Corporate Criminal Law – First Passage in the Bundesrat

At the beginning of August, the German government submitted to the Bundesrat the “Draft Law to Strengthen Integrity in Business” (BR-Drs. 440/20), the core of which is the Association Sanctions Act. As part of the first round, the Bundesrat can comment on the government draft until September 18. 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.

In a statement published on September 8, 2020 (BR-Drs. 440/1/20), the lead legal committee and the economic committee recommend that the Bundesrat reject the bill. In the event that this recommendation does not find a majority in the plenary session of the Bundesrat on September 18, the committees propose selective amendments to the government draft. The Finance Committee recommends that the Federal Council raise no objections to the bill.

According to reports, the opposition comes from the states of Baden-Württemberg, Bavaria, North Rhine-Westphalia, Lower Saxony, Rhineland-Palatinate, Schleswig-Holstein and Hamburg. Together, the seven states have a majority of 35 votes in the plenary session of the Bundesrat. It is true that the opinion of the Bundesrat in the first round 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. The criticism should therefore be taken seriously, and in the following we provide a brief overview of the objections raised by the federal states.

1. general rejection

The main point of criticism is the massive overloading of the judiciary. The planned introduction of the prosecution obligation would lead to an increase in proceedings because, in the case of company-related crimes, proceedings would have to be brought not only against the individual offender but also against the association. The lack of resources would be compensated, on the one hand, by obtaining expert opinions (“cumbersome expert sanction law”) and, on the other hand, by privatizing criminal prosecution in a way that is questionable from the point of view of the rule of law, by de facto forcing companies to conduct investigations within the association. The planned new regulation goes well beyond the required “cautious and prudent” revision of the existing regulations, leads to economic damage and violates the agreed moratorium on burdens. From a constitutional point of view, the main complaints are a violation of the principle of culpability and the disproportionate nature of the turnover-based sanction framework for financially strong companies. Criticism is also levelled at the functional separation of defense and internal association investigation, as well as the fact that the legislative process was at times conducted in “open defiance of the states.”

2. point changes

The authors themselves apparently doubt that the Federal Council will oppose the planned new regulation. Therefore, selective amendments are recommended in the alternative, on which the Federal Council would then have to vote individually. The amendments are primarily aimed at reducing the number of cases and limiting sanctions in accordance with the rule of law, but also contain points that weaken the procedural position of the associations. The following changes are recommended:

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.

Legally limited discretion to prosecute instead of compulsory prosecution: prosecution of the association is to be left to the discretion of the authority. At the same time, binding criteria for the exercise of discretion are given, namely: consequences of the association sanction for third parties (e.g. employees, shareholders) as well as the investigation effort, the importance of the matter and the amount of the expected sanction. In the case of serious crimes, the involvement of several leaders and in repeated cases, it should only be possible to refrain from prosecution in exceptional cases. The discretionary decision must be documented. If the proposal does not find a majority, it is recommended that in the case of identity of the perpetrator and the association (e.g. sole shareholder-managing director) as well as in the case of associations without business assets, sanctions should not be imposed due to a lack of need for sanctions.

The flexible prosecution discretion is intended to make the distinction between economically and non-economically oriented associations superfluous. Thus, the Association Sanctions Act should once again apply to all associations. Alternatively, the applicability to associations with an economic business operation within the meaning of Section 14 of the German Fiscal Code is recommended. This would cover economically active ideal associations, e.g. in the field of professional sports and social work.

Facts of liability: 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. Acts of non-management personnel shall only be attributed to the association if management personnel have culpably failed to take the necessary compliance measures; the mere existence of an objective organizational deficit is not sufficient.

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. The performance of the specific association should not only be taken into account in the assessment of sanctions, but should also be decisive.

The possibility of public announcement of the sanction shall be deleted.

Intra-association investigations: The requirement for “uninterrupted and full cooperation” should be deleted. The regulation is unnecessary, he said, because all essential documents must be made available to the prosecuting authorities anyway.

Revision of the procedural rules with the aim of speeding up the proceedings and preventing abuse, e.g. removal of essential procedural acts from the main hearing, increased obligations of the association to cooperate and rules on preclusion and time limits, facilitation of the change of judge in ongoing proceedings; No right to refuse to testify of the legal representatives of the association; admissibility of Investigative measures, which is integrated into the Secrecy of mail and telecommunications intervene (telephone surveillance, seizure of mail). In substance, this is intended to limit the procedural guarantees under criminal law in association sanction proceedings;

The transition period until the law comes into force is to be extended from two to three years.

Other points are:

• Abolition of the particularly serious case and reduction of the enforcement and redemption period to a uniform 10 years
• Offenses committed abroad by domestic associations should only be sanctioned if they have a substantial business operation in the domestic market or the offense has resulted in substantial damage to the domestic market.
• The immunity of the offender shall not lead to the exclusion of the association sanction.
• The liability of the legal successor should not exceed the value of the assets taken over (as in Section 30 (2a) sentence 2 OWiG).
• In the case of discontinuation of proceedings against a monetary deposit, payment shall also be permissible for the benefit of a charitable institution, not only for the benefit of the state treasury.
• Discontinuation of association sanction proceedings already at insolvency maturity
• Extension of the provisions of mutual legal assistance to sanction proceedings
• No exclusive jurisdiction of the court of lay assessors at the district court for association sanction proceedings
  3. Conclusion

Contrary to the concerns expressed by critics, current developments show that necessary adjustments to the draft can certainly be expected in the legislative process. The general objections taken up by the committees are largely known and have already been discussed intensively. In addition, however, the statement also contains some constructive proposals that will have to be discussed in the course of the further legislative process, irrespective of the plenary session’s decision on September 18. This concerns in particular the restriction of the obligation to prosecute, the exclusion of small associations from the scope of application of the Association Sanctions Act, the form of association responsibility and the regulatory framework for internal association investigations. It can be eagerly awaited how the opinion of the Federal Council will affect the draft law.