Germany’s Corporate Criminal Law on the last meters before coming to force

On 22 April 2020 the Federal Ministry of Justice announced a new and probably final draft for the so-called Association Sanctions Act (the “Act”). After long consultations and quite a few attempts in the past, Germany is on the last meters to a Corporate Criminal Law.

In this respect, Germany has been an island so far. Most industrialized countries have long been familiar with a corporate criminal law/criminal law specifically focused on companies. Now it seems like the law will finally become reality. Corporate criminal law will become a new area of law - even though the law must be called criminal law for dogmatic reasons. German Criminal Law requires a perpetrator to act culpable which, per se, cannot be applied to companies. To maneuver around this ideological obstacle, the government does not refer to Criminal Offences but rather to “sanctioning” legal entities. In practice, however, this will have little influence.

To international operating companies and corporations, the key elements of the Act as shown below will, to some extent, sound familiar:

• In comparison to the existing law, it will be possible to impose substantially higher fines against a company or association. These can amount to up to 10% of the average annual turnover on group level.
  
• The Act will not only apply to offences committed in Germany or by German citizens but also to offences committed abroad if the company has a seat in Germany and the specific offense can be linked to the company’s business.
• The prosecution and sanctioning of entities are mandatory if the requirements of the Act are met. Unlike according to the current law, the prosecutor’s office or the court shall have no discretion in this respect.
• A fine under the Act can be imposed on a company,
  
  
  • if a company’s legal representative commits a criminal offense that can be associated with his function for the company or is to the company’s benefit or
  • a member of staff or any other person associated to the company commits a criminal offence and the company, by using adequate measures that could have prevented or made such offense harder to commit
• Hence, it will be possible to exculpate the company by demonstrating a robust and effective Compliance-System like according to the UK Bribery Act. The new version of the draft also clarifies that, even if Compliance-measures were not as specific that they would have prevented the individual offence, they must be considered by the court when determining a fine for the company
• The same applies if the company supports the prosecutor’s office by conducting an internal investigation and sharing the results. In this case, the fine can be reduced substantially or even avoided completely.
• Especially with regards to the latter, however, several uncertainties for the practice remain
  
  
  • The internal investigation shall not be conducted by a company’s defense lawyers. This will most likely result in a rise of investigation costs for clients if alternative solutions such as Chinese walls may not be applicable
  • The internal investigation must be conducted in full transparency and all results must be presented to the Prosecution Office. As we know that internal investigations cannot be scripted and may reveal more than just the offense that gave reason to initiate it, this requirement may lead to rather complicated issues that investigators will have to bear in mind when designing investigations
  • The legislator did choose not to grant the investigating law firm or forensics any legal privilege that could protect them from seizures by prosecution or police
• Last but not least, the Act expressly allows Deferred Prosecution Agreements which can even include the obligation to employ a monitor to assess and enhance a company’s compliance system

Compared to the situation today, the Act does not create a new legal reality, but rather codifies such reality and sets clear rules. Even now, before the introduction of the, companies have been sentenced to fines but there was neither any regulation on company’s rights in criminal proceedings nor any definite rules regarding mandatory reduction of fines as award for cooperation with the authorities or Compliance-measures. In this respect, there is currently no legal vacuum, but rather a regulatory vacuum.

Nevertheless, the potential fines are substantially higher than anything known to German companies, yet (except for anti-trust / cartel cases). In this regard, it also must be noted that the legislator refused to clarify the important question whether fines can be subject to claims for damages against directors and officers.

However, in addition to the harsh sanctions mentioned above, the Act provides for several real improvements for companies in criminal proceedings. The introduction of the law should therefore not be viewed exclusively critically from a company's point of view; it also brings advantages in some cases, at least in the form of a legal certainty. However, the investigating authorities will also have to take these rights seriously. The remaining question marks will probably have to be resolved by legal practice.