Spain - The Strategic View - Business Crime 2016
        

Mar de Pedraza and Paula Martínez-Barros Rodríguez analyse trends in the prosecution of business crimes during the past year in Spain and the role and competence of enforcement agencies under Spanish law

Contributing firm

1. What trends, in terms of activity or focus, have you seen in the prosecution of business crimes in your jurisdiction in the last 12 months?

During the past year, trends in the prosecution and investigation of crimes in Spanish jurisdiction moved towards tax evasion, public and private corruption (national and international), money laundering and technological crimes.

Not only have the Courts focused on pursuing the commission of the above-mentioned offences, but also on a daily basis the national media has been publishing whichever renowned politician, former political personality or well-known businessmen or company is under investigation.

All these media articles have caused general awareness about incidences of corruption, tax evasion and money laundering crimes in the country; crimes which, on many occasions, cross national borders and require international cooperation with foreign entities or courts in order to carry out the pertinent patrimonial inquiries.

Some of these supranational business crimes that affected Spanish entities and individuals are, for example, the so called Panama Papers or Falciani case; both are related to tax evasion crimes for having off-shore undeclared cash accounts.

Due to the high number of business crimes investigations and prosecutions that take place every year, it is impossible to determine accurate figures in this sense.

Lastly, “cybercrime” has increased exponentially over recent years as well as the number of criminal proceedings initiated for this offence, while previously these were exceptionally investigated due to the lack of evidence.

A total of 20,534 criminal investigations were initiated in 2014 regarding the occurrence of technological crimes, constituting the majority of “cyber-fraud” offence cases.

These numbers are still increasing year on year.

2. Are enforcement agencies particularly focused on any specific industries or crimes?

Enforcement agencies in Spain are not particularly focused on specific industries, but on specific crimes.

Such agencies collaborate with Courts and Prosecutors during the investigation of crimes when a criminal proceeding has not yet been opened against the wrongdoer, as well as during the Preliminary Proceedings phase, once a criminal proceeding is formally initiated against the offender.

They are dependent on government bodies or autonomous communities.

Most noteworthy agencies for investigating business crimes on a national level are:

  • Judicial Police “Policía Judicial”, responsible for the investigation and detection of supranational infringements, specialised in crimes related to drugs, organised crime, economic, financial and technological matters and gambling control.  They also cooperate with other police bodies or agencies in other countries.
  • Fiscal and Economic Crime Unit “Unidad de Delincuencia Económica y Fiscal- U.D.E.F”, comprising the following brigades: (i) Money Laundering; (ii) Monetary Crimes; (iii) Economic Crimes; (iv) of the Bank of Spain; and (v) Technological Investigation “B.I.T”.
  • Civil Central Operative Unit “Unidad Central Operativa- U.C.O.”: focuses on fraud at a national and international level, currency forgery, money laundering and technological crimes, among others.
  • Customs Surveillance Service “Servicio de Vigilancia Aduanera”.  Dependent on the State Tax Administration Agency, this Service focuses on tax evasion, money laundering, corruption, fraud and exchange controls within Spanish terrestrial, maritime and air space.
  • National Fraud Investigation Office “O.N.I.F. - Oficina Nacional de Investigación del Fraude de la Agencia Tributaria”.  A specific unit of the State Tax Administration Agency that maintains an institutional relation with the Anticorruption Prosecutor Office, with whom they pursue collaborations in fraud crimes, but they are not dependent on it.

 

3. Are enforcement agencies more or less focused on pursuing cases against corporations or individuals?

Corporations could not be held criminally liable until the reform of the Spanish Criminal Code undertaken six years ago by the Organic Law 5/2010 of June 22, which means that, prior to such amendment, enforcement agencies and Courts were only focused on pursuing cases against individuals.

Despite the fact that this reform came into force on December 24, 2010, it was not until 2016 that the first sentence of the Supreme Court upheld the conviction of a legal entity.

Over all those years there was no jurisprudence to help interpret the new law.

Furthermore, the wording and provisions of the 2010 version of the Spanish Criminal Code were vague, incomplete and sometimes quite imprecise which made it difficult for Judges, Prosecutors, Attorneys and even legal entities to interpret.

