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Corporate Law

Can an Israeli company be held criminally liable for acts committed by its employees?

Yes. Section 23 of the Penal Law 5737-1977 makes a corporation criminally liable where the offence was committed by a person acting on its behalf, and it attributes the mental state of senior officers to the company itself. Liability is widest for strict liability and regulatory offences, where no intent needs to be proved at all. Sentencing is by fine, and several Israeli statutes multiply the maximum fine for corporate defendants. Officers can face separate personal charges under supervision duties written into specific statutes.

Israeli criminal law treats the corporation as a person capable of committing offences, and Section 23 of the Penal Law distinguishes two situations. For strict liability offences and offences requiring proof of no more than negligence, the company is liable whenever the act was done by an employee or agent in the course of their function. For offences requiring intent or knowledge, the state must show that both the act and the mental state belonged to an organ of the company, meaning a director, the CEO, or another person whose conduct can fairly be treated as the conduct of the company itself.

Foreign groups operating through an Israeli subsidiary are most exposed in the regulated fields: labour and workplace safety, environmental protection, securities, competition, consumer protection and anti-bribery. Many of those statutes also impose a personal supervision duty on directors and the CEO, with a presumption that they failed to supervise once the company's offence is proved, so a file against the company frequently produces a parallel file against named officers. A documented compliance programme, minuted board oversight and a designated responsible officer are the practical defences. Foreign directors should also review their personal liability exposure in Israeli companies before accepting an appointment.

⚖ In Practice
  • Governing law: Section 23, Penal Law 5737-1977; officer supervision duties in sector statutes such as the Securities Law 5728-1968 and the Economic Competition Law 5748-1988
  • Competent authority: State Attorney’s Office (Praklitut HaMedina) and sector regulators including the Israel Securities Authority and the Competition Authority
  • Penalties: corporate fines are commonly set at a multiple of the maximum applying to an individual; several statutes reach into the millions of shekels, alongside administrative enforcement
  • Timeline: regulatory investigations in Israel commonly run 1-3 years before an indictment decision is taken
  • Risk reduction: a written compliance policy, board-minuted oversight, a named responsible officer, and prompt self-reporting where the statute rewards it

From the full guide: Personal Liability of Directors in Israeli Companies: A Guide for Foreign Directors

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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