Contours of a principled corporate sanction policy in the EU: Exploring a constitutionally justified balance between criminal and administrative sanctions

Abstract

The EU’s corporate sanction policy lacks clear theoretical foundations and underlying justifications, resulting in an unclear relationship between corporate criminal and administrative sanctions. While administrative sanctions were once seen as mechanisms for addressing minor societal wrongs, this view is increasingly outdated as core societal values, traditionally protected by criminal law, are now being transferred to the realm of administrative sanctions for corporate infringements. This shift highlights the need for careful analysis to achieve a justified balance between instrumental effectiveness and value considerations in corporate sanction policies. This article aims to outline certain contours of a European corporate sanction policy that promotes rational and coherent policymaking. By examining the practice of the Constitutional Law Committee of the Finnish Parliament as an example of an emerging policy approach, we propose that the EU’s corporate sanction policy should be grounded in a principled approach, based on a theoretically and empirically justified understanding of the nature of administrative sanctions and the distinctions between criminal and administrative measures.

Introduction

The EU legislator increasingly resorts to administrative sanctioning regimes in the context of business regulation. Recent examples include the General Data Protection Regulation (GDPR), ¹ the Artificial Intelligence Act ² and the Directive on Corporate Sustainability Due Diligence. ³ In complex regulatory environments, effective enforcement and supervision are often deemed to require specialized national or EU-level authorities with the competence to impose fines or other administrative sanctions. However, corporate administrative sanctioning is not the only mechanism available for corporate punishment in the EU. Criminal liability has been considered necessary in certain instances such as protecting financial market integrity. ⁴ In addition, in specific sectors, there has been an emphasis on harshening criminal punishments directed at corporations, as is evidenced by the recent Directive on the protection of the environment through criminal law. ⁵

The EU’s corporate sanction policy lacks clear theoretical foundations and underlying justifications. Decisions on the type of sanction regime to be adopted often rely more on assumptions about the efficiency and effectiveness of regulatory instruments than on empirical evidence of their impacts. Political decision-making is frequently influenced by rhetoric on effectiveness, ⁶ which tends to reflect desired outcomes rather than a substantive understanding of how sanctions function in practice. ⁷

This article aims to outline the initial contours of a European corporate sanction policy that guides more rational and coherent policymaking. ⁸ While previous literature has cautioned against the EU legislator’s unjustified reliance on criminal law, ⁹ we adopt a broader approach arguing that both corporate criminal law penalties and corporate administrative sanctions should be based on theoretically sound and empirically supported policymaking. If administrative sanctions were previously seen as mechanisms for addressing only minor societal wrongs, this view no longer seems to hold. The societal values protected by administrative corporate sanctions now involve also fundamental rights that have traditionally been safeguarded by criminal law measures, such as the right to the protection of personal data guaranteed in Article 8 of the EU Charter of Fundamental Rights. This shift, wherein core societal values are transferred to the realm of regulatory administrative sanctions for corporate infringements, requires closer analysis to find a justified balance between instrumental effectiveness and value considerations. This may also affect how the nature and aims of criminal law are understood.

We propose that EU corporate sanction policy should be grounded in a principled approach, drawing on a theoretically and empirically justified understanding of the nature of administrative sanctions and the differences between criminal and administrative measures. To illustrate an emerging policy approach, we analyse the practice of the Constitutional Law Committee of the Finnish Parliament, which since the early 2000s has formulated constitutional constraints and requirements for administrative sanctions. ¹⁰ Although this practice only represents a model adopted in one Member State, we believe our analysis can support a wider pan-European approach, considering that the constitutional constraints adopted by the Finnish Constitutional Law Committee are closely related to those principles adopted under EU constitutional law. The practice of the Finnish Constitutional Law Committee provides an example of a model that systematizes European constitutional principles in a theoretically coherent way, which further supports its relevance on a pan-European level.

This article focuses on punitive corporate administrative sanctions enacted by the EU legislature, either as directly applicable legal instruments or as directives to be implemented by the Member States. Our analysis takes a formal approach to administrative sanctions, concentrating on the classification and labelling used by the EU legislator, rather than a substantive approach that would only emphasize the material differences between administrative and criminal law measures. For this article, a punitive administrative sanction refers to non-criminal sanction regimes with a punitive purpose, as opposed to other types of restorative and preventative administrative measures. ¹¹ Additionally, the article is limited to pecuniary administrative sanctions, as these are the most central sanction types under the coercive EU-based corporate administrative regimes.

