHR, those innocent of a crime may enjoy less protection in forfeiture proceedings—a highly questionable outcome. Instead, it would be much more consistent to apply the same guarantees to all forfeiture proceedings.Footnote 39

2.3.2 Fines

A much clearer picture relates to non-minor pecuniary sanctions; independent of how they are named (“Geldbuße”, “Verbandsgeldstrafe”, etc.). When taking a constitutional and human rights perspective, such sanctions only infringe the property directly.Footnote 40 However, as fines are imposed without a direct link to incapacitation, without a direct link to forfeiture of contraband, instrumentalities or other proceeds of crime, and without any other legitimacy as to regulate behavior by punishing and by deterring, such fines always constitute a criminal sanction. Therefore, in proceedings leading to criminal fines, criminal procedure guarantees must be applied.

2.4 Conclusion

From a constitutional law perspective, the legislature has the choice: If it decides to limit the liability of legal persons for criminal behavior to incapacitation and restitution—which is enough in order to achieve the goal that “crime must not pay”Footnote 41—no criminal proceedings and no criminal procedure guarantees are required. As these legal consequences may also be very severe, however, there is a strict constitutional and human rights requirement to legal review including a fair trial (Art. 19 IV GG, Art. 6 ECHR). Moreover, legislators are free—and, as we will see below, wise—to grant more procedural guarantees also in cases where there is no strict constitutional or human rights requirement to do so.

If, instead, the legislature decides to introduce also a punishing element—as is the case in many modern criminal justice systems, including the German lex lata— criminal procedure guarantees are applicable, also when these legal consequences are targeted at legal persons.

3 Procedural Rights for Corporations

3.1 No Equal Protection of Legal Persons

In the next step, the extent of criminal procedure protection needs to be determined. Before addressing a few, selected individual guarantees below, general principles of German constitutional and European human rights law show that corporations do not necessarily enjoy the same level of protection as natural persons, even if criminal procedure guarantees are applicable.

3.1.1 Influence of Art. 5 ECHR and the “Hard Core of Criminal Law”

When discussing the severity of infringements to the criminal procedure guarantees enshrined in Art. 6 ECHR, the ECtHR regularly takes into account the risk of imprisonment and the interrelation with Art. 5 ECHR.Footnote 42 In other words: the protections offered by Art. 6 ECHR are regularly amplified by Art. 5 ECHR in “normal” criminal procedure law, where the liberty and freedom of natural persons are at stake. In contrast, sanctions against legal persons directly relate to occupational freedom and to property only. In a similar context—where only a criminal tax-surcharge penalty against a natural person was at stake—the ECtHR held that such a proceeding and that such penalties “differ from the hard core of criminal law; consequently, the criminal-head guarantees will not necessarily apply with their full stringency”.Footnote 43 Due to the missing amplification of Art. 6 ECHR by Art. 5 ECHR, the same holds true in criminal cases against corporations.Footnote 44

3.1.2 Limping Principle of Individual Guilt

The German Constitution does not contain explicit references to several classic guarantees of criminal procedure. Instead, the German Constitutional Court and legal scholars regularly refer to other basic rights and especially to a constitutional “principle of individual guilt” (nulla poena sine culpa; Schuldprinzip). According to the German Constitutional Court, this “principle is anchored in the guarantee of human dignity and personal responsibility … as well as in the principle of the rule of law”.Footnote 45 While the rule of law, as an objective standard, applies to all proceedings against natural and legal persons alike,Footnote 46 human dignity and personal responsibility is deeply linked to human beings and, seemingly, unavailable to legal persons.Footnote 47

However, legal persons are merely fictional constructs, and behind each legal person’s veil there are natural persons,Footnote 48 namely the owners. For their assets and their property are inherently linked to the value of their corporations: If the corporation faces 1,000,000 EUR in punishment, the company is 1,000,000 EUR less worth, and because of that the owners themselves own (approximatelyFootnote 49) 1,000,000 EUR less as well. These owners—and their rights to human dignity—therefore also need to be taken into account.Footnote 50 This means that the principle of individual guilt may also be based on the protection of the human dignity and personal responsibility when a legal person faces punishment; as this line of reasoning is an indirect one, though, it can validly be stated that the “principle of individual guilt” is limping in corporate criminal liability. Therefore, criminal procedure guarantees do not necessarily apply with their full stringency.

But what about other stakeholders in a company besides the owners, such as the legal representatives, or innocent employees of the company? Detriments to innocent third parties are, in principle, no reason against criminal liability or against criminal punishment: If someone is guilty of manslaughter and faces 10 years of imprisonment, he is sent to prison even if his children will then have to depend on social security. However, these detriments may and must influence the sentencing phase. Therefore, to stay with the same example, alimony obligations are deducted when the amount of a fine is calculated in Germany.Footnote 51 In a corporate criminal legal context, this means that effects to innocent third parties—such as employees of a legal person—must be taken into account in the sentencing phase, but they have no influence on the question of whether criminal liability exists and on criminal procedure guarantees to be granted to the suspect.Footnote 52

3.1.3 Conclusion

While corporations enjoy criminal procedure guarantees in criminal procedure in principle, the level of protection may be lower than what natural persons enjoy, as the “hard core of criminal law” is unaffected, imprisonment is not at stake and human dignity is only affected when the veil behind a legal person is lifted. Inasmuch human dignity and personal responsibility are affected, it are the owners—and neither the legal representatives nor the employees—who enjoy the protection of criminal procedure guarantees.

