Implementing the corresponding agreements in the coalition agreement (see already here), the Ministry of Justice (“BMJ“), after a number of disputes (cf. here for more details (in German)), has now submitted the expected draft bill (“Ref-E“) of the “Act to Combat Corporate Crime” (“Gesetz zur Bekämpfung der Unternehmenskriminalität”) on 22 August 2019, the core of which is the “Association Sanctions Act” (“Verbandssanktionengesetz” or “VerSanG“). The draft is now to go through the usual coordination processes in the various inter-governmental departments before it is published. However, the draft is already circulating in various committees, so that specialist media at least feel obliged to comment on it (see only here at “Juve” (in German)), whereby critical voices far outweigh positive ones. In the following, the first findings shall therefore be summarized:
Introduction of an independent association punishability
The Ref-E provides 147 pages and 69 new paragraphs with which the sanctioning of associations (i.e. enterprises in various forms), incentives for preventive compliance, the execution of internal investigations and the co-operation with the prosecution authorities shall be regulated in the future.
The law transfers the punishment of violations of the law by associations from the German Administrative Offences Act (“Ordnungswidrigkeitengesetze“, “OWiG“) into an independent (future) Act. In doing so, the opportunity principle applicable in the law of the OWiG will be abandoned in favour of the principle of criminal legality. This would oblige the criminal prosecution authorities to initiate investigations if there are sufficient grounds for suspicion. Furthermore, criminal prosecution should no longer depend on the (German) nationality of the governing body, but on the fact that the association is based in Germany and that the offence is a criminal offence both in the country in which the offence was committed and in Germany.
System of sanctions
The Ref-E of the Association Sanctions Act provides for a three-step penalty system, namely the association monetary sanction, the warning with the association monetary sanction and, as a last resort, the dissolution of the association.
The association monetary sanction, which in principle is modelled on the fines imposed by the OWiG, can amount to a maximum of ten million euros for intentionally committed offences or five million euros for negligent acts. Notwithstanding this, for associations whose average turnover exceeds EUR 100 million/year, a penalty of up to 10 percent (in the case of wilful misconduct) or 5 percent (in the case of negligent offence) of the average annual turnover may apply.
Instead of an association monetary sanction, a warning with the association monetary sanction may also be issued if it is to be expected that it is sufficient to avoid future offences, an overall assessment of the circumstances makes the imposition of an association monetary sanction dispensable and the defence of the legal system does not require such an imposition. The warning can be combined with additional conditions or instructions, for example to strengthen the internal precautions for the prevention of offences committed by the association or to set up a “competent authority” for supervision. This form of sanction is conceptually reminiscent of the “Deferred Prosecution Agreement” (DPA) or “Non Prosecution Agreement” (NPA) known from the Anglo-American legal system.
Finally, the dissolution of the association is provided for as a last resort, although this is limited to extreme cases, e.g. if managers “persistently commit substantial association crimes” or if there is a danger that “substantial association crimes” will be committed if the association continues to exist.
In addition to registration in a register of association sanctions (accessible only to certain bodies), the conviction of the association can also be made public to a large number of injured parties (so-called “naming and shaming”). There will probably also be a need to coordinate any entries in the new German Transparency Register
Promotion of CMS and internal investigations
The Ref-E expressly wants to promote the establishment or improvement of so-called “Compliance Management Systems” (CMS) and (company) internal investigations, in that these preventive or reactive measures should have a mitigating or preventing effect on the fines / punishment imposed. On the other hand, “make-believe” preventive or reactive measures (“window dressing”) shall be taken into account as aggravating circumstance.
For example, internal investigations should only be recognised as a mitigating reason if they contribute significantly to the clarification of the facts, are “independent”, the association or the person commissioned by it to conduct internal investigations cooperates “uninterruptedly and without restriction” with the prosecuting authorities, the authorities have received a report on the results together with the associated documents and the internal investigations have been conducted fairly. The latter relates above all to the rights of employees, who are now granted the right to legal advice and to refuse to give evidence if there is a risk of self-incrimination. With the criterion of “independence”, the legislator aims at a division between the investigating and the defending lawyers of the company. Internal investigations are only considered to be independent if the tasks are allocated accordingly. It makes sense, however, for one and the same law firm to be able to carry out both assignments, but it must then guarantee the organisational separation of the two areas. Anyone who has ever been able to observe for himself the practice of such “Chinese walls” at large law firms or the Big 4 WP companies will be in doubt of the practicability of such a rule.
The Ref-E – in a constitutionally questionable way – also takes a position on the question of the protection of findings gained in the course of internal investigations. This question has been hotly debated in expert circles since the so-called “Jones Day Decisions” (see here) – and it does not appear that this discussion would cool down with the now available Ref-E: In future, all records and documents in the custody of lawyers should be allowed to be confiscated, unless the client concerned is already “accused” in criminal proceedings and there is a “relationship of trust” with regard to these documents. Here, of course, there is a danger that the company as the “accused” will incriminate itself – which blatantly contradicts the constitutionally protected ban on self-incrimination.
In view of the wave of critical voices that was already rushing against the draft before its actual publication, it can be assumed that the legislative process will take some time. Also, as was the case with the German GDPR at the time, a period of two years has been provided for the entry into force of the new legislation to enable industry to prepare for it. Accordingly, it should not be “armed” before 2023. However, the companies should also be prepared accordingly by then…
It is not only the German Lawyers’ Association (“Deutscher Anwaltsverein“, DAV) that is critical of the introduction of the bill – but simply denies its necessity.
Even if one neglects this (critical) point, the whole project appears questionable for several reasons: The draft law implements the provisions of the coalition agreement, but thus follows (rather uncritically) the spirit of the times, i.e. it demonstrates actionism rather than dealing with the lowlands of the actual investigation of criminal offences. Because, on the one hand, the legislator does not act not particularly pro-active in closing certain legal gaps, such as, for instance, the topic “Cum Ex“, as it gives itself now (s. also the in each case current comment in addition with legonomics.de). On the other hand, the legislator also omits for years to providethe prosecution authorities with sufficient personnel. Thus, the upcoming regulations on internal investigations could not only be understood as a job creation measure for law firms, but also as an attempt to elegantly get rid of one’s own sovereign tasks. It is also fitting that the Ref-E places a number of options to terminate the procedure at the discretion of the law enforcement authorities, so that the principle of legality is already overruled at this level.
The German legislator is also bringing the legal situation closer to the Anglo-American legal situation. In addition to the usual problems with the incorporation of foreign legal constellations into one’s own legal system, the question should be allowed here as to why one adopts – apparently quite uncritically – legal principles that are completely foreign to one’s own legal system. What is meant here is the question (which has already been raised several times at this point) of whether criminal law against a “legal” person who cannot have any will for itself can be reconciled at all with the principle of “guilt” necessary in German law. And how especially the “Naming & Shaming” regulations are to be evaluated, if innocent persons who have the misfortune to work in a “guilty” company can also be affected.
To sum up, it must be said that the bill does contain some sensible ideas, but the entire project appears to be legally and dogmatically wrong. Unfortunately, political actionism is likely to sweep away these small-minded legal concerns. As was the case with “shareholder value” at the time, it will be up to future generations to reduce the excesses that will certainly follow to a level that is compatible with legal principles when punishing companies.