Regulatory boundaries and the unclear relationship between criminal and administrative sanction policies

EU sanction policy in the post-Lisbon EU is bound by the penal competence of the EU under Art 83 TFEU which forms the legislative frame for the pan-European punitive measures. According to Art 83(1) TFEU, the EU has criminal competence in so-called ‘Euro crimes’, that is, in offences considered particularly serious with a cross-border dimension exhaustedly listed in the paragraph. For this article, more relevant is the legal basis for functional criminalization under Art 83(2), under which the EU has criminal law competence also in areas that have been subject to harmonization measures and where approximation of Member States’ criminal laws and regulations prove essential to ensure the effective implementation of an EU policy. It is especially in this latter case, where the EU legislator has the authority to make a policy choice between criminal and administrative law enforcement tools. ¹² In addition, the requirement on effective, proportionate and dissuasive sanctions, first introduced in the famous Greek Maize case ¹³ and now incorporated in numerous secondary law instruments, calls the Member States to sanction infringements of EU law. When the requirement is directed to the Member States, the choice of the sanctioning regime is often made between administrative sanctioning and criminal punishment. ¹⁴

In many instances, administrative sanctions have been considered suitable for ensuring effective enforcement of EU law infringements. In terms of corporate sanctions, the most obvious examples include EU competition law and, as a more recent example the GDPR, Directive on Corporate Sustainability Due Diligence ¹⁵ as well as the EU Data Act ¹⁶ which also draws on administrative fines. In instances where the EU resorts to its functional competence under Art 83(2), the preambles of legislative instruments tend to steer the Member States that recognize corporate criminal liability to ensure compliance by applying such penal sanctions while other Member States implement EU requirements through non-criminal sanctions. ¹⁷ Although preambles are not binding to their legal nature but serve only an explanatory role, in practice, the Member States are obligated to follow the legislative guidance on the choice between administrative and criminal sanctions. As is well known, the wording of the preamble guides the interpretation of Union instruments and is often decisive in the interpretation adopted by the European Court of Justice (ECJ). ¹⁸ Moreover, the principle of assimilation may require the application of corporate criminal liability, especially if its substantive scope is extended to cover similar acts within a given Member State. ¹⁹

The theoretical basis and justification of EU sanction policy, when understood as an area covering both criminal and administrative sanctions, is unclear even if certain initial attempts have been taken towards a more principled approach, especially in the area of criminal law sanctions. ²⁰ In 2011, the European Commission issued the Communication ‘Towards an EU Criminal Policy’, which aimed at presenting a principled framework for ensuring the effective implementation of EU policies through criminal law. ²¹ The idea behind the Communication was to put up a set of criminal law principles that would constitute the core of EU criminal law and which should steer enforcement policy decision-making. The practical relevance of the Communication is, however, unclear ²² as EU criminal law policymaking has not followed any specific strategy or vision. ²³

The Communication refers to the principle of the ultima ratio, according to which criminal law must always remain a measure of last resort after other enforcement mechanisms have been considered insufficient. According to the Communication, the ultima ratio principle requires a thorough impact assessment preceding any legislative proposal, on whether existing enforcement mechanisms in Member States sufficiently achieve the desired results under the EU legislation or whether criminal law sanctions are necessary to increase deterrence. ²⁴

The ultima ratio principle, when understood in terms of EU (criminal) law, is tied but not identical to the subsidiarity and proportionality as basic EU principles under the Treaty on European Union (Art 4(4) TEU) and the EU Charter of Fundamental Rights (Art 49(3) of the Charter). ²⁵ While the principle of subsidiarity determines the division of competence between the EU and its Member States, the principle of proportionality together with the requirements of necessity and suitability, calls for a sanction to be in a reasonable relationship with the offense at hand. ²⁶ This means that even if lesser enforcement mechanisms would not deliver intended results, such results may not be pursued using criminal law if the nature of the protected value is not societally that important. ²⁷ In practice, the EU legislator must consider the classical triad of effectiveness, proportionality and dissuasiveness when deciding upon the type of sanction regime. ²⁸ The Communication notes that for certain unlawful acts considered particularly grave, an administrative sanction may not be a sufficiently strong response, but criminal law sanctions should be chosen to stress strong disapproval to ensure deterrence. Communication, however, emphasizes a balanced approach where even practical reasons related to procedural efficiency and expertise are considered. ²⁹

The ultima ratio principle is logically linked to effectiveness, as only an empirically evidenced failure of less punitive and coercive measures may justify the use of criminal law if effectiveness is understood to relate to diminishing unwanted behaviour. ³⁰ The general aim of the criminal justice system can be argued to consist of general prevention which refers to the assumed – and partially empirically demonstrated – effect of a criminalization discouraging members of society from committing certain kinds of behaviour. ³¹ Such preventing effect is assumed to take place through various simultaneous channels, partly through the threat posed by the penalty but also through the habit and moral creating and socializing function of criminal law. Blame attached to the punishment communicates the societal significance of the values protected by the criminalization and reflects strong social disapproval of breaching those values. ³² If the preventive effect is satisfactorily attained by applying milder societal measures, criminalization should not be used.

