The New German Government's Agenda On Compliance

Introduction

On May 5, 2025, the Christian Democratic Union of Germany (CDU) and the Christian Social Union (CSU) entered into a coalition agreement (Coalition Agreement) with the Social Democratic Party of Germany (SPD) (together with CDU and CSU the Coalition) with the aim of forming the new German government (the New Government).¹ Earlier this year, on February 23, 2025, the CDU and CSU prevailed in the German federal elections and subsequently entered into coalition negotiations with the SPD.

The German Parliament (Bundestag), with the majority of the Coalition, will elect Friedrich Merz of the CDU as the new Chancellor on May 6, 2025. The formation of the New Government will follow immediately. Though coalition agreements are not legally binding, they traditionally function as the political agenda of a new government. The Coalition Agreement can therefore be regarded as the work plan for the next four years of the government led by Friedrich Merz.

Among its more than 140 pages, the Coalition Agreement outlines various compliance-related topics but remains silent on topics addressed in previous coalition agreements. For example, the Coalition Agreement discusses topics such as (i) supply chain due diligence and sustainability, (ii) anti-money laundering and (iii) asset forfeiture instruments. However, unlike the coalition agreements of the two previous governments, the Coalition Agreement abstains from committing to (i) new rules on corporate criminal liability and (ii) new legal requirements for internal investigations.

Supply Chain Due Diligence and Sustainability

In the context of implementing an immediate action program (Sofortprogramm) for reducing the bureaucratic burden, particularly for small and medium-sized companies, the Coalition commits to abolishing at least certain requirements set forth in the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, or LkSG).²

The LkSG came into force on January 1, 2023, and aimed at increasing the protection of human rights and the environment in global supply chains.³ It obliged companies in scope to introduce due diligence measures observing human rights and environmental obligations and stipulated additional administrative requirements such as reporting obligations for these companies. According to the Coalition Agreement, the LkSG is to be replaced by a new law on international corporate responsibility that implements the less stringent European Supply Chain Due Diligence Directive (CSDDD) in an unbureaucratic and enforcement-friendly way:

• As a first step, the Coalition intends to immediately abolish the human rights- and environment-related reporting obligations under the LkSG.
• Furthermore, until the new law comes into force, violations of the existing legal due diligence obligations will not be sanctioned, except for "severe human rights violations."⁴

While these statements clearly indicate an intention to deregulate corporate supply chains and limit due diligence obligations, the deregulation itself seems to result in a certain legal uncertainty. For example, neither the Coalition Agreement nor the current wording of the LkSG nor the legislative materials define a "severe human rights violation." Moreover, it seems unclear whether or how a "severe human rights violation" could be identified if no due diligence efforts were undertaken at all. In this regard, until further clarification is provided, companies' current due diligence efforts likely cannot be reduced as extensively as the Coalition intends. In addition, there are no indications in the Coalition Agreement that the Coalition intends to repeal other administrative requirements introduced by the LkSG, such as the requirement for companies in scope to appoint a human rights officer.

Additionally, the Coalition Agreement also commits to preventing unnecessary bureaucratic burdens stemming from the European level,⁵ among others by preventing excessive regulations for sustainable investments (taxonomy), sustainability reporting, CSDDD and the CO2 border adjustment mechanism. The Coalition thereby explicitly supports the so-called EU Omnibus package, an initiative by the European Commission particularly aiming at simplifying and consolidating existing sustainability regulation. For additional information regarding the EU Omnibus package, please refer to WilmerHale's client alert "The EU Omnibus Package: Reshaping ESG and Sustainability Regulations."

Anti-Money Laundering

The Coalition Agreement also includes the Coalition's undertaking to "decisively" fight money laundering and financial crime.⁶ To this end, the Coalition aims to bundle the federal government's enforcement competencies in the area of financial crime. For example, the Coalition intends to improve the cooperation between the federal and state governments on money laundering, as well as with international organizations, the EU and the European supervisory authority. Regarding a key instrument in the fight against money laundering, the transparency register—the register that includes information on the beneficial ownership of companies—the Coalition Agreement states that existing gaps will be closed. Furthermore, if one or more beneficial owners cannot be identified, transactions involving legal persons that exceed a threshold of EUR 10,000 are prohibited.

