European Public Prosecutor's Office to take up its duties by the end of 2020
On 12 October 2017, 20 EU Member States including Germany reached the political agreement to establish the European Public Prosecutor's Office (the "EPPO") under enhanced cooperation pursuant to Art. 86 of the Treaty on the Functioning of the European Union ("TFEU") and passed the corresponding Council Regulation (EU) 2017/1939, which entered into force on 20 November 2017. In August 2018 the Commission confirmed that the Netherlands and Malta will also participate in the enhanced cooperation on the establishment of the EPPO. Following a build-up phase of three years, the EPPO is due to take up its duties by the end of 2020.
The EPPO will be an independent and decentralised prosecution office at EU level targeting crimes provided for in the Directive (EU) 2017/1371 of 5 July 2017 on the fight against fraud to the Union's financial interests by means of criminal law (so-called "PIF directive"). As such, the EPPO will be competent to investigate and prosecute crimes against the EU budget, namely fraud affecting the Union's financial interests involving EU funds over €10,000 and serious cross-border VAT fraud over €10 million, money laundering involving property derived from these criminal offences as well as active and passive corruption by EU public officials. Furthermore, the EPPO shall be competent for any offences, which are inseparably linked to the afore-mentioned offences. Where the offence has caused damage of less than €100,000, the EPPO is allowed to refer the case to the competent national authorities if he considers that in view of the seriousness of the offence or the complexity of the procedure there is no need to investigate or to prosecute the case at Union level.
Currently, the investigation and prosecution of crimes against the EU budget is handled by the national authorities. However, Member States often do not have own interests in bringing these types of crimes to judgment when they themselves are not directly injured and complex cross-border investigations become necessary. Beyond that, their prosecutorial powers end at their own national borders. Already existing EU bodies, namely Eurojust, Europol and the EU's anti-fraud office, ("OLAF") lack the necessary powers to carry out investigations on their own and to impose sanctions. Therefore, the Member States agreed to build the EPPO – the first supranational EU body with own prosecution powers.
The EPPO will operate as one single office based in Luxembourg with a decentralised structure. It will be organised at a central level with its College, Permanent Chamber, the European Chief Prosecutor and his Deputies, one European Prosecutor per Member State and the Administrative Director, who will all be based in Luxembourg. The decentralised level consists of European Delegated Prosecutors located in their Member States. Every participating Member State shall appoint two or more European Delegated Prosecutors who will act on behalf of the EPPO and handle the investigations and prosecutions in their Member States of origin. The European Public Prosecutors at the central level will supervise the investigations and prosecutions carried out by the European Delegated Prosecutors at the national level and in line with the instructions of the Permanent Chambers. This centralised supervision is intended to ensure a coherent investigation and prosecution policy within the Union and to ensure a consistent application of EU law.
The EPPO will be able to act quickly across borders without the need for lengthy judicial cooperation proceedings. In cases of cross border investigations the affected European Delegated Prosecutors should assist and consult each other. If a measure needs to be undertaken in another Member State, the European Delegated Prosecutor in charge shall consult his foreign colleague with the order to carry out the measure. Where, in accordance with the applicable national law, there are reasonable grounds to believe that an offence within the competence of the EPPO is being or has been committed, a European Delegated Prosecutor in a Member State which according to its national law has jurisdiction over the offence shall initiate an investigation.
If the handling European Delegated Prosecutor considers the investigation to be completed, he needs to submit a report to the supervising European Prosecutor. The European Prosecutor then forwards those documents to the competent Permanent Chamber who takes a decision. The EPPO will bring actions against criminals directly in front of the national courts. This should lead to more successful prosecutions and a better recovery of the defrauded money.
