Corporate Liability in Switzerland

By Rudolphe Gautier (Baker McKenzie Switzerland)

I.              Corporate liability deriving from criminal activity

1.             Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)

According to the Swiss Criminal Code

Since 21 March 2003, the Swiss Criminal Code (SCC) has been imposing criminal liability on companies. Previously, only the managers, board members or the employees of the company could be prosecuted for criminal offenses.

Under Swiss criminal law, a company will assume liability when the link between the offense and its lack of organization is demonstrated by the criminal authorities. Furthermore, the offense must be committed by an individual who has committed the subjective and objective parts of the offense. Additionally, the offender must have acted while with the company and in the exercise of commercial activities in accordance with the objectives of the company. Note that their position within the company does not matter (employee, manager, board member, etc.).

It is only when these three conditions have been met that corporate liability may be deemed to exist.

Article 102 of the SCC provides for two types of criminal liability for companies:

  • According to the principle of subsidiary liability, companies may be held liable for criminal offenses if it is not possible to attribute this act to any specific person. According to Article 102 § 1 of the SCC, such liability only exists if: (i) a felony or misdemeanor is committed within a company; (ii) it is done in the exercise of commercial activities in accordance with the objectives of the company; (iii) it is not possible to attribute this act to any specific individual; and (iv) it is due to the inadequate/inefficient organization of the company.
  • Primary liability is levied for certain offenses exhaustively listed in Article 102 § 2 of the SCC (Articles 260ter, 260quinquies, 305bis, 322ter, 322quinquies or 322septies paragraph 1 or 322octies). It provides that the company is responsible if it fails to take all the reasonable organizational measures that were required in order to prevent such an offense.

It should be noted that primary liability is independent of and parallel to the liability of the offender, who is the individual liable for the offense. The company may only be deemed liable when it fails to take the adequate organizational measures.

The Swiss Federal Supreme Court confirmed in a recent decision[1] that corporate criminal liability is only possible where all objective and subjective requirements for the punishability of the underlying criminal law offense by the offender (individual) are fulfilled, regardless of the sanction of the accused individual. This means that the offender must have acted intentionally (or at least must have known that the offense could transpire).

Additionally, Swiss law expressly requires the prosecuting authorities to prove the lack of proper organizational procedures to prevent the commission of the offense.

Hence, the company may only avoid primary liability if it proves that it took all necessary reasonable organizational measures to prevent the commission of the offense, in particular with regard to the choice, the supervision and the instruction of its staff. These measures vary, depending on certain risk factors such as the business place or the business activity.

According to criminal administrative law

Article 7 of the Criminal Administrative Code (CAC) provides that a company can be ordered to pay a fine (not exceeding CHF 5,000) if the necessary investigations of the accused individual are disproportionate to the incurred penalty. Article 49 of the Financial Market Supervision Act (FMSA) provides for the same, but the maximum fine may amount to CHF 50,000 in this case.

This system does not assume that there was a lack of organization in the company and/or that identifying the offender is impossible. Hence, criminal liability in Article 7 of the CAC or in Article 49 of the FMSA is liability without fault.

Please note that the liabilities of Article 102 of the SCC and Article 7 of the CAC/Article 49 of the FMSA are parallel, as they do not regulate similar situations. Indeed, Article 7 of the CAC/Article 49 of the FMSA authorize, for reasons of procedural efficiency, holding the company responsible. Article 102 of the SCC allows the authority to blame the company for its lack of organization. Therefore, Article 102 § 1 of the SCC will be applicable when it is impossible to identify the offender, pursuant to Article 7 of the CAC/Article 49 of the FMSA due to a lack of organization.

2.             Type of crimes/administrative offenses from which, according to the legislation, corporate liability may arise

Article 102 SCC

Corporate liability under Article 102 of the SCC arises only if a felony or misdemeanor is committed, excluding contraventions (Article 103 of the SCC).

