Capital market participants had high hopes that two petitions for judicial review filed by the Austrian Federal Administrative Court (Bundesverwaltungsgericht, BVwG) with the Austrian Constitutional Court (Verfassungsgerichtshof, VfGH) would result in the powers of the Austrian Financial Market Authority to impose high fines in case of administrative offences being restricted. By its decision of 13 December 2017, the Constitutional Court dismissed the petitions as unfounded and confirmed the constitutionality, and thus the validity, of the FMA’s competence to impose penalties.

The proceedings causing the Federal Administrative Court to resort to the Constitutional Court were the complaints lodged by two credit institutions against high fines that had been imposed on these credit institutions themselves: one fine, amounting to EUR 209,000, had been imposed for inadequate risk assessment procedures and strategies for the avoidance of money laundering and terrorist financing, and the other, in the amount of EUR 953,700, for a total of 19 administrative infringements of provisions concerning money laundering and terrorist financing. FMA’s power to impose those fines was based on section 99d Banking Act, which provides that the entity as such can be penalised in addition to the responsible individuals defined in section 9 Administrative Penal Act. Transposing Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, section 99d(3) Banking Act provides for the possibility to impose penalties of up to a maximum of 10% of the total annual net turnover of the credit institution concerned. In the case at hand, this meant potential penalties of up to EUR 6,991,479.06 and EUR 3,135,494.83, respectively.

In its petitions for judicial review, the Federal Administrative Court held the view that, based on Article 91 Federal Constitutional Law, in the case of administrative offenses subject to such an extremely high maximum amount of potential fines, such penalties would have to be imposed by courts of justice, and not by administrative authorities. Article 91 Federal Constitutional Law is included in the chapter on the jurisdiction of the courts of justice and provides for jurisdiction involving a jury and/or lay assessors if the penalty to be imposed exceeds a determined limit. In the past, the Constitutional Court itself had not only abolished provisions regulating the amount of potential penalties in a similar manner (such as ‘pecuniary penalty of up to fifty times the evaded amount’ [VfSlg. 12.547/1990]) because of their violating Article 91 Federal Constitutional Law but had also allocated penalties exceeding a determined maximum amount (like, for instance, a penalty of (then) 2 million Austrian schillings (equivalent to EUR 145,000) [VfSlg. 12.282/1990]) to the core of penal jurisdiction by courts of justice. In the opinion of the Federal Administrative Court, the independent status of the administrative courts established under the 2012 amendment of the laws regulating administrative jurisdiction, which can review the fines imposed by FMA, does not cure the lack of competence on the part of the administration to conduct such penal proceedings. Neither is there, in the Federal Administrative Court’s opinion, any parallel to fines in the area of antitrust law which are imposed by the Austrian Competition Authority (Bundeswettbewerbsbehörde, BWB) although the amount of such fines may also be considerable. While antitrust fines were held by the Austrian Supreme Court (Oberster Gerichtshof, OGH) to constitute a ‘sanction of near-penal-law nature’ but to be basically ‘a penalty under civil law’ (OGH 12.09.2007, 16 Ok 4/07), the pecuniary penalties to be imposed pursuant to section 99d Banking Act are definitely administrative penalties due to the explicit classification made by the legislator.

In its decision of 13 December 2017, the Constitutional Court did not agree with this line of reasoning and expressly declared that it now wished to depart from its own case law. In a rather rudimentary statement of reasons, the Constitutional Court essentially provided two arguments to justify its decision: (i) defining jurisdiction by courts of justice as contrasted with administrative jurisdiction cannot be based solely on the criterion of the penalties threatened and, (ii) in addition, the ‘total system of legal remedies provided by the Federal Constitution had been changed profoundly by the creation of first-instance administrative courts in the context of the amendment published as BGBl. (Federal Law Gazette) I 51/2012’ so that the Constitutional Court’s earlier concerns about distinguishing between the competence to impose penalties of administrative authorities and that of courts of justice could no longer be upheld.

In the final analysis, the Constitutional Court thus did hold section 99d Banking Act to be in conformity with Article 91 Federal Constitutional Law, but failed to deal with further constitutional-law concerns regarding financial markets law and its interface with administrative penal law. At a symposium entitled ‘Verfassungs- und verfahrensrechtliche Aspekte im Finanzmarktaufsichtsrecht – Reformmöglichkeiten’ (Aspects of constitutional and procedural law within financial markets law – possible reforms), a group of experts publicly discussed possibilities of improvements needed in this area, already in 2017. Topics treated by the experts included not only the difficulty of drawing the line between ordinary penal law and administrative penal law, but, in particular, also the insufficiency of the administrative procedures laws in force regarding the penalising of legal entities. This may be expected to remain an exciting area of law.