Consequences of Corrupt Practices in Business Transactions (Including International) in Terms of Czech Law
© Springer International Publishing Switzerland 2015
Michael Joachim Bonell and Olaf Meyer (eds.)The Impact of Corruption on International Commercial ContractsIus Comparatum – Global Studies in Comparative Law1110.1007/978-3-319-19054-9_44. Consequences of Corrupt Practices in Business Transactions (Including International) in Terms of Czech Law
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Faculty of Law, Masaryk University, Veveří 70, 61180 Brno, Czech Republic
Abstract
Corrupt practices seem to be encountered most frequently in cases involving public funding. Nonetheless, they can also play a negative role in private relationships, where no public money is handled or where such money is involved only indirectly. This paper contains analysis of Czech legislation providing for punishment of corrupt practices, under both criminal and civil law. Our analysis focuses both on purely private-law relationships and on transactions that involve – as one of the parties – an entity handling public resources.
This report was written in cooperation with:
prof JUDr Naděžda Rozehnalová, CSc, Professor, Masaryk University Faculty of Law, nadezda.rozehnalova@law.muni.cz;
JUDr Klára Drličková, PhD, Assistant Professor, Masaryk University Faculty of Law, klara.drlickova@law.muni.cz;
Mgr Pavel Málek, PhD, Public Prosecutor, High Public Prosecutor’s Office in Prague, PMalek@vsz.pha.justice.cz.
4.1 Sources of Law
Corrupt practices are regulated by two principal types of legislation – international treaties (conventions) and national laws. Several international conventions have been signed to date in the field of fight against corruption, with a view to establishing effective methods of punishing these practices:
The Czech Republic is a contracting party in each of the above except the last convention. Since the said conventions are not directly applicable legal instruments, the first three had to be transposed into Czech national laws; this took either the form of new criminal offences defined in Act No 40/2009 Coll, the Criminal Code (hereinafter the “Criminal Code”), or of civil-law liability for unfair competition established under Act No 89/2012 Coll, the Civil Code (hereinafter the “Civil Code”), ie the crucial piece of legislation adopted within recodification of Czech civil law, effective from 1 January 2014. As far as the consequences of corruption under criminal law are concerned, one must not neglect the provisions governing corporate criminal liability under Act No 418/2011 Coll, on corporate criminal liability and proceedings against legal persons (hereinafter “Corporate Criminal Liability Act”). The duty of the Czech Republic to adopt this piece of legislation was based, inter alia, on commitments adopted by the country on international scale. Limits on criminal punishment of corruption can also be found in secondary regulations of the EU. This includes, eg, Council Framework Decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector.
OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997 – published under No 25/2000 Coll, Int Tr;
Council of Europe Civil Law Convention on Corruption of 1999 – published under No 3/2004 Coll, Int Tr;
Council of Europe Criminal Law Convention on Corruption of 1999 – published under No 43/2009 Coll, Int Tr;
United Nations Convention against Corruption of 2003.
We consider that along with the legal regulation that applies to corrupt practices by definition, such undesirable unlawful conduct can also be punished by general legal instruments, ie based on general legal principles. Although the latter may be explicitly embodied in legal provisions, they represent general rules of conduct without it being necessary to explicitly make them into law.
4.2 Consequences of Corrupt Practices Under Criminal Law
Czech criminal law embedded in the Criminal Code does not provide any explicit definition of the criminal offence of “corruption”. However, it defines a legal term which is used as a synonym – “bribery” (Sections 331–334 of the Criminal Code).1 In addition to “bribery”, the Code sets out further merits of crimes that have elements corresponding, in fact, to corrupt practices or elements that are close to bribery.
The Criminal Code regulates criminal corrupt practices and crimes related to corruption in several parts of the text, as specified below.