Felonies are distinguished from misdemeanors by the severity of the penalties that the offense comes with. According to the SCC, felonies are offenses that carry a custodial sentence of more than 3 years. Misdemeanors are offenses that carry a custodial sentence not exceeding 3 years or a monetary penalty.

Please note that an attempted offense can be prosecuted if it is provided for by the law governing the offense.

Primary liability

The company has primary liability when one of the following offenses has been committed:

  • Criminal organization (Article 260ter of the SCC)
  • Financing terrorism (Article 260quinquies of the SCC)
  • Money laundering (Article 305bis of the SCC)
  • Bribery of Swiss public officials (Article 322ter of the SCC)
  • Granting an advantage (Article 322quinquies of the SCC)
  • Bribery of foreign public officials (Article 322septies § 1 of the SCC)
  • Bribery of private individuals (Article 322octies of the SCC)

Please note that the list is exhaustive.

Subsidiary liability

Article 102 § 1 of the SCC is applicable to all criminal felonies and misdemeanors under Swiss Federal Law, in particular to:

  • Offenses against property (Articles 137-172 of the SCC)
  • Forgery (Article 251 of the SCC)
  • Violation of banking secrecy (Article 47 of Bank Law)

Article 7 of the CAC and Article 49 of the FMSA

According to criminal administrative law, a company can be prosecuted when the required investigative measures against the individual are disproportionate to the penalty incurred, in particular for these offenses:

  • Activity without license, recognition or registration (Article 44 of the FMSA)
  • Provision of false information (Article 45 of the FMSA)
  • Violations of obligations by agents (Article 46 if the FMSA)
  • Failure to organize an audit of annual financial statements (Article 47 of the LFINMA)
  • Noncompliance with FINMA rulings (Article 48 of the FMSA)
  • Offenses in business operations (Article 49 of the FMSA)
  • Violation of the duty of disclosure (Article 37 of the Anti-Money Laundering Act)
  • Illegal use of the term “bank” or false publicity about money deposit facilities (Article 49 of the Bank Act)
  • Breach of the obligation to declare its participation in a public company or its acquisition/sale of titles of the said company (Article 41 of the Stock Exchanges and Securities Trading Act)
  • Violation of the obligation to present an offer (Article 41a of the Stock Exchanges and Securities Trading Act)
  • Breach of duty by the offeree company (Article 42 of the Stock Exchanges and Securities Trading Act[2])
  • Violation of the obligations of traders (Article 42a Stock Exchanges and Securities Trading Act)

3.             Identification of companies and entities to which liability may apply

According to Article 102 of the SCC, a “company” is:

  • Any legal entity under private law, covering all the legal entities provided by Swiss law: foundations (Article 60 and subsequent articles of the Swiss Obligation Code [SOC], associations (Article 80 and subsequent articles of the SOC); limited companies (Articles 620 and subsequent articles of the SOC); partnerships limited by shares (Article 764 and subsequent articles of the SOC); limited liability companies (Article 772 and subsequent articles of the SOC); or cooperatives (Article 828 and subsequent articles of the SOC)
  • Any legal entity under public law with the exception of local authorities and the Confederation itself
  • A company, such as general partnerships (Articles 552 to 593 and follow of the SOC), limited partnerships (Articles 594 to 619 and follow of the SOC) and simple partnerships (Articles 530 to 551 and follow of the SOC) (Note that branches are also covered by Article 102 of the SCC, even though the parent company can also be liable (please refer to chapter V (1).)

Furthermore, some authors consider that Article 102 of the SCC includes every step of the company’s development, including the “imperfect” company or a company currently being developed. Note that there is not any case law confirming this point of view yet.

  • A sole proprietorship

4.             Corporate liability for crimes committed abroad by representatives or subsidiaries

Article 3 of the SCC provides for the principle of territoriality of Swiss criminal law. An offense will be prosecuted by the Swiss authorities if it has been committed in Switzerland, regardless of whether a company is in Switzerland or abroad.