3.2 Standard and Burden of Proof

The presumption of innocence enshrined in Art. 6 II ECHR—which is one of the ECHR provisions only applicable in a criminal justice context—also contains a guarantee that “the burden of proof is on the prosecution, and any doubt should benefit the accused”.Footnote 53 The German constitution does not contain an explicit reference to a presumption of innocence; instead, it is considered to be an essential part of the aforementioned principle of individual guilt.Footnote 54 However, neither European nor German law consider this to be an absolute right, especially if only pecuniary penalties are at stake and as long as the shifts in the burden of proof remain “reasonable”.Footnote 55 Contrary to Drope,Footnote 56 these requirements may more easily be met in the context of corporate criminal liability.

3.3 Right Against Self-Incrimination (Nemo Tenetur)

The right against self-incrimination is not considered to be a fundamental right applicable to legal person in the jurisprudence of the German Constitutional Court, as it considers its basis to be the human dignity of the accused.Footnote 57 As regards the ECHR, no clear view regarding nemo tenetur protection for legal persons has emerged yet.Footnote 58 However, the ECHR seems less strict in the application of this guarantee overall, as the ECtHR takes into account “the nature and degree of compulsion used to obtain the evidence; the weight of the public interest in the investigation and punishment of the offence in issue; the existence of any relevant safeguards in the procedure; and the use to which any material so obtained is put”.Footnote 59 Considering that corporate criminal liability is not at the core of criminal justice and that the liberty of a person is not at stake, I disagree with van Kempen Footnote 60 and do not consider legal persons to enjoy the same level of nemo tenetur protection as natural persons under the ECHR.

The legal person cannot disclose information itself anyway, but can only act through natural persons. Therefore, the main question on nemo tenetur is who individually enjoys the protection: Usually, the legal representatives are mentioned in this context.Footnote 61 However, it was shown above that the human dignity implications are linked to the owners instead, as any punishment to the corporation directly passes through as detrimental to their property.Footnote 62 The following example may underline my argument why we must not focus on the legal representatives: Let us assume A is employed by shopkeeper B as his right hand. A watches B bribing officials. In such a case, A has no right to remain silent regarding B’s misdeeds, even if B’s conviction will lead to his unemployment. Now, let us assume that B transforms his business to a Ltd., and continues to bribe officials. The economically motivated, fictitious creation of a legal person cannot change the picture in terms of human rights protection: If B or the legal entity B owns faces criminal punishment; A has no fundamental right to remain silent,Footnote 63 unless he himself has to fear individual criminal sanctioning.

But does every shareholder in a company enjoy full nemo tenetur protection—and usually members of the board, legal representatives and even many employees hold stocks in the company they work for—? First of all, the principle of individual guilt is limping in corporate criminal liability. Therefore, nemo tenetur is open to exceptions in this context. If the implications to him personally are minimal, there seems to be a valid ground for an exception to nemo tenetur.

3.4 Ne Bis In Idem

In a similar vein, the ne bis in idem protection must be viewed: If a legal representative or an employee, who does not own any shares in the company, faces individual criminal liability in addition to the company facing criminal liability, the punishment is addressed at two different “hats” and therefore does not constitute double jeopardy. In contrast, if someone owning a company is fined individually 1,000,000 EUR and his company faces the same penalty, his wealth is reduced by 2,000,000 EUR, which evidently causes ne bis in idem implications. As this guarantee is not absolute even when it relates to natural persons, there is, however, no general obstacle to prosecute both the corporation and its owners. However, when sentencing the owner for his individual participation in a crime, the punishment he already had to bear because of the detrimental effects to the shareholder value needs to be taken into account.Footnote 64

4 Side-Effects, Spill-Overs and Collateral Damage to the Criminal Justice System

As we have seen, corporations do enjoy some level of protection in terms of criminal procedural rights—but not necessarily the same level of protection. The legislator, however, is free to grant legal persons a higher standard of protection than what is required constitutionally. In this conclusion, I will briefly explain why granting corporations a higher level of protection is actually a wise choice.

First of all, punishment of legal persons causes severe side-effects to innocent stakeholders in the company—this is well known. A distinct danger, though, lies in the erosion of common standards in criminal justice systems: At minimum, differences in the level of human right protection and procedural guarantees create a higher burden to give sound reasons on why they are necessary in one context but not another. Additionally, one has to worry that any deviation in one area of the criminal justice system—proceedings against corporations—may create normative and factual pressure to lower the standards also in other areas—in proceedings against natural persons.Footnote 65

Secondly, corporate criminal liability may call to mind the severe effects incapacitation and even incapacitation without detention can cause. If all assets of a person are frozen or if all his employment opportunities are gone, the situation may well be much worse for the offender than if he had to pay some small criminal fine. Therefore, corporate criminal liability—which mainly affects, as we have seen, property and occupational freedom—will hopefully cause “spill-overs” and lead to better procedural protections for natural persons facing preventive measures such as being listed for “targeted sanctions”.

Finally, there are reasons of why there is a call for criminal punishment against corporations—and these reasons are not necessarily only rational. Instead, it is also a matter of emotion and attribution of what is meant by “criminal” in the term “criminal sanction”. One aspect deeply and emotionally embedded in many legal cultures worldwide is a high respect in criminal decisions, their accuracy and their moral integrity—at least whenever such decisions are handed down after fair and balanced proceedings. Some legal systems even provide a normative assumption that criminal judgments are of higher factual accuracy. The criminal justice systems must stand up to these expectations, to the factual and normative trust vested in them. As has been shown elsewhere, extensive procedural guarantees are a key cornerstone to provide the moral high ground, and to provide a high quality and factual accuracy in the decisions.Footnote 66 Therefore, one can validly say that criminal trials are meant to be difficult for the prosecution when criminal trials are to achieve all aims of criminal justice beyond pure crime control.Footnote 67 If societies choose willingly to regulate corporate behavior by the difficult path of criminal justice instead of administrative or civil justice, they also willingly choose criminal trials against corporations “not because they are easy, but because they are hard”.Footnote 68