Germany: Corporate sanctions reform is on the way

Germany is one of the few countries in Europe whose legal system does not recognize corporate criminal liability. At present, only one legal instrument is available to address companies that may have violated criminal laws: imposition of fines as an instrument of the Administrative Offenses Act.

However, for some time now, Germany legislators have been intensely discussing whether and how companies in Germany that commit criminal offenses should be sanctioned more severely.

In the previous legislative period, the German Corporate Sanctions Act was drafted with the goal of combatting corporate crime. Among its provisions were the following:

• The public prosecutor's office would be obligated to investigate all criminal offenses bearing reference to a company
• The law would extend to offenses committed abroad
• Legal consequences would be massively tightened
• A compliance monitor system would be introduced
• The law would offer the possibility of mitigating sanctions if the company conducts an independent internal investigation and cooperates fully and continuously with law enforcement authorities.

However, this form of the Corporate Sanctions Act failed.

Elections were held in Germany in September 2021. The coalition agreement, negotiated in November 2021 among the Social Democratic, Free Democratic and Green parties, once again puts corporate sanctioning on the agenda. The coalition agreement appears to address widespread criticism of the previous draft of the Corporate Sanctions Act and aims at the following:

• protect honest businesses from competitors that do not abide by the law
• revise the rules on corporate sanctions, including the level of sanctions
• offer companies more legal certainty in terms of compliance obligations and
• establish a more precise legal framework for internal investigations.

The coalition parties further agree that the current status of German law – allowing only imposition of fines via the Administrative Offenses Act – is unsuitable and outdated.

It remains to be seen whether the existing law governing administrative offenses will be reformed, whether the existing draft in its current version will be revised or whether a new law will be created. What is certain is that during this current legislative period, the sanctioning of corporate offenses will be adhered to and a plan will be implemented.

The following issues in particular will very likely be addressed when implementing the coalition agreement:

• Conditions under which companies should be liable for criminal offenses committed by employees (up to now, the draft has provided for automatic liability)
• Comprehensive consideration of compliance systems when imposing and assessing sanctions
• Introduction of active repentance – as in Austria, for example
• Comprehensive rights of defense of companies – most notably, prohibition of seizure of legal correspondence and rights to silence as well as rules concerning the conduct of internal investigations, in particular to ensure compatibility with data protection law, eg, when reviewing e-mails, and to establish an appropriate legal framework.

Companies operating in Germany should closely monitor this development in order to be prepared for the corresponding requirements under the new law.