The Civil Law Consequences of Corruption According to the Laws of the Least Corrupt Country in the World – Denmark
© Springer International Publishing Switzerland 2015Michael 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_5
5. The Civil Law Consequences of Corruption According to the Laws of the Least Corrupt Country in the World – Denmark
Bech-Bruun Law Firm, Langelinie Allé 35, 2100 Copenhagen, Denmark
Department of Law, Aalborg University, Niels Jernes Vej 6B, 9220 Aalborg Øst, Denmark
This paper provides an overview of the civil law consequences of corruption in the least corrupt country in the world – Denmark. It outlines the relevant terminology, including the elements of the crime, from a criminal law perspective and provides an overview of the applicable legal framework from a civil law perspective. The paper also presents and evaluates some of the most notable Danish rulings concerning the consequences of corruption, including the Carl Bro case and the Oil-for-Food cases.
The Danish parliament (Folketinget) passed a number of amendments to the provisions on bribery (public bribery) and secret commissions (private bribery) in Act No 228 of 4 April 2000. The objective of the amendments was to ensure that the Danish rules were in compliance with the requirements of as many as five different conventions etc.,1 all with the same chief aims; imposing a duty on the participating countries to criminalize public and private bribery, to criminalize both the giving and receiving of a bribe (passive bribery) and to criminalize bribery across borders.
However, despite the Danish ratification of the mentioned conventions and protocols on the criminalization of corruption, Denmark has not yet ratified the Council of Europe’s Civil Law Convention on Corruption of 1999 even though having signed the convention.
The word “corruption” is not a distinct Danish legal concept, but rather a generic term covering different kinds of malversation. The term is often used in relation to misuse of power by mixing individual and public interests. When used in criminal law the term refers to a wide range of criminal offences (such as criminal breach of trust, embezzlement, abuse of public office, secret commissions and, of course, both offering and accepting a bribe).
Within administrative law, administrative acts issued as a result of corruption will be considered invalid in accordance with basic principles of Danish administrative law such as the abuse of power principle or various disqualification rules. The main objective within both criminal and administrative law is to ensure that any person to whom the rules apply is governed only by objective considerations and motives. In the public debate the term “corruption” is often used in a broader sense, which may include everything from acts out of friendship to all kinds of acts which can be perceived as expressions of a person’s generally dubious moral standards. Usually, however, both lawyers and non-lawyers associate the term with the offer and accept of financial (or other kinds of) favors granted with the intention to make the recipient give someone (usually the giver) any sort of preferential treatment, such as speeding up the processing of the giver’s pending case, ensuring the giver certain advantages, which are (legally) at the recipient’s disposal, or granting the giver undue and possibly even illegal advantages.
It is in the latter, narrow sense of the term that the actus reus of both bribery and secret commissions is found. The word “bribery” is reserved for violations of ss 122 and 144 of the Danish Criminal Code (the “DCC”), which impose penalties on both providing and receiving undue favors if the recipient is acting in official public capacity. The act of providing a bribe is often referred to as “active bribery” whereas the act of receiving a bribe is called “passive bribery”. These terms, however, are not entirely precise, seeing that the recipient of a bribe (the official) may very well be the active party in committing the crime, for example by demanding special favors or plainly money in return of reaching a certain decision favorable to the person providing the bribe. The most precise and neutral terms are therefore simply “providing” and “receiving” a bribe.
5.2 Corruption in Criminal Law3
This chapter focuses on the Danish criminal law definition of corruption, and the relevant legal framework concerning both the provision and receipt of a bribe within the public and private sector. Furthermore, this chapter touches briefly on other relevant criminal law provisions and judgments (including the “Carl Bro case”) and Danish criminal law jurisdiction.
5.2.1 Public Sector
188.8.131.52 Receiving a Bribe
The principal provision on receiving a bribe (s 144 DCC) stipulates that “any person who unduly receives, demands, or agrees to receive a gift or another benefit in the exercise of a Danish, foreign or international public function or office is sentenced to a fine or imprisonment for a term not exceeding six years.”
