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Israel State Attorney’s Policy on Indicting and Sanctioning Corporations

In October 2019, the Israel State Attorney published a new guideline on its office’s policy when considering the prosecution of a corporation, as well as on how it should determine its position on the manner of punishing corporations.

 

Under the guideline, the main goal in imposing criminal liability on a corporation is deterrence and the prevention of recidivism. In addition, and this is the primary novelty in the guideline, imposing criminal liability on a corporation is designed to give corporations and their officers incentives to create control mechanisms that may prevent the commission of offenses in advance.

 

In the world we live in, corporations of all forms are a central and significant part of economic activity. As a result, the corporation has become a dominant legal entity in various aspects of the Israeli legal system. Inter alia, the corporation has been recognized as bound by independent legal duties alongside independent legal rights.

 

Within the guideline, the State Attorney lists the considerations the prosecution must take into account when examining the issue of public interest in prosecuting a corporation. Among them are the severity of the offense and the circumstances around it, the nature of the suspect corporation, the depth of failure in the corporation’s culture of compliance with the law, the extent of top officers’ involvement in the commission of the crime, the extent of the corporation’s cooperation with the investigation and the extent of its contribution to the investigation, the harm that would be caused as a result of the corporation’s prosecution, alternative enforcement measures, changes in corporate control or significant changes in the corporation’s activity, the corporation’s criminal history, and if the corporation is in liquidation.

 

The guideline also states that the existence of an effective internal enforcement plan, which represents an organizational culture of compliance, shall be considered a mitigating factor in favor of the corporation.

 

Thus, for the first time, the existence of internal control mechanisms are recognized by Israeli prosecution authorities as an official consideration in the prosecution and punishment of a corporation. The guideline states there is particular significance to viewing the corporation as an independent entity that may be subject to criminal liability. This, inter alia, is because the possibility to impose criminal liability upon a corporation creates incentives for a corporation to work toward the identification and prevention of crimes committed within it.

 

In the United States, the importance of effective internal control mechanisms and their impact on the prosecution’s policies on whether to prosecute is not new. As early as 2012, the Department of Justice (DOJ) decided not to initiate criminal proceedings against the corporate giant Morgan Stanley, among other reasons, because it determined the corporation had adopted effective internal control mechanisms. However, it decided to initiate criminal proceedings against Garth Peterson, an employee of the corporation, because, inter alia, Peterson took part in no less than seven trainings on the matter and received 35 memoranda designed to prevent the very conduct with which he was ultimately charged – bribery of a public official.

 

Prior to the publication of the guideline, the importance of internal control mechanisms as part of the considerations for prosecutorial decisions was not recognized within official policy in Israel. It should be noted that the buds of such change were seen in the proliferation of administrative enforcement procedures. There have already been many cases in which one of the Israel Securities Authority’s considerations on whether to enter into an administrative enforcement agreement rather than hold a procedure was the existence of effective internal control mechanisms in the corporation.

Tags: Compliance | Corporation | Internal Control Mechanisms