Munich draft of a Corporate Sanctions Act
Legal experts present an “alternative draft” to the ministerial draft of the German Corporate Sanctions Act
On September 5, 2019, Prof Dr Frank Saliger (Chair of Criminal Law, Criminal Procedure Law, Economic Criminal Law and Philosophy of Law at the Ludwig Maximilian University Munich) and a team from the law firm Tsambikakis & Partner presented their jointly developed draft of a corporate sanctions act.
Stand-alone Corporate Sanctions Law
The objective of the draft is a corporate sanctions law based on the principle of proportionality, with clear rules on internal investigations and incentives for companies to act lawfully by taking compliance efforts into account (both before and after the offense). The corporate sanctions law is to be a stand-alone legal instrument – alongside the applicable criminal and administrative offences law.
According to the draft, both, violations by managers and violations by employees, are to be sanctioned to the extent that they are committed in the course of carrying out business related activities. If, on the other hand, to the extent that acts are performed exclusively for the personal benefit or are “excessive and outside of the scope of business-related activities” no sanctions are to be imposed on the corporation.
In contrast to the provisions set out in the ministerial draft of the Act (see our article on the ministerial draft on the Law of Combating Corporate Crime), which is based on antitrust regulations, the Munich draft provides for the sanctions of a corporation to be scaled according to its size. A corporation may be fined up to ten million Euros for negligent misconduct and up to 20 million Euros for deliberate misconduct. For companies with an average turnover of between 500 million Euros and two billion Euros, these amounts are doubled; for companies with a turnover of over two billion Euros, they increase tenfold. A corporation fine thus can amount to a maximum of 200 million Euros plus a possible disgorgement of profits.
Smaller companies (less than 50 employees and an annual turnover of no more than ten million Euros) are – based on considerations of proportionality – excluded from the scope of the draft act (but not from the applicability of other provisions subject to criminal penalties or fines).
Consideration of Compliance Measures; Monitorships
The draft considers compliance measures of a corporation (those undertaken prior and after the offense) in a number of places. A corporation’s compliance system, for example, can lead to the discontinuation of the proceedings or to a waiver of sanctions, or can be the subject of conditions and instructions. The corresponding so-called ‘Criminal Compliance’ measures (organizational and supervisory measures taken by the corporation) are defined in further detail in the draft (e.g., careful selection and instruction of employees, regular risk assessments, training, whistleblowing process and clarification of suspicious facts). This is not the only place where the draft follows an U.S. approach.
In order to monitor compliance with imposed requirements, such as the implementation of compliance measures or the compensation of damages, the court may appoint a monitor for the duration or part of the probationary period, who may submit proposals to the corporation for compliance with the requirements and report regularly to the court.
Internal Investigations in Coordination with the Enforcement Authorities
The Munich draft devotes a separate section to the subject of internal investigations. Among other things, there are detailed rules for the conducting of an investigation, such as the appointment of an independent (external) investigator who is qualified to hold the office of a judge and the ways and frequency of reporting to the public prosecutor.
The draft thus addresses questions of high practical relevance such as coordination with the individual defense lawyers of other defendants, the rights of employees to be questioned, to be represented by a lawyer or works council, as well as the general involvement of the works council in the process for internal investigations by means of a works agreement.
With regard to the frequently discussed question about the protection from seizure in internal investigation documents, the draft – again considering U.S. laws – opts in favor of creating a privilege for the communication between the corporation and the investigator – thereby creating a kind of ‘legal privilege’ beyond mere defense correspondence.
In some key areas the Munich draft differs from the ministerial draft – e.g., in the formulation of the requirements for compliance systems, the detailed rules for internal investigations, which – if passed by the legislator – would increase the legal certainty for companies, employees and consultants/law firms involved. The Munich draft also proposes a clear stance with regard to personal and factual applicability and proportionality, which in any case will result in enriching the current legislative discourse.
We will closely follow any further developments and report regularly on our blog.
Please let us know if you have any questions about the draft or related topics.