The persons covered by this provision not only include Danish public officials, but also persons employed to perform public services of assignments abroad. Any public-sector employee is a public official irrespective of whether the government, a region or municipality is the employer, and employees of the Danish courts are also included.4 It is irrelevant whether the employee has any decision-making authority,5 since actual administration may be exercised under undue influence as well. This applies to public-sector employees in both Denmark and abroad. The provision also applies to politicians who hold positions as for example members or chairmen of boards, committees and so forth.
Generally, the provision does not apply to employees of state companies. If, however, the company performs functions which are similar to functions performed under public law, the nature of the assignment may justify the application of the bribery rules contained in s 144 DCC. This issue remains to be settled by a Danish court, but the view is supported by the comments accompanying OECD’s anti-corruption convention,6 which state that employees of state companies are subject to the provisions of the convention, unless the company “operates on a normal commercial basis in the relevant market, ie, on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.”7 The comments further indicate that the provision (under special circumstances) may apply to a person holding some form of public authority, irrespective of the terms of his employment.8 , 9 Although the issue remains to be determined by a Danish court of law, this interpretation has merit. If, for example, prisons were entirely privately owned and operated, which is the case in some countries, it would seem unfair if prison employees were not subject to s 144 DCC, since they would most likely not be subject to s 299 DCC concerning secret commission.10
184.108.40.206 Providing a Bribe
The prohibition against providing a bribe is set out in s 122 DCC, which reads as follows: “Any person who unduly gives, promises or offers to someone performing a public function or office with a Danish, foreign or international public organization a gift or another benefit to make the relevant person perform or fail to perform such function or office is sentenced to a fine or imprisonment for a term not exceeding six years.”
The group of persons to whom a bribe may not be provided is identical to the group of persons who may not receive a bribe. The briber can be anybody, including legal entities. While s 144 DCC applies to the receipt of all undue advantages, s 122 DCC only imposes a penalty on providing gifts and other favors if it is done with the objective of ensuring a certain conduct by the employee in public service. The words “perform or fail to perform such function or office […]” cover not only any kind of decision-making, but also the actual exercise of administrative duties. Subsequent gifts or favors provided in gratitude of good case administration are not covered by s 122 DCC, and the provider of such is not liable to punishment. Depending on the circumstances, however, such gifts or favors may be covered by s 144 DCC, and if this is the case, the recipient will then be liable to punishment.
5.2.2 Private Sector
Ss 122 and 144 DCC make it a criminal offence to provide a bribe to someone in public service as well as to receive a bribe when in public service. Corruption, however, is also a criminal offence in the private sector.
S 299(2) DCC prohibits both the offer and receipt of “secret commissions” (bribery in private legal relationships) and reads as follows: “A fine or imprisonment for a term not exceeding four years is imposed on any person who receives, demands or agrees to receive a gift or another benefit for himself or others in a manner contrary to his duty of managing the property entrusted to him by another person, and on any person who grants, promises or offers such gift or other benefit.”
S 299(2) DCC is very similar to ss 122 and 144 DCC, but there are also fundamental differences between the situations addressed by each set of rules – namely that it is a very clear principle that a public official never receives money from his “clients”, whereas it is customary that an exchange of goods, services and/or funds takes place between the parties in a private legal relationship. This often makes it more difficult to determine when and if the receipt of funds by an employee in a private legal relationship is “contrary to duty”. Prior to an amendment of s 299(2) DCC in 2000 the provision required the receipt of a secret commission to have been “kept concealed” from the employer. This wording was omitted in 2000, but the assumption probably still applies. This is obviously the case when, for example, an employee in a private company conceals from the company that he has received for instance 2 % in “commission” for entering into an agreement with the company providing the secret commission.11 Considering the provision’s kinship with “breach of trust” (s 280 DCC) it is theoretically possible, but rather unlikely, that a court of law will find an act contrary to duty in a case where the recipient of the commission does not conceal such receipt from the company.12
Despite the possible concern of allowing the conduct of a majority (or at least a significant minority) to be decisive in regard to determining what is considered criminal,13 it cannot be ignored that normal conduct, which is out in the open and therefore specifically or at least tacitly acknowledged by both employer and employees, hardly can be characterized as contrary to duty. Tipping, for instance, is so widespread within the hotel and restaurant business that it cannot be considered contrary to duty when a waiter or desk clerk receives a generous tip; even if the gratuity was specifically intended to induce the recipient to provide an extraordinary service, such as the best table, frequent exchange of fruit in the hotel room, having luggage brought up faster and so forth.
