Anticorruption - The year 2021 in review

In the year 2021, legislative politics in Germany were deeply impacted by the "mask affair", in which substantial commission payments were made to elected representatives for influence over federal ministries' procurement decisions on purchasing protective equipment. This led to legislative amendments that dealt with bribery and corruption of elected representatives. Courts of higher and highest instance also handed down decisions that will have a significant impact on legal compliance in practice.

Gifts, Donations and Sponsoring

In a judgment dated May 18, 2001 (1 StR 144/20), the German Federal Court of Justice (Bundesgerichtshof – Federal Court of Justice) confirmed its previous legal precedent that, in general, donations to promote the arts and science, charitable or social purposes and even sports are permissible. The Federal Court of Justice ruled that it does not constitute a breach of duty punishable under Sec. 266 German Criminal Code (Strafgesetzbuch – Criminal Code) for breach of trust if such donations are made for advertising purposes, to increase the company's name recognition or to improve its reputation, and the contribution is given with proper motivation, is related to the company's business purpose, is appropriate as regards the company's revenue and financial situation and is accompanied by internal transparency. The court stated that this applies even if the economic benefit for the company cannot be precisely determined.

While these principles apply without restriction to contributions to outside recipients, the Federal Court of Justice emphasized the duty to protect the company's assets in the context of internal contributions to management and/or supervisory board members. Gifts and other contributions that are not linked to a benefit for the company's financial situation are only permissible, according to the Federal Court of Justice, if they are of low value and are given for customary reasons of politeness and decorum. Luxurious gifts within the company's management are never permissible, according to the Federal Court of Justice.

Bribery and Corruption of Parliamentary Representatives

In connection with the "mask affair", the Munich Higher Regional Court (decision dated November 17, 2021 – 8 St 3/21, 8 St 4/21) was faced with the question of whether commission payments to federal and/or state parliamentary representatives for brokering mask procurement transactions with government agencies fall under the bribery prohibition found in Sec. 108e Criminal Code because they constitute activities conducted "in exercise of their mandates". Citing the history of the legislation, the court decided that this legal provision only covers acts or omissions that have some connection to parliament. It stated that this referred to all activities that are linked to parliamentary decisions, processes or similar. This was said to include only acts that serve the exercise of the mandate in parliament itself, in parliamentary committees or groups and within a party in parliament. Conversely, the court stated that the German bribery prohibition does not cover contributions for matters not connected to a parliamentary representative’s mandate, such as side occupations, or if the authority of the mandate or the parliamentary representative’s contacts are exploited to influence a process outside of parliament, particularly to influence decisions by ministries, authorities or other government offices. Although not only the Council of Europe's Criminal Law Convention on Corruption of January 27, 1999 but also the UN Convention Against Corruption of October 31, 2003 recommend criminalizing such conduct, German legislators expressly decided against including such broad criminalization in the wording of Sec. 108e Criminal Code.

In reaction to the "mask affair", the Members of the Bundestag Act (Abgeordnetengesetz) was amended to prohibit accepting money or contributions of monetary value for activities directly connected to the mandate. This includes paid representation of third-party interests before the Bundestag or Federal Government or for paid advisory work in connection with exercise of the mandate and expands notification obligations related to side occupations. In addition, the situation covered by Sec. 108e Criminal Code was changed from a misdemeanor to a felony and the penalty was significantly increased. Instead of imprisonment of up to five years or a fine, the new penalty is imprisonment of one to ten years, or, in less serious cases, imprisonment of six months to five years. This precludes the possibility of a summary penalty (Strafbefehl), in which a court pronounces a penalty for a misdemeanor without a trial, thus avoiding the related public attention. In addition, investigative authorities now have more investigative powers, including undercover investigators.

