A new criminal law for companies in Germany, second attempt

The German Federal Ministry of Justice (BMJV) has released a new version of its draft bill for a law to combat corporate crime, now titled the “Act for Strengthening the Integrity of the Economy”.

The most recent changes have considerably softened some aspects of the proposed law. Still, all companies should be aware of the upcoming legislation, which will likely pass the legislative procedure soon, as it will drastically increase the consequences for a company if criminal offences are committed by its representatives and employees. Vicariously, a robust compliance management system in a company and internal investigations in case of emerging suspicions of wrong-doings become all the more important then it is already nowadays.

The centrepiece of the draft remains the “Verbandssanktionengesetz” or “Act on Sanctioning of Associations”, which will establish an extended responsibility of companies akin to the criminal liability of individuals. It covers all criminal acts committed in a company’s interest or violating its legal obligations. While companies and associations could formerly only face administrative proceedings for such behaviour, which only allowed for limited fines in most cases, the new act introduces severe corporate sanctions for all kinds of criminal activities. Fines will only be limited to EUR 10 million for companies with a turnover of less than EUR 100 million, but may in general amount to up to 10 % of the annual turnover for any company with annual revenue above this threshold. Additionally, the companies may face a public announcement of the respective conviction and will be entered in a new registry for the sanctioned associations.

After earlier versions of the draft had faced a torrent of criticism from different politicians, trade associations, company representatives and legal practitioners alike, the Ministry has changed some of the more controversial provisions. One of the most notable changes is that the draft no longer includes the formerly proposed “death penalty” for companies. In last years draft, the act still reserved the option to dismantle cooperations and associations which had committed repeated and grave offences. The new draft also excludes non-profit organisations and associations. While the exclusion is according to the Ministry mainly directed at charitable organisations, the wording of the draft in fact exempts all associations that are not directed at “operating a commercially viable business”.

The draft also includes a further incentive for conducting internal investigations and cooperating with the authorities. While previously such measures only could lead to reduced fines, the new version states that they indeed should in general lead to a reduction of fines and that such cooperation of the companies could still be taken into account up to the beginning of a court trial. Additionally, the authorities may decide to suspend official investigations while the internal investigations are conducted and if the courts decide to show at least some degree of leniency due to internal investigations the companies will also not have to fear the public announcement of the conviction, which is barred in such cases. However, the current draft still includes some provisions that will make internal investigations considerably more difficult, as the investigations have to satisfy certain requirements and will have to be conducted independently of the criminal defence efforts of the company.

Although the draft has still been submitted to the federal states and some industry associations for further commentary, the bill will likely soon be implemented into law more or less in its current shape since the Ministry has already gathered extensive feedback on it over the past year. Companies should at best already now review their current compliance efforts and consider investigations of any dubious matters as any future infringements and state investigations could become much more costly.