However, if an offense is committed abroad, a company that has its head office in Switzerland can be sued by the Swiss criminal authorities, pursuant to Article 5 of the SCC (offenses against minors abroad), Article 6 of the SCC (offenses committed abroad prosecuted in terms of an international obligation) or Article 7 of the SCC (if: (i) the offense is also liable to prosecution at the place of commission or the place of commission is not subject to criminal law jurisdiction; (ii) the person concerned is in Switzerland or has been extradited to Switzerland due to the offense; and (iii) under Swiss law, extradition is permitted for the offense, but the person concerned is not being extradited)).

It being specified that the liability of a parent company for offenses committed abroad within its subsidiary has not yet been confirmed (nor excluded) by Swiss case law; however, the trend is rather favorable to such extended liability.

Indeed, some authors consider that, should the entities form a single economic unit (for instance, should the parent company have a considerable capital participation, the power to give instructions to the subsidiary, and is fully integrated in the management structure) and, should the lack of organization be reasonably attributable to the parent company, then the parent company should be held liable for the offenses committed within the subsidiary, irrespective of where the offense(s) took place.

Given the current trend among scholars and the advocacy on the market, we cannot exclude that future case law might be favorable to such extended liability of the Swiss-based parent company.

5.             Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

One of the largest issues about corporate liability is the dissolution of the company. Indeed, for individuals, death means the end of prosecution. In the case of companies, the termination of activities and the transfer of activities have to be distinguished.

In the case of termination of activities, it is possible to block the cancellation of the company register. Note that the representatives and/or the bodies of the company, who can apply for the dissolution of the company during ongoing criminal proceedings, can be prosecuted for providing assistance in evading prosecution (Article 305 of the SCC).

As for mergers, division or acquisitions, Swiss doctrine considers the solutions adopted by Italian law applicable. Therefore, the company resulting from the merger will be liable for any crimes committed by the merged companies.

The transformation of the company into a different legal form does not stop criminal proceedings for offenses committed before the date the transformation became effective.

II.            Applicable sanctions

1.             Type of sanctions applicable to the company

If the company is found liable, due to lack of organization, for any of the abovementioned crimes committed by an individual who is acting within the company and in the exercise of commercial activities that are in accordance with the objectives of the company, the Court may order the payment of a fine not exceeding CHF 5 million.

The court assesses and decides on the fine, specifically based on the seriousness of the offense and the seriousness of the organizational inadequacies, the loss or damage caused, and the economic ability of the company to pay the fine.

If the behavior is not so severe that the company must be dissolved, the fine should not put the company in danger of bankruptcy nor should it bring consequences to the company’s creditors, who should not have to suffer from the fine.

Contrary to French or Italian law, Swiss law does not provide for other types of sanction. However, Swiss courts could request the forfeiture of objects and assets that were used, intended to be used or produced as a result of the offense.

According to Article 70 § 2 of the SCC, Swiss courts can order the forfeiture of assets that have been acquired through the commission of an offense or those that are intended to be used in the commission of an offense, or as payment therefore, unless the assets are passed on to the person harmed for the purpose of restoring the prior lawful position.

Furthermore, there are no restraining measures specifically for companies and their way of doing business (such as temporary suspension from conducting business, etc.).

In parallel to the fine, criminal courts may order that a judgment against a liable company to which a restraining measure has been applied be published in one or more newspapers indicated by the courts themselves, if it is deemed to be in the public interest, or in the interests of the person harmed or of the complainant.

2.             Interim measures, cease and desist orders, bans and confiscatory measures

As is done with the individuals, during preliminary investigations and/or the trial, the criminal authority may also apply interim measures to the company, in view of: (i) securing evidence; (ii) ensuring that the persons attend the proceedings; or (iii) guaranteeing the execution of the final judgment. The following circumstances must be met:

  • The measures are permitted by law.
  • There is reasonable suspicion that an offense has been committed.
  • The aims cannot be achieved by less stringent measures.
  • The seriousness of the offense justifies the compulsory measure.