4.2.1 Criminal Offences of Corrupt Nature
These offences include primarily crimes having a clear corrupt nature. They are defined as separate unlawful acts in Title Ten of the Special Part under the heading “Crimes against Public Policy”. This part contains criminal offences related to bribery: accepting a bribe (Section 331 of the Criminal Code), bribery (Section 332 of the Criminal Code) and indirect bribery (Section 333 of the Criminal Code). The said merits of crime are defined to punish not only the acceptance of or request for a bribe, but also offering or providing a bribe, both in relation to arrangement of public affairs (see the section concerning activities in public interest below) and in respect of purely private business activities pursued by the offender or some other person. These general merits of crime also provide for punishment of intermediaries who request a bribe for influencing an official person within the latter’s decision-making. Unlike the former regulation embodied in Act No 140/1961 Coll, the Criminal Code, the currently applicable Criminal Code affords protection not only to matters of public interest, but also to private businesses. The new regulation reflects the acceptance of the Council Framework Decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector.2
4.2.2 Criminal Offences with Potential for Corruption
Crimes with potential for corruption form another, relatively independent, group of criminal offences. These crimes form a separate part of Title Five, Chapter Three of the Criminal Code. This part comprises “Crimes against the Binding Rules of Market Economy and Circulation of Goods in Relation to Foreign Countries”: violation of regulations on the rules of competition (Section 248 of the Criminal Code); misuse of information and position in business relations (Section 255 of the Criminal Code); negotiating a benefit in awarding a public contract, in a public tender procedure and public auction (Section 256 of the Criminal Code); collusion in awarding a public contract and in a public tender procedure (Section 257 of the Criminal Code) and collusion in a public auction (Section 258 of the Criminal Code). Unlike general merits of crime, this group of crimes allows only for punishment of corrupt practices in specific activities, as described in the headings of the individual criminal offences.
4.2.3 Failure to Prevent and Failure to Notify Criminal Offence
In addition to the punishable corrupt practices of accepting a bribe and bribery, failure to prevent them is also a criminal offence under Section 367 of the Criminal Code. Failure to prevent a crime is committed by a person who learns in a credible manner that another person is preparing or committing the crime of accepting a bribe or bribery and fails to prevent the commission or accomplishment of such a crime. A crime can also be prevented by notifying the State attorney or a police body of the crime in due time.3
Failure to notify the crimes of accepting a bribe and bribery is also punishable under Section 368 of the Criminal Code. Failure to notify a crime is committed by a person who learns in a credible manner that another person has committed the crime of accepting a bribe or bribery and fails to notify a police body or the State attorney of the crime without delay. The said notification duty is not applicable to attorneys-at-law and their employees who learn about the commission of a crime in connection with the performance of the legal profession or law practice. The notification duty is also not borne by a priest of a registered church or religious society authorised to exercise special rights if (s)he learns about the commission of a crime4 in connection with confidentiality of the seal of confession or in connection with the exercise of a right similar to the seal of confession.
4.2.4 Criminal Liability of Natural Persons and Legal Entities
Both natural persons and legal entities may be criminally liable. Liability of natural persons for committing a crime is defined in the Czech Republic by the Criminal Code. A natural person commits a criminal offence only if this person’s conduct corresponds to all the elements of a defined criminal offence, characterising the object, objective aspects and also the necessary subjective aspects of this crime; moreover, the given natural person must be criminally liable. On the other hand, criminal liability of legal entities (ie corporate criminal liability) is regulated by a special law which was adopted relatively recently – Corporate Criminal Liability Act (effective since 1 January 2012). The Act stipulates the conditions of criminal liability of legal entities and the penalties that can be imposed on them for breach of the Criminal Code. This regime of the Act is based on liability of an employee or responsible person acting for the legal entity where this liability can be attributed to the legal entity. The Act exactly defines the conditions under which conduct of a natural person can be attributed to a legal entity. In simple terms, acts of officers, managers and persons having a substantial influence in a legal entity are always attributed to the legal entity, while acts of other employees are attributed to it only if the legal entity failed to take adequate measures to prevent unlawful conduct of this group of natural persons, in spite of being obliged to do so. This self-standing Act thus extends the scope of the Criminal Code ratione personae to legal entities.