Academic critique has justifiably been directed at EU policy decision-making where effectiveness is used as an argument in favour of more coercive sanctioning measures even in the absence of proper empirical evidence on the effectiveness of less coercive means. ³³ For example, in Directive 2009/123 on ship-source pollution, ³⁴ the use of criminal law sanctions was justified by noting that such sanctions express social disapproval of a different nature than that expressed by administrative sanctions, thereby strengthening compliance with legislation on ship-source pollution. ³⁵ Similar rhetoric has been used to justify criminal law penalties in the context of the Market Abuse Directive. ³⁶ This supposed strengthening effect may be wishful thinking, as neither directive is based on firm empirical evidence demonstrating that less coercive sanctions would have been ineffective in encouraging compliant behaviour. ³⁷ The more dissuasive and deterrent nature of criminal law sanctions is simply assumed without requiring evidence to that effect.

Without disagreeing with the criticism regarding the EU legislature’s appetite for criminal law, less academic attention has been given to the limited empirical evidence available on the effectiveness of administrative sanction mechanisms. It appears problematic if the ultima ratio principle is indirectly used to justify punitive corporate administrative sanctions – even if such policy decisions would curb the EU’s appetite towards criminal law – if such choice of the regime is not based on either coherent theoretical foundation ³⁸ or empirical evidence on the effects and functioning of administrative sanctioning measures. Furthermore, the lesser coercion involved in administrative sanctions compared to criminal law penalties should not be overemphasized in the corporate context, given the reduced procedural safeguards, the quasi-objective liability criteria often applied and the potentially substantial level of fines. ³⁹

The blurred relationship between administrative and criminal law sanctions complicates the pursuit of a rational sanction policy and risks turning the concept of the ultima ratio into a façade argument. Consistent policymaking requires a better theoretical understanding of the nature and rationale of administrative sanctioning, specifically how we assume these sanctions to function and the degree of censure they represent. To pave the way towards such a theoretical frame, the following section briefly examines the assumed functioning mechanisms of administrative corporate fines and related empirical evidence.

Questioning economic deterrence as the sole rationale for corporate administrative sanctions: Are administrative fines morally neutral after all?

EU-based administrative sanctions form a heterogeneous field, which is challenging to address through legal research. The EU has not defined the concept of an administrative fine, even though the term is commonly used in various legal instruments. ⁴⁰ Administrative sanctioning is partly completely EU law based, such as the GDPR sanctions, but more often a result of national implementation measures and thus, a mix of common European rules and national solutions. Due to the multifaceted nature of administrative sanctioning, it is only natural that functioning mechanisms and assumed preventive effects are not covered by any coherent supranational theoretical approach. ⁴¹

When looking for common theoretical nominators amongst corporate administrative sanction regimes at least one can be located. These mechanisms are often based on an economic deterrence theory as the underlying rationale. ⁴² This Beckerian approach assumes corporations and corporate decision-makers to be rational actors best steered by financial incentives. The influence of the economic deterrence paradigm is especially clear in the context of EU competition law, which builds on an idea of optimal deterrence achieved through combinations of the level of the fines and the probability of detection. ⁴³ The debate on optimal deterrence emphasises an economic analysis of the optimal amount of the fines and not that much empirical evidence of the eventual preventive effect of competition law sanctions. In other words, the calculation of optimal fine levels is based on certain assumptions and on the illicit gains obtained and not on whether such fines affect future behaviour. ⁴⁴

In legal research, it is suggested that administrative corporate sanctions may be more effective than criminal sanctions. Such arguments often rely on the assumption that the expertise of investigating regulatory authorities, as well as the lower procedural safeguards, enhance the effectiveness of the sanctions and thus increase the deterrent effect of the sanction regime. ⁴⁵ Empirical evidence on the general deterrent effect of corporate administrative sanctioning regimes is, however, scarce.

