Prospects for the failed Corporate Sanctions Act in Germany

The former federal Government has been unable to implement a second legislative project, the Corporate Sanctions Act. The corresponding draft law provided for tougher sanctions, created incentives for the implementation of compliance measures in companies (as they should have a mitigating effect), and contained rules for the conduct of internal investigations. However, in June 2021 the legislative process failed; mainly due to different views on the approach towards internal investigations and the related question of whether or not documents from internal investigations could be seized by prosecution authorities.

Under the new Government, it remains to be seen whether the Social Democratic Party (SPD) and the Alliance 90/The Greens (Bündnis 90/Die Grünen) will be able to prevail over the Free Democratic Party (FDP) with their demand for the introduction of a corporate sanctions law. The SPD and Bündnis 90/Die Grünen have, in the past, supported the introduction of a corporate sanctions law, while the FDP has opposed such a legislative initiative.

However, under the new Government some legal regulation is to be expected. According to their coalition agreement, in the future "honest companies are to be protected from legally dishonest competitors" (p. 111). In order to achieve this goal, the new government aims to revise the rules on corporate sanctions, including the level of sanctions, to improve the legal certainty for companies with respect to compliance obligations, and to create a precise legal framework for internal investigations. This could also be achieved through selective modifications of already existing laws, including the Administrative Offences Act (Ordnungswidrigkeitengesetz, OWiG), without the need for a completely new law. [3 Feb 2022]

Conversion of the transparency register to a full register - GWG transitional provision

Prior to 1 August 2021, Section 20 (2) of the Money Laundering Act, Geldwäschegesetz (GWG), in its former version provided that some entities did not have to transmit information on their ultimate beneficial owner (UBO) to the transparency register in addition to transmission to other registers. For example, they did not have to submit information on their UBOs to the transparency register if this information was evident from the commercial register (Handelsregister).

With the conversion of the transparency register to a full register, a transitional provision was implemented in Section 59 (8) - (10) GWG, according to which the required entries in the transparency register must be added within transition periods during 2022, these include:

  • Stock corporation (Aktiengesellschaft), SE, partnership limited by shares (Kommanditgesellschaft auf Aktien) by 31 March 2022;
  • private limited company (Gesellschaft mit beschränkter Haftung), cooperative (Genossenschaft), European Cooperative Society (Europäische Genossenschaft) or partnership (Partnerschaft) by 30 June 2022; and
  • in other cases by 31 December 2022.

The amendment means that, from now on, information on UBOs may have to be entered in several registers at the same time by obliged entities under the GWG. As a result, the information can always be accessed uniformly from the transparency register in the future. The transitional period is supplemented by a transitional provision that partially dispenses the obligation to file discrepancy reports pursuant to Section 23a (1) GWG in this context. This temporary dispensation, provided for in section 59 (10) GWG, applies until 1 April 2023. [3 Feb 2022]

Lack of implementation of the EU Whistleblower Directive in Germany

The deadline to implement the EU Whistleblowing Directive in Germany ended on 17 December 2021 (see our previous blog post on this here). However, the former federal Government did not manage to meet this deadline.

The new Government hopes to implement the EU Whistleblower Directive in a legally secure and practicable way, but still needs some time to do so. It is to be expected that German law will go beyond the Directive's requirements. The coalition agreement states that whistleblowers must be protected from legal disadvantages not only when reporting violations of EU law, but also when disclosing significant violations of national laws or other significant misconduct, the disclosure of which is in the special public interest. In addition, claims of whistleblowers for reprisals are to be better enforced in the future; counselling and financial support are being examined for this purpose.

However, the fact that implementation has not yet taken place does not mean that companies can sit back and wait. It is true that the private sector does not have to fear the direct effect of the Directive's provisions, i.e. without a corresponding national transposition, Directives do not lead to direct obligations for private companies, since private companies are not to be punished for the lack of implementation (or incorrect implementation) by their Member State, according to the established case law of the European Court of Justice. But even before the transposition of the Directive, an interpretation in conformity with the Directive will lead to labour courts taking central values of the Directive into account when applying national law (i.e. interpretation in conformity with the directive). For this reason, companies should consider examing their internal reporting structures and, if necessary, adapting them in order to provide whistleblowers with a confidential and secure reporting option within the company. For the public sector, the Directive's obligation to set up internal whistleblowing systems already has direct effect. [11 Jan 2022]