There are no specific interim measures applied to companies. Therefore, the two interim measures relevant regarding corporate liability are: (i) searches of premises and records (Articles 244 to 248 of the Swiss Criminal Proceedings Act); and (ii) criminal seizure (Articles 263 to 268 of the Swiss Criminal Proceedings Act). Article 263 provides four situations where items and assets belonging to the accused or to a third party may be seized if it is expected that the items or assets:

  • Will be used as evidence
  • Will be used as security for procedural costs, monetary penalties, fines or damages
  • Will have to be returned to the persons suffering harm
  • Will have to be forfeited

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

As explained in Chapter I, the liability that the company could face (subsidiary liability or primary liability) would depend on the circumstances.

In the hypothesis of subsidiary liability (Article 102 § 1 of the SCC), the company becomes liable when no individual has been identified due to a lack of internal organization. Hence, if an individual within the company is declared liable, they will be charged and subsidiary liability will no longer apply to the company.

In the case of a primary liability (Article 102 § 2 of the SCC), the company will be prosecuted in parallel and independently from the individual liable for the offense.

In any event, board members, managers or representatives will be liable for their own breach/misbehavior. Each individual will be responsible for their own contribution.

Furthermore, managers and directors would also be liable if they have violated their monitoring duty, even though the liability of managers is not expressly provided for in the SCC. This liability has its origin in the theory of punishability of omissions (Article 11 of the SCC).

Please note that some legal obligations could constitute mismanagement (pursuant to Articles 158 or 165 of the SCC), notably the violation of the duty to inform the judge in case of over-indebtedness of board members (Article 725 of the Swiss Code of Obligations).

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or mitigation of the sanction)

Companies will be liable under the sine qua non condition that the criminal authorities demonstrate the lack of internal organization and the link within the offense.

According to scholars, the lack of proper procedures within the company may stem, for example, from the facts: that the company is understaffed for the proper discharge of its compliance tasks; that the staff is not sufficiently experienced or knowledgeable in compliance matters; that the staff fails to intervene despite having observed certain employees’ noncompliant conduct; and/or that the compliance is not sufficiently segregated from sales.

Therefore, even though Swiss law does not provide for a “compliance model” that companies and their managers should follow, an effective compliance program seems to be the best method by which a company can exclude or mitigate potential punishment after an indictment for misconduct or wrongdoing in Switzerland.

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

Swiss law does not request a specific compliance “model” that companies should adopt, which could mitigate or eliminate the company’s liability.

However, since the SCC creates a direct link between the corporate criminal liability and the company’s lack of organization, the companies may potentially mitigate their criminal liability if they adopt an effective compliance program, despite the fact that SCC does not officially admit such program as mitigating circumstances of criminal liability.

3.             Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”. Model of operation of such person or body

Although Article 102 of the SCC does not expressly provide for a specific model of operation of the monitoring body, according to the best practices and guidelines issued by the relevant industry association, the monitoring body, if it exists, should:

  • Meet regularly (once a month or so).
  • Receive adequate flows of information from company departments on the most sensitive activities where the risk of committing financial and mismanagement crimes is potentially higher.
  • Ensure that directors, managers and employees are adequately trained.

IV.          Judicial proceedings to determine corporate liability

1.             The Court is competent to decide the liability of and penalties applicable to the company

Judges who are declared competent to decide the extent of the company’s liability are also deemed competent to decide the personal liability of individuals charged with the crime. The investigation authority will prosecute the case.

The court applies to the company the same procedural rules applicable to individuals (with the very few exceptions expressly provided for in Article 112 of the Swiss Criminal Proceedings Code).

