Criminal Law: Liability for Negligence in Enterprise Management

Characterised as an ‘unintentional crime,’ Negligence in Enterprise Management has incidentally become a prevalent legal issue amongst corporations, state agencies, as well as their associated personnel. With the rise in cases pertaining to negligence in recent years, the need to understand its legal conditions is more imperative than ever: whilst there are two criminal offences under the stipulation of ‘Negligence,’ each offence harbours a distinctive set of provisions for criminal and damage subjects. Moreover, the sentences outlined for each offence also vary, due to the different implicated levels of responsibility incurred by the subjected offenders.

This article aims to unravel the intricacy of the legislature. Using two real cases from the past three years, the feature breaks down the elements that constitute each offence and compare them against one another in order to underline their discrepancies, to help readers obtain the clearest understanding of the legal mechanisms in theory as well as in practice.

Property damage caused by negligence in management is a common practice among enterprises, especially those with a large-scale operation and extensive division of departments. In some cases, damage can occur undetected; many enterprises only learn of their losses when being inspected by State agencies or when conducting an inventory check as part of the handover procedure from one employee to another. More remarkably, in recent years, the competent Authority has uncovered a number of serious negligent behaviors committed at the management level as fallouts from their investigation of other crimes.

Most exemplary is the case of “Negligence that causes severe harm,” committed by the Drug Administration – Ministry of Health. Prosecuted by the Security Investigation Agency – Ministry of Public Security on September 18, 2019, the case concerns VN Pharma’s illegal trading of counterfeit cancer medications which garnered billions of VND in profit. 1 The case attracted public attention because of its direct impact on public health, especially cancer patients. In addition to individuals directly involved in the trading of the counterfeit, the Agency also prosecuted the Ministry of Health’s officials for negligent management.

Another example is the case of “Negligence that causes property damage to the State, an organization, or an enterprise” in Can Tho Province, ruled by the High People’s Court in Ho Chi Minh City under appellate proceedings on October 12, 2017.2 The misconduct was discovered as a result of State agencies’ investigation into an embezzlement case, where the managers’ negligent bookkeeping caused not an appropriation but loss of property. In addition to “embezzlement”, the Court also sentenced the managers to prison for “Negligence that causes property damage to the State, an organization, or an enterprise.”

Insight into criminal liability

The above-stated investigation and judicial processes involving negligent managers make it clear that misconducting managers will not only respond to disciplinary procedures and compensation claims under labor and civil law but also be held criminally liable under criminal law. If the property damage is valued at VND100,000,000 or more, regardless of unintentionality, the offender may still face criminal prosecution.

In the two mentioned cases, despite similarities in misconduct, these cases were prosecuted for two different criminal offenses: “Negligence that causes severe harm” under Article 360 and “Negligence that causes property damage to the State, an organization, or an enterprise” under Article 179, the 2015 Criminal Code, amended and supplemented in 2017 (the “Criminal Code”).

So, how do conditions constituting these two criminal offences differ from one another?

Negligence” is understood as the omission or failure of a person to fulfill an assigned duty. The offence can be characterized as either “action” or “inaction,” but it is determined to have stemmed from unintentionality. In other words, a criminal motive is not a compulsory condition to constitute either of these crimes. However, economic loss as a consequence of the negligence alleged must be present, which means that the negligence alleged must cause damage of at least VND100,000,000.

Criminal subject: any person 16 years of age and above who is fully aware and in control of his/her behaviors is subject to become a criminal subject of these crimes.  However, each crime is distinctively characterized as follows:

  • A  person  holding  a  managing  position  or  authority  such  as  Legal  Representative,  Chairperson  of  the  Company,  Chairperson  of  the Board of Management, Chairperson of the Board of Members, General Director, Executive Director, Department Manager, etc., is subject to be prosecuted for either of these crimes, “Negligence that causes property damage  to  the State,  an  organization,  or  an enterprise” under Article 179,  or  “Negligence  that  causes  severe harm”  under  Article  360,  the Criminal Code.
  • A person not holding a managing position or authority but a direct duty of managing and administrating the company property (e.g. accountant, warehouse staff, security staff, driver, etc.) is only subject to be prosecuted for “Negligence that causes property damage to the State, an organization, or an enterprise” under Article 179, the Criminal Code.

The difference in these above-mentioned criminal subjects is “position or authority” of the offender alleged. With great power comes great responsibility: the more authority an individual has, the more liable they are expected to be. Any person, whether holding a managing position or authority or not, that has a direct duty of managing the property and causes damage to said property shall be prosecuted for the criminal offense of “Negligence that causes property damage to the State, an organization, or an enterprise.” On the other hand, despite not having a direct duty of managing the property, a person holding the managing position or authority may still be prosecuted for the criminal offence of “Negligence that causes severe harm.”

The mechanisms of these two criminal offences also differ in their stipulations of the damaged subject: Under Article 179, the damaged property is owned by  the  State, State authority, an organization, or an enterprise  (not by an individual). Under Article 360, the crime is constituted if the assessed value of the property is VND100,000,000 or more, regardless of personal or organizational ownership.

In practice, the majority of cases facing criminal prosecution for negligence in enterprise management involves criminal subjects who are persons holding managing positions or authority, since these individuals’ behaviors are more likely to inflict serious harm on society than their staff counterparts. Due to their key role in management and administration, their decisions and behaviors inherently have a direct impact on the damaged property. Indeed, real damage caused by persons holding managing positions and authority are typically more severe than damage caused by their staff counterparts. Moreover, the parameters constituting a damaged subject in the management level’s case are wider: the property may be owned by any member of society, not only the enterprises under their management.

Insight into sentences

Article 179 of the Criminal Code stipulates that the lowest-level sentence is a “verbal/written warning” and shall be applied to any person with a direct duty of managing the property, including persons holding managing positions or authority.  On the other hand, Article 360 provides that the lowest-level sentence for “negligence” is “community sentence”, regardless of a direct or indirect duty to the property. Similarly, despite comparable value of damage, the higher-level sentences under Article 360 are more severe than those under Article 179. For example, if the assessed value of the damaged property is VND2,000,000,000, the offender will be sentenced to seven to twelve years of imprisonment under Article 360, but only five to ten years under Article 179.

In practice, to uphold the rule of lenity, when settling cases involving persons of managing positions and authority, prosecutors typically would apply Article 179 over Article 360 because of its lighter sentences. In addition, Article 360 states the exemption: “A person holding a managing position or authority due to negligence […], except for the cases in Article 179, […] hereof shall be sentenced […].” Therefore, Article 360 applies if and only if Article 179 lacks grounds to apply. For example, harking back to the above-mentioned case in Can Tho, because the defendant held a managing position and authority (Headmaster) and had a direct duty of managing the College’s property, the sentence is ruled under the provisions of Article 179, which is appropriate and lawful. However, as for the case of negligence committed by the Ministry of Health’s officials regarding VN Pharma’s trading of counterfeit drugs, only Article 360 applies, since these officials did not have a direct duty of managing the property. Currently, the case is under the investigation.

We hope our sharing is of help to you. Should you have any questions, please contact our Le & Tran criminal lawyers at info@letranlaw.com for further clarification or advice.