Fighting private sector bribery and cross-border corruption

Statistics from the Federal Criminal Police Office show that the number of corruption-related offences committed in 2013 increased to 3,995. The new regulation on taking and giving bribes in commercial practice under Section 299 of the Criminal Code is intended to implement international standards in light of growing cross-border corruption. After intensely controversial hearings and some late changes, the new anti-corruption law was passed by Parliament and came into force on November 26 2015.

Breach of obligation towards principal now actionable

The reform of Section 299 includes the criminalisation of employees or agents that breach internal obligations towards their companies. In particular, it aims to protect employers and principals. The background to this reform is, among other things, that the EU Council Framework Decision provides for penalties where no competitive distortion exists but an obligation towards the principal has been breached in exchange for a benefit and without the company's prior consent. In other words, the disloyalty of the recipient of the benefit towards its principal in relation to a breach of duty within internal legal relationships is now considered a crime.

Challenges

Here in lies the crux of the matter: the broadness of the law in principle allows for the prosecution of acts that concern only trivial internal company issues. For example, a reputable catering company requires that employees dress formally. If a client of the company offers to pay employees to wear a disguise at its event, this offer – as such, not obviously punishable – may be subsumed under the new provision. This example shows the need for action – in particular, the need to define the content of the provision clearly.

If the provision is not implemented properly, risks will also arise in relation to the fact that companies may have to define the breach of an obligation. If this is the case, not only will the legislature and the courts have to decide whether an act is punishable, but private organisations will also be subject to this obligation.

Moreover, businesses and individuals outside the company whose internal rules have been broken will have little knowledge of their business partners' internal guidelines.

However, merely accepting a benefit as such is not yet considered a breach of an obligation; an action or omission beyond this must take place. For acceptance of a benefit to be considered a breach of an obligation, the benefit must have been offered in return for a breach of duty by the recipient that is in the interests of the giver of the benefit.

Consequences for businesses and employers

The new power gained by this provision will lead to massive challenges for compliance units and create an increased need for consultation for all enterprises on the German market. As the provision will also apply to crimes committed outside Germany, international businesses will feel these effects even more, as countries will interpret the meaning of breached obligations differently.

What remains?

According to the former provision, a criminal act was committed only when an improper preference took place that at least resulted in competitive distortion – for example, where a company's purchasing agent received a bribe from a supplier and in return awarded the contract to that supplier, rather than giving it to a more suitable competitor. Without any competitive distortion, no criminal act punishable under German law was committed. Improper preferences remain punishable under the revised provision.

Reasoning

The federal government has justified the broadening of the provision by arguing that its purpose from the beginning was to protect not only to protect competition, but also principals. The change in the law is intended to create better protection for the interests of principals, which will in turn help employees engaged in the trade of goods and services to perform their obligations loyally and without undue influence.

Adaptation to international standards

The law also seeks to transpose the EU Council Framework Decision on combating corruption in the private sector (2003/568/JI) into law. Therefore, the broadening of Section 299 has been regarded as necessary by the legislature.

Notably, the provision has finally paved the way for the ratification of the Criminal Law Convention on Corruption, which was signed by Germany in 1999. Criticism that the ratification process takes too long has grown louder. Before the convention's recent adoption in Germany, 43 states had already ratified it, requiring contracting parties to penalise corrupt practices and protect whistleblowers. In addition, the convention plays a part in better prosecuting bribery.

Comment

Together with the reform concerning the bribing of parliamentarians and new regulations on corruption in the healthcare sector, the federal government has implemented the biggest reform of anti-corruption law in the last 20 years and adapted German anti-corruption law to international standards. However, the issue raised by the fact that a breach of internal regulations can now also be considered a violation of criminal law must be solved quickly, primarily by case law and the introduction of standards to make the new regulation less vague. All participants in legal dealings will therefore face a plethora of new challenges in the near future. However, the reform is an important step towards harmonisation of international and European standards, as the impact of cross-border commercial life increases.

For further information on this topic please contact Patrick Müller-Sartori at CMS Hasche Sigle by telephone (+49 221 77 16 159) or email (patrick.mueller-sartori@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.