2.             Possibility of the application of interim measures

As is done with individuals, during preliminary investigations and/or the trial, the criminal authority may also apply interim measures to the company: (i) to secure evidence; (ii) to ensure that persons attend the proceedings; or (iii) to guarantee the execution of the final judgment. The following circumstances must cumulatively be met:

  • The measures are permitted by law.
  • There is reasonable suspicion that an offense has been committed.
  • The aims cannot be achieved by less stringent measures.
  • The seriousness of the offense justifies the compulsory measure.

There are no specific interim measures applied to companies. Therefore, the two interim measures relevant regarding the corporate liability are: (i) searches of premises and records (Articles 244 to 248 of the Swiss Criminal Proceedings Act); and (ii) criminal seizure (Articles 263 to 268 of the Swiss Criminal Proceedings Act). Article 263 provides four different situations where items and assets belonging to the accused or to a third party may be seized if it is expected that the items or assets:

  • Will be used as evidence
  • Will be used as security for procedural costs, monetary penalties, fines or damages
  • Will have to be returned to the persons suffering harm
  • Will have to be forfeited

The judge has the power to apply what they consider the most adequate and proportional to the charge.

Additionally, Article 71 of the SCC provides that if the assets subject to forfeiture are no longer available, the court may uphold a claim for compensation by the state in respect of a sum of equivalent value.

The company can always appeal the decision.

3.             Plea bargains and related effects on corporate liability

The company, as individuals, can always ask to settle the proceeding with a plea bargain, provided it admits the matters essential to the legal appraisal of the case and recognizes, if only in principle, the civil claims, if any (Articles 358 to 362 of the Swiss Criminal Proceedings Code).

4.             Persistence of corporate liability if the crime is extinguished

According to the Swiss Federal Court, the statute of limitations excludes the subsidiary liability of the company. Indeed, when the basic offense is time-barred and the individuals who have committed the offense cannot be criminally prosecuted, the impossibility of charging them with the offense does not result from the lack of organization. Therefore, it eliminates the subsidiary liability of the company.

In any event, one shall keep in mind that the time limit for corporate primary liability starts, at the latest, with the underlying criminal offense committed within the course of the undertaking’s commercial activities.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

A parent company located abroad can be held liable in Switzerland for its local branch under two conditions.

First, strong links between the parent company and the branch have to be demonstrated. This relationship only exists if there is an economic unity between the parent company and its branch. Note that the relevant elements are related to the factual background and/or circumstantial evidence (for example, the importance of the participation of the parent company, its power to give instructions, the integration of the managerial structure, the identity of the managers, the created confidence, etc.), and not to purely formal criteria.

Furthermore, the parent company will be the entity to be blamed for the inadequate organization of the branch (ie, the sine qua non condition of corporate liability according to Article 102 of the SCC).

2.             Basis of liability and applicable sanctions

According to the guidelines above, should one of the offenses relevant under the SCC or criminal administrative law be committed by individuals of a branch, the parent company may be held criminally liable only if these two conditions are present:

  • There is a strong link between the parent company and its branch.
  • The parent company can be blamed for the lack of organization of the branch.

As to the sanctions, see paragraph II above.

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1.             Significant case law, if any

In 2011, the Swiss General Attorney executed a criminal order against Alstom Network Schweiz AG (a subsidiary of Alstom SA) for lack of proper procedures to prevent bribery of foreign public officials. Alstom Network Schweiz AG was ordered to pay a fine of USD 2,732,500.[3] Furthermore, it was convicted and had to make a compensatory payment to the Swiss judiciary for illegal profits, estimated in the amount of USD 39,785,200[4] deriving from business corruptly awarded to its various affiliates.

In its public statement dated 22 November 2011, the Swiss Attorney General’s office noted in that regard: “The use of agents, in particular those paid on a contingency fee basis, in countries with high corruption […] exposes groups of companies to high prosecution risks. It is only by considerable compliance efforts and through the stringent enforcement and control of internal, sufficiently high standards that such prosecution risks can be reduced to a legally compliant level.”

