Apr 15, 2025
Criminal Liability for Legal Entities and Enterprises
When an offense is committed on behalf of a legal entity or enterprise, the question arises as to whether the enterprise itself can be punished, in addition to or instead of the individuals who performed the act. The purpose of this article is to provide an overview of the regulations for corporate penalties under Norwegian law, focusing on the conditions for criminal liability, who may be affected, what types of sanctions may be imposed, and the procedural aspects of such prosecution.
Background and Rationale for Corporate Penalties
Traditionally, the starting point in Norwegian criminal law was that only natural persons could be held criminally liable. However, this principle was gradually breached from the 1940s onwards, first in price legislation and then in a number of other laws. In 1991, general provisions on corporate penalties were established in the Penal Code §§ 48a and 48b, replacing the many specific provisions that previously existed in various laws.
The need for corporate penalties is particularly justified by the following factors:
Diffuse responsibility: In larger organizations, it can be difficult to identify who is actually responsible for the offense. By holding the organization accountable, it ensures that the violation does not go without consequence.
Economic reaction: Corporate penalties allow for an economic reaction that is proportionate to the significance of the violation, while fines for individuals must be set in consideration of their personal financial circumstances.
Preventive effect: Liability can stimulate good routines and clear task distribution within the organization and create a positive interest within the organization to prevent violations of the law.
Reputation: A conviction against the organization itself also affects its reputation, which can have a significant preventive effect.
One might argue against corporate penalties that they affect shareholders, association members, and other stakeholders who are not themselves guilty of the offense. However, this differs from objective criminal liability in that it does not place a mark on the individual shareholders or members—they are only affected in the interest related to the organization.
Who Can Be Affected by Corporate Penalties?
Penal Code § 48a defines enterprises as "companies, associations, or other entities, sole proprietorships, foundations, estates, or public enterprises." This is a broader concept than "legal person" and includes:
Limited companies and other companies with limited liability
Companies with personal liability (general partnerships, limited partnerships)
Associations (non-profit organizations, sports clubs, trade unions)
Foundations
Sole proprietorships
Estates (bankruptcy estates, estates of deceased persons)
Public enterprises (state enterprises, administrative enterprises, municipal enterprises)
The expansion to include sole proprietorships and companies with personal liability was controversial during the legislative process. Critics pointed out that corporate penalties would impact owners more severely in enterprises with personal liability than in companies with limited liability, and that it could be difficult for the general public to understand that it is the enterprise and not its owner that is being punished. However, the law assumes that the organizational form should not be decisive for criminal liability, but that special caution should be exercised when considering using corporate penalties against sole proprietorships or liable companies.
The law equates private and public enterprises. The state and municipalities can therefore be punished in the same way as private enterprises. This is justified by the principle that it is appropriate to equate public and private enterprises, and that it can have a preventive effect to place responsibility on the public body that has violated the provisions.
Conditions for Corporate Penalties
1. Violation of a Criminal Provision
The fundamental condition for penalizing the enterprise is that a criminal provision has been violated by someone acting on behalf of the enterprise. It is not required that any individual can be held accountable for the offense. The enterprise is liable for both so-called anonymous and cumulative errors:
Anonymous errors: Cases where it is not clear who within the organization is guilty of the error.
Cumulative errors: Cases where the violation is due to several people acting on behalf of the enterprise, but where each individual's mistake is too small to impose criminal liability.
Just like personal criminal liability, corporate penalties are also contingent on the fulfillment of the culpability requirement in the relevant criminal provision. The difference is that it is not necessary to identify who performed the act.
To fulfill legal requirements, it is primarily required that the management of the enterprise has ensured the necessary organizational measures, but the enterprise will also be responsible for failures at subordinate levels that are supposed to implement the measures.
2. On Behalf of the Enterprise
The violation must be committed by someone acting "on behalf of" the enterprise. This entails a limitation, especially against acts that:
Clearly exhibit disloyalty to the enterprise
Are committed by an employee who goes beyond what is reasonably expected given the nature of the business
However, the fact that the employee violated an instruction is not unconditionally decisive. The enterprise cannot absolve itself of responsibility with an instruction so strict that it is unrealistic to expect it to be followed.
Whether the violation was committed on behalf of an enterprise may raise doubts when the enterprise uses an independent contractor to perform the work. The condition for the client's liability must be that the company had genuine authority for instruction and control. It is not excluded that both the client and the enterprise performing the work may be held liable for the offense.
