The idea of a nationwide anti-corruption blacklist has haunted the German procurement law world for years. Now the German Federal Government has got serious: on 29 March 2017 a draft bill for a law to establish a so-called “competition register” (Wettbewerbsregister) was put before the German Federal Parliament. We expect the bill to be passed before the Federal elections in September 2017. Companies that conduct business in Germany should take note of the principles of this new register if they want to avoid being named and shamed.
Principles of the New Register
The draft bill introduces an obligation on contracting public authorities, utilities and grantors of concessions to consult the register before awarding contracts. They may exclude a company from public procurement procedures on the basis that it is listed in the register due to criminal convictions or administrative offences. As the register authority at the Federal Cartel Office itself has no knowledge about such crimes or offences, the respective public prosecution authorities are obligated to transmit final decisions on specific economic crimes or administrative offences to the register.
Relevant offences in this regard include corruption, bribery or money laundering offences, tax evasion, the non-payment and misuse of wages and salaries as well as bid rigging. Due to the lack of criminal responsibility of corporate entities in Germany, administrative fines imposed on companies are relevant for the register. Further, a conviction of a company´s employee may also lead to an entry into the register. Such imputation of liability to a company on the basis of its employee’s actions applies not only to a conviction of supervisory staff but also to employees where that has been improper of an employee supervision or organisational misconduct.
Before any criminal conviction or administrative offence is entered into the register, the respective company has the opportunity to be heard by the court and may object to a register entry. In summary, the register serves as one stop shop for information on unsound companies.
Transparency of the Register
The consequences of being registered are based on the obligation on contracting authorities, utilities and grantors of concessions to consult the register before awarding contracts. This obligation applies to procurement procedures for contracts that regularly have a value of more than EUR 30,000. However, even if a company is listed on the register, the duty to evaluate whether that company has to be excluded from the procurement procedure remains with the respective contracting authority. Besides this, the procurement authorities also have the discretion to consult the register before awarding contracts which have a value lower than the aforementioned threshold.
The public has no general right to inspect the register; however, companies and individuals may obtain a register excerpt from the register authority with regard to any kind of entries which concern themselves.
We expect that such register excerpts will play an important role in future contract negotiations between private business partners. Due to the steadily increasing awareness of compliance obligations and corporate social responsibility, we anticipate that negotiating partners will conduct more comprehensive due diligence on potential business partners and will more routinely require their counterpart to show that their register excerpt is free of entries on corruption and bribery offences.
Deletion of Register Entries and White-Washing
Register entries will be deleted after three or five years depending on the underlying offence. However, a company may be able to get a register entry removed during this period by conducting a white-wash procedure. Such white-washing requires the company to prove that it has paid compensation for the damage caused, has actively cooperated with the criminal and public procurement authorities in revealing their misconduct and the according damages, and has implemented appropriate compliance management measures to prevent future misconduct.
Upon an application for removal from a company under the envisaged regime the register authority has to comprehensively and independently evaluate and determine whether the white-washing measures by a company were sufficient. During such investigation the register authority might also require the company to submit an expert opinion on the evaluation of the white-washing measures taken. Such opinion might be provided by a law firm as it is likely to be of particular importance to the success of a company’s application for the removal of an excerpt.
The upcoming “competition register” provides the public procurement authorities with a powerful tool to fight corruption and other crimes relating to competition law. The procurement law serves as a strong incentive for the implementation of effective compliance management measures in order to avoid nationwide blacklisting for public procurement offers. Companies in Germany would be advised to assess their compliance measures currently in place in order to prevent any negative entries against the company and to give the company a better opportunity at being able to take advantage of the white-wash procedure should it be required.