Generally, according to criminological research, general deterrence is more consistently generated by the certainty of a sanction rather than its severity. ⁴⁶ In a corporate context, a comprehensive review study covering both criminal and regulatory sanctions in the United States and elsewhere suggests that inspections and inquiries by supervisory agencies do increase general deterrence. ⁴⁷ This suggestion is supported by empirical evidence regarding EU financial market sanctioning, which draws on a combination of administrative and criminal law measures. Several studies propose that high enforcement activity and appropriate resources allocated to such efforts increase deterrence in the financial sector. ⁴⁸ However, it should be noted that due to the dual sanctioning approach adopted in the financial sector, these studies do not provide evidence of the effectiveness of an administrative sanctioning system alone but rather test the deterrent effect of a combination of criminal and administrative sanction threats. ⁴⁹

The Beckerian paradigm of an economic rational actor is contested in several fields of behaviourally oriented research. ⁵⁰ Criminological studies examining corporate decision-making indicate that individual managers are sensitive to the variations in the perceived costs and benefits of their actions including formal factors (severity and certainty of formal sanctions) and informal factors (eg social stigma and shame related to the punishment). ⁵¹ However, such a calculative approach is relevant only for corporate decision-makers whose moral setting permits the contemplated behaviour. This means that morals and ethical considerations are, as such, significant deterrents against misconduct in corporate settings. ⁵²

If we accept the traditional assumption that an administrative sanction is a morally neutral punitive consequence of non-compliant behaviour, ⁵³ we must also accept that these morally empty sanctioning mechanisms are unlikely to encourage moral and value-based behavioural constraints. ⁵⁴ On the contrary, there is a risk that value-neutral monetary sanctions may lead corporations to view compliance purely in economic terms – as a balancing act between the financial costs and benefits of compliance measures. ⁵⁵ While this approach may be appropriate in certain regulatory areas, it risks promoting a tick-the-box attitude towards compliance, shifting the focus away from ethical considerations to a calculative analysis of the profitability of compliance measures. ⁵⁶ In other words, morally neutral sanction regimes are not necessarily always the most effective mechanism to steer compliant corporate behaviour.

The economic frame of administrative corporate sanctions is evident in the suggestion that in applying competition law sanctions, more important than the defendant’s conduct is the harm caused by the illegal act. ⁵⁷ Such thinking appears to have its roots in the idea that the harm of anti-competitive behaviour may be the result of several concurrent factors and multiple participation, externalities and internal decisions. According to Harding, in such a dispersed network of actions involving several human and corporate actors, a clean identification of moral blameworthiness is uncertain; therefore, administrative liability may provide a more appropriate response to the outcome. ⁵⁸ Whilst this line of thinking is understandable against classical methodological individualism, it ignores the fact that any corporate misconduct is usually the result of a complex set of factors that often take place over a long period of time. In this respect, competition law infringements are no different from, for example, environmental offences, an area where criminal law punishment is applied by the EU legislator. ⁵⁹

As we see it, the moral neutrality of corporate administrative fines should not be taken for granted. The function of administrative sanctions appears to have extended from correcting minor societal wrongs to addressing corporate infringements against central societal values in complex regulatory areas. As discussed earlier, this extension has been justified by practical reasons related to effective enforcement and deterrence. This instrumental approach has ignored the moral and educative dimension of sanctions, thus maintaining the original approach according to which administrative fines were not intended to serve such societal functions. ⁶⁰ However, due to the shift in societal values protected through administrative sanctioning regimes, as explained further later in this article, this perspective may have changed in the current European legislative landscape. A substantial administrative fine imposed for a human rights infringement in a corporation’s value chain can hardly be characterized as conveying a morally neutral tone. It could even be assumed that if some acts are prohibited by law, the act of prohibiting such behaviour always includes a moral commitment, regardless of the nature of the sanctioning regime adopted.

The preceding analysis suggests that there are good reasons to examine whether corporate administrative fines could be based on a rationale broader than economic and negative general deterrence. At the outset, we believe there is no reason to assume that administrative corporate fines could not have an educative and moral function, even if this function is currently unclear. ⁶¹ The difficulty lies in identifying the differences in the level of censure that administrative corporate fines represent compared to criminal sanctions. ⁶² The following section aims to examine certain constitutionally justified principles that may help in identifying these differences.

Constitutional constraints on administrative sanctions: Towards more coherent policy decisions

Finnish Constitutional Law Committee practice as an illustration of an emerging administrative sanction doctrine

This section aims to sketch certain starting points for a theoretical frame on the nature and rational use of administrative sanctioning measures that would inform more coherent policy decisions. To illustrate, we will examine the practice of the Constitutional Law Committee of the Finnish Parliament, which since the early 2000s has begun to formulate constitutional constraints and requirements for administrative sanctions. This accumulated practice can be argued to form the theoretical foundations of the Finnish administrative sanctioning doctrine, ⁶³ even though there is still no consistent system in place for this purpose. ⁶⁴ In addition to the Constitutional Law Committee practice, the Finnish Ministry of Justice has published a Working Group Report (Report) on the principles to be complied with in preparing regulatory instruments that apply punitive administrative sanctions. ⁶⁵ Although the practice of the Constitutional Committee and the Report only represent regulatory solutions adopted in one of the EU Member States, we believe the requirements set forth are useful for a more extensive pan-European analysis, as explained later in this section.

