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18 April 2018 Supervision Supervision label Supervision Q&A

Question:

When can a person be said to actually direct or instruct?

Answer:

It depends on the situation. Offences and other violations of the law may be committed by natural persons and legal entities alike. If a legal entity commits an offence or violates the law, a sanction may be imposed on:

  • the legal entity itself, or
  • the natural persons who instructed the offence to be committed or who actually directed the prohibited conduct, or
  • the legal entity and the instructing or directing natural persons (i.e. de facto directors) jointly.

Although the text below refers to offences (strafbare feiten), pursuant to Article 5:1(3) of the General Administrative Law Act (Algemene wet bestuursrecht – Awb) violations of financial supervision legislation may also be attributed to natural persons and fines may be imposed on them for such violations. References to offences and criminal prosecution should therefore be interpreted to also cover violations of the law and enforcement processes.

If both a legal entity and a natural person who actually directed the prohibited conduct are to be prosecuted, the criminal proceedings need not coincide. The mere circumstance that no criminal proceedings are brought against the legal entity or that it is not or no longer possible to do so, does not prevent the natural person from being prosecuted.

To answer the question whether a natural person can be held liable under criminal law for actually directing prohibited conduct by a legal entity, it must first be established whether that legal entity committed or was a party to an offence. If that is the case, the next question is whether it can be proved that the suspect actually directed this conduct.

A legal entity can be identified as the offender if the relevant offence can reasonably be attributed to it, which attribution depends on the specific circumstances of the case, including the nature of the prohibited conduct. A key starting point in the attribution is whether the conduct occurred or was performed in the legal entity's sphere. As a rule, such conduct is attributable to the legal entity. Conduct can be said to be in the legal entity's sphere if one or more of the situations listed below apply:

  1. the conduct involves an act or omission by a natural person in the performance of work for the legal entity in the context of an employment relationship or otherwise,
  2. the conduct is compatible with the legal entity's normal business operations or performance of duties,
  3. the conduct served the legal entity in the performance of its activities or duties,
  4. the legal entity was in a position to decide whether or not the conduct occurred and it is evident from the actual affairs that the legal entity accepted or was in the habit of accepting such or similar behaviour, in which context "accepting" also means failing to exercise the level of care that the legal entity could reasonably be required to exercise with a view to preventing the conduct.

If the description of the offence of which the legal entity is suspected requires intent, the existence of intent can be established in several different ways. In some circumstances, a natural person's intent can be attributed to a legal entity. However, to establish intent on the part of a legal entity, there is no need to establish that the natural person(s) acting for it or on its behalf acted with that intent. Intent on the part of a legal entity may, in some circumstances, for instance be derived from its policies or actual affairs.

Once it is an established fact that a legal entity has committed an offence, it must be determined whether a natural person in his or her capacity as the entity's de facto director is liable for it under criminal law. Doing so requires postulating that the linguistic meaning of the term "actual direction" implies on the one hand that the mere circumstance that the suspect is, for instance, a director of a legal entity does not suffice to qualify him or her as the person actually directing an offence committed by the legal entity. On the other hand, a legal position of that nature is not a prerequisite, as a person without an employment relationship with the legal entity may likewise actually direct an offence committed by the legal entity.

An offence may be actually directed by several natural persons, whether or not acting jointly. A legal entity may also be a de facto director.

Actual direction often involves active and effective conduct which is indisputably within the scope of the ordinary meaning of the term. Actual direction may also be involved if the prohibited conduct is the unavoidable consequence of the general policy pursued by the suspect (e.g. in their capacity as director). Other examples include contributing to a series of acts resulting in the prohibited conduct and taking an initiative in such a way that the suspect must be deemed to have actually directed the prohibited conduct. It is not a prerequisite for another natural person to have carried out overt acts towards the commission of an offence.

In some circumstances, a more passive role may also lead to the conclusion that prohibited conduct is facilitated in such a way that it qualifies as actual direction. This may be the case in particular if the suspect is authorised and reasonably required to take measures to prevent or end prohibited conduct and fails to take such measures.

An independent intent requirement in respect of the prohibited conduct is implied in actual direction. The minimum for this intent on the de facto director's part is that he or she consciously accepts the considerable likelihood that the prohibited conduct will occur. Such acceptance can also be deemed proved – in particular in respect of offences committed on a more structural basis – if what the de facto director knew about the legal entity's commission of offences was related directly to the prohibited conduct described in the indictment. Another example of a situation in which, under certain circumstances, the intent requirement applicable to de facto directors is potentially met is where a manager organises a company's activities in such a way that he or she factors in the impossibility for the relevant employees to carry out the work assigned to them without committing offences in the process.

Sector(s)

  • Banks
  • Clearing institutions
  • Collective investment schemes
  • Insurers
  • Investment firms
  • Payment institutions
  • Pension funds
  • Trust offices