It is widely assumed14 that as a precondition for violation of s 299 DCC, the favor must have been provided or promised prior to the act, which the favor was intended to influence. This reasonable interpretation is in keeping partly with the wording of s 299 DCC and partly with the provision’s kinship with ss 122 and 144 DCC, as well as the fact that s 299 DCC does not distinguish between the criminal conduct of the provider and the recipient of a secret commission.
The kinship between ss 280 and 299(2) DCC is most apparent when it is doubtful whether a received amount is a “supplementary payment”, which does not result in a loss for the party whose interests are being managed by the recipient, or whether the amount rightfully should have benefited the party whose interests are being managed by the recipient, but is diverted into the perpetrator’s pockets instead.15
220.127.116.11 The Carl Bro Case
A related, but unusual, situation arose in the so-called “Carl Bro case”. Three managerial staff members in the Carl Bro group were accused primarily of breach of trust under s 280 DCC, alternatively of violation of s 299(2) DCC, by having paid out secret commissions. It is unusual, but not contradictory, that the company, Carl Bro, as such would be the victim of the crime under the primary charge, whereas the company could best be described as the “beneficiary” of the crime under the alternative charge. The prosecution was thus faced with two main challenges: determining the fund flow – how did the money leave the company and where did it go? – and who in the group had knowledge of the payments.
The money flow in the Carl Bro case was as follows: A person living in Switzerland issued two fictitious invoices of a total of just under DKK 2,000,000. The two invoices were paid by the Carl Bro group, and one of the defendants subsequently collected the money – less some commissions – in Switzerland. The fate of the money is unknown after this point. According to the defendants’ evidence in court, a suitcase containing the money was delivered to a “Mr Schmidt” at a pub in Germany. However, as it is well known, there are quite a few “Mr Schmidts” in Germany. The defendants also stated that the money was to be passed on to a person central to the management of the German company Nordbau, which was party to a number of building contracts near Hamburg; projects which the Carl Bro group would like to participate in.
Based on this course of events, it was quite simply impossible to determine whether the Carl Bro group was the victim of a crime, or whether it had benefitted from a crime committed in its own interest. The court of first instance, the District Court, found that the senior group management had considered it “pretty obvious that the fees [the DKK 2,000,000] were just on or beyond the border of bribery, but that the fees might be a necessary evil”.16 According to the District Court, the management had further considered it “an issue which had to be handled with discretion”. On this basis, the District Court found that the defendants may very well “have believed that the Carl Bro management considered the projects to be of such importance to the group that it was prepared to turn a blind eye, and more or less tacitly accept that [one of the defendants] handled the practical difficulties connected to the payment of the special consultancy fees, including withdrawing the mentioned amounts and providing the required vouchers”. Consequently, the District Court reached the decision that the defendants were innocent of breach of trust. It is not entirely clear whether the Court based its decision on the assumption that the management actually knew about and thereby tacitly sanctioned the “consultant fees” or on the fact that the defendants believed that this was the case. Either way, the defendants had lacked the necessary intent to breach the trust of the company.
Regarding the charge with secret commission, the Court found that the prosecution had failed to meet the burden of proof. The actus reus of s 299(2) DCC requires the recipient of the secret commission to have acted in a manner “contrary to his duty” in managing the property entrusted to him by another person. Since no one knew what had happened to the money after it was handed over to “Mr Schmidt” at a pub in Germany, the prosecution was unable to establish that the recipient of the secret commission had acted contrary to his duties.
The High Court upheld the District Court’s decision in regard to both ss 280 and 299(2) DCC, but based its conclusion concerning the charge of secret commission on the fact that the defendants were of the impression that the management of Carl Bro had approved the payment of the “consultancy fees”, and that they consequently did not intend to breach the trust of the company.17
The principle rule when determining the application of Danish criminal statutes is the “territorial principle” contained in s 6 DCC, which stipulates that acts committed within the territory of the Danish state fall within Danish criminal jurisdiction.
