Germany Before Drastically Tightening The Sanctioning Of Companies For Economic Crimes

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On April 22, 2020, the German Federal Ministry of Justice and Consumer Protection ("BMJV") issued the official draft bill for an Association Sanctions Act (" VerSanG-E " or " Law") as part of a "Law to Strengthen Business Integrity". The core draft of the speaker draft corresponds to a preliminary draft of the BMJV that was already unofficially circulated in summer 2019 and was partly criticized. Despite the restrictions imposed by the COVID-19 pandemic, the likelihood that the VerSanG-E will be adopted by the end of the current legislative period in 2021 is subject to further changes in the legislative process. General support for the draft law has been signaled from the top of the government factions. The law would come into force two years after its promulgation.

The VerSanG-E is aimed at all "associations whose purpose is aimed at an economic business operation". In practice, the main target groups will be domestic and foreign companies that are organized as a stock corporation, Societas Europae, GmbH or Handelsgesellschaft (OHG, KG) or in a comparable foreign legal form.

The law provides a new foundation for the relationship between the state and companies in the field of corporate crimes (especially white-collar crime) . The declared aim of the law is to create incentives for companies, to prevent crimes within their sphere of influence and to support the investigation by the public prosecutor through internal investigations. On the other hand, companies should be deterred from taking effective measures to prevent crime. Large companies (the threshold for global group sales of more than 100 million euros) can be penalties of up to 10 percent of group sales worldwidebe set if employees or third parties engaged in the conduct of company affairs commit company-related crimes. In addition, benefits from business that the company has earned in connection with or as a result of a criminal offense are planned.

German companies, but also foreign companies with German subsidiaries or branches should deal intensively with the VerSanG-E. The compliance management system (“ CMS ”) must be adjusted to the new law. Only then is there a chance to avoid drastic sanctions or at least to mitigate them. If a suspicion arises, the company should also consider carrying out an internal investigation because courts should take the internal investigations of the company that have been properly carried out into account to reduce the penalty.

Dealing with the new requirements of the VerSanG-E is a management responsibility of the management . The supervisory board should closely monitor this.

OVERVIEW OF REGULATIONS AND NEWS

The VerSanG-E defines in particular the conditions under which company-related crimes can be accused of companies and the sanctions (including penalties, confiscation of advantages, conditions, instructions) that can be imposed on the company for such crimes. It also contains a large number of procedural regulations that govern the conduct of public prosecutor investigations against companies, the requirements for internal investigations of the company, the possibility of refraining from persecution, among other things because of insignificance, against conditions and instructions, and if sanctions are expected abroad ( ne to in idem ), regulate internal examinations etc.

We summarize the most important rules below:

The new regulation does not apply to a mere violation of the law ; instead, the company is punished according to § 30 OWiG.

  • The principle of legality should replace the principle of opportunity (Section 3 (1) VerSanG-E - "is imposed"). This means that the public prosecutor's office must also start an investigation against the company if a company-related crime is suspected and, unlike previously, only in narrowly limited exceptional cases, for reasons of expediency - similar to criminal offenses committed by natural persons - against the persecution. Companies can expect a significantly higher number of suspect-based investigations that intervene deeply in their business activities.
  • The sanctioning according to the VerSanG-E is linked to a so-called association act (Section 2 (1) VerSanG-E), i.e. a criminal offense by which the company's duties have been violated or by which the company has been enriched or enriched should be. The association act may have been committed by
    • a manager of the company (e.g. organ, managing director, authorized signatory in a managerial position) or
    • persons otherwise active in the conduct of the company's affairs if company executives could have prevented the offense or made it significantly more difficult through appropriate precautions such as organization, selection, guidance and supervision. According to the wording, this can also include people who are not employees of the company, but only have an employment relationship. Third parties who are active abroad and which the company engages in sales activities may be considered.
  • In addition to domestic companies, companies domiciled outside of Germany can also be sanctioned if the company has to have an association act that is subject to German criminal law. Cases are also to be recorded in which criminal acts are committed abroad under German law . If the German criminal law does not apply to the association act committed abroad, the scope of application of the VerSanG-E is only opened insofar as the offense is punishable abroad and would also be punishable on inspection in Germany and the company is based in Germany (§ 2 Para. 2 VerSanG-E).
  • Association money sanctions (§ 9 VerSanG-E) in the amount of up to ten percent of the average global group turnover should be able to be imposed on companies for which the annual worldwide group turnover amounts to more than 100 million euros . When determining the average annual turnover, the worldwide turnover of all persons and companies of the last three financial years preceding the conviction must be used, provided that these persons and associations operate with the association as an economic unit. The average annual turnover can be estimated.
  • The sanctions against companies with a lower turnover are within the limits of what was previously possible under the Administrative Offenses Act (OWiG) and can amount to up to ten million euros for deliberate offenses and up to five million euros for negligent offenses.
  • The importance of the association act, the severity and extent of violations of supervisory duties and the economic situation of the company play a decisive role in the assessment of the association money sanction (§ 15 VerSanG-E). The court is given a number of weighing criteria to assess the aspects that speak for and against the company.
    • Significant sanction discounts , which can lead to a halving of the association sanction , can be expected if investigations within the association make a significant contribution to the investigation of the crime (Section 16 and Section 17 VerSanG-E). The mitigation is not at the discretion of the court; rather, it should be bound in its exercise of discretion (“should mitigate”). In order to benefit from the sanction discount, all the relevant investigation documents must be made available to the persecution authorities. Furthermore, the internal investigation must not be conducted by the defense lawyercarried out by the company; personal differences must exist between the commissioned internal investigator and the defense counsel of the company (§ 17 Para. 1 No. 2 VerSanG-E). Current law does not provide for such a separation between "internal investigators" and corporate defenders. According to the ideas of the BMJV, it should lead to the fact that the work products of lawyers who carry out the investigation on behalf of the company are not subject to protection against seizure (change of the wording of § 97 Paragraph 1 No. 3 StPO). This is heavily criticized by the legal profession and companies. With regard to compliance with all requirements of the VerSanG-E for carrying out internal investigations, there is a comprehensive documentation obligation .
    • The company's efforts to uncover or prevent association acts should be taken to mitigate sanctions . The company's CMS is of particular importance here (Section 15 (3) No. 6 and 7 VerSanG-E). The prerequisite is that the CMS is effective. In addition to the existing CMS, a CMS can be mitigated by sanctions if the CMS is set up or improved only after inspection by the association. The VerSanG-E does not contain any specific requirements with regard to the requirements for such.
  • As an alternative to the association money sanctionthe court can issue a warning and reserve the right to impose the association fee sanction (Section 10 VerSanG-E). The prerequisite for this should be that this is sufficient for an overall assessment of the association act to avoid association acts in the future. Warning and reservation should be linked to conditions and instructions, for example to take certain precautions to avoid association acts and to prove the precautions by certifying a "competent body" (§ 12 and § 13 VerSanG-E). Expert positions should be, for example, lawyers, management consultants or accountants. It is up to the law enforcement practice to determine whether requirements and directives are designed to approximate monitoringships based on the US model.
  • If a sanction is expected to be imposed abroad due to the same association act , persecution can be waived, provided that the purpose pursued by sanctioning in Germany is also achieved by sanctioning abroad (Section 38 (1) VerSanG-E). This should be possible, for example, if compliance measures imposed abroad would also represent suitable measures from a German perspective.
  • As an equivalent to the Federal Central Register, an association sanctions register is to be introduced (§ 14, §§ 54 ff. VerSanG-E), in which the conviction of the company should be made public if there are a large number of victims. In this respect, the register primarily functions as an information system for the judiciary. However, it can be expected that other authorities will also be able to inspect the register. The public announcement and the associated "naming and shaming" is not required if a proper internal investigation is carried out.
  • Despite strong criticism at times, the current draft adheres to the required protection of workers and also grants employees, within the framework of internal association investigations, the right known from criminal proceedings not to have to incriminate themselves (section 17 (1) no.5 VerSanG-E). In practice, this should make internal clarification more difficult.
  • Companies should find it more difficult to avoid sanctions through restructuring measures. For this purpose, the VerSanG-E allows the legal successor to be sanctioned under certain conditions and determines third party liability (§ 6 and § 7 VerSanG-E).
  • The VerSanG-E provides for the possibility of a so-called sanction notice (§ 50 VerSanG-E) under certain conditions, in particular in the case of an internal association investigation, which eliminates both the need for a main hearing and the public announcement in the association sanctions register .
Changes compared to the previous design:

The BMJV only partially responded to criticism from business associations and the legal profession about the unofficial draft bill (as of August 2019) in the current draft law:

  • § 1 VerSanG-E now expressly clarifies that the applicability of the VerSanG should be limited to legal persons, unincorporated associations and legal partnerships, the purpose of which is aimed at an economic business.
  • Instead of the "Association punishment " in § 2 Paragraph 1 No. 3 VerSanG-E, the "Association act" takes place. The new terminology, like the new title of the legislative proposal, is intended to express that companies are not suspected of making crimes possible.
  • The dissolution of the association according to § 14 VerSanG-E as the ultima ratio has been deleted.
  • According to Section 17 (1) VerSanG-E, internal investigations and cooperation with the persecution authorities should now lead to sanction discounts. In the previous draft, this was still a “can” provision. Internal investigations would still not automatically lead to a sanction discount, but the new wording creates a rule-exception relationship. The courts would be at their discretion and would have to regularly mitigate sanctions if the requirements of the VerSanG-E for cooperation between companies and law enforcement agencies and for carrying out internal investigations were observed. They could only deviate from this in exceptional cases.
  • The new Section 17 (3) VerSanG-E is intended to provide the court with a non-exhaustive list of criteria for its mitigation decision. In particular, the timing of the disclosure and the extent to which the law enforcement agencies support the association should be decisive.
  • Section 18 (1) No. 6 of the previous draft was deleted. According to this only sanctions-mitigating examinations should be taken into account, which are carried out "in accordance with the applicable laws". The change has countered the fear that the smallest sanctions, for example, against data protection law, could eliminate the sanction discount of a complex and costly internal investigation.

OUTLOOK

In view of the current uncertain situation, it is not foreseeable when exactly the VerSanG-E will have gone through the legislative process of the current legislative period. The government, the Bundestag and the Bundesrat are able to act despite the COVID 19 crisis. The VerSanG-E would enter into force two years after its announcement. Companies should use this time to check their existing CMS against the background of the changed requirements and risks under the VerSanG-E. When looking back at an association act, it is important which CMS existed at the time of the inspection.

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