Draft bill on corporate criminal liability in Germany

Introduction

Only last week, in an interview with Süddeutsche Zeitung, German Minister of Justice Christine Lambrecht referred to a draft bill to fight corporate crime and announced an increase in fines.

As initially announced in the coalition agreement between the parties in Germany’s government, a draft bill on sanctioning corporate crimes is currently being discussed by the ministries concerned (the Verbandssanktionengesetz, “VerSanG”). Apart from the possibility of imposing higher fines, the draft bill provides, in particular, for the abandonment of the principle of discretion when combating corporate crime. It also incentivises corporations to conduct internal investigations and to strengthen compliance measures. However, the wording of the draft bill remains vague, particularly regarding the scope of sentences. If this issue is not clarified as the legislative process continues, many questions requiring interpretation will have to be decided by the courts.

Corporations to face higher sanctions

The new law addresses corporations and, in particular, companies in the private sector. Corporations can commit criminal offences either through their managerial staff or through another person who commits a corporate crime when performing duties on behalf of the corporation if the managerial staff could have prevented the criminal offence by taking adequate compliance measures (section 3 (1) no. 1 and 2 VerSanG). The group of persons that qualifies as managerial staff is defined in section 2 (1) no. 2 a – e VerSanG and is identical to those listed in section 30 (1) no. 1 - 5 German Act on Regulatory Offences (Ordnungswidrigkeitengesetz, “OWiG”). A corporate crime is deemed to have been committed if duties imposed on the corporation have been breached or where the corporation has been enriched or was intended to be enriched (section 2 (1) no. 3 VerSanG).

According to section 8 VerSanG, the following sanctions can be imposed on corporations:

• a sanction;
• a warning with the reservation that a sanction may be imposed; and
• the dissolution of the corporation.

As already provided for in the OWiG and now also in the VerSanG, fines can reach up to EUR 10 million for wilful misconduct and up to EUR 5 million for negligent acts (section 9 (1) no. 1 and 2 VerSanG). Corporations with an average annual turnover of more than EUR 100 million may be exposed to a fine of up to 10% (for wilful misconduct) and up to 5 per cent (for a negligent act) of their average annual turnover. As mentioned by Minister of Justice Christine Lambrecht, possible sanctions against major company groups could thus amount to tens of billions of euros.

Apart from corporate fines, in certain cases, the corporation’s dissolution may be ordered (section 14 VerSanG) or sanctions may be made public (section 15 VerSanG).

No more discretion

Up until now, corporate fines have been regulated in the OWiG, meaning that the decision to initiate investigations or impose a fine has been in the discretion of the law enforcement authorities (section 47 OWiG).

This will change as section 25 (1) VerSanG makes reference to the general provisions and laws on criminal proceedings, in particular the German Code of Criminal Procedure. The latter provides that law enforcement authorities are obliged to take action in relation to all prosecutable offences.

Compliance measures to be strengthened

Although the sanctions imposed under the new VerSanG may be significantly higher than before, the new regime also provides some relief to companies.

For example, according to section 10 (1) no. 1 VerSanG, it is sufficient to send a warning to the corporation if it can be expected that, in future, the corporation will refrain from committing a criminal offence. This is deemed to be the case if the incident was an “exception” and the corporation has already taken steps to avoid similar situations. Courts will also be able to impose sanctions dependent on the fulfilment of requirements and orders (section 10 (4) VerSanG). Here, especially compensation for any damage caused (section 12 (2) VerSanG) will be considered. In particular, courts will be able to instruct the corporation concerned to take specific steps to avoid corporate crimes (section 13 (1) and (2) VerSanG). This means that corporations are obliged to implement efficient compliance measures through which they can prevent sanctions. Confirmation that such measures have been implemented is to be provided by a qualified person (for example, a lawyer). The court decides how often and, if applicable, at which intervals reports are to be provided by such qualified person. While the corporation may appoint the qualified person, approval of the appointment by the court is required.

Mitigated sanctions can be expected if the corporation has carried out an internal investigation either by itself or through third parties, and cooperates with the law enforcement authorities (section 18 (1) VerSanG).

Internal investigations

The VerSanG establishes the framework and provides incentives for internal investigations. For mitigated sanctions to apply, the corporation has to assist significantly in investigating the corporate crime (section 18 (1) no. 1 VerSanG), cooperate with the law enforcement authorities (section 18 (1) no. 3 VerSanG) and make available to such law enforcement authorities any relevant results of internal investigations (section 18 (1) no. 4 VerSanG). Moreover, internal investigations are to be carried out in a fair manner and in compliance with applicable law (section 18 (1) no. 5 and 6 VerSanG). This means, amongst other things, that, prior to being subject to an inquiry, staff should be advised that “information provided by them may be held against them in criminal proceedings” (section 18 (1) no. 5a) VerSanG) and that they have the right to legal representation when questioned in the inquiry (section 18 (1) no. 5b) VerSanG). Also, in future, staff will have the right to refuse to give evidence if, in doing so, they risk being prosecuted for a criminal offence (section 18 (1) no. 5c) VerSanG).

The draft bill further provides that, in case of internal investigations, law enforcement authorities may, but are not obliged to, waive prosecution until the internal investigation has been completed (section 42 VerSanG).

Conclusion

Compared to the law currently in force, the new VerSanG may expose corporations to significantly harsher sanctions. Even though the final version of the law has not yet been passed, the direction seems clear: in future, corporations may face much heavier fines if they are unable to provide arguments for sanction-mitigating factors by establishing and maintaining efficient compliance systems and carrying out internal investigations. For this reason, companies are well advised to consider the impact of the VerSanG now and increasingly to focus on an efficient compliance system.