Association sanctions – draft association sanctions law

In the session of October 21, 2020, the Federal Government submitted a counterstatement to the recommendations of the Bundesrat (see:
Association Sanctions Act – First Passage in the Bundesrat.
) was decided. The present preliminary version of the statement (BT-Drs. 19/23568, p. 151 ff.) contains hardly any surprises.

Small and medium-sized enterprises (“SMEs”) are not affected by the increase in penalties, but could benefit from the draft’s procedural regulations, which increase legal certainty for the companies concerned. SMEs would not be overburdened by the introduction or purchase of a sprawling compliance management system – the appropriateness of the measures essentially depends on the specifics of the company. The Federal Council’s proposal to review whether the liability and sanctions for SMEs are proportionate and to what extent certain associative acts should be completely exempted was thus rejected.

Compliance requirements: The German government will examine whether and, if so, how compliance requirements for companies can be defined more precisely and further specified. The concerns of SMEs are also taken into account once again. In this context, the criteria for the assessment of sanctions are to be specified.

Definition of the association statute: The Federal Government will examine whether, in the alternative of the (intended) enrichment of the association, the unlawfulness should be included by way of clarification. A corresponding criterion is already mentioned in the draft explanatory memorandum.

Foreign acts: The extension of the scope of application to foreign acts committed by domestic associations does not go too far. The inclusion of restrictive criteria (e.g. substantial business operations or substantial damage in Germany) is not necessary in view of the possibility of discontinuation already provided for (Sec. 38 VerSanG-E). However, the federal government will include this issue in its planned review of hiring options.

Acts of association by non-management personnel: The German government intends to examine whether acts of association by non-executives can only be attributed if executives have intentionally or negligently failed to take the necessary precautions, or whether the mere existence of an objective organizational deficit is not sufficient.

Principle of legality: The German government intends to continue to adhere to the principle of legality, which has been heavily criticized in some quarters, and which is intended to lead to more uniform and intensive prosecution of corporate crime cases throughout Germany. The cessation options provided are intended to ensure that “every minor violation” is not prosecuted. There was no reason to fear that the judiciary would be overburdened, since the individual perpetrator would have to be the subject of preliminary proceedings anyway.

However, the Federal Government intends to examine the need for further differentiation of the grounds for discontinuation: in particular, in cases where association responsibility does not carry considerable weight alongside individual culpability, in the case of insolvency maturity and in the case of acts committed abroad.

The German government wants to examine whether the particularly serious case should be deleted from the draft.

The immunity of the individual offender shall further prevent the sanctioning of the association.

Legal succession: A limitation of the association sanction of the legal successor to the value of the assets taken over as well as the amount of the association sanction appropriate to the legal predecessor shall not be expressly included in the legal text. The limitation to the sanction appropriate to the predecessor in title already results from the principle of proportionality. In addition, the court is to be given discretionary powers when imposing an association sanction in order to exclude the possibility of the sanction being circumvented by transfers of assets in connection with the legal succession.

The federal government maintains the public disclosure of convictions, but will examine in detail the design of the criteria for disclosure.

There should be no special criminal procedure law for sanction proceedings. Rather, the same procedural rules should apply to the association as to the individual offender.

The right of the association’s legal representatives to remain silent is intended to prevent them from being put in a conflict situation where they have to testify at the expense of the association they manage. The German government rejects a deletion.

The Federal Government will examine whether or which regulations or measures need to be created or taken with regard to the use of evidence obtained through mutual legal assistance in the investigation proceedings concerning the Association Act for the sanction proceedings.

Finally, taking into account the reasons put forward by the Bundesrat, the Federal Government intends to reconsider extending the transition period until the law comes into force from two to three years.

What’s next?

The draft law, together with the statement of the Bundesrat and the counter-statement of the Federal Government, was forwarded to the Bundestag, which will then discuss and vote on the draft. The federal government can introduce its possible amendment proposals into the (committee) deliberations via the majority parliamentary groups following a statement by the Bundesrat.