German Ministry of Justice releases official draft Corporate Sanctions Act

Germany is progressing towards a corporate sanctions law addressing the criminal conduct of companies, regarding executive bodies, managers and employees acting on behalf of the company. After the Federal Ministry of Justice unofficially released its draft "Act on the Sanctioning of Associations-Related Offences" ("Verbandssanktionengesetz", "VerSanG") in August 2019, we reported on the expected legislative changes in corporate criminal liability and internal investigations in Germany. On 22 April 2020, the Ministry of Justice officially published its (revised) draft bill.

The cornerstones of the initial draft ("Referentenentwurf") of August 2019 can be summarized as follows:

• For criminal offences committed by managers or by employees, where managers have failed to take appropriate supervisory measures to prevent criminal acts, the current Sec. 30, 130 of the Administrative Offences Act ("Ordnungswidrigkeitengesetz", "OWiG") is to be replaced by a hybrid system between criminal law and regulatory offence law – the so-called "corporate sanctions" ("Verbandssanktionen"). Following the model of Sec. 30 OWiG, the law unequivocally ties in with the individual act of a managing person and, under certain conditions, attributes it to the company.
• The law will have a wide extraterritorial scope. Criminal acts committed entirely abroad, to which German criminal law is not applicable, shall be punishable as corporate offences under certain conditions if the company has its registered seat or administrative headquarters in Germany. The sanctioning of the company requires that the conduct of the manager or employee at the place of the crime is a punishable offence and that it would be a criminal offence under German criminal law if it had been committed in Germany. This results in a liability of companies for crimes committed abroad that is difficult to control. Yet, the practical enforcement of corporate sanctions will pose great challenges for the prosecution authorities, which are currently already understaffed.
• It will no longer be at the discretion of the public prosecutor to initiate an investigation against a company. As for the prosecution of individuals, the public prosecutor will be required to launch an investigation if there is an initial suspicion of a crime committed from within the company (principle of legality).
• The company is to be given the status of a defendant in the proceedings, so that it is granted the corresponding rights under the Code of Criminal Procedure.
• The draft law provides for tougher sanctions. For large companies with an annual turnover of more than 100 million EUR, the monetary fine can equal up to 10% of the group's annual turnover. In addition and separately from the fine, the criminal proceeds are to be skimmed off. The public announcement of the conviction is also foreseen in the draft if a large number of injured parties may assert civil law claims. For particularly severe cases, e.g. if the corporation has repeatedly been involved in serious economic crimes, the initial draft provided for the dissolution of the company ("corporate death penalty") as ultima ratio.
• Nevertheless, the draft law takes a strong preventive approach. It aims to create incentives for compliance measures as well as for internal investigations as means to enable companies to avert a sanction or at least to reduce the level of fines. The company's cooperation with the prosecution authorities can be taken into account in the assessment of the sanction. However, the requirements that the law places on the company's cooperative collaboration with the law enforcement authorities are not defined in detail and are likely to be very high. Similarly, the draft law leaves open how exactly an internal investigation must be conducted in order for the company to benefit from a mitigation of sanctions or a suspension of the criminal proceedings. The draft law also fails to provide guidelines on what a compliance system should look like, so that the company can profit from it. Instead of leaving the assessment of the suitability of the compliance measures to the court, the draft law places them in the hands of a so-called "expert body" (e.g. lawyer, auditor, consultant), a private supervisor who is selected with the consent of the court and certifies at the company's expense that the company has taken the necessary precautions.
• The draft law also provides for a separation between internal investigations and corporate defence, in that the person in charge of the internal investigation may not at the same time be the defence counsel of the company or an accused person. However, this does not preclude the company from entrusting the internal investigation to a law firm to which the defence counsel of the company or of the accused belongs, as long as the defence counsel did not participate in the internal investigation and has no direct access to the findings of the internal investigation. Work products from internal investigations (e.g. interview transcripts, reports) are only protected from seizure if they can be attributed to the relationship of trust between defence counsel and the company. This might not apply to the clarification of facts that takes place before the company is accused or serves other purposes, e.g. internal compliance.

