Criminal Due Diligence in M&A Transactions
Target criminal risk assessment, criminal successor liability analysis (Art. 130.2 CP) and design of criminal representations in SPA/APA.
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Why Critical in M&A
Criminal due diligence is the great forgotten in many corporate transactions. However, the legal person's criminal liability (Art. 31 bis CP) and successor liability (Art. 130.2 CP) mean that the acquirer inherits contingencies for offenses committed before closing. Fines that can exceed €9 million, asset forfeiture and corporate dissolution are real risks that must be assessed, contractually mitigated and addressed in the post-closing plan.
Critical Review Areas
- Open criminal proceedings.
- Communications from AEAT, Public Prosecutor, CNMC, CNMV, Bank of Spain, SEPBLAC or Labor Inspectorate.
- Implemented Art. 31 bis compliance program.
- Tax offenses (review last four years).
- Money laundering and SEPBLAC compliance.
- Transnational bribery (Art. 286 ter CP) and FCPA exposure.
- Workers' rights offenses and accident rate.
- Personal data breaches and trade secrets offenses.
Successor Criminal Liability
Art. 130.2 CP establishes that transformation, merger, absorption or split does not extinguish criminal liability, which is transferred to the resulting entity. This succession even operates in asset deals when the operation has been designed to evade criminal liability.
Criminal Reps & Warranties
Typical criminal representations include: absence of active or latent criminal proceedings, regulatory compliance over last 5 years, existence of operative compliance program with UNE 19601 certification, absence of communications from authorities, absence of unaddressed internal reports through whistleblower channel (Law 2/2023).
Compliance Integration
The 100-day plan must align acquirer's and target's prevention models, appoint the new compliance officer, integrate the whistleblower channel, train inherited workforce and, above all, shield the Art. 31 bis CP exemption for any post-closing offense.
Penalty Chart
| Type / Scenario | Criminal Penalty |
|---|---|
| Successor liability (Art. 130.2 CP) | Full transfer of criminal liability to entity resulting from merger, absorption or split. |
| Proportional fine | Up to fivefold the benefit obtained, with absolute ceiling depending on offense type. |
| Asset forfeiture | Forfeiture of crime proceeds and instruments, against the acquired company. |
* Penalties shown are indicative. The actual penalty depends on case circumstances, applicable mitigating and aggravating factors.
Our Defense Strategy
Red flag report
Executive report with critical risks that may discard the operation or renegotiate price.
Contingency carve-out
Exclude assets or subsidiaries with high criminal risk to limit successor liability.
Criminal-specific escrow
Retention of part of price in escrow account to cover criminal contingencies until warranty period.
Post-closing plan
Compliance integration roadmap with milestones at 30, 60 and 100 days from closing.
Economic Criminal Law in Spain: Tax Fraud, Money Laundering and Corporate Crimes
Economic criminal law encompasses the most severe financial penalties in the Spanish Criminal Code. Tax fraud over €120,000 (Art. 305 CP), money laundering (Art. 301 CP), and corporate crimes (Art. 290-297 CP) are complex offenses where defense requires a combination of criminal law expertise and deep accounting/financial knowledge.
Penalty Comparison: Economic Offenses
| Offense | Threshold | Penalty |
|---|---|---|
| Tax Fraud (Art. 305) | >€120,000 | 1 – 5 years + fine x6 |
| Aggravated Tax Fraud | >€600,000 | 2 – 6 years |
| Money Laundering (Art. 301) | Any amount | 6 months – 6 years |
| Aggravated Laundering | Organized/financial system | Up to 9 years |
| Corporate Crime (Art. 290) | Balance sheet falsification | 1 – 3 years |
| Punishable Insolvency (Art. 259) | Fraudulent bankruptcy | 1 – 4 years |
Key Defense Strategies
Tax Regularization Defense (Art. 305.4 CP)
Pay the full tax debt before charges are formally filed and the crime is extinguished. This is the most powerful complete defense in tax fraud cases.
Challenge the €120K Threshold
The tax authority's calculation method is often contestable. Independent forensic accounting can challenge the assessed figure below the criminal threshold.
Money Laundering 'Self-laundering' Issues
Spanish courts have debated whether the primary offender can also be convicted of laundering their own proceeds. Challenge the double jeopardy implications.
Corporate Crime: Harm to Company vs. Shareholders
Art. 295 corporate crimes require actual financial harm to the company or its members. Demonstrate that any loss was speculative or absent.
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The judicial system is complex. We have the criminal-law specialisation and technical resources required to take on the defence.