In 2014, the Swiss Federal Court dismissed an appeal and confirmed a criminal ruling, stating that no proceedings were being taken against the company pursuant to Article 102 § 1 of the SCC due to the statute of limitations of the offense against the liable individual (6B_7/2014).

In 2016, the Swiss Federal Court confirmed that corporate liability under Swiss law requires that the criminal investigation demonstrate that all the objective and subjective constitutive elements of the underlined offense have been fulfilled by an individual. This applies to both primary and subsidiary liability. Therefore, the Swiss Federal Court is of the opinion that there is no room for a causal liability, namely where the objective and subjective elements of the underlying offense cannot be imputed to a precise individual but to the corporation per se (6B_124/2016).

The reason for the lack of success of corporate liability is due to various factors. First, corporate liability is not part of the Swiss legal tradition. The principle societas delinquere non potest is still very present in Swiss legal culture. Second, Article 102 of the SCC is difficult to apply due to the restrictive requirements that must be met. Finally, the liability of the manager supersedes the company’s liability.

However, one should be aware that the Federal Prosecutor Office has lately expressed their will to open more systematically criminal investigations against corporations (such as financial institutions), in particular regarding money laundering and bribery. This does not mean that there will be more convictions/condemnations of corporations (since the requirements to be met are strict and difficult to demonstrate). However, the companies, wishing to avoid bad press, will certainly try to settle the case through a plea bargain and the payment of fines to the Swiss criminal authorities.

2.             Proposed or contemplated new legislation

During the summer of 2015 and following worldwide scandals (in particular, in the sport/football area), the Swiss Parliament voted for an amendment to the SCC regarding private bribery, in order to help the investigation and condemnation of private corruption along. The amendment entered into force on 1 July 2016. The main amendment concerns “serious cases” of private bribery, which will be prosecuted ex officio (and not only on complaint). Furthermore, prior to the said amendment, the private bribery was only punishable if it led to distortions of competition. This is no longer a requirement that must be met.

Thus, according to Article 322octies of the SCC, any person who offers, promises or gives an employer, company member, agent or any other auxiliary to a third party in the private sector an undue advantage so that the person carries out or fails to carry out an act in connection with their official activities that is contrary to their duties or dependent on their discretion, is liable to a custodial sentence not exceeding three years or to a monetary penalty.

This significant change now exposes almost all companies to primary liability and, hence, the need to adopt an effective compliance program to mitigate their legal risks.

Additionally, the SCC has also been expanded regarding public bribery. Cases where undue advantage is given/offered to a third party in order to influence a public agent is now also punishable.

One must keep in mind that the money laundering rules (in particular, Article 305bis of the SCC) have also been amended on 1 January 2016. Since then, not only felonies but also “qualified tax offenses” (ie, “aggravated tax misdemeanor”) are predicate offenses to money laundering, at the cumulative conditions that:

  • The amount of tax evaded exceeds CHF 300,000 per time period.
  • A forged, falsified document or documents with untrue content with a significant evidentiary value (for example, business records, balance sheets or salary certificate) is used to deceive the tax authorities for the purpose of tax evasion.
  • The offender intends to evade tax.

In June 2015, the Swiss parliament refused to establish the possibility that companies may have criminal records.


[1] Decision of the Swiss Federal Court dated 11 October 2016, 6B_124/2016.

[2]

  1. Whosoever intentionally:
    1. fails to submit the mandatory report to the holders of equity security setting out their position in relation with the offer or fails to publish such a report (Article 29 para. 1)
    2. includes untrue or incomplete information in such report (Article 29 para. 1) will be punished with a fine of up to CHF 500,000
  2. Whosoever acts negligently will be punished with a fine of up to CHF 150,000.
  3. In the event of a repeat breach within five years of the legally binding conviction, the fine amounting to at least CHF 10,000 will be levied.

[3] Calculated at CHF/USD: 1.093.

[4] Calculated at CHF/USD: 1.093.