Czech Republic: Compliance Programme Saves First Company from Criminal Prosecution

Controversial new legal provision

A new amendment to Czech Act No. 418/2011 Coll., on the Criminal Liability of Corporations (the "Amendment") has been in effect since December 2016. The Amendment added a controversial provision into Czech criminal law stating that companies will be exonerated from criminal liability if they prove that they have "made every effort that may be reasonably expected to prevent the commission of a criminal offence".

Until now, it was not clear precisely what "every effort that may be reasonably expected" meant. So far legal experts have interpreted this to mean that the company must implement a compliance programme and ensure that the employees and management adhere to it.

New case law - will compliance programmes save companies?

Czech company Agrotec, which is closely connected to current Czech Minister of Finance and billionaire Andrej Babiš, was suspected of illegal conduct in public procurement in respect to Czech Post (Česká Pošta).

As the court of first instance, the Municipal Court in Prague (the "Court") ruled that Agrotec committed the crime in question. Referring to the Amendment and claiming that the company had made every effort to prevent the crime, because it had its own ethics code, the court decided to drop the criminal case against Agrotec.
The Municipal State Prosecutor, however, immediately appealed the verdict. Now the case is being heard by the High Court in Prague and it is unclear how it will decide. It will be very interesting to see whether the appeal body will also consider the adoption of an ethics code to be sufficient to fulfil the requirement to have "made every effort that may be reasonably expected to prevent the commission of a criminal offence".  According to our opinion, Agrotec should at least prove that it also took all reasonable steps to ensure that the employees and other persons responsible in the company fully complied with the ethics code.

What is a compliance programme?

Generally, a compliance programme is an internally managed programme to ensure that a company does business in full compliance with all national and international laws and regulations that pertain to its industry, as well as professional standards, accepted business practices, and internal standards. There is both an ethical component and a pragmatic component to compliance, a role that is crucial in helping organisations manage risk, maintain a positive reputation, and avoid lawsuits.

Such programmes come in a variety of forms, e.g. ethics codes and other internal directives or regulations, whereby compliance programmes may focus on various areas - antitrust/competition compliance, criminal & anti-bribery compliance, financial & tax compliance, labour & gender compliance, environmental compliance or IT compliance. Part of a good compliance programme is always the control mechanism ensuring that employees and other persons within the company will follow such regulations (e.g. compliance officer/compliance manager or compliance committee).

Conclusion and recommendations for companies

Although the eventual essential importance of compliance programmes for companies will depend on the decision of the High Court, it is clear that the Amendment has already initiated a new phase for companies where it is always better to adopt at least some kind of compliance programme to stay on the safe(r) side.

It is important, however, not only to ensure the implementation of prevention and compliance programmes, but also to provide control mechanisms relating to compliance combined with internal rules. It is always necessary to ascertain whether all employees, statutory bodies and other entities in leadership or influential positions are familiar with all internal documents and are informed of their special duties and the rules and instructions. In terms of prevention, employees and other people involved in running a company should undergo compliance training.

Summary

It is important not only to ensure the implementation of prevention and compliance programmes, but also to provide control mechanisms relating to compliance combined with internal rules. It is also very important to ensure the relevant people are fully familiar with the compliance programme through specific, directly applicable internal tools.