SUMMARY

The comprehensive reorganization of the sanctioning of companies for company-related criminal offenses through an Association Sanctions Act (“ VerSanG ”) is drawing closer. The Federal Council approved the federal government's draft law in principle, subject to manageable changes. The proposed law could therefore be implemented in the foreseeable future until the end of the legislative period in 2021. The VerSanG would have far-reaching effects on the compliance management system ( "CMS" ) of companies.

The changes demanded by the Federal Council would affect German and foreign companies in different ways.

ASSOCIATION SANCTION ACT - FEDERAL COUNCIL CALLS FOR CHANGES TO THE GOVERNMENT DRAFT

The legislative process for the VerSanG continues to gain momentum. The Federal Cabinet had accepted the draft bill of the Federal Ministry of Justice and Consumer Protection (" BMJV ", in detail Client Alert of April 30, 2020) without changes on June 16, 2020 (" Government draft " or " VerSanG-E "). Due to the broad parliamentary majority of the parties in the governing coalition, this makes the approval of the Bundestag likely. However, the law requires the approval of the Federal Council.

Specialist and business associations had expressed considerable concerns about the planned law. Individual federal states followed this criticism. Two specialist committees of the Federal Council even pleaded for a general rejection. At its meeting on September 18, 2020, however, the majority of the Federal Council approved the proposed law. He only identified a need for changes with regard to individual regulations. The federal government now has to deal with these. It is expected to prepare a counter-statement with suggestions for adjustments in the next few weeks. The Federal Council's opinion and the Federal Government's counter-opinion will then be forwarded to the Bundestag.

According to the opinion of the Federal Council, changes to the VerSanG can be expected in the following areas:

Small and medium-sized businesses

A core concern of the Federal Council is the protection and relief of small and medium-sized enterprises (" SMEs "), ie companies that employ fewer than 250 people and either achieve an annual turnover of no more than 50 million euros or a balance sheet total of no more than 43 million euros identify.

The Federal Council highlights three specific aspects:

• The proportionality of the association's responsibility and sanctions (§§ 8 ff. VerSanG-E) should be checked with regard to the special situation of SMEs.
• It should be checked to what extent SMEs could be exempted from certain association acts (Section 2 (1) VerSanG-E).
• Less stringent requirements should be placed on SMEs with regard to the appropriateness of compliance precautions to avoid association acts. The various requirement levels should be defined more clearly than before for reasons of legal certainty.

Limitations of the international scope

The Federal Council calls for a restriction of the international scope of the VerSanG. The type and scope of the domestic connection should be specified.

With regard to the extension to offenses to which German criminal law does not apply, the Bundesrat suggests further restrictions. An “excessive” involvement of German law enforcement authorities with foreign issues, feared by the Federal Council, should be avoided. According to the Federal Council, the scope of application should be limited, for example, by the requirement of substantial business operations in Germany or the occurrence of significant damage in Germany.

The changes would be particularly important for foreign companies with branches or subsidiaries in Germany.

Fault principle

According to the planned law, the prerequisite for the imposition of a sanction against a company is the so-called association responsibility (cf. § 3 Paragraph 1 VerSanG-E; see Client Alert of April 30, 2020).

An act of connection is required to justify the association's responsibility. This also includes the violation of supervisory duties, which the government draft defines broadly. In contrast to the currently applicable Administrative Offenses Act (“ OWiG ”), an objectively determined breach of duty of supervision by the manager in the form of inadequate organizational and monitoring measures would suffice according to the government draft to justify the association's responsibility. Sanctioning of the company would therefore be justified in the case of an objectively deficient organization if a company employee or a third party bound by instructions commits a company-related crime.

The Federal Council, on the other hand, demands, in addition to the objective breach of duty on the part of the manager, individual negligence on the part of the manager with regard to the violation of supervisory duties in the form of inadequate organizational and monitoring measures. An association responsibility would therefore only be justified if the manager caused the inadequate organization or supervision intentionally or negligently. In the event that the change requested by the Federal Council is implemented, the defense options of companies could improve in particular if their CMS was effectively implemented and continuously developed and only turns out to be insufficient in retrospect.

No public announcement of corporate convictions

The Federal Council demands the deletion of the public announcement of the conviction of the company (§ 14 VerSanG-E). "Exposing" or "denouncing" condemned companies in public should be avoided.

Succession

The Federal Council suggests limiting the amount of the association sanction in the event of legal succession. This is intended to increase legal and planning security in the event of company acquisitions or disposals as well as restructuring measures. Liability risks from company acquisitions should be easier to quantify using objective criteria.

An association sanction could also be imposed on the legal successor (Section 6 VerSanG-E). The Federal Council fears that the amount of the association sanction could be based on the annual turnover of the legal successor and that this could lead to a disproportionately high association sanction. The Federal Council demands a cap on the value of the assets taken over or the amount of the association sanction appropriate to the legal predecessor.

Change of procedural rules

The Federal Council suggests that the procedure for sanctioning associations be fundamentally revised. The general objective is to make the sanctions process more effective and less prone to abuse. This is to prevent overburdening the judicial authorities, for whose staffing and budget the federal states are responsible.

Telephone monitoring and rights to refuse to testify

The Federal Council wants to significantly expand the investigative powers of the public prosecutor's office.

According to the government draft, interference with the secrecy of mail and telecommunications would be inadmissible. The Federal Council is of the opinion that telephone monitoring of managers is particularly necessary for clarification purposes. As a justification, the Federal Council argues that the company's written documents (such as minutes of board meetings) that are subject to seizure often do not document misconduct.

The Federal Council calls for the deletion of the company's legal representatives' right to refuse to testify. It is not appropriate to make the investigation of criminal offenses more difficult just because the association, if the representative testifies, runs the risk of being held responsible for an association act.

Come into effect

Finally, the Federal Council suggests extending the date of entry into force of the law by one year to a total of three years after its promulgation. In view of the ongoing burden of the COVID-19 pandemic, this should make it easier for companies to adapt internal processes and the CMS. The VerSanG would then likely come into force in the course of 2024.

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