Germany: Germany's "Corporate Sanctions Act": The Path To Corporate Criminal Liability

Last Updated: 18 September 2019
Article by Martin Kock, Anna Masser, Johannes Zöttl and Johannes Perlitt

In Short

The Situation: On August 22, 2019, the German Ministry of Justice and Consumer Protection presented the draft Corporate Sanctions Act ("CSA"), a bill that would establish corporate criminal liability in Germany.

The Result: The Bundestag (the parliament of Germany) is expected to adopt the CSA, which would authorize the criminal prosecution of a company under certain circumstances, during its current term.

Looking Ahead: Companies should prepare for the likely enactment of the CSA and, in particular, recognize that the new criminal liability regime would not just penalize misconduct attributable to corporate entities but also attach great significance to having a robust compliance framework in place.

The Draft Bill

On August 22, 2019, the German Ministry of Justice and Consumer Protection presented the draft CSA, a bill that would establish corporate criminal liability in Germany. After consultation with other ministries and agencies, the German Federal Government is expected to introduce the CSA to Parliament. It is widely anticipated that the draft bill will be adopted in the current legislative term, which extends until the autumn of 2021. Companies should closely follow the progress of this bill and prepare accordingly.

Scope / Applicability

The CSA would apply to all legal persons based or doing business in Germany. As such, foreign companies and associations with operations in Germany would be required to comply with the CSA's provisions and would be subject to liability for failing to do so.

Key Elements

Most notably, the CSA would introduce the principle of corporate criminal responsibility and permit the criminal prosecution and conviction of a corporate entity in two circumstances: (i) where the entity's directors or officers committed corporate crimes; and (ii) where the entity did not take reasonable precautions to prevent employees or agents from engaging in criminal wrongdoing within the scope of their employment or agency.

Sanctions

Corporate sanctions set forth in the CSA are serious and include the following:

  • For a single offense, fines of up to 10% of groupwide worldwide annual sales for companies having such sales exceeding €100 million (as averaged over the past three years);
  • For multiple offenses, fines of up to 20% of the last three years' annual sales;
  • In cases involving a large number of victims, publication of the sentence imposed on the company; and
  • As a last resort, a court order for dissolution of the company.

Deferral of Prosecution and Mitigation of Penalties

The CSA allows for the possibility that the prosecution of a culpable company may be deferred provided that the company satisfies certain judicial conditions (e.g., the entity's payment of restitution) and directives (e.g., the imposition of a third-party corporate monitor). The CSA also provides for the mitigation of corporate penalties under specified circumstances. In particular, under the CSA, the high end of the corporate fine range may be reduced by 50% if the entity:

  • Materially contributes to the investigation of the alleged corporate crimes;
  • Fully cooperates with German law enforcement authorities and shares with them any material results of an internal investigation, including evidence, interview notes, and investigative reports;
  • Engages separate lawyers to handle the internal investigation, on the one hand, and the defense of the entity, on the other hand, and ensures that these lawyers are at least functionally separated by information barriers; and
  • In the context of internal investigations, provides employees with advance notice that they (i) could be subject to personal criminal liability based on information they provide; (ii) may refuse to answer questions from internal investigators if they were to incriminate themselves in doing so; and (iii) have a right to be accompanied by their own counsel or a member of the works council.

In addition, the CSA provides that a company may not be dissolved and its sentencing will not be published if the company conducts an appropriate internal investigation.

The CSA would also allow the sentencing court to take into consideration whether the company in question had implemented an adequate Compliance Management System ("CMS") prior to the criminal wrongdoing, even if the company's CMS did not prevent the violation of criminal laws.

Attorney-Client Privilege

The CSA would codify judicial authority in Germany relating to the ability of German law enforcement authorities to search for and seize materials typically created in connection with internal investigations. In this regard, the CSA only provides privilege for communications made in the context of a criminal proceeding—specifically, communications between an accused and the accused's criminal defense counsel. By contrast, the CSA does not provide privilege for communications made in the context of internal investigations. Privilege, therefore, would not attach to communications between lawyers conducting an internal investigation and those persons whom the lawyers would typically interview or advise in the course of the investigation, including in-house corporate counsel, corporate personnel alleged to have engaged in misconduct, other employees believed to have knowledge of the matters under investigation, and the company's leadership (e.g., officers and directors). As such, the CSA would permit the seizure of materials containing such communications and effectively preclude the ability of the party from whom those materials were seized to challenge the seizure on the basis of legal privileges and doctrines recognized in other jurisdictions, including the United States.

Need to Prepare

Jones Day will continue to monitor and report on developments relating to the CSA. In the meantime, companies potentially subject to the CSA should recognize the distinct possibility that corporate criminal liability will be established in Germany and that any such liability regime will not just penalize misconduct attributable to corporate entities but also attach great significance to having a robust compliance framework. As such, companies are well advised to ensure that they have an effective and well documented CMS in place.

Three Key Takeaways

  1. Companies based or doing business in Germany will be subject to fines of up to 10% of groupwide worldwide annual sales if their directors or officers committed corporate crimes or if the company did not take precautions to prevent employees from engaging in criminal wrongdoing. In cases involving a large number of victims, publication of the sentence may be imposed which could significantly tarnish the reputation of the company.
  2. To mitigate risks from corporate crimes, companies and their directors and officers are well advised to ensure that they have an effective and well documented compliance management system in place.
  3. Conducting appropriate internal investigations after an alleged wrongdoing might also mitigate sanctions, provided that the company fully cooperates with German law enforcement authorities and shares with them their material results, including evidence, interview notes, and investigative reports.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions