Internal investigations in Germany
Protecting a company’s financial interests by creating a proper organisation and exerting adequate controls are core obligations of German directors. This requires managers to examine and investigate alleged misconduct or rumours of irregularities which they become aware of. Launching a thorough investigation is often the only means to ensure that potential wrongdoings can be identified and stopped. It can also be essential in order to take the necessary steps to prevent the reoccurrence of such misconduct.
Failing to initiate an investigation can have severe consequences. It will expose those responsible not only to civil liability for any damages and losses incurred by the company1 but also to penal law risks for breach of trust (Untreue), section 266 StGB (Criminal Code). Similarly, board members have a duty to supervise the management and take reasonable steps to investigate wrongdoing and improper performance in running the company. If directors and board members take insufficient steps to investigate any wrongdoing within the company or to properly respond to discovered misconduct, this also constitutes a violation of section 130 Administrative Fines Act (OWiG) and can be fined with up to €1 million.
Even though the decision to launch an internal investigation is often clearly warranted, great care needs to be taken when designing the investigation. Internal investigations are subject to a multitude of rules, which need to be strictly observed. A company must ensure that it does not encroach upon the rights of the persons concerned, particularly data protection and labour law rights. Non-compliance during investigations can pose a compliance risk in itself (i.e., it endangers the admissibility of evidence in civil and labour law matters and puts the investigators at risk for violation of penal and administrative offence rules).
The European, Middle Eastern and African Investigations Review 2015 provides an article of Dr. Christian Pelz about Internal Investigations in Germany. The full article is available here.
Any questions? Please contact: Dr. Christian Pelz
Practice Group: Compliance & Investigations