I. Background

So far, German criminal law has only known the punishability of a natural person. Sanctions can so far be only imposed on enterprises within the framework of fine proceedings within the meaning of the Act on Regulatory Offenses [Ordnungswidrigkeitsgesetz] or on the basis of relevant special laws if a person in a managing position committed a criminal offense or an administrative offense. There has long been a discussion as to whether Corporate Liability Law should also be introduced in Germany, as is the case in many other Western countries. In the Coalition Agreement of the Grand Coalition dated 12 March 2018 it has been agreed to reorganize the sanctions law with the aim of strengthening the sanctioning of companies. The draft bill by the Federal Ministry of Justice is the first step towards implementing this agreement.

II. Planned reform

The draft law aims to remove the punishment of offenses committed by associations from the Act on Regulatory Offenses and to transfer this punishment to a newly created independent legal basis. The following regulations have to be particularly observed in this new Corporate Liability Law.

1. Introduction of principle of legality

In the Act on Regulatory Offenses the opportunity principle applies, according to which the punishment and prosecution lies in the within the obligatory discretion of the prosecution authority. The Corporate Liability Act is now to introduce the principle of legality. This means that the Public Prosecutor’s Office is obliged to initiate investigation proceedings against the company if there is initial suspicion of an offense committed by an association.
The aim is to ensure that the applicable law is applied equally to all and that prosecution is no longer dependent on the individual prosecuting authority. However, due to the corresponding applicability of the termination possibilities of sections 153 et seq. German Code of Criminal Procedure [Strafprozessordnung – StPO] anticipated in the draft, the termination of the investigation procedure is still possible for opportunity reasons. For example, it is still conceivable to refrain from further investigations due to the insignificance of an offense committed by an association. However, such an application of the opportunity principle should be of an exceptional nature in the future. In any event, termination due to staff shortages or an excessively complex investigation procedure is no longer an option, which is likely to place an additional burden on the judiciary.

2. The system of sanctions

The draft distinguishes between 3 forms of sanctioning:

• the monetary sanction of associations;
• the warning with reservation of corporate liability; and
• the dissolution of the association.

With regard to the monetary sanction of associations, the penalty framework varies depending on the turnover level of the company.
Associations with an average annual turnover of more than EUR 100 million must expect a monetary penalty of at least EUR 10,000 up to a maximum of 10 percent of the average annual turnover in the event of an intentional offense committed by the association. Within the framework of negligent offenses committed by an association, the company should expect a sanction of at least EUR 5,000 up to a maximum of 5 percent of the average annual turnover. For smaller companies that do not reach the aforementioned turnover threshold, the current maximum sanction limit of EUR 10 million continues to apply.
Furthermore, the procedure can also be terminated by a warning with the reservation of corporate liability. The prerequisite for this is that the court considers a warning to be sufficient to prevent future offenses committed by the association, that a weighing of all circumstances makes the imposition of a monetary penalty unnecessary and that no monetary penalty is required with regard to the defense of the legal system. In such a case, the court should be able to impose various requirements and instructions on the company. It may, in particular, order certain compliance measures to be taken to improve the prevention of criminal offenses. As proof of compliance with these measures, an independent and competent body can be appointed to monitor the company.
In the case of a particularly serious case of the persistent perpetration of considerable offenses committed by the association, the draft even provides for the dissolution of the association as a last resort. This sanction instrument, which is also referred to as the corporate death penalty, is met with considerable criticism from politics and literature, so that it remains to be seen whether this regulation will make it through the legislative process at all.

3. Naming and shaming

The court should also be able to order the public announcement of the conviction of an association if the offense affects a large number of injured parties.
The justification of the law states that there is no intention of naming and shaming, but that the injured parties should be informed of the facts relevant to them. Nevertheless, the instrument foreseen in the draft is likely to constitute a pillory effect.

4. Mitigation of penalties through compliance measures

With regard to the amount of any sanction, the draft bill provides for the possibility of mitigating the penalty. Accordingly, compliance measures in favor of the companies are particularly to be considered. Such measures may even result in the undertaking being warned only if it can show that the specific incident is merely an exemption and that, in principle, effective measures have been taken to avoid the infringement in question.
In addition, internal investigations to investigate criminal offenses are taken into account in order to mitigate sanctions. However, association internal investigations only have a mitigating effect under certain circumstances. If the association commissions a third party to conduct the investigation, the third party may not be the defender of the association or one of the accused. In accordance with the justification of the law, conflicts with the criminal defense mandate are to be avoided in this way.
In addition, the association is required to cooperate uninterruptedly and without restrictions. The documents relating to the investigation must be made available in full to the prosecuting authorities.
The internal investigation must be conducted in accordance with the principles of a fair trial. In concrete terms, this means that employee surveys must draw attention to any right to refuse to provide information and to the possibility of a lawyer being called in. The association must further make a substantial contribution to clarify the facts of the case. If the company fulfils these strict conditions, the maximum sanction of the association’s fines will be reduced by half and the minimum will be completely abolished. In addition, a dissolution of the association and naming and shaming would then no longer be possible.

III. Conclusion

The draft bill of the new Corporate Liability Law provides for much more sensitive sanctions against companies than the previous legal situation. Due to the introduction of the principle of legality, the number of criminal investigation proceedings against companies is likely to increase significantly in the future.
Due to the planned legal incentives, compliance measures and internal investigations will continue to gain in importance.
Given the very controversial discussion of the draft, there are some indications that there will still be certain changes in the course of the legislative process. In addition, the draft provides for a two-year transitional period until the law comes into force. From the company’s point of view, however, it seems advisable to start now to carefully check existing compliance systems for their effectiveness and any gaps and to adjust them if necessary in order to avoid excessive sanctions in the event of subsequent compliance violations. This applies not only to large companies, but also to traditional small and medium-sized enterprises, since the Corporate Liability Law will apply to companies of all sizes.