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Initiating an investigation
Who can initiate an investigation of potential cartel conduct?
Investigations of potential cartel conduct are normally initiated ex officio, upon complaints by third parties (the Federal Cartel Office (FCO) operates an online whistleblowing system), or upon the filing of leniency applications.
If an investigation is initiated by complainants or third parties, what rights (if any) do they have?
Complainants have a right to the careful assessment of their complaint and the competent authority must take due care in deciding whether to initiate an investigation. Complainants also have a limited right to be heard and limited rights to access the file.
What obligations does a company have on learning that an investigation has commenced?
No statutory obligations exist. In particular, there is no legal concept similar to obstruction of justice which would require companies to take certain precautionary measures and prevent the destruction of evidence. However, from a general compliance viewpoint ‒ and considering company management’s fiduciary duty ‒ companies may generally be considered obliged to conduct an internal investigation in order to position themselves appropriately in the proceedings.
What obligations does a company have if it believes that an investigation is likely?
There are no obligations in this regard.
What are the potential consequences of failing to act or delaying action?
There are no potential consequences in this regard.
Formal stages of investigation
What are the formal stages of and approximate timeframe for investigations?
There are no formal procedural stages or approximate timeframes for investigations. According to the general principles applicable to any public investigation, the FCO must define the most suitable measures and steps in order to investigate all relevant facts and circumstances, while at the same time respecting the presumption of innocence, the affected parties’ procedural rights and the principle of proportionality. This results in different procedural structures and timeframes in each individual case.
What investigative powers do the authorities have?
In order to investigate a suspected infringement, the FCO may take testimonies from witnesses and accused suspects, and address information requests to undertakings. However, witnesses can refuse to testify to the extent that they might possibly incriminate themselves. Accused suspects generally have the right to remain silent on the allegations that form the subject matter of the investigation and need not provide any assistance or information whatsoever to the FCO. If they do agree to be heard, they are not obliged to make accurate or complete statements. Interrogated witnesses and accused suspects must generally be instructed about their rights to remain silent and not incriminate themselves.
The FCO may also conduct dawn raids on offices and search private premises and objects. As a general rule, any such searches must be ordered by a judge. Only in urgent circumstances may the FCO conduct these searches without a judicial warrant. In addition, the FCO may seize objects that could be of importance as evidence in the investigation and make copies of any relevant documents. Again, a seizure order issued by a court is required if the material is not handed over voluntarily and only in urgent cases may the FCO itself order the seizure of objects or documents. The FCO’s investigative powers in respect of search and seizure also apply to electronic materials. Computers and company servers may be searched and relevant files may be copied. Private property such as residences, automobiles and briefcases, as well as persons, can also be searched. The FCO does not have the power to wiretap, bug or make use of electronic surveillance.
If necessary, the FCO may use the coercive force laid down in the Code of Criminal Procedure to enforce its investigative powers.
Only the Public Prosecution Office (not the FCO) is competent to investigate and prosecute cartel infringements that constitute criminal offences.
What is the geographic reach of public enforcement actions?
The geographic reach of public enforcement actions is limited to the German territory.
When is court approval required to invoke these powers?
As a general rule, dawn raids must be ordered by a judge. Only in urgent circumstances may the FCO conduct dawn raids without a judicial warrant. The same applies to seizures.
Are searches of business and personal premises authorised? If so, which bodies carry out searches and will they wait for legal advisers to arrive?
The FCO may conduct dawn raids on offices and search private premises and objects.
While in theory, when conducting dawn raids and searches, FCO investigators need not await the arrival of defence counsel, in practice they will normally consent to wait up to one hour.
What level of cooperation with the authorities is required and what are the consequences for failing to cooperate?
Only to a very limited extent are companies and individuals legally obliged to cooperate with the authorities. They virtually need only identify themselves and provide the most basic logistical support. As smooth execution of the dawn raid is in the interests of all parties involved, in practice companies would be well advised to provide passive support and in particular collaborate in the logistics (eg, by indicating where the server room is). Leniency applicants, by contrast, must fully cooperate with the FCO.
Is in-house legal advice or attorney work product protected by the law of privilege? Does this extend to the advice of in-house counsel?
German law protects correspondence with defence counsel from seizure and review by the FCO. However, the law protects only correspondence between outside counsel and the client that directly relates to the investigation at hand and that was created after commencement of the proceedings. Correspondence dating from before commencement of the proceedinga is not protected; neither is correspondence between in-house counsel and the undertaking, regardless of when it was created.
Are any other limitations imposed on investigatory powers in order to safeguard the rights of those under investigation?
The FCO must at all times respect the presumption of innocence, the affected parties’ procedural rights and the principle of proportionality. However, any procedural flaws will not normally have consequences and, in particular, will not automatically render the decision void.
What is the process for objecting to an authority’s exercise of its claimed powers?
A company that believes that the FCO or its investigators have exceeded the limits of their investigative powers can – depending on the circumstances – either file a complaint pursuant to Section 304 of the Code of Criminal Procedure or request a judicial review according to Section 98(2) of the Code of Criminal Procedure.
Publicity and confidentiality
What information about investigations will be made publicly available and at which stage(s) of the process?
No strict rules exist that require the FCO to make public certain aspects of an investigation at a certain point in time. Rather, relevant information is mostly leaked by the affected companies themselves. As a general rule, when the FCO closes an important case, it will issue a press release, and it must also publish a more comprehensive case report on its website.
