General Counsel Scramble After Spain Passes Sweeping New Criminal Code

Sue Reisinger

Corporate Counsel

12-22-2010

On Thursday Spain will begin enforcing a sweeping new criminal code that holds grave concerns for general counsel of any company that operates or wants to operate in that country. The code for the first time establishes criminal liability for business entities, and it imposes some severe penalties.

Punishment can include a fine, temporary closure of all or part of the business for up to five years, exclusion from government contracts, and ultimately the dissolution of the company.

So far general counsel in Spain seem to be approaching the new law with caution, according to Robin Scullin, spokesperson for the Association of Corporate Counsel in Washington, D.C.

"We reached out to several folks in our ACC Europe chapter and while they are monitoring the situation, they have no formal policies to speak of yet," Scullin said.

Madrid attorney Florentino Orti, who heads the criminal litigation group at the Spanish law firm Garrigues, said in-house lawyers are worried about the new law's possible impact. "We have received many calls seeking our advice on how to deal with this new regulation," Orti added, especially as regards corporate compliance.

Mar De Pedraza, head of Baker & McKenzie's white-collar crime practice in Madrid, explained in a written statement that the existence of a suitable corporate compliance program could exempt a business from criminal liability.

And implementing a program after an offense but prior to court action "is expected to be considered by the courts as a mitigating circumstance," De Pedraza added.

Under the new law, passed last June, companies will be criminally liable for certain crimes, including fraud, bribery both in Spain and internationally, money laundering, tax offenses, environmental acts, and a few others.

Companies are liable if the crimes were "committed on their behalf or to their benefit" by employees. It also imposes liability any unlawful act committed by any person "subject to" management authority and resulting from the company not having exercised the required degree of "control under the particular circumstances of the case."

Previously the Spanish Penal Code held individuals criminally liable, although a corporation could only be held jointly and severally responsible for paying a fine levied on an employee, according to Orti.

Orti joined senior associate Juan Pablo Regojo from Garrigues' London office in answering questions about the new law. The changes, they explained, were done to adapt Spanish criminal law to the international obligations that Spain entered upon joining the European Union.

The reform also seeks to "adapt the law to a changing society, and provide a response to what have come to be known as the 'new political/criminal debates' that have arisen," Orti added.

Law firms in Spain are busy organizing professional workshops, lectures, conferences, meetings and round tables to discuss the new law and advising on corporate compliance programs. "We could say that the 'out-house' attorneys have developed a new role with the entrance of the recent reform," Orti said.