The EPPO has its territorial competence in the named offences provided that they were committed in whole or in part within the territory of one or several Member States. Furthermore, the EPPO is responsible for offences committed by a national of a Member State (provided that a Member State has jurisdiction for such offences when committed outside its territory) or by a person who was subject to the Staff Regulations or the Conditions of Employment at the time of the offence (provided that a Member State has jurisdiction for such offences when committed outside its territory). Even in purely national cases without cross-border dimension the EPPO shall be competent to ensure a coherent prosecution of crimes against the EU's financial interests.
The risk that the EPPO can choose where to prosecute and bring the accused to justice has been defused by the regulation. It stipulates that the proceeding shall usually be initiated and processed by the European Delegated Prosecutor from the Member State where the focus of the criminal activity is, or if several connected offences within the competences of the EPPO have been committed, by the Member State where the bulk of the offences has been committed. A derogation from this rule and a prosecution by a European Delegated Prosecutor of a different Member State that has jurisdiction for the case may only be accepted if it is duly justified, taking into account the habitual residence of the suspect or accused, his nationality and the place where the major part of the financial loss has occurred.
The EPPO shall exercise its competence either by initiating an investigation or by deciding to use its right of evocation in case a judicial or law enforcement authority of a Member State has already initiated an investigation in respect of a criminal offence for which the EPPO could exercise its competence. If the EPPO decides to exercise its competence, the national authorities shall not exercise their own competence in respect of the same criminal conduct. For this purpose European and national authorities shall without delay report to the EPPO any criminal conduct of which the EPPO could exercise its competence. The EPPO's responsibility for offences affecting the Union's financial interests should, as a general rule, take precedence over national jurisdictions, so that the EPPO can ensure coherence and direct investigations and prosecutions at Union level. With regard to these offences, the authorities of the Member States should not take action, unless urgent measures have to be taken until the EPPO has decided whether to conduct investigations.
Despite criticism in detail, the EU legislator has achieved a great success with the establishment of the EPPO and the integration of national and European competences. It remains to be seen whether the work of the EPPO will lead to increased prosecution, indictment and conviction of crimes against the EU's financial interests to protect taxpayers' money. Other Member States may join the 20 founding members at any time.
Federal Constitutional Court denies legal privilege in Jones Day's internal investigations
In the June 2017 edition of our corporate crime update we reported on the raid of the offices of the law firm Jones Day that had taken place in March 2017 in connection with the Munich Public Prosecutor's investigation into Volkswagen's diesel emissions scandal. In the meantime, on 27 June 2018, the German Federal Constitutional Court gave a green light for the examination of the documents from the internal investigations seized from Jones Day (file no. 2 BvR 1405/17, 2 BvR 1780/17, 2 BvR 1562/17, 2 BvR 1287/17, 2 BvR 1583/17). The court dismissed complaints from Volkswagen and its representative Jones Day, who wanted to prevent authorities from using the internal documents for their investigation and argued that the raid was illegal because privileged documents had been seized.
Sec. 160a (1) of the German Code of Criminal Procedure (CCrP, Strafprozessordnung) stipulates that an investigation measure directed at a lawyer shall be inadmissible if it is expected to produce information in respect of which he would have the right to refuse testimony (see Sec. 53 (1) no. 3 CCrP). However, the court found that this provision does not apply to searches and seizures. The standardisation of an absolute prohibition on the collection and use of evidence in Sec. 160a (1) CCrP would considerably limit the constitutionally required effectiveness of criminal prosecution, the court found. According to the case law of the Federal Constitutional Court, such absolute prohibitions can only come into effect in narrow exceptional cases, especially if an investigative measure would be connected with an interference in the protected area of human dignity.
