The Federal Ministry of Justice and Consumer Protection has presented the long-awaited draft of a new Corporate Sanctioning Act (Verbandssanktionengesetz) concisely titled “Draft Bill for an Act to combat corporate crime”. If the bill goes through as planned, this would likely have far-reaching consequences for companies, their managers, the legal counseling practice and the judiciary. In the following, we present the essential regulations (see I.) and the critical review and evaluation (see II.).
I. Essential regulations
The draft, in particular, features the following regulations:
1. Criminal offences committed by companies and introduction of the principle of legality
In contrast to the previous regulation in administrative offences law, the Corporate Sanctioning Act provides for an obligation of the public prosecutor's office to investigate all criminal offences bearing reference to a company. The only exceptions are criminal offences where only the company was harmed.
As with individual defendants, it shall be possible in appropriate cases to refrain from prosecution if the company agrees to fulfill certain conditions, such as a monetary condition. This regulation complies to a large extent with Sec. 153a of the German Code of Criminal Procedure (Strafprozessordnung, “StPO”).
2. Extension to offences committed abroad
The Corporate Sanctioning Act also applies to offences abroad to which German criminal law is not applicable if the offence was a criminal offence under German criminal law, the offence is punishable in the country where it is committed or the place where the offence was committed is not subject to any territorial jurisdiction and the company is seated within the domestic territory. Further discussion is needed under which circumstances bribery committed abroad by a foreign employee of a foreign subsidiary can be attributed to the German parent company and under which circumstances a sanction can be imposed against the company.
3. Massive tightening of legal consequences
Significant monetary sanctions
It is, compared to the previous fine system in administrative offences law (maximum fine for intentional offences: EUR10 million), provided that companies with an annual turnover of more than EUR100 million can be fined up to 10% of the worldwide group turnover for intentional offences and half of it for negligent offences. In addition, the confiscation should take place.
„Naming and Shaming”
As further sanction, the draft provides for public notification of the company's conviction in the case of a large number of injured parties. The type and scope of the notification must be determined by the court.
Introduction of a compliance monitor system
In addition, a warning with the reservation of sanction may be issued which can be combined with conditions and instructions. In particular, there is the possibility of appointing an expert (compliance monitor) to check whether the company has taken certain precautions to avoid criminal offences committed by companies.
The last resort: Dissolution of the association
In the event of massive misconduct, the dissolution of a company is provided under strict requirements. In addition to the existence of a particularly serious case, the prerequisites for this are that the “persistently serious” offence committed by the company was committed by a manager and that, in the context of an overall assessment, further infringements are to be expected in the future.
4. Possibility of mitigating the sanctions
The law enforcement authorities may mitigate or entirely waive company sanctions if the company decides to conduct an independent internal investigation. This requires the company to comply with certain internal investigation rules and to cooperate fully and continuously with the law enforcement authorities.
- Separation defence / internal investigation: Provided that a law firm has been entrusted with the internal investigation, the lawyer in charge of the internal investigation may not become the company's defence counsel at the same time. However, it remains possible for the same law firm to handle both the internal investigation and the defence if organizational measures are taken to ensure separation.
- Employee interviews: The bill contains explicit instructions for interviews with employees. In particular, employees are granted the right to involve a lawyer or a works council member and to refuse to provide information if they otherwise could incriminate themselves.
Also, the introduction of compliance measures for the prevention and detection of offences committed by companies may have a mitigating effect on sanctions.
5. Rules of procedure
At first glance, the rights of defendants under the German Criminal Prodecure Order also apply to companies. However, the protection against seizure, which is essential for defence, is not as strongly elaborated for companies as it is for individuals and their defence counsels. Moreover, it should be possible to confiscate items originating from an internal investigation of the company concerned, provided that the internal investigation was carried out at a time when the company did not yet formally hold the status of defendant.
II. Critical review and evaluation
It is to be welcomed that procedural rights for companies are now established and fixed. In contrast to the current rule, companies are considered as defendants at an earlier stage and no longer as witnesses, so that the company is also entitled to the corresponding security rights at an earlier stage.
The considerable increase in fines, the inadequately designed protection against seizure and the introduction of the principle of legality must, however, be seen critical. The proposed Corporate Sanctioning Act involves considerably more work for the judiciary, which is already reaching its limits today.
The following aspects should, from a company's point of view, in particular be included in the legislative debate:
The draft currently provides for an automatic attribution of non-standard behaviour of managers and employees to the company. The company is usually, however, set up in such a way that it adheres to the legal order. In the future, compliance systems can only be taken into account in order to reduce a sanction. It would be desirable to find an alternative solution according to which a missing or inadequate compliance system is a condition for a sanction and a company with an adequate compliance system cannot be sanctioned. Even though the draft expressly provides that compliance efforts must be taken into account when issuing sanctions against the company, clearer rules should be created for this purpose, such as in the United Kingdom or in the United States.
The envisaged possibility of mitigating or excluding punishment in the case of internal investigations is to be welcomed. However, it is unclear at what time the company can make this commitment. Also, the lack of protection against seizure in the context of these internal investigations must be viewed critically as it is balanced in the bill to the detriment of the companies and the lawyers.