German legislative bodies are moving forward with introducing a new and more efficient law to address white-collar crime, in spite of the COVID-19 pandemic. The Dieselgate scandal, Wirecard fraud, and the recent money laundering allegations regarding Deutsche Bank make this a priority for the largest European economy.
Over the past five years there have been extensive discussions on this topic, and those led to a draft bill by the current government named the “Law to Strengthen Integrity in Business” (Gesetz zur Stärkung der Integrität in der Wirtschaft”), the heart of which is the “Associations Sanctions Act” (“Verbandssanktionengesetz,” or “VerSanG”). The government intends for the bill to be approved by the end of 2020 and to enter into force after a two-year term.
On September 18, 2020, the German Federal Assembly (Bundesrat) approved the draft bill, but several important issues have been raised by the relevant committee. The bill will now be submitted to the Federal Parliament (Bundesrat), which shall have to deal with those issues and is likely to make a number of changes.
At present, white collar crime cases in Germany are subject to the “Gesetz über Ordundgswidrigkeiten” (“OWiG”), a law that addresses those crimes from a strictly administrative perspective. As a matter of fact, investigations are subject to the principle of discretion, not the legality principle, and, therefore, the administrative authority is not obliged to start proceedings in case of violation of the law. Moreover, sanctions basically consist of fines, which are limited to a low amount. Clearly, this is an inadequate measure for large fraud cases et similia. Finally, the law does not apply to crimes committed abroad. In general, the OWiG is considered inefficient in a globalized world and inadequate for the largest economy in Europe.
In summary, the ratio behind the Associations Sanctions Act is to achieve the following objectives: (i) introduction of the legality principle: prosecutors will be obliged to start investigating as soon as legal limits are breached; (ii) different kinds of sanctions shall be applicable and the amount of the fines will increase; the Court may issue warnings and monitor the capacity of a company to cooperate and foster adequate compliance management systems (“CMS”); moreover, the VerSanG provides a “name and shame” sanction; (iii) the VerSanG will provide a number of incentives for companies to introduce more accurate CMS, thus reducing the number of corporate crimes committed or even doing away with such crimes entirely; a CMS should work as a preventive measure as well as a repressive one: with regard to the latter, the VerSanG introduces a measure similar to the extant measure for antitrust proceedings, according to which a company may reap benefits if it cooperates with prosecutors in an effective and timely manner, helping to clarify the facts being investigated; (iv) finally, crimes committed abroad will be subject to sanctions under certain conditions.
However, the relevant committee in the Federal Assembly has raised a number of red flags, which can be summarized as follows: (i) the VerSanG requires associations to meet “adequate compliance measures” to prevent certain deeds; however, these measures are undefined, thus creating an opaque policy that appears highly problematic; (ii) the draft bill states that external advisors who deal with internal investigations are excluded from any defense activity: this mandatory separation is deemed to affect the association’s position in a negative way and will raise the costs of dealing with white collar crime proceedings; (iii) with regard to financial penalties, the VerSanG provides sanctions that are calculated based on worldwide group revenues for the three years prior to conviction; this solution has been heavily criticized, as it would lead to fines that could be disproportionate in terms of the size and financial capacity of the association; (iv) finally, the draft bill takes into account the time of conviction, not the time of the offense; this element, combined with the aforementioned ratio for the financial penalties, is deemed to impact M&A transactions in a negative way, since it would require highly complex due diligence on the historic criminal liability risks of any target company.
In conclusion, the Associations Sanctions Act certainly is a very ambitious project, as it will fill a gap in the German legislation on white collar crime; however, it still requires close evaluation by the legislature. But one thing seems very clear: German companies will have to devote more time and energy to their CMS than ever before.