In its practice, often in tune with the European Court of Human Rights (ECtHR), the Finnish Constitutional Law Committee has focused on several constitutional aspects, including the procedural safeguards for the defendant, the accuracy and precise formulation of the provisions describing sanctioned behaviour, the proportionality of sanctions and the significance of subjective guilt and culpability. ⁶⁶ Our analysis will concentrate on the proportionality and the requirement of culpability, that is, intent or negligence, as these appear particularly relevant in the context of corporate sanctioning and for formulating the rationale for applying such sanctions. Proportionality, understood as a fair balance between the protected societal values and the severity of the sanction, and the blameworthiness of an act, as determined by the defendant’s guilt and culpability, are value-laden systemic considerations that offer insight into the level of censure administrative sanctions convey. ⁶⁷ A morally non-neutral, value-laden determination of proportionality, hence, requires that the sanctioned party is treated fairly, with appropriate consideration of the degree of reprehensibility of the conduct. ⁶⁸ Additionally, we will introduce some features of the general approach towards administrative sanctions adopted by the Constitutional Law Committee of the Finnish Parliament, which illustrate the understanding of the nature of such sanctions.

Foundations of the approach adopted by the Finnish Constitutional Law Committee

The Constitutional Law Committee of the Finnish Parliament, according to Section 74 of the Finnish Constitution, issues statements on the constitutionality of legislative proposals and other matters brought under its consideration, as well as their relation to international human rights instruments. The Committee, thus, conducts ex ante constitutional review. In Finland, there is no constitutional court, but the courts also have the competence to exercise ex post constitutional review. Traditionally, the role of the Constitutional Law Committee has been strong in Finland and its views on the constitutionality of proposed legislation are highly respected. The Committee consists solely of the Members of Parliament, but the Committee is not regarded as a political but a legal actor. ⁶⁹

Regarding administrative sanctions, the Committee has stressed that such sanctions are not fiscal in nature, but the purpose of the sanctions is prevention. ⁷⁰ Therefore, the Committee has effectively equated these sanctions to criminal penalties. ⁷¹ Consequently, the Committee has formulated the constitutional requirements for administrative sanctions like those for criminal legislation.

While the Committee has, for example, stated that the principle of legality (nulla poena sine lege) guaranteed in Section 8 of the Finnish Constitution does not apply to administrative sanctions, as it pertains only to criminal legislation, it has nonetheless asserted that the general requirement of the preciseness of legislation applies to administrative sanctions. ⁷² In addition, the Committee has adopted some of its statement practices concerning criminal legislation also for administrative sanctions. This has led, for instance, to the adoption of constitutional criteria originally established for the ‘blanket reference’ legislative method, designed for criminal legislation, in the evaluation of administratively sanctioned conduct. ⁷³

It is also noteworthy that the Committee has expressed its legal opinion on the relationship between the criminal justice system and administrative sanctioning, which means that the committee’s practice reflects a broader understanding of the constitutional interrelationship of different sanctioning regimes within a legal system. This occurred when the Committee evaluated the comprehensive reform of the Finnish Traffic Act, which adopted a new legislative approach fundamentally changing the sanctioning of minor traffic offences. After the 2018 reform, all minor traffic offences in Finland fall under the administrative sanctioning system (Traffic Act, 729/2018, Chapter 6). More severe traffic offences remain criminal offences and are criminalized in Chapter 23 of the Finnish Penal Code. The Committee generally asserted that criminal punishment signifies greater blameworthiness and censure compared to a more neutral administrative penalty, and argued against overburdening the criminal justice system with minor offenses that cause minimal harm to society. Additionally, according to the Committee, the administrative sanctioning system may have a general preventive effect due to effective supervision, the high risk of being caught, as well as the quick imposition of such sanctions. ⁷⁴

Principle of proportionality – The need for systemic proportionality in corporate sanctioning policy

The Finnish Constitutional Law Committee has repeatedly noted that the application of administrative sanctions should be proportionate in relation to the societal values protected by such sanctions. According to the Committee, fundamental rights may only be infringed using sanctioning, if this is necessary to achieve an acceptable societal objective which cannot be attained by applying less coercive means. ⁷⁵ Even if legal entities do not, under the Finnish Constitution, enjoy as extensive protection of their constitutional rights as individual legal subjects, ⁷⁶ their right to property is, nevertheless, protected as a fundamental right. As this right is infringed by administrative pecuniary sanctions, the legislator must consider an appropriate balance between the protection of defendant’s fundamental rights, purpose of the sanction and its effective imposition. Furthermore, the restriction cannot go further than is justified considering the societal interest protected by the sanction and the significance of the fundamental right infringed by applying such sanction. ⁷⁷