In cases involving corporate groups, the parent company does not automatically have responsibility for violations in the subsidiary. The condition for the parent company's liability is that it can be said that the violation was committed also on its behalf, for example, if its personnel, through instructions or otherwise, contributed to the violation.
In some situations, the employer does not have the right to instruct the specific work task, or the right to instruct is at least severely limited, as with surgeons and journalists. This does not prevent corporate penalties.
The Discretionary Nature of Liability
Penal Code § 48a states that the enterprise "may" be punished. The liability is not mandatory even if the statutory conditions are met. It is initially the prosecuting authority, and subsequently the court, that must decide whether corporate liability should be asserted.
In making this assessment, special consideration should be given to:
a) the preventive effect of the penalty, b) the gravity of the offense, c) whether the enterprise could have prevented the offense through guidelines, instruction, training, control, or other measures, d) whether the offense was committed to promote the enterprise's interests, e) whether the enterprise has gained or could have gained an advantage from the offense, f) the enterprise's financial capability, g) whether other reactions resulting from the offense are imposed on the enterprise or any person acting on its behalf, including whether any individual is punished.
The introduction of a general provision for corporate penalties does not imply a presumption that corporate penalties should be imposed when the conditions for it exist. The considerations for and against corporate penalties must be evaluated case by case.
The decision whether the conditions for corporate penalties under § 48a are met follows the procedural rules regarding the question of guilt. However, the use of the authority to impose corporate penalties is procedurally considered a sentencing question.
Penalties and Reactions
Corporate penalties will usually be a fine, but the enterprise may also be deprived of the right to conduct business or be prohibited from conducting it in certain forms. No subsidiary custodial sentence is determined. The fine can only be enforced by civil enforcement proceedings.
A fine can be accepted by penalty charge, but not loss of rights. There are practical examples of million fines being accepted by penalty charge in connection with oil operations in the North Sea.
In determining the level of fines, the courts must make a discretionary assessment, taking into account factors such as the gravity of the offense, the enterprise's financial capability, and whether other reactions resulting from the offense are imposed on the enterprise or any person acting on its behalf.
Procedural Aspects
In a prosecution against the enterprise, it must have the same party rights as a natural person suspected or accused, e.g., the right to access documents and the right to be notified of and be present at court hearings in the case. The party rights belong to the person designated by the enterprise, for example, the managing director of a limited company.
In the case against the enterprise, trustees and employees of the enterprise hold the position of witnesses and are obligated to testify unless they can invoke one of the exceptions in the Criminal Procedure Act. The individual personally accused in the case is exempt from the obligation to testify.
The decision to accept a penalty charge is under the enterprise's leadership, in a limited company thus the company's board. The acceptance occurs by the board or the person authorized to sign on behalf of the company endorsing the penalty charge.
Corporate Penalties Against Sole Proprietorships
As mentioned, corporate penalties also apply to sole proprietorships, which represents a break with traditional notions in this area. The expansion is based on the view that the organizational form should not be decisive for criminal liability.
In corporate penalties against sole proprietorships, the proprietor's personal name will be used in the indictment and judgment (or penalty charge). It is also the proprietor who must pay the fine and who is subject to enforcement if the fine must be collected. That it concerns a corporate penalty will only appear from the legal provision cited for the liability.
The law has attempted to emphasize that it is the enterprise and not the owner personally who is penalized, among other things by ensuring that information about the corporate penalty is not included in the criminal record for the proprietor personally. The reality is nevertheless that the business operator is subject to a fine on an objective basis for violations within the business, but certain special rules apply as no subsidiary custodial sentence is set and the fine is not included in the criminal record for the proprietor.
Limitation Period
The limitation period for corporate penalties is calculated based on the statutory penalty range for individuals in the violated provision. Concerning the interruption of the limitation period, the usual rules apply, with the additional rule that the interruption of the limitation period for someone acting on behalf of an enterprise also applies to the enterprise. On the other hand, an interruption of the period for the enterprise has no effect on the personally responsible.
Conclusion
Corporate penalties are an important tool in combating economic and socially regulatory crime. Through its general formulation, the Penal Code §§ 48a and 48b provide a flexible framework for holding enterprises accountable for offenses committed on their behalf, regardless of whether individuals can be identified and held liable. At the same time, the discretionary nature of the provisions allows courts to assess whether corporate penalties are appropriate in individual cases, based on a number of relevant factors.