At the start of 2016, the pioneering Supreme Court sentence confirming the criminal liability of a corporation was delivered on February 29 (STS 154/2016).  This ruling provided some guidelines for legal entities to comply with law and norms through the implementation of models of prevention and control according to Article 31 bis of the Criminal Code in order for them to avoid penalties.

There were two following judgments from the Supreme Court about the criminal liability of legal persons; on March 16, 2016 (STS 221/2016) for property embezzlement and on June 13, 2016 (STS 516/2016) for crimes against the environment.

Even though nowadays the percentage of proceedings brought against individuals is consistently higher than that of businesses, this trend might change as the Courts are slowly starting to prosecute legal entities.

4. Does the legal framework concerning the prosecution of business crimes allow for extraterritorial enforcement? Are such matters being pursued?

The principle of universal justice was introduced in Spanish legislation in 1985 by virtue of Article 23 of the Organic Law of the Judiciary (Ley Orgánica del Poder Judicial), when the Spanish jurisdiction was attributed the competence to prosecute crimes committed by Spanish individuals or foreigners outside the borders of the national territory in relation to the crimes of genocide, terrorism, piracy, forgery of foreign currency, prostitution and drug trafficking.

Such list of crimes was expanded by subsequent laws, but included many limitations and conditions.

Regarding the extraterritorial prosecution of business crimes, the corruption in business and in economic international transactions is regulated under Article 23.4.n, where Spanish jurisdiction shall be competent to prosecute such crimes committed by Spanish individuals or foreigners outside national boundaries under the following conditions:

  1. the criminal proceedings have been brought against a Spanish individual;
  2. the criminal proceedings has been brought against a foreigner who resides in Spain;
  3. the crime has been committed by the manager, administrator, employee or collaborator of a commercial organisation, or of a company, association, foundation or organisation that has its headquarters or registered office in Spain; or
  4. that the crime was committed by a legal person, company, organisation, groups or any other kind of entity or groups of people that have its headquarters or registered office in Spain.

Further conditioning factors are completed by Article 23.5,which states that crimes regulated in the former section will not be prosecuted in Spain when:

  1. an International Court has initiated a proceedings for the investigation and prosecution of such crime; or
  2. criminal proceedings were initiated by a Court of the state where criminal acts were committed or in the state of the nationality of the offender, whenever:
    1. the offender is not in Spanish territory; or
    2. proceedings were initiated for his extradition to the place where the criminal acts were committed, or to the place of the victims’ nationality, or to put him at the disposal of an International Court to be prosecuted.

The provisions of this paragraph shall not apply when the state that should investigate is not willing to do so or cannot pursue the investigation.

In summary, there are many constrictions to allow for extraterritorial enforcement and only when every condition provided by law is met, would this be possible.

5. What judicial or legislative developments have impacted the prosecution of business crimes in your jurisdiction in the last 12 months?  Are there any significant proposals for reform of the legal framework that governs business crimes in your jurisdiction?

The most important legislative developments that have impacted the prosecution of business crimes in Spain are the reforms of the Spanish Criminal Code and the Procedural Criminal Act.

The reform of the Spanish Criminal Code implemented by the Organic Law 1/2015 of March 30, in force since July 1, 2015, brings more certainty on how a compliance programme should be undertaken and how that affects the criminal liability of legal persons.

For example, the provisions set forth in Article 31.2 bis of the Penal Code allow legal persons to be exempt from criminal liability under the following conditions:

  1. When the Board of Directors, prior to the perpetration of the crime, adopted and implemented an organisational, management and control model suitable to prevent offences of the type committed.
  2. Moreover, the supervision of the proper functioning of the model is entrusted to a supervisory body with independent powers of initiative and control.
  3. The individual authors of the crime have eluded fraudulently the organisation and prevention model.
  4. The supervision bodyhas not omitted or neglected its monitoring, supervision and control duties.

Also, mitigating circumstances are established under Article 31 quarter, whichwill be analysed later.

Moreover, Article 31.5 of the Penal Code establishes the basis for the prevention model that legal entities should follow for being exonerated of criminal liability, or at least mitigate it.

