• By Daniel ORGUÉ
• 23-09-2015

Legal Compliance: Prevention is better than cure

The latest reforms of the Spanish Penal Code have introduced two important innovations in the commercial scope: The penal responsibility of the companies and prevention, as the only and effective way to avoid the responsibility. The mechanisms that the company needs to obtain that prevention are called “Legal Compliance”.

The Reform of the Penal Code from the year 2010. The modification that occurred in the Penal Code from the year 2010 introduced an important innovation. From that moment the legal Spanish people, this would be mean that the companies and commercial societies could be sentenced in a criminal court for the commission of criminal acts.

The tax evasion, the fiscal scam, unfair competition or culpable bankruptcy debt, are some examples of the thirty existing criminal offenses in Spain for which a company can be sentenced. It isn’t significant, if the criminal offense committed by Managing Director, Representative or Worker. Although, the Board of Directors knows or doesn’t know about these facts, it will not exempt the company of its responsibility.

Legal consequence may be a fine, this is the most common penalty applied, but also the arrangement of other measures. For example, the suspension of business for up to 5 years, the closure of establishments for up to 5 years or the exclusion from public subsidies and other tax or social security benefits.

The Prevention in the Reform of the Penal Code of 2015. In accordance with other European legislation, on the first of July this year a new Reform entered into force of the Penal Code, which ensures a disclaimer of criminal offenses. Monitoring and control methods for risk prevention need to be established to comply with the legal requirements.

Spanish companies must introduce a compliance program, which is primarily based on five parts:

1.    To carry out a risk assessment of the company.

2.    The administrative board introduces a “prevention-model”, which the whole company needs to know.

3.    One competent fiscal department for monitoring and compliance (a compliance director) that should be taught as an effective channel of all the risks, discomfort and errors of the “prevention-model” in order to identify possible risks to detect and prevent these in time.

4.    A disciplinary system, which provides appropriate penalties for infringement of the measures of this “prevention-model”

5.    The periodic examination of this “prevention-model” and modifications of the organizational and control structure as necessary if a new activity requires.

The Supervision. This compliance program should be observed. The Spanish Penal Code has provided for the possibility of an internal supervisor for medium size organizations. It will be recommended to introduce this for all types of companies. It should be provided an independent administration department with guarantee of initiative and control for monitoring the internal control and compliance with the prevention measures. Not recommended is a supervisor from their own administration department. Outsourcing is better to guarantee, the independent an impartial character of the program`s supervisor and the appropriate formation.

Additionally, this Supervisor will make the evaluation of the company´s risks, will write the “prevention-model” and will make it public for the entire company. Whenever it`s necessary, the Supervisor must arrange meetings and formation courses and will be responsible of the complaints and disciplinary proceedings. The Supervisor must inform the Board of Directors about all activities of the company and should act in charge with the Board Director.

Exemption and Attenuation. Once, this compliance program has been fully recognized and the company is involved in a criminal case, it`s exempt from any liability and shall not be convicted for offenses which they committed; However, only partial compliance with the regulations of the compliance program should be recognized, so that companies can benefit from a reduction of the penalty, which was imposed of them. For this reason, the compliance of the regulations with appropriate and correct implementation of this compliance program is necessary.

In conclusion, this is why it´s considered indispensable, that Spanish commercial companies and organizations have the mechanisms of prevention and a suitable compliance program, which obtain the internal and external control of their organization in order to avoid penal responsibilities.