THINK Compliance

Swiss Corporate Compliance: New Board of Directors’ Criminal Liability

4 min read

Jul 11, 2023 10:45:00 AM

Understanding Art. 964a: Non-Financial Reporting Obligations in Switzerland

Switzerland’s non-financial reporting obligations landscape has undergone a significant change, introducing the potential for severe criminal charges that underscores the gravity of non-compliance. As per the Swiss Code of Obligations (Art. 964a et seq.) and the Swiss Criminal Code (Art. 325ter), companies of public interest and FINMA regulated financial institutions that meet statutory thresholds are now required to prepare for new non-financial and due diligence obligations. Directors who fail to comply can be held personally accountable under criminal law, facing fines up to CHF 100,000, while even negligence can result in a fine of up to CHF 50,000.

This legislation extends beyond regulatory compliance to enforce accountability with the might of criminal law, highlighting the necessity for absolute accuracy and complete transparency in non-financial reporting. These laws, which came into effect on January 1, 2022, are the direct consequence of a broad societal initiative that unfolded from 2015. The implications of non-compliance could be far-reaching and potentially damaging for the reputation and financial standing of both individuals and the businesses they represent.

Switzerland

Types of Obligations

Art. 964a et seq. of the Swiss Code of Obligations mandates non-financial reporting on

Environmental issues
Social concerns
Labor practices
Human rights
Bribery issues.
Additionally, it emphasizes specific due diligence and reporting obligations concerning conflict minerals and child labor.

Failure to comply with these obligations exposes individuals to criminal liability under Art. 325ter of the Swiss Criminal Code.

Scope of Reporting Under Art. 964a for Swiss Companies

Reporting, in line with Art. 964a para. 1 CO, encompasses:

Public interest companies, as defined in the Audit Supervisory Act; and
Those with an annual average of at least 500 full-time employees in two consecutive financial years; and
Any company that has exceeded a balance sheet total of CHF 20 million or a turnover of CHF 40 million in two consecutive financial years.
Reporting commences in 2024 and covers the company’s worldwide operations, including all controlled subsidiaries.

Essential Components for Compliance Reports in Switzerland

The report should provide a comprehensive overview of the company’s operations, including their impact on the aforementioned non-financial matters. It should detail the company’s activities, the adopted policies and standards, effectiveness of measures, main risks, and key performance indicators. If a company chooses not to adhere to a standard, it must clarify its reasons in the report, thus reflecting a “comply or explain” approach.

Exemptions and Board of Directors’ Obligations

Companies controlled by a reporting company, or those controlled by an entity that prepares an equivalent report under applicable foreign law, are exempt from reporting obligations. The non-financial reports must be signed by the board of directors and made publicly available for at least 10 years.

Due Diligence Requirements for Swiss Companies on Conflict Minerals and Child Labor

Companies with their registered office, head office, or principal place of business in Switzerland that circulate certain quantities of specific minerals or metals from conflict and high-risk areas are subject to due diligence requirements. The same obligation applies to companies that offer products or services suspected of being manufactured or provided using child labor. SMEs and “low risk companies” are exempt unless there is evident risk of child labor.

Potential Sanctions for Non-Compliance

Any board member who approves false statements on non-financial information, conflict minerals, and child labor, or fails to comply with the obligation to document reports, can face a criminal fine of up to CHF 100,000. Negligence can also result in a fine of up to CHF 50,000.

Sanctions are imposed on the responsible individuals within the companies, not the legal entities themselves.

Implications and Implementation Timeline

The implementation of new obligations, which were introduced on January 1, 2022, presents considerable challenges to numerous companies, especially in the realm of non-financial risks which entail identification, analysis, and evaluation. These new regulations will take effect starting the 2023 fiscal year, and the inaugural non-financial reports are slated for submission, approval, and publication by June 2024.

One noteworthy aspect of these obligations is the incorporation of a management system for the trading of conflict minerals and monitoring of child labor. This inclusion necessitates diligent scrutiny and transparency in handling supply chains – an area previously unexplored by many companies. The regulations further amplify the urgency for meticulous and comprehensive reporting by bringing into play the possibility of criminal liability for non- compliance.

The timeline set for the transition is particularly stringent, as companies are given a mere one-year window to adapt to these changes. This means that by the conclusion of the 2022 calendar year, companies must have taken the necessary measures to ensure compliance starting the fiscal year 2023.

In closing, the introduction of these obligations is likely to mandate a comprehensive overhaul of the current practices for a substantial number of Swiss businesses. It is imperative that companies take a proactive approach in understanding and adopting the changes required by this new regulatory framework. This includes not only comprehending the new obligations but also devising and implementing strategies for compliance. In doing so, companies can be well-positioned to adeptly navigate and thrive within this evolving regulatory environment.