Director breaks the law, company fined up to 40 million

Companies whose directors or other authorized persons commit a criminal offense related to business and environmental protection will have their fines significantly increased, which will be adjusted to the amount of turnover, the amount of damage caused, and the form of the criminal offense, if amendments to the Law on the Liability of Legal Entities for Criminal Offenses, which are on the assembly agenda, are adopted.

The reason for the changes, as stated in the explanation, is the obsolescence of the existing provisions on fines, which have not been changed for almost two decades, as well as the fact that the European regulatory framework has been significantly improved, especially in the area of ​​environmental crime.

The proposal specifies the liability of a legal entity for acts committed by its representative in connection with business operations.

"A legal entity is liable for the criminal offense of a responsible person who committed a criminal offense while acting on behalf of the legal entity within the scope of its authority, with the intention of obtaining some benefit for that legal entity, or when the actions of the responsible person were contrary to the business policy or orders of the legal entity. A legal entity is also liable for a criminal offense committed for its benefit by a person acting under the direction of the responsible person, if the commission of the criminal offense was enabled by the failure of the responsible person to exercise supervision or control that he or she was obliged to exercise," the law states.

Penalty in accordance with the damage and turnover of the company

The fine is determined in proportion to the total annual turnover of the legal entity in the business year preceding the year of the criminal offense, and ranges from 4.000 to 40 million euros, while in the previous law the range of fines was from one thousand euros to five million.

The penalties also depend on the damage caused by the actions of the authorized person, ranging from at least double the amount for criminal offenses punishable by up to one year in prison, to at least fifty times the amount of "damage caused or unlawful material gain obtained" for criminal offenses punishable by over ten years in prison.

In the criminal part of the law, the amounts of all fines have been increased fourfold. It is also envisaged that the amount of fines will increase in the event of repeated criminal offences.

"The proposed amendments increase the minimum amounts of fines that can be imposed when the court applies the institute of mitigation of punishment. This aligns the current, significantly lower limits with the new, higher ranges of penalties and with modern economic conditions. The aim of the amendments is to prevent the imposition of disproportionately low penalties on legal entities, strengthen the preventive effect of sanctions and ensure greater proportionality between the gravity of the criminal offense and the imposed penalty," the explanatory memorandum states.

The direct effects of the proposed amendments, as indicated, are a positive impact because by strengthening the preventive and repressive function of penalties, environmental protection is improved, legal certainty is increased, abuses in business are reduced, and sanctions become clearer and more proportionate.

Fines of up to 24 million for environmental damage

"The key shortcoming of the current legislative framework is that the prescribed fines are not in line with the amounts required by the EU Directive, according to which the maximum fines for certain criminal offences (against the environment) must not be lower than 24 million euros, or 40 million euros for the most serious forms of offences (for which the director or an authorized person is sentenced to eight or more years in prison). The current law, adopted in 2007, provides for significantly lower amounts, which do not enable the efficient sanctioning of legal entities or the implementation of the preventive function of penal policy," the explanation states.

In addition to high fines, these companies will no longer be able to receive government contracts in public tenders, subsidies, concessions, etc., which is possible under the current law, but not under EU directives, which Montenegro will adopt with this law.

"The current law does not contain certain measures required by the Directive, such as the exclusion of legal entities from access to public funding, including tenders, grants, concessions and licenses, which further deepens the lack of harmonisation of legislation. The consequences of the current situation are manifested through the insufficient efficiency of criminal sanctions, the inability to achieve adequate general and special prevention, the risk of uncompetitiveness and uncertainty of the legal order, and the difficulty of fulfilling the obligations under Chapter 27 - Environment in the process of accession to the European Union. Unharmonized and low penalties create the possibility that economically strong legal entities more easily accept the risk of committing criminal offenses, since the penalty framework does not represent a real deterrent. Also, the absence of measures prohibiting access to public funds reduces the state's capacity to sanction legal entities that seriously endanger the environment," the explanatory memorandum to the law states.

Previous low fines had no effect

The previous low penalties, as well as regulations that allow companies that have committed even the most serious acts of environmental harm to continue to receive state contracts, "have primarily harmed the state and society as a whole, through a reduced level of environmental protection and an insufficiently efficient fight against environmental crime."

"Also, legal entities that operate in accordance with regulations are harmed, because fair market competition is disrupted in favor of entities willing to calculate with low fines. The consequences are indirectly reflected on citizens, who suffer environmental, economic and health damage caused by insufficiently effective sanctioning of environmental crimes," the explanation states.

If the current situation were to remain, it is estimated that the identified problems would remain unresolved and would tend to worsen further.

"The non-compliance of legislation with the acquis communautaire would prevent Montenegro from fulfilling its obligations under the accession process, especially in Chapter 27 - Environment. At the same time, maintaining low and inadequate penalties would continue to reduce the deterrent effect of criminal sanctions, thereby increasing the risk of repetition and intensification of environmental crimes. Due to the low criminal risk, legal entities could still assess the violation of regulations as a financially acceptable option, which would further jeopardize legal certainty, market competitiveness and the protection of the public interest," it was stated in the explanation why it is necessary to adopt these amendments to the law.

The main indicator will be the number of sentences imposed.

The analysis of the regulations stated that there are no potential obstacles to the implementation of this law.

"The measures that will be taken during the change of regulations, in order to meet the goals, are primarily the promotion of new solutions from the legal text as an important preventive mechanism. Fines and prison sentences are foreseen for non-compliance with the provisions of the law. The main indicators against which the fulfillment of the goals will be measured are the number of sentences imposed. The Ministry of Justice is responsible for monitoring the regulations," it is stated in this document, signed by the proponent of the law, Minister of Justice Bojan Božović.