Transfer of criminal liability in corporate takeovers: the Spanish Constitutional Court's judgment of 11 December 2023

On December 2023, the Spanish Constitutional Court issued a judgment that reopened the issue of the transfer of legal entities' criminal liability following a corporate acquisition. The judgment was related to a fine imposed by the Spanish Council of Ministers on Banco Santander regarding an alleged breach by Banco Popular of money laundering provisions before it was acquired by Banco Santander.

Beyond the content of the decision, the debate focuses on whether, in cases of corporate takeovers, criminal liability for acts committed by the absorbed company is transferred to the acquiring company.

In our opinion, it is crucial to point out, firstly, that the Spanish Constitutional Court's judgment was delivered in the context of an administrative sanction and in relation to the challenge lodged against that sanction before the Administrative Chamber of the Spanish Supreme Court. Therefore, notwithstanding the references in the judgment to the Spanish Criminal Code, the statements made in it are constrained to the law on administrative sanctions and cannot thus be automatically extrapolated to criminal sanctions.

Moreover, as the Constitutional Court's judgment points out, the principle laid down in Article 130.2 of the Spanish Criminal Code and the following criterion mentioned by the Constitutional Court are highly significant: "to admit that the dissolution of the legal person entails the extinction of any liability for infringements, as happens with the death of natural persons (Art. 130.1.1 Criminal Code), would be tantamount - as argued by the Public Prosecutor and the State Attorney - to allowing liability to be evaded by continuing, in a different legal form, to conduct the same business activity in the pursuit of which it committed the offence".

We also highlight the key element that should exist to determine that liability has transferred from one company to another: that the business activity carried out by the absorbed entity and carried out by the new legal owner are "substantially identical from an economic perspective" (especially when the Constitutional Court has declared that this principle is not contrary to Article 25.1 of the Spanish Constitution).

In light of the above, we understand that – in the case of acquisitions, mergers and takeovers – greater efforts will have to be made to determine with the highest possible degree of certainty (i) what criminal liability may be present in the acquired, merged or absorbed entity; (ii) if the business activities performed by the acquiring and absorbed entities are "substantially identical from an economic perspective"; and (iii) if other circumstances should be taken into account that may mitigate the acquiring entity's potential criminal liability.

By Miguel García Casas and Francisco Carrión