Is any information automatically confidential and is confidentiality available on request?
Business secrets are confidential and must not be disclosed by the FCO. In practice, affected companies and the FCO often have intensive discussions about what does and does not constitute a business secret. The names of individuals are not automatically considered confidential and thus exempt from publication. However, the FCO is restrictive and does not normally publish the names of individuals.
Do the authorities in your jurisdiction cooperate with authorities in other jurisdictions?
Yes. Under the auspices of the European Competition Network and the International Competition Network, the FCO cooperates with all other relevant competition authorities across the European Union and worldwide.
Do the relevant enforcement authorities request waivers so as to allow for increased cooperation with authorities in other jurisdictions? What are the consequences of declining to grant a waiver?
How is a cartel investigation resolved? Are settlements, plea bargains or other negotiated resolutions available?
Unlike the European Commission, the FCO has not established formal rules on the settlement of cartel procedures. However, an informal practice has evolved in recent years that provides a possibility for entities which are subject to a cartel investigation to enter into a settlement with the FCO.
According to the FCO, certain principles govern settlement proceedings. The most important principle is the strict equal treatment of all undertakings concerned. The undertakings concerned usually waive the right to complete access to the file and an extensive statement of objections. In return, the FCO’s decision contains only a short summary of the relevant facts, which makes it more difficult for third parties to extract from the decision any information that may be relevant for the preparation of a case against the cartel member concerned. Settlements are always individual in character.
What is the process for negotiating a settlement, plea bargain or other negotiated resolution? Do such resolutions require court or other approval?
No established process exists. Normally, after investigating the case sufficiently, the FCO will approach the companies concerned and ask whether they are willing to settle the case. The subsequent procedure is then conducted in a flexible manner.
If a settlement is not reached, what is the procedure for adjudicating a charge of cartel conduct?
If a settlement is not reached, the FCO is obliged to close the investigation within the context of an ordinary procedure (ie, to investigate and prove the case in its entirety).
Which party must prove its case? What is the relevant standard of proof?
In theory, the FCO must prove the case in its entirety beyond any reasonable doubt. In practice, most cases are triggered or accompanied by a leniency application, which the FCO normally considers to constitute sufficient proof. However, in the absence of a leniency application, the FCO will often accept lower standards and it has sometimes based its prohibition decisions on ambiguous evidence.
Is there a hearing? If so, what is the process for submitting evidence and testimony?
No formal hearing takes place. However, if the companies so request, they will normally be given the opportunity to meet with the case team in person.
What are the accused’s procedural rights?
Accused companies benefit from the presumption of innocence, as well as from the basic features that characterise a fair trial (eg, the right to be heard, the right to access to the file, the principle of proportionality).
What is the appeal process?
FCO decisions can be appealed before the Dusseldorf Higher Regional Court.
To what extent can the appeal body review the agency’s findings of fact, legal assessment and penalties?
The Dusseldorf Higher Regional Court can review the FCO’s decision in its entirety; it can even increase the fine initially imposed by the FCO and has done so in the past.
Penalties for companies
What are the potential penalties for companies involved in a cartel?
The FCO may impose fines on undertakings of up to 10% per cent of the worldwide turnover achieved by the corporate group to which the undertaking belongs in the most recent fiscal year.
Are there guidelines in place for penalties? If not, how are penalties normally calculated?
The FCO published new fining guidelines in June 2013 under which the group-wide annual turnover of the undertaking, as well as the turnover it achieved in the relevant market during the infringement period, is considered when calculating the fine. Hence, the size of the undertaking and the affected volume of commerce, as well as the seriousness and duration of the infringement, are crucial factors in calculating the fine.
Do the authorities take into account any penalties imposed in other jurisdictions?
The FCO may also take into account fines imposed for similar infringements by other cartel authorities of the European Competition Network.
How can a company mitigate its exposure to fines?
A fine can be waived or reduced if the undertaking that participated in the infringement submits an application for leniency. A 10% reduction in the fine can also be granted in the case of an agreement to terminate the proceedings by settlement. An undertaking’s cooperation in the proceeding outside the leniency notice will also be taken into account by the FCO when calculating the fine.
Penalties for individuals
What are the potential penalties for individuals involved in a cartel?
Fines imposed on individuals for wilful participation in a cartel may not exceed €1 million. In case of negligent infringement, the maximum fine is €500,000. Only directors, officers and certain senior employees may be fined. However, if lower-ranking employees committed the cartel offence and cannot be held responsible, directors or officers can be fined for breaching their duty of supervision.
Do the authorities take into account any penalties imposed in other jurisdictions?
No case law exists in this regard. However, the FCO will likely take into account any penalties imposed in other jurisdictions when calculating a fine for an individual.
Is a company permitted to pay a penalty imposed on its employee?
In theory, the payment of a fine is a personal obligation which cannot be assumed by third parties. In practice, however, companies often reimburse (at least partially) the penalties imposed upon employees and directors, as long as they cooperate with the company during the cartel investigation. Any such reimbursement must be considered as income and hence is subject to the applicable income taxes.
Is a company permitted to continue to employ an employee involved in cartel conduct?
Yes. However, where employees or officers have instigated or deliberately participated in a hardcore cartel, their employer will normally terminate their contracts or at least demote them.
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