On 6 March 2020, after a long and tough debate, the coalition partners finally agreed on an official draft law and are pushing ahead with the legislative process.

On 22 April 2020, the Ministry of Justice officially published its (revised) draft bill, to which the Ministry of Economics has finally given its consent. Stakeholder associations and the federal states ("Bundesländer") will now have the opportunity to express their opinions, and a government draft ("Regierungsentwurf") could soon be available. If this is the case, the parliamentary procedure could be completed even before the summer break.

Although the unofficial draft law of August 2019 has received criticism for failing to address some aspects requiring regulation, and is being discussed in detail by experts, a first look at the new draft law shows that it does not differ significantly from the initial draft:

• There are some terminological changes. Whereas the "Corporate Sanctions Act" ("Verbandssanktionengesetz") will keep its name, the article law, which is intended to introduce the Corporate Sanctions Act and to amend other laws, will no longer be called the "Law for Combating Corporate Crime" ("Gesetz zur Bekämpfung der Unternehmenskriminalität"), but instead the "Law for the Strengthening of the Integrity in the Economy" ("Gesetz zur Stärkung der Integrität in der Wirtschaft"). This new wording shows that the focus of the new law is not on sanctions against companies, but rather that the companies behave in accordance with the law and that the law creates incentives for this. Furthermore, the term "corporate offence" ("Verbandsstraftat") has been replaced by the less criminal law-related term "corporate act" ("Verbandstat").
• The "corporate death penalty" ("Verbandsauflösung") has been deleted in the new draft law, probably in light of strong criticism that the liquidation of the company would affect innocent employees and creditors.
• Companies are supposed to be given greater certainty as to whether the conduct of internal investigations and their cooperative behaviour towards the prosecution authorities will be taken into account in the assessment of sanctions. Internal investigations and the company's cooperation with the investigating authorities "can" not only be taken into account in the assessment of the sanction, but according to the revised draft, the court "shall" rather mitigate the corporate sanction if, among other things, the company cooperates continuously and fully with the prosecuting authorities and, after completion of the internal investigation, provides them with the result including all essential documents and the final report (Sec. 17 (1) no. 3 and 4).
• This does not create an obligation to report criminal offences, nor does it create an obligation to immediately communicate the results of an internal investigation. However, the court will take into account the time of disclosure when deciding on the mitigation of sanctions. If, however, the prosecuting authorities approach the company in the course of their investigations, the company can only obtain a mitigation of the sanction if the company cooperates immediately, i.e. decides within a short period of time whether it wishes to cooperate with the prosecuting authorities or not.
• The separation of corporate defence and internal investigations will remain (Sec. 17 (1) no. 2). In this context, it should be noted that seizure will only be prohibited in the case of objects/documents which originate in the relationship of trust between the defence counsel and his client or that constitute specific defence material.
• It is no longer a prerequisite for mitigating the sanction that the internal investigation is conducted "in accordance with the applicable laws" (i.e. in particular data protection laws) – presumably because this is a self-evident requirement that does not need to be explicitly mentioned. In addition, not every violation of the law, no matter how insignificant, should have the effect that the company, although it has carried out expensive internal investigations, does not benefit from a mitigation of the sanction in the end.
• The highly controversial monitoring contained in the initial draft of the Federal Ministry of Justice is also included in the revised draft (Sec. 13)
• The law shall enter into force two years after its publication on the first day of the following quarter. The two-year period is intended to ensure that organisational measures can be taken at the courts, law enforcement agencies and the registry agency. It also gives companies sufficient time to review internal processes and, if necessary, take further compliance measures.

The next few weeks will show if further provisions will be revised and whether the government will be able to adhere to its ambitious timetable. We are eagerly awaiting the new developments and will keep you up to date with news. In any case, companies should definitely be prepared. The importance of compliance systems will increase and the mandatory prosecution will lead to the situation that in cases where an employee is suspected of having committed a crime, the prosecution authorities will always examine whether managing persons might have violated their supervisory duties.