Under certain circumstances, however, acts committed outside the territory of the Danish state also fall within Danish (extraterritorial) criminal jurisdiction. Corruption, for instance, is a criminal offence under Danish law if committed by a Danish national (or resident) within the territory of another state, if the act was also a criminal offence under the legislation of the country in which the act was committed (ie a condition of “double criminality”), cf s 7(1) DCC.18
5.3 Statutory Regulation Concerning the Civil Law Consequences of Corruption
This chapter contains a description of the relevant Danish civil law framework related to the consequences of corruption, incl. the Danish Law of King Christian V from 1683 and the Danish Contracts Act. Both legislation and case law concerning the civil law consequences of corruption are described and analyzed. The chapter contains an in-depth analysis of the Danish legal aftermath of the numerous international violations of the Oil-for-Food Programme. The chapter also contains an overview of the remedies available in case of both invalidity and breach of a contract governed by Danish law, as well as an introduction to the relevant tort law concepts.
There is no specific statutory regulation of the civil law consequences of corruption in Danish law. The contractual consequences of corruption follow from principles of general contract law, and the potential liability of both the provider and recipient of a bribe is determined on the basis of general principles of torts liability or contractual liability depending on the specific circumstances.
5.3.1 Contract Law
The general principle of pacta sunt servanda is established in the Danish Law of King Christian V from 1683 (the “Danish Law”), which is still partially in effect. According to s 5-1-2 of the Danish Law, contracts concluded between legally competent parties are valid in all details, unless they are (i) against the law (contra legem) or (ii) contrary to public policy (contra bonos mores). Furthermore, the Danish Contracts Act (the “DCA”) contains provisions according to which contracts against good morals (s 33 DCA) and unfair contracts (s 36(1) DCA) are wholly or partially invalid (see Sects. 18.104.22.168.2 and 22.214.171.124.3). Together these provisions comprise the “core” legislation relevant to establishing the contractual consequences of corruption.
According to s 5-1-2 of the Danish Law, contracts are invalid if they are against the law or contrary to public policy. The wording “against the law” simply refers to the laws in force at the time in question19 and does not provide any further answers to the question of a contract’s validity. Only contracts which are in violation of mandatory provisions are invalid, whereas it naturally follows that contracts that are contrary to provisions which can be derogated from by agreement between the parties are valid in the absence of other vitiating factors.
Most Danish civil law provisions concerning contracts are non-mandatory, and consequently the parties may agree to dispense from such provisions. This means that contracts conflicting with such non-mandatory provisions (in civil as well as public law) are not considered contra legem, because it is assumed that it has been the intention of the parties to deviate from the rules in question. If a civil law provision, however, explicitly states that it is mandatory, or if this follows from an interpretation of the purpose of the provision, any contract concluded against such provision is contra legem and therefore invalid.
This leaves the question of the validity of contracts violating statutory mandatory provisions of public law. Such contracts are not necessarily invalid; even if a violation is sanctioned with punishment or fine.
Some legal scholars have previously suggested that the crucial factor in determining the validity of agreements, which are in violation of mandatory provisions of public law, is whether the statutory provision in question dictates the legal consequences of its violation or whether it simply prohibits a certain conduct. If specific legal consequences (other than invalidity) are sanctioned by the provision, it was presumed that such prescribed sanctions were exhaustive, thereby eliminating invalidity as a consequence.20 Such presumption has now been abandoned, and it is widely recognized that the question of the validity of a contract which is in violation of one or more mandatory provisions in public law must be answered on a case by case basis; considering among other things the gravity of the violation, and whether a civil law sanction such as invalidity is necessary in order to mitigate the effect of the criminal action.21
If a contract is in violation of the Danish Criminal Code because a criminal act is required in order to perform the contract, or the performance itself pursues a criminal purpose, the contract will naturally be invalid as a result of the contra legem principle. This was the case in UfR 1969.303 H, where a Swedish publishing house had sold pornographic magazines to a Danish company, but the magazines were seized by the Danish police, because they were in violation of the then current s 234 DCC. As a result, the Danish company refused to pay for the magazines. The High Court ruled that the agreement itself was invalid (null and void) and dismissed the Swedish company’s claim for payment for the magazines.