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
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:
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:
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:
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:
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:
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:
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:
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:
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.