I. Corporate liability deriving from criminal activity
1. What it is the nature of corporate liability deriving from criminal activity? What is its legal basis?
Under the Criminal Code of Kazakhstan dated 3 July 2014, only individuals may be criminally liable in Kazakhstan. Companies cannot be subject to criminal liability, even if a crime has been committed by its officials or employees.
Companies may only be liable for compensation of damages arising out of crimes committed by their officials and employees if they have acted or should have acted under an assignment and under the control of the relevant company.
However, companies may be subject to administrative liability for so-called “administrative offenses.” Such offenses are generally considered to have a lesser degree of public danger than crimes. The legal basis for administrative liability is the Code on Administrative Violations dated 5 July 2014 (the “Administrative Code”).
A company may only be held liable under the Administrative Code if the relevant offense was committed or approved in the company’s interests by a corporate body or a management official, or an employee with administrative or management functions. Conversely, no company liability arises if the relevant persons acted exclusively in their own or third parties’ interests.
Administrative liability arises regardless of the company’s fault in committing the relevant offense (eg, as long as the offense has been committed, the degree of the company’s fault would not be relevant). However, in certain circumstances the company would be relieved from liability, such as where the offense was committed in a state of emergency with the purpose of avoiding potential danger, provided that the nature and degree of the potential danger and the surrounding circumstances were commensurate with the offense committed.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
The Administrative Code lists several hundred administrative offenses for which companies may be liable. Here are some of the most common examples:
- Labor offenses: Failing to pay salary on time (Administrative Code, Article 87); Exceeding work time limits (Administrative Code, Article 89); Labor discrimination (Administrative Code, Article 90); Breaches of work safety rules (Administrative Code, Article 93)
- Business-related offenses: Unlawful business activities (Administrative Code, Article 153); Unlawful banking activities (Administrative Code, Article 155); False advertising (Administrative Code, Article 157); Unlawful economic concentration actions (Administrative Code, Article 161); Unfair competition (Administrative Code, Article 163); Breaches of law on electrical energy (Administrative Code, Article 172); Unlawful actions during rehabilitation and bankruptcy (Administrative Code, Article 176); Premeditated bankruptcy (Administrative Code, Article 182); False bankruptcy (Administrative Code, Article 183)
- Trade and finance offenses: Breaching trade regulations (Administrative Code, Article 193); Unlawful trade in goods (Administrative Code, Article 196); Trade in goods without documents (Administrative Code, Article 203); Breaches of anti-money laundering laws (Administrative Code, Article 214); Breaches of currency regulations (Administrative Code, Article 252); Manipulation with securities (Administrative Code, Article 259)
- Tax offenses: Failing to submit tax returns (Administrative Code, Article 272); Concealing taxable objects (Administrative Code, Article 275); Understatement of taxes (Administrative Code, Article 278); Issuance of false invoices (Administrative Code, Article 280); Breaching the procedure for using cashier machines (Administrative Code, Article 284)
- Construction offenses: Breaching state construction standards (Administrative Code, Article 313); Construction in the absence of approved design documents (Administrative Code, Article 314); Unlawful construction (Administrative Code, Article 319); Construction without author or technical supervision (Administrative Code, Article 320)
- Environmental offenses: Exceeding approved environmental emission limits or absence of environmental permits (Administrative Code, Article 328); Breaching the requirement of procuring the environmental expert evaluation (Administrative Code, Article 332); Damage to land (Administrative Code, Article 337); Breaching water protection rules (Administrative Code, Article 358); Breaching environmental audit regulations (Administrative Code, Article 397)
- Public security and health violations: Breaching technical regulation requirements (Administrative Code, Article 415); Unlawful medical or pharmaceutical activity (Administrative Code, Article 424); Incorrect advertising in the healthcare area (Administrative Code, Article 428)
- Public order offenses: Carrying out an activity without appropriate registration, permit or notification (Administrative Code, Article 463); Breaching licensing regulations (Administrative Code, Article 464)
- Customs offenses: Failing to present arriving products to customs authorities (Administrative Code, Article 527); Breaching the deadline for submitting the customs declaration (Administrative Code, Article 538); Breaching the temporary storage period (Administrative Code, Article 89); Concealing products crossing the border (Administrative Code, Article 549); Breaching the deadline for making customs payments (Administrative Code, Article 555)
- IT offenses: Breaching IT regulations (Administrative Code, Article 638); Using unapproved communication devices (Administrative Code, Article 639)
- Corruption offenses: Providing unlawful remuneration by companies to state officials (Administrative Code, Article 678)
3. Identification of companies and entities to which liability may apply
Administrative liability applies to all companies deemed to have committed the relevant offense.
4. Corporate liability for crimes committed abroad by representatives or subsidiaries
As discussed, companies are not criminally liable in Kazakhstan (expect civil liability for damages caused by their officials or employees).
The administrative liability of companies only arises if the relevant administrative offense is deemed to have been committed on Kazakhstan territory. This means that the offense should either start, continue or be completed on the territory of Kazakhstan. If the offense takes place exclusively outside Kazakhstan, administrative liability would not apply.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
There are no specific rules dealing with corporate liability following mergers and acquisitions.
Under the generally applicable rules, liability will be imposed on the entity that committed the relevant administrative offense and, where such entity ceases to exist as a result of a corporate reorganization, on its legal successor. In particular:
- In a transformation (change of legal form), liability will be imposed on the newly emerging entity.
- In a merger, liability will be imposed on the entity that emerges as a result of or survives the merger.
