Germany: The German Federal Ministry Of Justice Submits A Proposal For A Corporate Sanctions Act

Last Updated: 11 September 2019
Article by André-M. Szesny
Most Read Contributor in Germany, November 2019

The German Federal Ministry of Justice and Consumer Protection (BMJV) has submitted its long-awaited proposal for a Corporate Sanctions Act (VerSanG). When corporate crimes are committed, it is making provisions for independently prosecuting the entire organization in addition to prosecuting single perpetrators. The prosecution of organizations where suspicions arise should no longer be at the discretion of the prosecution authorities (facultative prosecution) – as is currently the case – but should be made mandatory (mandatory prosecution). Monetary sanctions of up to 10% of turnover could be imposed, and the organization may even be dissolved in the worst case scenario.

"Corporate penalty" as the connecting factor for sanctioning the organization

The new act will apply to legal persons under private or public law, unincorporated associations and partnerships with legal personality. These organizations will be sanctioned if a manager commits a "corporate criminal act" himself, or, in the event that someone else commits the act, if he does not prevent it or does not make it significantly harder to commit the act due to his lack of supervision. In the same way as with individual perpetrators, in the future, legal prosecution will also apply to the entire organization; at present, in the event of company-related misconduct, it is up to the authorities, companies and other associations to decide whether or not to prosecute their managers (facultative prosecution).

A corporate criminal offence is an act through which the organization's duties are violated, or from which the organization benefits or is intended to benefit. This includes all criminal offences against applicable law – such as tax evasion, corruption, customer or business partner fraud, competition offences, market manipulation or money laundering. Offences committed abroad are also included if the act would also be liable to prosecution under German law and if the organization's registered offices are domiciled in Germany. Thus, if a company commits an act of bribery in order to obtain orders abroad but the act does not constitute a violation according to German law because it was not committed in Germany, corporate sanctions will nevertheless be imposed.

Managers are members of the management board or the executive committee, chief representatives, authorized signatories, authorized representatives and other persons with managerial responsibilities including supervisors. This includes members of the Supervisory Board.

Monetary sanctions of up to 10% of turnover

In the event of an intentional corporate criminal offence, the corporate fine should amount to at least €1,000 and at most €10 million. Thereby, the maximum penalty will comply with the applicable legislation. A new point is that stricter sanctions will apply to commercial enterprises with a turnover of more than €100 million, and the maximum penalty will be proportional to the organization's economic success. In the event of an intentional corporate criminal offence, the penalty will be at least €10,000 and at most 10% of the average annual turnover from the last three years. In the case of several associations operating as one economic unit, the consolidated turnover will be the decisive factor in determining the amount of the penalty. In particularly serious cases, dissolution of the organization may even be imposed.

Naming and shaming

If a large number of injured parties are involved, in addition to imposing a corporate sanction, the ruling should also be announced publicly. The court will decide how the announcement should be made. Announcements on the internet are expressly envisaged.

Mitigating sanctions, internal investigations and compliance

The way in which the organization reacts to the corporate criminal offence will determine the amount of the penalty imposed: the organization can mitigate sanctions by endeavoring to expose offences, making up for damages and, after the offence has been committed, taking precautions to avoid and expose corporate criminal offences. If the organization uses the corporate penalty as an opportunity to carry out internal investigations and to introduce a compliance management system or to optimize its existing compliance management system, it can expect a significant reduction of the penalty.

However, internal investigations will only be recognized as mitigating sanctions if they substantially contribute to clarifying the facts, if the organization or the individual commissioned by the organization to carry out the internal investigations works "continuously and unrestrictedly" with the prosecution authorities and hands over the results of the investigation and associated documents to the authorities, and if the internal investigations are conducted in a fair manner. For instance, before being questioned, employees should be made aware that the information they provide could be used against them in criminal proceedings, and that they have the right to request assistance and to withhold information if there is a risk of self-incrimination. While internal investigations are being carried out, the prosecution authority may occasionally discontinue the prosecution.

The provisions on carrying out internal investigations as a means of mitigating sanctions contain points for discussion: it is unclear, for instance, how the right of the employee to remain silent when questioned as part of internal investigations, as provided for in the draft, will allow for the company's unrestricted (i.e. not limited by the right to remain silent) right, under employment law, to demand information from its employees. And the question remains unresolved as to how the (albeit voluntary) "continuous and unrestricted" work along with the handing over of documents will operate without legal enforcement, without the organization violating data protection laws or disclosing sensitive secrets from business relationships and thereby forfeiting contractual penalties. The draft only provides for a regulation governing the power of the authorities to use personal data from internal investigations.

If the organization conducts the internal investigations according to the measures provided for by law, this will reduce the maximum penalty of the corporate fine by half; the minimum amount will no longer apply. Dissolution of the organization and "naming and shaming" will then be dispensed with completely.

Discontinuing prosecution

In certain cases, the draft provides for discontinuing prosecution of the organization, namely in less severe cases, if the organization is itself likely to suffer serious consequences as a result of the criminal offence, in the case of insolvency and if penalties abroad are to be expected. In addition, prosecution may be discontinued by imposing certain conditions and instructions if their fulfilment is likely to compensate for the public prosecution interest. The provisions that already exist in this respect in the Criminal Code render the Corporate Sanctions Act applicable. In the case of less severe cases or if the organization is likely to suffer serious consequences as a result of the offence, the imposition of a corporate sanction may be disregarded.

Setting up a corporate penalty register

Similarly to the Federal Central Criminal Register, of which the public part (known as the police certificate of good conduct) discloses certain criminal offences, a Corporate Penalty Register is to be introduced in which legally binding judicial rulings on the imposition of corporate penalties in accordance with the Corporate Sanctions Act are to be entered along with corporate fines in accordance with article 30 of the German Regulatory Offences Act (OWiG) (which is to remain applicable alongside the Corporate Sanctions Act).

Legal position of company defense counsels, legal internal investigators and corporate barristers

The draft uses the intensive discussions on the searching of solicitor's offices in connection with the emissions scandal as an opportunity to adjust the legal position of solicitors in the jurisdiction of the Federal Constitutional Court in the so-called "Jones Day" ruling: only lawyers who have a client relationship with an "accused party" should expressly benefit from the prohibition on the confiscation of evidence stated in article 97 of the German Code of Criminal Procedure (StPO). In principle, these are criminal defense lawyers. From now on, the company defense counsel should also be included in the scope of protection, which the Corporate Sanctions Act draft expressly mentions. Accordingly, the company defense counsel may not be commissioned with the internal investigations. In current sanctions proceedings, this clear distinction between internal investigations and company defense counsels means that companies not only commission a contractor specialized in internal investigations – in particular a solicitor's office – but also entrust another solicitor with their own defense.

Practical notes

Companies and other organizations must come to terms with the fact that it will soon become the general rule that they will be prosecuted due to company-related criminal acts committed by their employees. Operating compliance management systems also already help, under the current law, to avoid corporate fines within the meaning of Article 30 of the German Regulatory Offences Act – and that should also remain the case under the new Corporate Sanctions Act. Conducting internal investigations according to special standards which are very close to the requirements of the Federal Law Society's (BRAK) Criminal Law Committee concerning corporate solicitors, and their sanction-mitigating effect, is welcome – and indeed also demands that the company in question is demonstrably committed to exposing its own misconduct.

Already today, companies should be well advised to fully investigate any suggestions of misconduct by their employees. The exposure of such offences forms part of the commercial duty of care – anyone who closes their eyes to misconduct may themselves be liable and is already liable according to applicable law – as the ruling in the Siemens/Neubürger case impressively goes to show.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions