A draft bill to prosecute undertakings for corporate crimes in Germany includes sanctions against undertakings, an incentive scheme for conducting internal investigations, and clarification on the attorney-client privilege.
The German Ministry of Justice has informally published a long-awaited—and much rumored—initial draft bill for a “Law Against Corporate Crime” (the Draft Bill). Thus far, Germany’s criminal enforcers have only been able to prosecute undertakings based on the Law on Administrative Offences, which according to the Ministry of Justice constitutes an insufficient legal framework for the investigation and sanctioning of the most severe corporate crimes. Unlike other European jurisdictions, such as France and the United Kingdom, Germany has never introduced a genuine corporate criminal law regime. The Draft Bill is intended to cure these identified disadvantages by establishing a genuine legal framework for fighting corporate crimes.
The rules established under the Draft Bill provide for the introduction of (1) sanctions against undertakings such as companies and partnerships for crimes committed by management and other high-ranking personnel, (2) an incentive scheme for internal investigations, and (3) revisions of the current criminal procedural laws for search and seizure.
Sanctions Against Undertakings
The Draft Bill established an obligation of the competent German prosecution authorities to initiate investigations against an undertaking in case of an initial suspicion for a corporate crime without any discretion.
The Draft Bill defines a corporate crime as a criminal offense by which the offender violates obligations of an undertaking or enriches or intends to enrich the undertaking. An undertaking shall be subject to a sanction if its management committed the corporate crime or could have prevented or significantly impaired the commitment of such crime by implementing appropriate organizational (compliance) measures. The term “management” includes, among others, legal representatives of the executive board of an undertaking, general representatives, authorized representatives (if provided with an executive position), other responsible executives of the undertaking, and members of the undertaking’s supervisory board.
Sanctions include (1) the issuance of warnings against the undertaking, including a conditional fine upon noncompliance with the warning; (2) actual fines; and (3) as the last resort, the dissolution of the undertaking. Intentionally committed corporate crimes can be sanctioned with a maximum fine of 10 million euros (approximately $11 million). Corporate crimes committed due to negligence can be sanctioned with a maximum fine of 5 million euros (approximately $5.5 million). For undertakings with average annual group revenues of more than 100 million euros (approximately $110.5 million), the fines can amount to 10% of such average annual revenue. Sanctions for multiple offenses are capped at 20 million euros (approximately $22 million) or 20% of the average revenue of the undertaking. The possibility to impose sanctions by ordering a disgorgement of improper profits will remain unaffected and will still apply regardless of the undertaking’s revenue.
Sanctions are recorded in a nonpublic sanction register but may be published in cases with a large number of damaged parties.
Subject to specific requirements, the Draft Bill provides for the possibility to sanction an undertaking with a corporate seat outside of Germany for a corporate crime committed in Germany, as well as to sanction an undertaking with a corporate seat in Germany for a corporate crime committed outside of Germany.
Reduction of Sanctions Through Internal Investigations
The Draft Bill enables courts to reduce the sanction against an undertaking if the undertaking has conducted internal investigations. Undertakings can thereby (1) reduce the level of fines by up to 50%, (2) exclude the dissolution of the undertaking, and (3) avoid the disclosure of a conviction.
The reduction mechanism shall only apply in case the undertaking has (1) materially contributed to the success of the investigation of the corporate crime through its internal investigation; (2) permanently and unrestrictedly collaborated with the prosecuting authorities; (3) provided all material documents, including the report of the internal investigation, to the prosecuting authorities; (4) run the internal investigation in compliance with the principles of fair trial, especially by means that employees were duly informed about their rights, including the possibility to retain counsel and the right to refrain from testifying in case of self-incrimination of a crime; and (5) run the investigation in compliance with applicable laws.
Importantly, the Draft Bill requires the internal investigations and the undertaking’s criminal defense to be conducted by separate counsel. However, both counsels may be members of the same law firm, provided that appropriate measures (i.e., ethical walls) are implemented.
Clarification on Attorney-Client Privilege
The Draft Bill proposes clarifications to the criminal procedural laws regarding the scope of the attorney-client privilege. It provides that the attorney-client privilege is restricted to circumstances in which the undertaking is the actual suspect of a criminal investigation. With this clarification, the Draft Bill tries to end a long-existing dispute between courts and legal experts on the scope of the attorney-client privilege confirming the more restrictive position, which has been taken by many courts for many years already. As a consequence, the relevant prosecution agencies can confiscate materials including those deposited at law firms in connection with assignments other than the defense of the undertaking’s position as the suspect in the underlying criminal investigation. In practice, this would mean that interview memos with the management of the undertaking at issue would be protected under the attorney-client privilege, while fact finding that was conducted for pure compliance purposes before the investigation opened would not be protected.
The Draft Bill still has a rather long way to go before it goes into effect. The Ministry has launched the internal consultation process, which requires input from other governmental stakeholders. We expect that throughout such internal liaisons and the subsequent legislative procedure, public stakeholders will heavily lobby the Draft Bill in all possible directions. We will monitor any further developments.