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New German government puts corporate criminal law back on the agenda

Out-Law News | 07 Dec 2021 | 1:50 pm | 3 min. read

Germany’s prospective new government has put the topic of corporate criminal law back on the political agenda, focussing on compliance and rules for internal investigations.

Almost two months after the election, Germany's prospective new government published a coalition agreement outlining the plans of the three coalition partners for the next four years. Since the publication of the coalition agreement (PDF/1,119 KB - in German language) between the Social Democrats, the Greens and the Free Democrats, it is clear that the prospective new German government intends to reform corporate criminal law.

Specifically, the paper states: "We will protect honest businesses from unlawful competitors. We are revising the rules on corporate sanctions, including the level of sanctions, in order to improve the legal certainty of businesses with regard to compliance obligations, and to create a precise legal framework for internal investigations." How exactly this is to be done, however, remains open for the time being.

The members of the three parties have now approved the coalition agreement, which means the agreement can go into operation once the new government has been formally appointed.

The former German government, known as the 'big coalition', had already taken up the cause of reforming corporate criminal law after the 2017 federal election. The so-called Corporate Sanctions Act was supposed to newly regulate the criminal liability of companies in cases of white-collar crime, but in June 2021 the legislative process failed because the Christian Social Union and the Social Democrats could not agree on the terms. Now it is the turn of the new coalition.

According to Eike W. Grunert, compliance expert at Pinsent Masons, the wording of the new coalition agreement suggests that the parties do not intend to create a stand-alone act, as envisaged before. Instead, a revision of already existing regulations on corporate sanctions in the Administrative Offences Act, the Code of Criminal Procedure and possibly in other places could be planned.

"Here, compliance obligations are apparently to be defined for the first time. There are already noteworthy proposals on this from academia and practice from the legislative process for the failed Corporate Sanctions Act," Grunert said. "In order to increase the legal certainty sought by businesses, the regulations on required compliance obligations and, if applicable, compliance measures should be as clear and comprehensible as possible."

He said it was another matter "whether Germany, in doing so, can counter the international criticism, among others by the OECD, that the sanctioning of companies in Germany is currently neither effective nor deterrent enough, with mere administrative finds instead of real criminal penalties being the only threat."

Grunert also recommends that companies that have taken appropriate compliance measures should be sanctioned much less severely - or preferably not at all - if legal violations by employees occur despite these measures: "The Corporate Sanctions Act planned for 2020 in this regard relied almost exclusively on the deterrent effect of compulsory prosecution by the state, coupled with a drastic increase of fine thresholds, and alleged this to be an 'incentive for compliance'. A move away from this objective towards measurable positive incentives for preventive compliance measures would be preferable”.

“Companies that practice adequate compliance should no longer face sanctions for compliance violations from within the company. Such a genuine 'corporate defence' would be in a better spirit for a more effective incentive for compliance," he said.

For the time being, it remains open what the "precise legal framework for internal investigations" that the new coalition wants to create might look like.  "A legal framework for internal investigations already exists in Germany; the legal requirements are known in practice," said Jochen Pörtge, an expert in corporate criminal law at Pinsent Masons. "However, it should be regulated how it will affect the assessment of sanctions in the future, if companies cooperate with law enforcement agencies."

Pörtge also said that there is an urgent need to clarify the procedural position of companies facing a corporate sanction: "This means that, in particular, rights of silence of organs and employees as well as prohibitions on seizure of defence documents between companies and defence counsel should be regulated, which should also include the documentation of internal investigations. " However, these points are neither mentioned nor more specifically laid out in the coalition agreement.