Corruption of Public Officials

In connection with the "Regensburg Donation Affair" the Federal Court of Justice elaborated on the criminal liability associated with contributions to a candidate for political office. It stated that the provisions of Sec. 331 Criminal Code and the following sections regarding bribing a public official require that the bribed individual already held the office when the illicit agreement was reached (the same applies to bribery of a parliamentary representative under Sec. 108e Criminal Code). Arrangements with the goal that a candidate for political office who does not yet hold an office would act according to the wishes of the contributor after winning the office are not punishable. Despite this unequal treatment of an officeholder and a non-incumbent candidate for office, the Federal Court of Justice stated that the position of officeholder requires a certain self-restraint. For officeholders, any and every contribution for fulfilling duties, i.e. for any act or omission that belongs to the officeholder's duties, is punishable. According to the Federal Court of Justice, it is immaterial whether the internal allocation of duties makes the officeholder directly responsible for the expected act. The Federal Court of Justice states that it is adequate if the act is included in the officeholder's general area of duties. It is of the opinion that these principles on bribery of public officials are to be applied even if an officeholder runs for another office at the same public entity or employer. Thus, according to the Federal Court of Justice, contributions in relation to future offices are punishable if the candidates' present areas of responsibility in their current positions are comparable to that of the offices for which they are running but not punishable if the areas of responsibility are completely different.

Bribery and Corruption in Business Dealings

The Federal Court of Justice's decision dated February 2, 2021 (2 StR 155/20) dealt with the criminal liability of an interim manager with human resources responsibility in a company that had commissioned a recruiting firm in which he himself had acquired a substantial interest. The Federal Court of Justice stated that criminal prosecution of the interim manager for breach of trust comes into consideration for two reasons: for commissioning a service provider despite the fact that recruitment was one of his own responsibilities as interim manager, and for ignoring any less expensive offers from other service providers. In addition, the Federal Court of Justice found that acquiring the interest constituted possible criminal liability for corruption in business dealings if he acquired the interest only in order to commission the service provider with orders from the company for which he was responsible because he would directly and personally profit from commissioning the service provider.

Under Sec. 299(2) No. 1 Criminal Code, it constitutes a punishable offense, i.e. corruption in business dealings, to offer, promise or give employees or agents of a company an advantage for the purpose of tortious preferential treatment in sourcing goods or services. In contrast, contributions to individuals or company owners are not punishable. According to a decision handed down by the Federal Court of Justice on July 28, 2021 (1 StR 506/20), a company owner is to be defined as that individual to whom the company belongs or who can reach fundamental decisions for the company. Thus, the court considers a company owner to be a sole proprietor, the sole shareholder-managing director of a German limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) or the general partner of a limited partnership (GmbH & Co. KG). The company owner of a corporation is to be the entirety of all stockholders. Because the lower court had not determined whether all stockholders had been in agreement with the contribution to the management board, sentencing was suspended pending further clarification of the facts of the matter. With this decision, the Federal Court of Justice diverged from the previous overwhelming majority opinion that the consent of the employer or principal was irrelevant and could not preclude criminal liability because Sec. 299 Criminal Code was primarily intended to protect the interests of competitors. However, it is impossible to predict whether this means that in the future impunity is to be assumed in all cases in which the principal has given express prior consent. It is likewise unclarified what prerequisites are to be placed on such consent from principals.

Deducting Corruptive Contributions as Business Expenses Prohibited

According to Sec. 4(5), first sentence, No. 10, first sentence German Income Tax Act (Einkommensteuergesetz – EStG), contributions that fit the legislative description of a crime cannot be deducted from taxes as business expenses. The German Federal Fiscal Court (Bundesfinanzhof) clarified in its judgment dated April 15, 2021 - IV R 25/18 that the tax authority has the burden of proof that a prohibition of deducting a business expense is applicable. It also ruled that it was not sufficient for a deduction prohibition if only the objective elements of a crime of corruption are given. On the contrary, the mens rea elements of the crime also had to be fulfilled. Thus, according to the court, the tax authority was also obligated to demonstrate the mens rea elements of the crime, which, in the case of corruption crimes, entails in particular intent.

Surrendering Bribes

According to established case law, employees or agents that accept a bribe have an obligation to their employer or principal to surrender the bribe. In its judgment dated February 25, 2021 (8 AZR 171/19) the German Federal Employment Court (Bundesarbeitsgericht) ruled that bribed employees have a personal repayment obligation even if the bribe was paid not to them but rather to a third party acting as a front man. The court also declared that, although an employer must usually prove that the employee has received something, if the employee cannot give a reasonable explanation as to why payment was made to a third party, when assessing the evidence, the trial judge would probably assume that the third party had been a front man.