The contents of the proportionality test applied by the Finnish Constitutional Law Committee is to a large extent similar to the ultima ratio and proportionality principles acknowledged in the sphere of EU criminal law. The nature of proportionality as a pan-European restrictive principle means that criminal or administrative sanctions should not exceed what is proportionate in relation to the protected societal goals and values. ⁷⁸ As is well known, the ECJ has adopted a similar proportionality test in Fedesa in which it has stressed that the burden shall not be manifestly inappropriate to the aims pursued. ⁷⁹ By contrast, the ECtHR has taken a more reluctant approach in assessing the proportionality of (criminal) sanctions. It has held that questions of appropriate sentencing largely fall outside the scope of the European Convention on Human Rights (ECHR), though a grossly disproportionate sentence could amount to ill-treatment in violation of Article 3 ECHR. ⁸⁰

At the outset, it appears that most of the EU-based corporate administrative sanctioning regimes would pass the restrictive proportionality test as the goals and objectives behind these regulatory systems (eg integrity of the financial markets) are of high societal importance in the EU and even globally. ⁸¹ However, proportionality should, in our understanding, also be understood as a systemic principle supporting the coherence between the different types of sanction measures. This idea of ordinal proportionality, apart from cardinal proportionality, ⁸² traditionally applied within the criminal justice system and developed in criminal law theory, requires that sanctions attached to different types of offences should be of comparable gravity. ⁸³ When applied in the field of corporate sanctioning, ordinal proportionality would necessitate exceeding the barrier between criminal and administrative law to assess the systemic proportionality of different corporate sanctioning regimes. In addition, ordinal proportionality would necessitate that administrative sanctions in the EU form a coherent system in which the various administrative sanctions and their latitudes would be formed consistently and coherently.

From the value perspective of systemic proportionality, it seems justified to question the balance between administrative sanctioning of the most severe breaches of, for example, the EU competition law regime, the GDPR or the upcoming Directive on Corporate Sustainability Due Diligence on the other hand and the criminalization requirements in the fields of environmental and financial markets on the other. Without diving into the long-standing academic debate on the advantages and disadvantages of criminalizing anti-competitive corporate behaviour, ⁸⁴ we note that the societal values protected by the EU competition law (eg the protection of customers, preservation of internal market) are not necessarily less important than those protected by the Market Abuse Directive (protection of investors and integrity of the financial market) which requires Member States to use criminal law penalties along with administrative sanctions. ⁸⁵ A similar question of systemic balance can be raised in the context of the EU data privacy legislation. Even if Member States have a limited space to use criminal law in the context of data privacy infringements, the extensive coverage of the GDPR results in administrative fines being the main sanctioning mechanism in that field. Is protecting individuals’ data privacy as a fundamental right guaranteed in the EU Charter of Fundamental Rights something that would, from a value perspective, speak for a broader use of criminal law sanctions for the most severe corporate data privacy infringements? What about corporate human rights infringements? Most severe breaches of corporate due diligence obligations resulting in or contributing to human rights infringements in the global value chains could be argued to belong to the very core of the fundamental European values significant enough to be protected by criminal law measures. ⁸⁶

For practical reasons and reasons related to effectivity, the discussed legal goods have been dealt with by the EU legislator by applying administrative sanctioning which is procedurally less burdensome and allows the use of expertise of specialized investigating authorities. ⁸⁷ Systemic value considerations concerning blameworthiness, and the significance of the protected legal goods do not appear as central factors in the related legislative rhetoric. However, considering the EU’s evolution from an economic project towards value-based integration, ⁸⁸ it appears evident that sanctioning policy should not build solely upon instrumental arguments, ⁸⁹ but should also cover considerations of value. ⁹⁰

While we are not suggesting that criminal law penalties should be more extensively favoured by the EU legislator, we do propose that proportionality, as a systemic principle, requires balancing the underlying societal values of different regulatory frameworks to achieve a coherent corporate sanctioning policy. This also necessitates a coherent understanding of the rationale behind administrative sanctioning and how these sanctions are assumed to protect societal values. In addition, it requires a thorough understanding of the nature of various regulatory frameworks concerning sanctioning.

Presumption of innocence: Culpability as an element of liability in administrative sanctions

Presumption of innocence, a principle guaranteeing fair trial and addressing the defendant as innocent before proven guilty, has had a rather unclear status in the sphere of administrative sanctioning in the EU. While the EU regulatory instruments on procedural rights do not expressly apply to administrative sanctions, under the Engel criteria most of the EU-based corporate administrative sanctions are considered punitive in nature, and thus comparable to criminal law punishments requiring comparable procedural safeguards. ⁹¹ In addition, the case law of the ECtHR highlights the importance of procedural safeguards in assessing the conformity of administrative sanctioning regimes with the ECHR. ⁹² The ECtHR has also ruled that the presumption of innocence applies to orders to pay administrative fines, at least when the question is of judicial decisions following the conclusion of criminal proceedings. ⁹³ While presumptions of guilt may, in principle, be applicable, the means employed must be proportionate to the legitimate aim pursued. ⁹⁴ This connects the presumption of innocence to the notion of subjective guilt and the requirements for proving it, including the rules on the burden of proof.