Lastly, the regulation for some business crimes has changed:

  • Fraud crimes: Penalties have increased when the value of the deceit is over 250,000 euros (four to eight years of imprisonment).
  • Fraudulent administration and misappropriation of funds crimes: Currently, the crime of fraudulent administration (Article 252) is perfectly distinguished from misappropriation, and it is no longer considered a corporate crime since the author of the crime can be whoever, having been authorised by law, authority or contract, manages other people’s assets (money, securities, effects, goods) exceeding its competences and causing serious damage to other’s net worth.
  • Corruption in business crimes: The regulation has improved as to guarantee the full application of the criminal prescriptions in any case when, whoever paying a bribe for one’s own benefit or that of a third party, obtains a competitive advantage in economic relations.

 

Penalties have also increased considerably for active and passive bribery (Articles 419, 420 and 424).

The Criminal Procedural Act has also been modified, particularly the provisions set forth in its new Article 324, in force since December 6, 2015.

The cited article establishes that the investigation phase cannot last longer than six month after the Order commencing Preliminary Proceedings “Auto de incoación de Diligencias Previas” is issued.

Nonetheless, this period can be extended up to 18 months (extendable for a maximum of 18) when the investigation is considered complex according to the limited circumstances established in Article 324.2.

The deadline of six months expired on June 6, 2016 for proceedings which commenced before the amendment.  As expected, most of the investigations were considered complex by request of Prosecutors and the agreement of Courts.

On the other hand and with regards to judicial developments, the most significant ones were the resolutions about the criminal liability of legal entities mentioned before.

6. How common is it for enforcement agencies in your jurisdiction to exchange information and cooperate internationally with other agencies?  What are the consequences of cross-border cooperation on prosecutions of entities and individuals in your jurisdiction?

In some criminal investigations cut across national boundaries it is common to perform joint investigations with foreign agencies or exchange information with them.

From a juridical point of view, cross-border cooperation entitles: a) international judicial assistance (letters rogatory, subpoenas, seizures and freezing measures, removal of secrecy of bank accounts, etc.); b) transfer procedures for sentenced persons; c) transfer of enforcement of criminal judgments; d) transfer of criminal proceedings and complaints to conduct investigations; e) supervision of sentenced persons or persons on conditional release; and f) controlled delivery at an international level.

Thus, the most common offences that require such cooperation from foreign bodies are tax evasion, fraud, money laundering and bribery, but also organised crime, terrorism and technological crimes, among others.

It should be highlighted that unless set forth in the law (e.g. Treaties and Conventions of mutual assistance), Spanish enforcement agencies are not allowed to exchange information directly with other foreign agencies without having prior Court consent, as the fundamental rights of the investigated persons can be violated under the prescriptions of the Spanish Constitution.

Although not permitted by law, in some cases, enforcement agencies act on their own without the Court’s mandatory permissions.  If that were to happen and the violation is discovered by the parties or the Judge, an invalidation action of the proceedings can be brought.

Given the high number of investigations that cross national borders currently in process in Spain concerning money laundering, fraud and tax evasion crimes, international collaboration is becoming more common every day.

In spite of such frequent collaboration, there are still some difficulties regarding the long period of time it takes to receive the replies of the letters rogatory from foreign entities.

This delay in the reception of communications is having a large impact on Spanish investigations conducted on criminal proceedings as it is prolonging them more than necessary.

7. What unique challenges do entities or individuals face when enforcement agencies in your jurisdiction initiate an investigation?

Probably the greatest challenge when enforcement agencies initiate an investigation is that it is usually secret, so the persons or entities under investigation are unaware of what is in progress and they cannot defend themselves.

Those investigated do not get access to the documents seized during the investigation, nor to any information on the procedure.

On the contrary, when an investigation is initiated by a Court, proceedings are normally public to the offenders so the possibility of defence is greater as the access to the judicial proceedings is guaranteed to the parties, unless the secrecy of the proceedings is otherwise agreed.

8. Do enforcement agencies in your jurisdiction provide incentives for individuals or entities to self-report a business crime or otherwise provide assistance to the government?  If so, what factors should individuals or entities consider when assessing whether to self-report a business crime or cooperate with a government investigation?

Under Spanish Penal regulations there is no obligation of self-reporting business crimes, but according to the recent reform of the Criminal Code, doing so could have a positive impact on legal entities in terms of mitigating or exonerating (Article 31.2) their criminal liability.

Thus, it is not the enforcement agencies that provide incentives for individuals or entities to report business crimes, but the provisions of the Criminal Code which incentivise these reporting actions.