The court also rejected a wide interpretation of Sec. 97 (1) no. 3 CCrP which prohibits the confiscation of objects and recordings, on which the lawyer has the right to refuse testimony. The Regional Court of Hamburg in its decision of 15 October 2010 (608 Qs 18/10) concluded that Sec. 97 (1) no. 3 CCrP only prohibits confiscation in the direct attorney-client relationship in the context of a pending criminal investigation (defence mandate), but not between the attorney and the interrogated subject of an internal investigation. The Federal Constitutional Court confirmed this view and found that the Constitution was not violated by the fact that the specialized courts only consider the ban on seizures to be applicable in the context of the relationship between a lawyer and a specifically accused person. There can be no protection against seizures regardless of the relationship between lawyer and accused person. Otherwise, there would be "a high potential for abuse", i.e. a risk that relevant evidence might be concealed by deliberately transferring it to the lawyer's sphere or it might be issued only selectively.
Also the constitutional complaints of Jones Day and three of its lawyers were unsuccessful, because the court considered them inadmissible in the first place. Jones Day lacked the authority to submit constitutional complaints, the court decided. The law firm, which is organized in the legal form of a partnership under the law of the US state of Ohio, is not a domestic legal person and thus not a bearer of constitutional rights (Art. 19 (3) of the Basic Law (Grundgesetz, GG)). The fact that the office in Munich was affected by the investigation did not make any difference in the legal assessment.
Furthermore, the Federal Constitutional Court decided that the three individual lawyers of Jones Days were not violated in own constitutional rights by the search and seizure. According to the court the lawyers cannot rely on the basic right to housing pursuant to Art. 13 (1) GG. If business premises are concerned only the employer/entrepreneur (here: the law firm) is protected by this constitutional right, but not the individual employee. Furthermore, the lawyers had justified their constitutional complaint by their position as lawyers, the exercise of their legal profession and the relationship of trust between lawyer and client. But this professional sphere only affects the law firm Jones Day, the judges clarified.
The decision of the Federal Constitutional Court had long been awaited. A number of loopholes in the CCrP provisions relating to legal privilege became apparent in connection with state prosecutions and internal investigations in the diesel emissions scandal. Therefore, the Federal Government will take note of the Federal Constitutional Court's decision with interest. Now the legislator is called upon to finally define the legal framework for internal investigations that the Grand Coalition had announced.
Lengthy jail sentences for Ponzi schemers in the Infinus trial
On 9 July 2018, after more than two and a half years, the Infinus trial finally came to an end. It is one of Germany's largest economic crime cases, where at least 22,000 investors were defrauded and with over €320 million in damages. More than 50,000 investors were believed to have invested up to €2 billion in the companies of the Infinus group, but the prosecutors focused only on part of the intricate web of companies to prevent the trial getting too complex. A court in Dresden sentenced the founder of Infinus, Jörg Biehl, and four other ex-managers of the financial service provider to prison sentences between eight years and four and a half years for fraud and abetting fraud.
Their business strategy was a Ponzi scheme based on systematic deception and fraud, whereby returns for older investors are covered from the money of new investors. They bought up life insurances from private investors who were then talked into investing the money they got out of the deal into the Infinus Group again. While everything went well, the company managed to attract celebrities to annual parties and seemed to be successful. The investors did not realize that they were scammed, because Infinus paid them their promised interests regularly. In the end though, the fraudsters could not sustain these payments anymore and had to use the money from new investors to pay back the old ones, all while promising that everybody's money would be used profitably. The whole case was uncovered after an anonymous reporting in 2012. In November 2013, the system collapsed following police raids and suspicions that Infinus was defrauding investors.
The defendants now want to appeal. They see several procedural errors and accuse the judges of having been biased. The snowball scheme is a fraudulent business model that is doomed to fail over time. Yet, many investors sided with the defense lawyers, who argued that the company would have survived if the prosecutors had not gotten in the way. Prosecutors argued they had to intervene to prevent bigger losses.
Still uncertain is, if the private investors will have to pay back the interests, they received over the years. The insolvency administrator of Infinus argues, that these interests were falsely paid, because they were depending on profits, which the company did not make. The earnings-related interest should have never been paid out to the investors because the company was not generating any real earnings. This could mean payments of up to €15 million, the return of which the insolvency administrator is seeking in more than 800 civil lawsuits.