The German government's draft Corporate Sanctions Act would introduce corporate criminal liability in Germany and make enforcement action against companies mandatory. It provides incentives for compliance measures and the investigation and disclosure of compliance violations.
Employees with UK nationality acting in the UK may, under certain circumstances, already be criminally liable under German law, but this new law would increase that liability.
Germany has increased its co-operation with foreign enforcement authorities in recent years and Germany ranks second in enforcement of international anti-bribery laws, behind the US.
Managers and employees acting in the UK but with a connection to businesses based in Germany should know their rights and duties with regard to German criminal and administrative offence laws.
Criminal liability of managers and employees
In general German criminal law applies to offences committed in Germany, but the place of commission includes both the place of action and the place of results stemming from the criminal act. This means that a criminal act committed abroad that leads to a result in Germany is punishable under German law.
Managing directors (Geschäftsführer) or other authorised representatives of German companies may face specific criminal liability exposure in Germany. This could relate to insolvency laws, tax laws and books and records liability. This applies to non-German managing directors of German limited liability companies (Gesellschaften mit beschränkter Haftung – GmbH), which is a typical and frequent scenario in international group companies that are UK-headquartered.
For some offences German criminal law applies regardless of the law of the place of the offence due to a special domestic connection. This frequently applies in relation to bribery of public officials, violation of trade secrets of companies in Germany, tax or environmental crimes.
Bribery of public officials
If German or EU officials are bribed, for example in order to obtain a permit or a government contract, the place of crime does not matter. The same already applies if benefits are granted to public officials without a specific return in mind, as German anti-corruption provisions regarding public officials intend to avoid the mere impression that somebody can be bought.
Anyone who provides incorrect information to an authority responsible for granting a subsidy about facts relevant to the subsidy that are to their advantage is liable to prosecution for subsidy fraud. It is also a criminal offence to act abroad if the fraud concerns German or EU subsidies.
If companies based in the UK derive income from a commercial business in Germany and maintain a permanent establishment in Germany, such as place of management, branches, offices, factories, warehouses, buying or selling points, revenues generated through such permanent establishment are taxable in Germany.
Under certain circumstances even designated national sales agents or other intermediaries in Germany might qualify as a permanent establishment under tax laws. If the tax liability due to the permanent establishment maintained in Germany is overlooked, employees of the UK company face the risk of accusations of tax fraud or gross negligent tax evasion. If the taxpayer subsequently realises that a tax return is incorrect or that tax has already been reduced, the taxpayer must report this immediately to the tax authorities and correct it. If managers of foreign companies do not comply with this obligation to correct, they may be criminally liable for tax evasion by omission in Germany.
Violation of business secrets
Regardless of the place of the crime the violation of business secrets by companies based in Germany or by companies based abroad, that are dependent on a company based in Germany and form a group with it, is also punishable.
Liability of managers for failure to take compliance measures
A fine of up to €1 million may be imposed on managers of a company, such as company owners and their representatives and authorised persons, if they intentionally or negligently fail to take the compliance measures required to prevent or significantly aggravate company-related offences. This might be criminal offences or administrative offences. The fine may be higher in order to skim off the economic advantage gained from the offence.
Managers are also exposed to the risk of fines if they have acted as supervisors exclusively abroad and only the company-related offence was committed in Germany. Other typical company-related offences include violations of occupational safety laws, anti-money laundering provisions, antitrust law, environmental criminal law, data protection law, labour as well as social security laws and many others.
Managers can be sanctioned not only for violations committed by employees, but also for those committed by people who don't work for the company. The only prerequisite is that the owner of the company can issue instructions to and control that person.
Fines against companies
Although there is no corporate criminal law in Germany yet, fines of up to €10m can be imposed on companies if managers commit criminal or administrative offences, including the failure to take compliance measures. Alternatively, a forfeiture order can be issued.
Fines or forfeiture orders may also be imposed on foreign companies if the legal form of the foreign company is comparable to a legal form covered by the German provision on corporate fines and the person acting is a manager within the meaning of the German provision.
There is also a risk for groups of companies that a parent company domiciled in UK will be sanctioned for breaches of supervisory duties in case of offences committed in a subsidiary in Germany if the parent company could have prevented the offence in the subsidiary, either legally or de facto.
The draft Corporate Sanctions Act
The Federal Ministry of Justice has recently published the draft Corporate Sanctions Act which would introduce corporate criminal liability in Germany, and make enforcement action against companies mandatory in cases of reasonable suspicion. The draft law aims to provide incentives for compliance measures and the investigation and disclosure of compliance violations and provides for monetary sanctions of up to 10% of the annual worldwide group turnover.
Companies are to be sanctioned if either a manager has committed a corporate offence or someone has committed a corporate offence in the course of the company's affairs and the offence could have been prevented or made considerably more difficult by taking appropriate precautions - comparable to the current provision in the German Administrative Offences Act.
The draft law expressly provides that companies can also be sanctioned for offences committed abroad to which German criminal law usually would not be applicable. The prerequisites are that the association is domiciled in Germany at the time of the offence, that an offence has been committed which, if German criminal law was applicable, would be a association offence and that the offence at the place of the offence is punishable by a penalty or that the place of the offence is not subject to criminal jurisdiction.
According to the explanation to the draft law, the provision serves in particular to allow to punish foreign offences committed by multinational corporations with headquarters in Germany more effectively, since they were able to evade their responsibility for crimes committed abroad through the targeted deployment of foreign employees.
It should be noted that contrary to other corporate sanction laws, such as the UK Bribery Act, the German draft Corporate Sanctions Act does not only apply to specific crimes like bribery and anti-money laundering, but to each and any illegal act that would comprise to a criminal offence in Germany or abroad, in that sense it is more similar to the UK's failure to prevent the facilitation of tax evasion offence which criminalises a corporate's failure to prevent any act that amounts to dishonest facilitation.
Further, while the German draft Corporate Sanctions Act asks enforcement authorities to consider compliance measures which the company has taken in sentencing, it does not provide for a mandatory defence in case of adequate or reasonable compliance procedures being in place. Finally, unlike the six guiding compliance principles issued by the government of the UK, the draft act does not include any more specific guidance as to the level and depth of compliance measures that would likely be considered adequate to exclude sanctions against the company.
Cross-border investigations and enforcement
According to various OECD surveys over the past years Germany ranks second when it comes to the effective enforcement of international anti-bribery laws, after the US. Since the Siemens corruption scandal in 2006, German prosecutors took ample enforcement action against multiple national and international companies with business operations in Germany and abroad. The majority of these cases included cross-border investigations and enforcement.
German law enforcement authorities and courts can conduct cross-border investigations and enforce fines and penalties through mutual legal assistance, especially the Convention on Mutual Assistance in Criminal Matters between the EU countries and the Council Framework Decision of 24 February 2005 on the application of the principle of mutual recognition to financial penalties. International co-operation between German and foreign enforcement authorities has grown in recent years.