As already indicated, the Corporate Criminal Liability Act does not define new merits of crime, but rather merely refers to those stipulated in the Criminal Code. In Section 7, the Act provides a positive list of crimes for which legal entities may also be prosecuted. The exhaustive list given in the said provision includes, among others, crimes that could have a corrupt nature. These include legalisation of proceeds of crime, both intentional and committed by negligence (Sections 216 and 217 of the Criminal Code); negotiating a benefit in awarding a public contract, in a public tender procedure and public auction (Section 256 of the Criminal Code); collusion in awarding a public contract and in a public tender procedure (Section 257 of the Criminal Code); collusion in a public auction (Section 258 of the Criminal Code); accepting a bribe (Section 331 of the Criminal Code); bribery (Section 332 of the Criminal Code); and indirect bribery (Section 333 of the Criminal Code).5
It follows from the above that the Czech laws consider as criminal any conduct that has corrupt nature, regardless of whether it was committed in the public or private sector. Consequently, it is irrelevant for assessing criminal liability whether the object of the given crime (the interest protected by law) is a public-law entity or activity that is pursued for the benefit of the State or under the supervision of government, or whether the offender unlawfully influenced decision-making of other business entities in a purely private sphere of their business with the aim of obtaining profit within competition.
4.2.5 Territoriality Principle vs Personality Principle
In terms of its scope regarding the criminal nature of certain conduct, the Criminal Code is based primarily on the territoriality principle; however, certain personal aspects are also taken into consideration. According to Section 4, assessment of whether a certain act is punishable (ie has criminal nature) is governed by the Criminal Code if the given act was committed in the territory of the Czech Republic (the territoriality principle).6 However, in accordance with Section 6 of the Criminal Code, the laws of the Czech Republic are also applicable to evaluation of whether an act is punishable if the act in question was committed abroad by a national of the Czech Republic or a stateless person who has been permitted permanent residence in the territory of the Czech Republic (the personality principle).7 In respect of legal entities, these links are assessed in conformity with Section 2 of the Corporate Criminal Liability Act. The question of whether an act committed by a legal entity in the territory of the Czech Republic is punishable (ie has criminal nature) is assessed under the said provision if the legal entity has its registered office in the Czech Republic or has its enterprise or branch located in the territory of the Czech Republic or if it at least performs its activities or has its assets in the Czech Republic.
However, it must be emphasised that Czech criminal law penalises not only unlawful conduct committed in the territory of the Czech Republic – the law also allows for punishment of a further set of acts that extend, in terms of their effects, beyond the borders of the country. In respect of natural persons, this area is defined in above-mentioned Section 4 of the Criminal Code, specifically in its second paragraph, which stipulates that a criminal offence is also deemed committed in the territory of the Czech Republic if:
For legal entities, an exemption from the territoriality principle is stipulated in Section 3 of the Corporate Criminal Liability Act, according to which Czech laws are to apply in assessing the criminal nature of an act committed abroad by a legal entity having its registered office in the Czech Republic. The above provisions do not apply if this is not permitted by an international treaty to which the Czech Republic is a party.
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the offender fully or partly committed the relevant act in the Czech Republic even if the breach or endangerment of an interest protected by the Criminal Code occurred or was to occur fully or partly abroad; or
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the offender breached or endangered an interest protected by the Criminal Code in the Czech Republic or if such a consequence was to occur at least partly in the Czech Republic even if the act in question was committed abroad.
