4 maggio 2020 Kerstin Wilhelm  -  Mirjam Erb BusinessCrimeLinks

Draft bill on sanctioning corporate crimes published

After years of discussion about a corporate criminal law for Germany and following the publication of an unofficial draft of a "Law to Combat Corporate Crime" by the Minister of Justice, Christine Lambrecht, in August 2019, the Federal Ministry of Justice published the draft bill of a "Law to Strengthen Integrity in Business" on 22 April 2020, with its key part being the Act on Sanctions for Associations (Verbandssanktionengesetz). The change of name is accompanied by a number of changes to the draft published in 2019 (for details of which see our earlier blog post, here) but overall it remains the case that conceptual and comprehensive changes to the existing system are proposed.

Overview of the proposed legislation

The Ministry plans to regulate corporate liability for crimes in legislation that is separate from the Act on Regulatory Offences (Ordnungswidrigkeitengesetz – “OWiG”), which has been the basis for prosecution of companies until now. However, there will still be no genuine corporate criminal law. Rather, companies shall be held liable for criminal offences committed by their managers, if they are violating the company’s duties or result in an enrichment of the company. For that purpose, offences committed abroad shall also be taken into account under certain circumstances. In contrast to the draft of 2019, only associations whose purpose is directed at an economic business operation shall be liable to sanctioning. Moreover, sovereign acts are excluded from the scope of application. 

Proposed amendments to sanctions

The proposed amendments relate, in particular, to the list of sanctions:

  • Currently the OWiG provides for administrative fines against companies of up to EUR 10 million. While the penalties shall remain at this level for smaller undertakings, companies generating an annual turnover of more than EUR 100 million shall be subject to financial sanctions of up to 10% for intentional offences and of up to 5% for negligent offences. In this respect, the group turnover is decisive, i.e. the worldwide turnover of all natural persons and associations that operate with the sanctioned association as an economic unit.
  • Disgorgement of profits (Einziehung) shall remain possible, i.e. the state may confiscate what the company has illegally obtained from the crime. The financial sanction is thus not intended to disgorge the assets obtained from the sanctioned act, but is in addition to it, which distinguishes it from the company fine under section 30 OWiG known to date.
  • As a further sanction, the court may, under certain conditions, issue a warning against the company while reserving the right to impose a financial sanction at a later date (Verwarnung mit Verbandsgeldsanktionsvorbehalt). Such a warning combined with the reservation of sanctioning is intended to consider any compliance measures taken by the company concerned and may also be combined with conditions (Auflagen) and instructions (Weisungen).
  • Companies that have been sanctioned shall be registered in an administrative register. Generally, the register is not intended to be publicly available. Nevertheless, companies are still at risk that the sanction imposed on them will become public. In the case of a large number of aggrieved parties, a public announcement for information purposes should be at the discretion of the court. Depending on how this is handled in practice, this could have a similar condemnatory effect as a public register.
  • In contrast to the 2019 draft, however, the draft bill no longer provides for the possibility of dissolving companies in extreme cases. According to press reports, there had been considerable discussions on this point within the coalition.
Changes to procedure

In addition, the draft provides for fundamental procedural changes:

  • Even though the new law is explicitly not intended to be criminal in nature, the Ministry of Justice intends to replace the discretionary prosecution principle (Opportunitätsprinzip), which generally applies in relation to the prosecution of administrative offences, by the principle of legality (Legalitätsprinzip), which usually only applies in criminal law. As a result, public prosecutors would have to initiate investigations against a company if there is an initial suspicion (Anfangsverdacht) of criminal conduct.
  • The draft also contains detailed rules of procedure relating to, for instance, representation rights and rights of defendants, such as the right to remain silent and the right to a fair hearing. It is also planned that companies shall be entitled to call for the admission of evidence or to lodge appeals.
  • The Ministry of Justice also intends to regulate internal investigations, which have been at the centre of attention since a recent judgment of the German Federal Constitutional Court (Bundesverfassungsgericht). The Court upheld a ruling by the Munich Regional Court (Landgericht), which had allowed the prosecutor’s office to search the offices of US law firm Jones Day and secure documents pertaining to Volkswagen’s internal investigation into the “diesel scandal”. The draft law thus aims to provide more legal certainty for companies:
  • Like the 2019 draft, the draft bill provides for a separation between criminal defence activities and internal investigations. Documents relating to a criminal defence are to be exempt from seizure. Materials from internal investigations, on the other hand, will be subject to seizure unless they are "attributable to the protected relationship of trust".
  • The Ministry of Justice also wants to create incentives for companies to implement compliance programmes and to conduct internal investigations. For example, assisting the prosecution by an internal investigation shall, in certain circumstances, be taken into account to mitigate penalties.
Comment

In the course of the interdepartmental coordination, the draft has already been modified in some parts. In particular, the dissolution of the company is no longer envisaged as the ultimate sanction. It is nevertheless to be expected that the draft law will undergo further changes in the course of the legislative process. Against this background, the legislative process is likely to drag on a little longer. Although, if passed by parliament, the Act on Sanctions for Associations is not to come into force until two years after its possible promulgation, companies would be well advised to monitor the further process closely from now on and ensure their compliance measures are up to scratch.