A Corporate Criminal Code for Germany

It hasn’t even been officially presented yet, but it has what it takes to make legal history: The draft bill for a law to combat corporate crime, the centerpiece of which is the “Association Sanctions Act” or “VerSanG” for short. Companies should familiarize themselves as quickly as possible with the requirements that are likely to be imposed on them by the planned law.

The German Federal Ministry of Justice (BMJV) has presented a draft for a “Law to Combat Corporate Crime”. Although the draft has not yet been officially published, the BMJV has made the draft available to selected associations. Of course, the draft need not become law in the form presented, but there is much to suggest that the major features of the paper will be preserved in the legislative process. It is therefore worth taking a look at the new regulations, combined with the question of how companies can best position themselves in this regard in the future.

Background

According to the draft bill, the regulations currently available for sanctioning company-related criminal offenses have significant deficits and are not sufficiently suitable for sanctioning companies appropriately.

The prosecution of even the most serious corporate crimes is currently solely at the discretion of the competent authorities due to the applicable principle of opportunity, which is said to have led to inconsistent and inadequate sanctions against associations. Offenses committed from within associations can currently be punished with a fine of a maximum of 10 million euros. The maximum fine applies regardless of the size of the association, which – according to the BMJV – leads to a disadvantage for smaller and medium-sized companies. Furthermore, in the explanatory memorandum to the draft bill, the BMJV criticizes the fact that concrete and comprehensible assessment rules for association fines have been lacking up to now, as have legally secure incentives for investments in compliance measures or the conduct of internal investigations.

An appropriate response to corporate crime was therefore not possible on the basis of the existing law, which is why the proposals already put forward in previous years to improve the sanctioning of companies finally resulted in the draft law now published. The main regulations are:

Principle of legality

The planned VerSanG aims to subject the sanctioning or prosecution of associations to the so-called legality principle. Unlike in the past, the prosecuting authorities are to be obliged to initiate preliminary proceedings if there is an initial suspicion (principle of legality), so that the applicable law is applied uniformly and regularly.
However, how this is to be accomplished in practice due to the scarcity of resources of the prosecution authorities seems questionable. Thus, the obligation to prosecute does not apply without exception. The reference to the corresponding applicability of the possibility of discontinuing investigations for reasons of expediency under the Code of Criminal Procedure (Sections 153 et seq. StPO) and the supplementary provisions in Sections 36 et seq. VerSanG-E, which are in turn at the discretion of the prosecuting authorities, again places the question of the actual prosecution of the offenses in the hands of the respective prosecuting authority and could, if necessary, render the principle of legality meaningless due to factual limits.

Association sanction

An association sanction shall be imposed whenever:

– a leader has committed an association offense, or

– a non-management person commits an association offense in the performance of the association’s duties if a management person could have prevented or substantially impeded that offense by taking appropriate precautions.

Property and tax offenses, for example, can be considered as association offenses. In addition, all groups of offenses under German criminal law, in particular environmental offenses and offenses against competition.

Types of sanctions

The possibilities of association sanctions regulated in the draft go far beyond the previous sole possibility of a fine. The draft provides for various association sanctions:

– Association Money Sanction,

– Warning with association fine sanction reservation, and

– in the worst case, the dissolution of the association.

The association fine sanction is to be up to ten million euros (in the case of an association offense committed intentionally) or five million euros (in the case of an association offense committed negligently) in small and medium-sized enterprises. In the case of large companies with average annual sales of more than 100 million euros, the fine imposed by the association may amount to up to ten percent (in the case of intent) or five percent (in the case of negligence) of the worldwide average annual sales of all companies operating as a single economic unit in the last three financial years.

If it is to be expected that, among other things, a warning is sufficient to avoid association offenses in the future, a warning is possible subject to the association fine sanction. This shall be the case in particular if the association takes or has already taken measures to avoid similar association offenses in the future. The warning may be accompanied by conditions and instructions, in particular the obligation to take precautions to avoid association penalties in the future (e.g. compliance measures). This can be demonstrated by certification from a competent body (e.g. auditors, lawyers and management consultants), similar to monitoring as is possible and customary under US law.

As ultima ratio the dissolution of the association is possible. However, this is only to be applied in exceptional cases where, among other things, “persistently significant associational offenses” have been committed by management personnel and it is to be expected that significant associational offenses will continue to be committed in the future.

Finally, public notice shall be considered when a large number of persons have been harmed. This is primarily intended to enable allegedly affected persons to check whether they are actually affected and, if so, whether they can assert claims. From the company’s point of view, however, such an announcement often turns out to be an additional punitive measure: “naming and shaming”.

Promotion of compliance measures

The express aim of the VerSanG-E is to promote compliance measures, which is expressed in numerous places in the draft.
For example, the existence of a suitable compliance management system may already mean that the requirements for sanctions are not met. If an association sanction is imposed, the existence of a suitable compliance management system is decisive for the type and amount of the association sanction and, in the case of a warning with the reservation of an association fine, for the issuance of any instructions. Finally, the implementation of a compliance management system plays an essential role in the association’s post-offense conduct.

Consideration of internal investigations

The VerSanG-E is now intended to create a legal framework for internal investigations for the first time, in particular under which conditions these can be taken into account in mitigation of punishment, which rights are granted to employees and the scope of prohibitions on seizure. A reduction in sanctions, for example, is only possible in particular if the association actually contributes to the clarification of the facts, cooperates fully with the prosecuting authorities and the newly introduced employee rights are fully respected.

The scope of a prohibition of seizure, in particular also of work results obtained in the context of investigations within the association, is expressly limited to those cases which are to be assigned to the relationship of trust between the accused and lawyers, tax advisors and auditors etc. The prohibition of seizure is also limited to the cases which are to be assigned to the relationship of trust between the accused and lawyers, tax advisors and auditors etc. However, the prohibition on seizure does not apply to records from a fact-finding investigation that takes place before a defendant is charged or serves other purposes, such as internal compliance.

Corporate acquisitions

It should also be possible to impose a sanction on the legal successor or group parent companies. If, for example, sanction proceedings are opened and the company is subsequently dissolved, or if its assets are moved, possible sanctions cannot be effectively enforced. It should then be possible to impose sanctions on companies belonging to the group or on acquirers who have acquired the company or significant assets of the company in each case as legal successors.

In the case of corporate acquisitions, this increases the financial and reputational risk for the purchasing company of itself becoming the target of an association sanction. Due diligence in the context of M&A processes is thus likely to become even more important.

Register

Similar to the Federal Central Register for natural persons, all final court decisions issued against an association as well as final decisions under Section 30 OWiG if the fine imposed exceeds 300 euros are to be entered in the association sanctions register. This register is not open to public inspection by anyone.

Schedule

The draft, as noted at the outset, has not yet been officially presented. The legislative process is expected to last into next year. And even then, the law is not to enter into force immediately, but only two years after its promulgation. As with the General Data Protection Regulation, this gives companies time to prepare for the law.

This includes, in particular, the establishment or updating of a compliance management system in order to minimize the risk of criminal acts in the company and to be able to make breaches of duty that have been committed transparent. Two years does not seem excessively long for this, because there is no such thing as an “off-the-shelf” CMS. A CMS can only be effective and have a sanction-reducing effect if it fits the organizational form and size, the risk areas and the industry of a company and, above all, if it corresponds to its culture.