However, these incentives are not regulated like in other jurisdictions and are just focused on “encouraging” legal entities to denounce themselves by offering them a moderation in their possible future sanctions.

The new drafting of the Article 31 quarter stipulates that criminal liability of legal persons can be mitigated in the following circumstances:

  1. disclosure of the offence to the authorities prior to knowing that criminal proceedings have been brought against them;
  2. cooperation by providing evidence to the investigation that is new and decisive for shedding light on the criminal liability;
  3. reparation or mitigation of any damage caused by the offence prior to the criminal trial; or
  4. prior to trial, taking effective measures to prevent and detect any possible offences that could be committed in the future using the resources of the legal entity.

Consequently, the Spanish Penal Code provides legal entities with the free choice of self-reporting or not any alleged criminal conduct which has occurred within their organisation before a criminal proceeding is brought before Court for those same acts.

Notwithstanding, if they take a proactive approach and report the crime, they will be rewarded with an attenuating circumstance that will reduce the penalty.

Certainly, only corporations with an implemented corporate compliance programme would be the ones considering reporting a crime.  Once they complete their own internal investigation and the circumstances and individuals involved are clear, that will be the time to determine if it is appropriate to self-report the case to authorities or not.

The main factors to consider by either the supervision body or by the Board of Directors when assessing whether to self-report a crime would be the following:

  • that it is not mandatory under Spanish law to report, but reporting on time reduces penalties;
  • to review the effectiveness of the compliance programme implemented in the company and if it is suitable to prevent the crime that would be reported;
  • to determine if it is the first time the company has reported the occurrence of such conduct or its endemic in the business practices of the legal entity;
  • verifying that the internal investigation conducted was done with all constitutional and legal guarantees;
  • to determine if other illegal conducts are taking place in the company;
  • to assess how likely is that self-reporting ends up in a criminal investigation.  That is to say, the likelihood of the conduct to be considered an offence; and
  • review the mitigation (or even exonerating) circumstances that might be applied if self-reporting the crime.

 

Depending on each case and its particular circumstances, reporting the commission of a crime could result in a better or worse situation for the company.

Finally, for individuals to self-report a business crime to authorities does not provide the same immunity, protection or advantages than in other foreign legislations, but a general mitigation circumstance provided in Article 21.4 of the Spanish Criminal Code could be applied to those individual wrongdoers that confess the crime to authorities before criminal proceedings are brought against them.

Therefore, the main factors for them to consider are:

  • whether the company will take corrective action against the individual after self-reporting;
  • whether is preferable to report internally about the situation through whistleblowing channels before referring to authorities as for the supervision bodies to conduct an investigation to clarify the circumstances of the case; and
  • whether the individual is one of the wrongdoers so that confessing the crime applies as a mitigating circumstance for him.

 

Reporting activities through whistleblowing channels should be encouraged by legal entities to ensure the effectiveness of the compliance programmes implemented.

9. Do enforcement agencies in your jurisdiction use non-prosecution agreements ("NPA") or deferred prosecution agreements ("DPA")?  If so, how do such agreements work in practice and what can entities or individuals do to reach an NPA or a DPA with enforcement agencies?  If not, do you believe it is likely that such agreements will become part of the legal framework in the next five years.

Unfortunately, in Spain we do not have anything similar to NPA or DPA; nor are such kinds of agreements intended to become part of Spanish legal provisions soon.

As judicial investigations are lead, conducted and agreed by Examining Magistrate’s Courts, not by Prosecutors as in other foreign jurisdictions, it is very difficult for such agreements to be implemented in our legal system, unless investigations are still managed by Courts.

During the several years prior to the reform of the Criminal Procedural Act it was a common legal debate and proposal whether to introduce a modification in the Spanish criminal proceedings to confer the Prosecutor the competence to effectively lead the investigation and not just to take over the accusation, as it has always been.

If this model would have succeeded, it would have meant the introduction in our legal system of the opportunity principle, so that Prosecutors could have had competences to enter that kind of agreement.

The closest scenario to NPA or DPA in the Spanish legal system is an agreement that could be reached between the defendant and prosecutor in which the defendant agrees to plead guilty with corresponding penalty reductions.

Buy print or PDF edition

The Strategic View - Business Crime

The Strategic View - Business Crime 2016

Buy Chapter as PDF Buy print edition

Related publications

Published 14/10/2016
Business Crime 2017