4.3 Consequences of Corrupt Practices Under Civil Law
Corrupt practices are punishable based on private-law remedies stipulated by Czech laws, specifically based on provisions prohibiting unfair competition. With effect from 1 January 2014, provisions governing unfair competition became part of the Civil Code. The current provisions are phrased similarly to the former norms contained in Section 41 et seq of Act No 513/1991 Coll, the Commercial Code (hereinafter the “Commercial Code”). It can therefore be assumed that existing case law of Czech courts will continue to be applicable.
The provisions on unfair competition (Sections 2972 to 2990) are included in Part IV of the Civil Code (Relative Property Rights), Title III (Tort Liabilities), Chapter 2 (Abuse and Restriction of Competition). Chapter 2 is further divided into Subchapter 1, titled General, and Subchapter 2, titled Unfair Competition. The legal regulation is thus now systematically included within provisions on tort liabilities, which corresponds to the fact that unfair competition is considered a special type of non-contractual liability.
The territorial scope of provisions on unfair competition differs from the scope of the Criminal Code. Pursuant to Section 2973 of the Civil Code, the provisions on unfair competition do not apply to certain conduct insofar as it has effects abroad.8 This provision covers situations where unfair competition has unfavourable effects in several countries. According to the doctrine of effects, which is applicable in this case, unfair competition can be assessed under the domestic laws only if its effects arise in the Czech Republic, regardless of whether the conduct in question is pursued in the Czech Republic or abroad. Consequently, the decisive criterion is related to the place where the effects of certain conduct arise, rather than the place where the given act is performed.9
It should be emphasised in this respect that, in case of relationships following from unfair competition involving an international element, the application of domestic substantive regulations is conditional on the application of conflict-of-law rules. Conflict-of-law rules for non-contractual obligations with an international element arising from unfair competition are provided in unified provisions10 of Article 6 of Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II).11 According to Article 6(1) of the Regulation, the law applicable to a non-contractual obligation arising out of an act of unfair competition is the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected.12
In relation to protection against unfair competition, foreign persons13 who are engaged in competition in the Czech Republic are treated as Czech persons (Section 2974 of the Civil Code). Otherwise, foreign persons may claim protection under international treaties binding on the Czech Republic or, if there are no such treaties, based on reciprocity. In terms of the position of foreigners and foreign legal entities in private-law relationships, this provision is lex specialis in relation to the general rules stipulated in Sections 26 and 27 of Act No 91/2012 Coll, on private international law.14 Foreign persons who are involved in competition in the Czech Republic are thus guaranteed “national treatment”. Protection is conditional on their involvement in competition. Where foreign persons are not involved in competition in the Czech Republic, but an act of unfair competition endangers or infringes their rights, these persons are afforded protection only under international treaties15 or, in their absence, based on reciprocity. Although Section 2973 refers only to protection of foreign persons, the rules for punishment of these persons can also be inferred from this provision, under the same conditions.16
4.3.1 System of Legislation on Unfair Competition and General Clause
Unfair competition is prohibited17 (Section 2976(1) of the Civil Code). Unfair competition is considered a civil offence (tort) based on strict liability, without it being necessary to examine culpability.18 The legal regulation of unfair competition is based on a combination of the general clause (Section 2976(1) of the Civil Code) and a non-exhaustive list of special merits in Section 2976(2) of the Civil Code. The general clause contains the defining elements of unfair competition. These elements must also exist in respect of all special cases (offences). The opposite is also true, ie any act which corresponds to the elements of the general clause may be prosecuted as unfair competition even if it does not fall under any of the special merits.19 The special merits also include those that are directly related to corrupt practices. However, even an act that does not have the elements of such a special case (merits), but is nonetheless corrupt in nature and corresponds to the elements of unfair competition under the general clause, will be punishable as an act of unfair competition.
According to the general clause a person who, in business relations, is in conflict with good morals of competition as a result of his conduct capable of causing harm to other competitors or customers, is considered to pursue unfair competition. The general clause sets out three defining elements of unfair competition: action in business relations, variance with good morals of competition and capacity to cause harm to other competitors or customers.