- In a demerger (spin-off), liability will be determined on the basis of a division balance sheet (a document that allocates assets and liabilities between the entities arising as a result of the demerger). If the division balance sheet is not clear with respect to which entity should be liable, or where the assets of the entity to which the relevant liability has been assigned are not sufficient to pay it, all entities that emerged as a result of the demerger (spin-off) will be jointly and severally liable.
- Share or asset transactions (including transfers of business as a going concern) cannot result in a transfer of corporate liability for administrative offenses. The entity deemed to have committed the offense will always remain liable.
II. Applicable sanctions
1. Type of sanctions applicable to the company
If the company is found liable for an administrative offense, the following types of liability may be applied:
For less serious violations, the relevant authority may issue a warning to the company (usually, a repeated offense of the same type would lead to a fine).
b. Administrative fine
The most common sanction is a fine. It may be expressed either as a fixed amount (which should not exceed KZT 4,538,000) or as percentage of a specified amount (eg, the amount of environmental damage, the amount of unpaid or underpaid taxes, income received from monopolistic activity, etc.).
c. Confiscation of assets
Certain types of offenses lead to confiscation of the assets used in the course of committing the offense, as well as assets received as a result of the offense.
d. Suspension or cancellation of license
Certain types of offenses may lead to suspension (for up to 6 months) or cancellation of a license or permit (usually, if the breaches that lead to suspension have not been removed) or cancellation of a registration with the relevant authority.
e. Suspension or prohibition of activity
Certain offenses may entail suspension (for up to 3 months) or prohibition (usually, if the breaches that lead to suspension have not been removed) of the company’s activity.
f. Mandatory demolition of building
Certain types of offenses in the construction area may lead to the mandatory demolition of a building.
2. Interim measures, cease and desist orders, bans and confiscatory measures
The following types of interim measures may be applied to a company:
- Inspection of premises, products, vehicles and other assets and documents
- Seizure of documents
- Attachment or seizure of products, vehicles and other assets
- Suspension or cancellation of activity
With respect to cease and decision orders, banks and confiscatory measures, please refer to Section 1) above.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures to prevent the crime
There are no specific rules in Kazakhstani law regarding the liability of directors and managers for not having adopted measures to prevent crimes or administrative offenses.
However, depending on the circumstances of each specific case, failing to adopt such measures may in itself be viewed as a crime or administrative offense and may lead to criminal or administrative liability of such directors or managers. In addition, they may potentially be liable to compensate damages to the company (in the course of commercial litigation) as a result of failing to adopt the required measures.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of adopting a compliance “model” and effects on corporate liability for crimes/offenses committed by the company’s managers, directors or representatives
The practice of application of “models” or compliance programs is substantially underdeveloped in Kazakhstan, and there are no provisions that allow exemption from liability if such programs are in place.
However, implementation of an effective compliance program will increase the awareness of the company’s officials and employees about actions that may be viewed as crimes or administrative offenses, as well as the consequences of such actions. This, in turn, should mitigate the risk that crimes/administrative offenses will be committed.
In addition, in theory, a compliance program may mitigate the risk of imposition of administrative liability. In particular, if a company has a compliance program, it may argue that offenses committed by its official have been made in breach of their functions set forth in the internal policies and are not approved by the company’s management. If so, as indicated above (please see Section I, 1), a company should not be held liable under the Administrative Code. At the same, the practice of applying the above provisions of the Administrative Code is contradictory, and local judges and/or state officials may not accept this argument.
IV. Judicial proceedings to determine corporate liability
1. Competent court to decide liability of and penalties applicable to the company
According to the Administrative Code, administrative cases against companies are reviewed by either state officials or specialized administrative courts.
Upon the company’s request, any administrative case should be reviewed by the administrative court even if it can be reviewed by state officials.
Issues concerning the civil liability of companies arising out of crimes committed by its officials or employees may be reviewed either by the criminal court that considers the criminal case on merits or by civil courts in the framework of civil litigation proceedings.
2. Possibility of applying interim measures
During preliminary criminal investigations and/or the trial against the company’s officials or employees, the criminal investigator or the criminal judge (upon the request of the injured party or on its own initiative) can arrest the company’s assets in order to secure compensation of damages.
The value of assets that can be arrested is limited to the amount of damages claimed in the framework of the criminal investigation.
These interim measures are commonly applied by criminal investigators and judges.
The company can always appeal the decision to arrest its assets.
Interim measures applied in administrative proceedings are listed in Section II, 2 above.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad for offenses committed by directors, managers or representatives of the local company
Under Kazakhstani law, a parent company may not be held criminally or administratively liable in relation to offenses committed by any of the local company’s directors, managers or representatives.
However, if the relevant local company is undergoing insolvency procedures, the parent company may be liable for the debts of the local company if its assets are not sufficient to pay the relevant liability. This rule applies specifically to premeditated bankruptcy (Article 6.1 of the Law “On Rehabilitation and Bankruptcy” dated 7 March 2014) and situations where the bankruptcy was caused by the actions of the parent company (Article 44.3 of the Civil Code (General Part) dated 27 December 1994).
2. Basis of liability and applicable sanctions
See response to the previous question.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
Please note that Kazakhstani court practice relating to corporate liability arising from crimes is still developing and is currently contradictory.
Concerning draft laws, the Kazakhstani government and the president of Kazakhstan have previously initiated discussions regarding the possibility of imposing criminal liability on companies. However, such discussions are at a preliminary stage, and no draft legislation has been prepared to implement them.