Can a business owner escape criminal liability for serious shortcomings in accounting or tax reporting by claiming reliance on their accountant? The prevailing view has long been that bookkeeping obligations cannot be delegated, and that the business owner remains liable if the consultant fails in their duties. However, two recent court rulings suggest that under certain circumstances, this responsibility may be mitigated.

Background

Running a business – whether as a sole trader or via a limited company – entails a significant responsibility to maintain proper accounting and to report taxes accurately. In a sole proprietorship, the trader is personally liable, while in a limited company this responsibility lies with the board of directors and the managing director.

Complying with these obligations is no easy task, given the complexity of the legal framework, which can be difficult to navigate even for experienced professionals. These rules are often backed by criminal sanctions, meaning that failure to comply may not only result in administrative fines but also in criminal penalties, including imprisonment.

It is therefore unsurprising that many – if not most – business owners choose to engage accounting or tax professionals to help fulfil their obligations. Although no empirical studies are cited, it is likely that most business owners feel they have done their part by handing over relevant materials to their accountant – the “auditor” – and trusting the professional to handle things correctly. In most cases, this trust is well placed. However, errors may still occur, whether due to illness, oversight, or negligence on the part of the accountant.

In the worst-case scenario, such errors may lead to a summons from the Economic Crime Authority or even criminal charges. The business owner then argues that they relied on an accountant to manage the books, that they themselves lack knowledge of accounting, and could not reasonably have done more. Until recently, courts have largely rejected this defence. The legal obligation to ensure proper accounting rests with the business owner and cannot be transferred. By engaging someone to handle the books, the owner is still required to supervise their work. If that person fails, the owner remains liable.

Recent court decisions, however, suggest a potential shift. These include a Supreme Court ruling from 29 October 2018 (known as the “Horse Trailer” case), and a decision from the Göta Court of Appeal dated 27 November 2018 (“The Incompetent Accountant”).

The Horse Trailer Case

A woman born in 1940 who owned an agricultural property was prosecuted in the District Court for tax offences or, alternatively, negligent tax reporting. The prosecutor also sought a corporate fine of SEK 200,000 against her sole proprietorship. The charge concerned a deduction made in her 2014 tax return for the purchase of a horse trailer. This trailer was to be used primarily by her daughter, whose children participated in equestrian events, rather than in the business itself.

The woman had consulted both a bank official and an accounting firm in preparing her tax returns. She stated that her knowledge of tax law was poor and that she had relied on professional help to ensure accuracy.

The District Court acquitted her. While it was clear that the deduction was improper, the court accepted her claim of ignorance and concluded that she lacked the intent necessary to commit the offence. Having sought advice from a bank official and hired a consultant, she was deemed to have acted with the care reasonably expected of a sole trader and was therefore not grossly negligent.

The prosecutor appealed. The Court of Appeal disagreed and convicted the woman of a tax offence, imposing a conditional sentence and a corporate fine of SEK 200,000. The court found that she must have realised there was a risk the information was incorrect and, by failing to take further steps to confirm its accuracy, had acted with “indifference intent” (a form of recklessness in Swedish criminal law).

The woman appealed to the Supreme Court. The Court found her knowledge of accounting and tax law to be very limited and that she had relied in good faith on advice given. It accepted that she had not realised the information might be incorrect and acquitted her of the tax offence. As to the charge of negligent tax reporting, the Court noted that while she had been careless in failing to acquaint herself with the relevant rules, her incorrect reporting stemmed from a misunderstanding and she had engaged professional help. Thus, she was not deemed grossly negligent and was acquitted of this charge as well. The corporate fine was also overturned.

The Incompetent Accountant

A man, the sole representative and shareholder of a limited company, was prosecuted for accounting offences and obstruction of tax supervision, after it emerged that not all card terminal revenues had been recorded. The accountants he had engaged were found by the District Court to lack the necessary qualifications and had also given the man incorrect advice.

Despite this, the court found that the man knew that all card payments should be recorded and had failed to provide all necessary documentation. He was deemed to have intended to omit the entries and was sentenced to four months’ imprisonment.

The man appealed to the Göta Court of Appeal. The Court noted that the accountants’ competence was “decidedly deficient” and reiterated that the business owner’s duty to ensure lawful accounting is non-transferable. He had a duty to monitor the accountants' work.

However, the man lacked any knowledge of accounting and had limited ability to understand the material. He had submitted all documentation as instructed and had consistently paid for the services. The Court found that he had no reason to suspect that the accounts were being mishandled, and that he neither acted intentionally nor negligently. He was therefore acquitted of both charges.

Conclusions

These rulings mark a significant development from the previously strict case law. If a business owner can demonstrate a genuine lack of understanding of the rules and show that they engaged a professional advisor in good faith, there may be grounds to avoid criminal liability.

They also underscore the professional duty of advisors to maintain current knowledge of the relevant legal frameworks. The consequences for clients can be severe if advisors fail to meet professional standards.

One question not addressed in the above cases – but likely to arise in future litigation – is whether and to what extent criminal liability may transfer to the advisor when the principal is acquitted due to reliance on that advisor.