Reform of Criminal and Introduction of Administrative Asset Forfeiture Instruments

The Coalition also intends to reform the existing instruments for asset forfeiture in the context of criminal offences and to expand them to include a forfeiture procedure for assets of "unexplained origin." If assets of unexplained origin are seized in connection with a criminal offence, the Coalition intends to shift the burden of proof to the asset holder, who will have to prove that the assets of unexplained origin are derived from legitimate sources.⁷

The Coalition Agreement further commits to developing a new administrative asset investigation procedure for assets of significant value where "doubts about a legal acquisition cannot be dispelled." This new procedure will be supplemented by an administrative order with the aim of seizing suspicious assets ("Suspicious Wealth Order").⁸

No Rules on Corporate Criminal Liability

In contrast to the coalition agreements of the two previous governments, the Coalition Agreement does not contain any commitment to introduce a new legal framework on corporate criminal liability, including the level of sanctions or the legal certainty for companies regarding their compliance obligations.⁹ Although the commitments of the two previous governments did not result in any actual new law, such a commitment would have been a strong sign in combatting corporate misconduct—similar to other European countries such as France and the United Kingdom.

For additional information regarding a recent initiative by anti-bribery and corruption agencies in the UK, France and Switzerland to address international bribery and corruption through a new taskforce intended to strengthen collaboration, please refer to WilmerHale's client alert "UK, French, and Swiss Enforcement Authorities Announce New Alliance."

No Legal Requirements for Internal Investigations

While the two previous governments committed to creating legal requirements for "internal investigations" and thereby enhancing legal certainty,¹⁰ the Coalition Agreement is silent in this regard. Although the commitment of the two previous governments did not materialize in any actual legal provisions, a legal framework for internal investigations could have helped to address existing legal uncertainties.

Next Steps

It is still unclear to what extent the individual projects included in the Coalition Agreement will be implemented and, above all, when. It remains to be seen if and how the New Government's planned actions, including the abolishment of the LkSG, will materialize. To procedurally ensure the abolishment of the LkSG, the German parliament will need to pass a corresponding law. Until such a law has been passed, particularly regarding companies' obligations under the LkSG, companies' implementation measures will likely continue.

Immediately after the election of Friedrich Merz as new Chancellor, which will be on May 6, 2025, the new secretaries of the various departments will be sworn in. Typically, it takes the departments about four weeks to fill most of the key posts for political appointees (e.g., undersecretaries) —after which the departments are then fully operational again.

Friedrich Merz has set himself an ambitious 100-day program and wants to quickly restore optimism in the economy. Major parliamentary initiatives may therefore be launched, but it is questionable how much can be implemented before the summer recess (last session week scheduled starting July 7). However, the abolition of the LkSG is likely to be initiated as a symbolic measure in the first days, probably before the summer recess—as an interim step on the way to creating a new law that will have to implement the European CSDDD requirements. It is further expected that the priorities of the New Government will be on European topics. More European coordination across all policy areas is expected to take place. In addition, under the New Government, Germany will likely transpose mandatory EU directives into German law strictly as required, while refraining from introducing additional requirements that could burden the German economy.

Footnotes

1. Coalition Agreement, publicly available in German at https://www.cdu.de/app/uploads/2025/04/Koalitionsvertrag-–-barrierefreie-Version.pdf and at https://www.spd.de/fileadmin/Dokumente/Koalitionsvertrag2025_bf.pdf.

2. See Coalition Agreement, at 1909 et seq.

3. See https://www.bmz.de/de/themen/lieferkettengesetz.

4. See Coalition Agreement, at 1913 et seq. Please note that the wording of the Coalition Agreement only states (in German) that "due diligence measures . . . will not be sanctioned." However, based on the expressed intention to deregulate, it appears obvious that what is meant is to refrain from sanctioning violations  of due diligence obligations.

5. See Coalition Agreement, at 2002 et seq.

6. See Coalition Agreement, at 1543 et seq.

7. See Coalition Agreement, at 1553 et seq., 2661 et. seq.

8. See Coalition Agreement, at 1553 et seq.

9. See the coalition agreements of the two previous governments, available at https://www.bundesregierung.de/resource/blob/974430/1989762/9069d8019dabe546c2449dda2d838453/2021-12-08-koalitionsvertrag-data.pdf, at p. 111, and https://www.bundestag.de/resource/blob/543200/9f9f21a92a618c77aa330f00ed21e308/kw49_koalition_koalitionsvertrag.pdf, at p. 126.

10. Id.