Corporate Criminal Liability “Lite” – German Coalition Agreement Promises to introduce “Corporate Sanctions”

09.02.2018

After coalition negotiations between the major German political parties (CDU/CSU and SPD), the negotiators announced their coalition agreement, which is to set the course of the Federal Republic for the next four years. The coalition agreement (only in German) is still subject to approval by the SPD rank and file. There is no great risk in projecting that new laws on corporate sanctions, tucked away on p. 126 of the coalition agreement, will not raise an outcry from SPD party members, let alone passionate rejection (maybe there is more potential for that in the chapter on competition law). Nevertheless, the issue is important.

What specific regulations are laid down?

In the chapter on legal policy (“A strong government with the authority to act makes for a free society”) with significantly more specificity than in the last coalition agreement, new “corporate sanctions law” is mentioned for the first time. The subsequent section is relatively detailed and, in contrast to the obligation agreed four years ago to “look into” laws governing corporate sanctions, it contains a clear mandate to pass laws. This time, something could actually happen.

It is interesting that the term ”corporate penal law” is not used. Only “sanctions” or “monetary sanctions” are mentioned. Since administrative offence/misdemeanour law likewise provides solely for monetary sanctions, i.e. fines, the section seems to indicate that the intent is to merely revamp existing options for sanctioning companies under administrative offence law. But the coalition agreement goes beyond this, particularly when it expressly states that “a retreat from the opportunity principle of currently applicable administrative offence legislation” is to provide uniform nationwide application of law. The opportunity principle enshrined in the currently applicable Administrative Offence Law, meaning that whether a wrongdoing will be investigated and prosecuted is subject to a discretionary decision, is one of the most important aspects that distinguish it from criminal  law, which is governed by the mandatory prosecution principle. This principle is now to be applied to corporate sanctions as well. 

The coalition agreement also calls for clear procedural rulesto increase “the legal certainty of such companies”. At the same time, specific regulations on dismissing cases are to be created, at least some of which will probably be formed after those already provided by criminal procedure law but will also give special consideration to the company’s existing compliance measures, its conduct upon becoming aware of the offence and its contribution to investigate the offences, and its willingness to compensate victims.

The intention to expand the instrument of sanctions is not surprising. The current maximum fine of €10 million  is to become a maximum of 10% of the revenue of companies with more than €100 million in revenue. At least for large companies, this regulation is in accordance with existing elements of administrative offences based on European legal acts, for example in data protection law, money laundering law  or antitrust law. The only surprising aspect of this regulation is how specifically the fine ranges and application prerequisites related to the size of the company are already laid down at this early stage.

It is also surprising that the coalition agreement provides for public announcement of the sanction (“naming and shaming”). This deterrent is actually unfamiliar to German law and has only been introduced in recent time into some aspects of German sanctioning laws due to European requirements.

On the whole, corporate sanction law will probably become a “third way” besides criminal law and administrative offence law; in other words, unlike, e.g., the draft bill issued in the state of North-Rhine-Westphalia that takes the form of formal corporate criminal liability, it is not intended to be criminal law as such but rather to remain limited to fines as legal consequences. The corporate sanction law stipulated in the coalition agreement is thus similar to the recently published Cologne Draft on introducing a corporate sanction law. It likewise provides for sanctions only in the form of fines but also offers special options and obligations for closing a case based on compliance, and in particular regulates procedural law including a necessary corporate defence.

What can be expected?

Depending on the specific answer to the question of when an offence committed by a company’s decision-maker will be attributed to the company itself, in everyday practice, subjecting corporate sanctions to the legality principle will lead to a huge increase in the  quantity of corporate sanctioning, and the dynamic maximum fine will lead to a strong increase in the quality of corporate sanctions. Thus, in conclusion, even if no express “corporate penal law” is introduced, this new corporate sanction law means that German law will remain terminologically behind the collective criminal law of most of its European neighbours but will go beyond it in content because they often do not provide for mandatory prosecution.

In any case, in light of the coming sanction law, companies are well advised to keep their compliance systems strong. Because no matter what form the expected draft laws will take, such laws will always honour a functioning compliance management system (see German Federal Court of Justice decision dated 9 May 2017 – case no. 1 StR 265/16).

You can also find the latest news on coalition agreements and legal innovations here and here (only in German).

Any Questions? Please contact: Dr. Martin Schorn
Practice Groups: Litigation, Arbitration & ADRCompliance & Investigations