In the Finnish context, the Ministry of Justice Working Group Report on the general principles guiding the use of administrative sanctions adopts a more extensive interpretation in this respect. According to the Report, the presumption of innocence as guaranteed under the Finnish Constitution applies even in the context of punitive administrative sanctions. Administrative liability based on objective criteria without considering subjective intent or negligence is, as a rule, considered to breach the presumption of innocence. The Report however notes, with a reference to the statement practice of the Finnish Constitutional Law Committee, that objective liability may be exceptionally used if justified by the importance of the protected societal objectives and if procedural safeguards of the defendant are otherwise guaranteed, for example, if reversed burden of proof is not applied. The Report further observes that the EU law instruments may restrict the space of the national regulator to account for the requirements of subjective guilt. ⁹⁵

Against this background, some legal scholars have raised the question of whether we are in the process of developing a kind of ‘light version’ of criminal law operating in new areas traditionally occupied by criminal law but with lesser constitutional requirements and procedural safeguards. ⁹⁶ It has also been pointed out that if traditional criminal law concepts, such as intent, are used in the system of administrative sanctioning without independent content and theoretical basis, there is a risk that concepts deriving from criminal law are applied in administrative proceedings without a comprehensive understanding of the tradition and contents of such concepts and doctrines. ⁹⁷

This concern appears to be especially pertinent in the field of EU competition law enforcement where the concept of intent and its significance as a constituent element of a competition infringement has long been theoretically unclear. ⁹⁸ The Directive (EU) 2019/1 on the extended competencies of the competition authorities (ECN+ Directive) and its recitals illustrate the controversy. According to Art 13(1), ‘Member States shall ensure that national administrative competition authorities may either impose by decision in their own enforcement proceedings, or request in non-criminal judicial proceedings, the imposition of effective, proportionate and dissuasive fines on undertakings and associations of undertakings where, intentionally or negligently, they infringe Article 101 or 102 TFEU’. However, the recital 42 of the Directive states that the notions of intent and negligence should be interpreted in line with the case law of the Court of Justice of the European Union on the application of Articles 101 and 102 TFEU and ‘not in line with the notions of intent and negligence in proceedings conducted by criminal authorities relating to criminal matters’.

In its related practice, the ECJ has formulated the requirement of intentionality or negligence in competition law matters to be satisfied where the undertaking concerned ‘cannot be unaware of the anti-competitive nature of its conduct, whether or not it is aware that it is infringing the competition rules of the Treaty. . .’. ⁹⁹ Despite the formulation having been reiterated several times, and thus the phrase apparently representing established practice by the ECJ, the doctrinal and theoretical contents of intent and negligence in competition law remain debated. ¹⁰⁰ It seems fair to say that the concepts of negligence and intent do not have clearly established theoretical contents in the EU competition law scholarship.

From the perspective of criminal law theory, the definition of culpability requirements formulated by the ECJ appears confusing. ‘Awareness’ as applied by the ECJ is, in the criminal law doctrine, terminologically used in the context of intent. The formulation regarding the defendant’s state of awareness (‘the undertaking concerned cannot be unaware of the anti-competitive nature of its conduct’) could be argued to refer, in criminal law language, to dolus eventualis or wilful blindness depending on the legal culture and criminal law tradition. The phrase may also be interpreted as a reference to the concept of mistake of law ¹⁰¹ which, in criminal law doctrine, is a negatively formulated defence and therefore, not part of intent (dolus) or negligence/recklessness (culpa) which are positive elements of liability. ¹⁰²

Both interpretations present challenges for a coherent doctrinal understanding of the elements of liability and subjective culpability in administrative sanctioning. Under EU competition law, punitive liability for regulatory infringements can be triggered not only by intent but also by negligence. The generally established understanding of negligence, which is largely shared by the Member States, does not align well with the awareness standard applied by the ECJ. Broadly, negligence is understood as a failure to be aware of risks related to one’s conduct. ¹⁰³ Thus, negligence does not require awareness but rather a state of mind akin to blameful thoughtlessness. Additionally, it should be clear that a liability doctrine cannot rely solely on defences; it must primarily consist of positively formulated elements of liability.

