Association Sanctions Act – First Passage in the Bundesrat

On September 18, 2020, the government’s draft bill on strengthening integrity in business (BR-Drs. 440/20) passed the first round in the Bundesrat. The big bang failed to materialize: The Bundesrat did not follow the motions of the lead legal committee and the economic committee to reject the government bill in general. Instead, a large number of auxiliary motions from the committees recommending selective changes were approved.

There was no majority in the Bundesrat for these proposed amendments:

• Introduction of a legally limited right to prosecute instead of the strict obligation to prosecute and, as a result, the extension of the scope of application also to associations whose purpose is not directed at a commercial business operation.
• In the case of an offense committed by a manager, the existence of appropriate compliance structures should preclude the offense or at least lead to the proceedings being dropped.
• The turnover-based sanction framework for associations with annual sales of more than EUR 100 million is to be reviewed with regard to the principle of proportionality and, if necessary, replaced by a less restrictive regulation.
• Applicability to associations with an economic business operation within the meaning of Section 14 of the German Fiscal Code. This would cover economically active ideal associations, e.g. in the field of professional sports and social work.
• The payment of a fine as part of the discontinuation of proceedings should also be possible for the benefit of a charitable institution, not only for the benefit of the state treasury.
• Deletion of the requirement for “uninterrupted and full cooperation” in the context of internal association investigations.
• Deletion of the exclusive jurisdiction of the court of lay assessors at the district court for association sanction proceedings

The following changes are recommended:

• Extension of the possibilities of setting if the association responsibility does not carry considerable weight in addition to the individual fault (e.g. in the case of one-man limited liability companies, substrate-less associations, etc.).
• Small and medium-sized enterprises (“SMEs”): As part of the further legislative process, it should be examined whether the liability and sanctions for SMEs are designed in a proportionate manner and to what extent certain associative acts should be exempted altogether
• Acts of non-management personnel shall only be attributed to the association if management personnel have intentionally or negligently failed to take the required compliance measures; the mere existence of an objective organizational deficit is not sufficient.
• The possibility of public announcement of the sanction shall be deleted
• Revision of procedural rules with the aim of speeding up the procedure and preventing abuse,B. by removing essential procedural acts from the main hearing;
• No right of the legal representatives of the association to refuse to testify
• Admissibility of Investigative Measures Interfering with Postal and Telecommunications Secrecy
• Review whether the extension of the territorial scope to foreign acts does not go too far. If necessary, the sanctioning of foreign acts by domestic associations should be linked to further criteria,B. a substantial business operation or significant domestic damage
• Abolition of the particularly serious case and reduction of the enforcement and redemption period to a uniform 10 years
• The liability of the legal successor should not exceed the value of the assets taken over (as in Section 30 (2a) sentence 2 OWiG).
• A waiver of prosecution in the event of insolvency should also be possible in the event of insolvency maturity without an insolvency petition having been filed
• The transition period until the law comes into force is to be extended from two to three years.

Instead of a big bang, there were many substantive proposals that need to be discussed with the other proposals of the associations in the legislative process. The statement of the Bundesrat together with any counter-statement of the Federal Government shall be forwarded to the Bundestag together with the government bill. It is not binding on either the Bundestag or the Bundesrat in the further legislative process. It does, however, indicate how the Bundesrat might decide on the consent bill in the second round.