As we understand it, the clear-cut withdrawal from criminal law doctrine in Recital 42 of the ECN+ Directive is not necessarily justified. Criminal law doctrine can serve as a useful benchmark when developing an administrative liability doctrine. The relevance of such general doctrine has become evident after the ECJ recently extended its interpretation of administrative intent and negligence to include infringements under the GDPR. In its judgement C-683/21, ¹⁰⁴ the ECJ held that Article 83 of the GDPR does not permit objective liability; an administrative fine can be imposed only if an infringement under the GDPR was committed intentionally or negligently. The ECJ further stated that whether an infringement was committed intentionally or negligently, a controller may be penalized if the controller ‘could not have been unaware of the infringing nature of its conduct, whether or not it was aware that it was infringing the provisions of the GDPR’.

A coherent theoretical understanding of negligence and intent as elements of corporate administrative liability is essential for defining the nature of administrative sanctions as punitive measures and their relation to criminal law punishment. The level of subjective culpability required for punitive liability is linked to the degree of censure, blame and stigma attached to the sanctioning measures. ¹⁰⁵ As an example, a sanction based on objective liability conveys a societal message that is milder and more neutral compared to, for instance, a criminal law punishment of an intentional act. ¹⁰⁶ Systemic coherence in the EU sanctioning policy and its effective enforcement require that these differences in degree are made visible and understandable.

Conclusions

Sanctioning forms an integral part of any legal system, whether that system is national or supranational. Through sanctioning, the legal order expresses its disapproval of a certain array of acts and omissions. Especially, if sanctions impose restrictions on basic rights and threaten, for example, the loss of property, imposing such sanctions should require clear societal disapproval of the act. The legislator’s decision to sanction, thus, always contains at least an implicit message of moral censure directed to the subjects of the jurisdiction of a legal order. This applies to both administratively sanctioned and criminalized behaviour in national and supranational legal systems.

Administrative sanctions may be morally more neutral than criminal sanctions and express more lenient moral censure than a decision to criminalize. However, if a certain act or omission is prohibited by the legislator with a threat of sanction, this decision clearly contains at least some kind of moral censure. In this respect, corporate administrative fines should be, as applicable, proportioned to punishment theories in terms of their objectives. We have in this article stated that there are good reasons to examine whether corporate administrative fines could be based on a rationale broader than economic and negative general deterrence and that nothing suggests that such fines could not have an educative and moral function. In this respect, punishment theories, such as the communicative theory of punishment, ¹⁰⁷ could be utilized in defining the constitutive rationale for corporate administrative fines.

One of the basic requirements of the rule of law is that the norms of the legal system are clear and precise and that the administration of justice or application of legal norms is foreseeable. In criminal law literature, sentencing law has been seen as a microcosm within a criminal justice system in terms of the principles of punishment and the aims of the criminal justice system but also of the principles of substantive criminal law. ¹⁰⁸ The sentencing system could, thus, be seen to form a particular order in a legal system. Such particular systems are compatible with more general requirements of the rule of law only if they fulfil the requirements of stableness, openness and clearness. ¹⁰⁹ Respectively, monetary administrative sanctions, including corporate administrative fines, should be seen to form a ‘microcosm’ within a legal order that should be founded on a principled approach setting limiting criteria for the use of such sanctions. This ‘microcosm’ of administrative sanctions is inevitably related to the ‘microcosm’ of criminal punishment since both seek to prevent unwanted behaviour, and both are used to protect societally important values and goods. Therefore, a clear and foreseeable principled approach towards the use of different sanction regimes is needed.

We have suggested that the criteria for administrative fines adopted by the Constitutional Law Committee of the Finnish Parliament could serve as an example of limiting criteria for such sanctions. Although the criteria are linked to the legal system of a specific Member State, they reflect values common to the constitutional traditions of all Member States. These criteria are primarily derived from fundamental rights that are also safeguarded by the Charter and the ECHR. As such, they, thus, embody and uphold the core values of the European Union. Since the criteria represent a model that systematizes the constitutional principles in a theoretically coherent way, this approach offers a solution that goes beyond the somewhat scattered case law of the ECJ and the ECHR.

These limiting criteria illustrate that it is possible to construct a set of constitutional standards related to the core principles of the rule of law that aim towards rationalized and legitimized use of administrative fines including corporate sanctioning. If the principle of ultima ratio is taken seriously and if criminal law, including criminal punishments, is always used as a last resort, constitutional limiting criteria for administrative fines should be set in proportion to the limiting criteria of criminal law and punishment. This means that, for example, the proportionality of administrative fines and criminal sanctions should be viewed comprehensively and in relation to each other. The terms of use of different sanction regimes should be examined from a widespread perspective that takes into account the entirety of the legal order in question. This more comprehensive perspective includes various rule of law-derived restrictions to the use of sanction regimes set in proportion within the nature of sanction regimes available in a legal order.