Germany’s "Corporate Sanctions Act": The Path to Corporate Criminal Liability

The Draft Bill

On August 22, 2019, the German Ministry of Justice and Consumer Protection presented the draft CSA, a bill that would establish corporate criminal liability in Germany. After consultation with other ministries and agencies, the German Federal Government is expected to introduce the CSA to Parliament. It is widely anticipated that the draft bill will be adopted in the current legislative term, which extends until the autumn of 2021. Companies should closely follow the progress of this bill and prepare accordingly.

Scope / Applicability

The CSA would apply to all legal persons based or doing business in Germany. As such, foreign companies and associations with operations in Germany would be required to comply with the CSA's provisions and would be subject to liability for failing to do so.

Key Elements

Most notably, the CSA would introduce the principle of corporate criminal responsibility and permit the criminal prosecution and conviction of a corporate entity in two circumstances: (i) where the entity's directors or officers committed corporate crimes; and (ii) where the entity did not take reasonable precautions to prevent employees or agents from engaging in criminal wrongdoing within the scope of their employment or agency.

Sanctions

Corporate sanctions set forth in the CSA are serious and include the following:

• For a single offense, fines of up to 10% of groupwide worldwide annual sales for companies having such sales exceeding €100 million (as averaged over the past three years);
• For multiple offenses, fines of up to 20% of the last three years' annual sales;
• In cases involving a large number of victims, publication of the sentence imposed on the company; and
• As a last resort, a court order for dissolution of the company.

Deferral of Prosecution and Mitigation of Penalties

The CSA allows for the possibility that the prosecution of a culpable company may be deferred provided that the company satisfies certain judicial conditions (e.g., the entity's payment of restitution) and directives (e.g., the imposition of a third-party corporate monitor). The CSA also provides for the mitigation of corporate penalties under specified circumstances. In particular, under the CSA, the high end of the corporate fine range may be reduced by 50% if the entity:

• Materially contributes to the investigation of the alleged corporate crimes;
• Fully cooperates with German law enforcement authorities and shares with them any material results of an internal investigation, including evidence, interview notes, and investigative reports;
• Engages separate lawyers to handle the internal investigation, on the one hand, and the defense of the entity, on the other hand, and ensures that these lawyers are at least functionally separated by information barriers; and
• In the context of internal investigations, provides employees with advance notice that they (i) could be subject to personal criminal liability based on information they provide; (ii) may refuse to answer questions from internal investigators if they were to incriminate themselves in doing so; and (iii) have a right to be accompanied by their own counsel or a member of the works council.

In addition, the CSA provides that a company may not be dissolved and its sentencing will not be published if the company conducts an appropriate internal investigation.

The CSA would also allow the sentencing court to take into consideration whether the company in question had implemented an adequate Compliance Management System ("CMS") prior to the criminal wrongdoing, even if the company's CMS did not prevent the violation of criminal laws.

Attorney-Client Privilege

The CSA would codify judicial authority in Germany relating to the ability of German law enforcement authorities to search for and seize materials typically created in connection with internal investigations. In this regard, the CSA only provides privilege for communications made in the context of a criminal proceeding—specifically, communications between an accused and the accused's criminal defense counsel. By contrast, the CSA does not provide privilege for communications made in the context of internal investigations. Privilege, therefore, would not attach to communications between lawyers conducting an internal investigation and those persons whom the lawyers would typically interview or advise in the course of the investigation, including in-house corporate counsel, corporate personnel alleged to have engaged in misconduct, other employees believed to have knowledge of the matters under investigation, and the company's leadership (e.g., officers and directors). As such, the CSA would permit the seizure of materials containing such communications and effectively preclude the ability of the party from whom those materials were seized to challenge the seizure on the basis of legal privileges and doctrines recognized in other jurisdictions, including the United States.

Need to Prepare

Jones Day will continue to monitor and report on developments relating to the CSA. In the meantime, companies potentially subject to the CSA should recognize the distinct possibility that corporate criminal liability will be established in Germany and that any such liability regime will not just penalize misconduct attributable to corporate entities but also attach great significance to having a robust compliance framework. As such, companies are well advised to ensure that they have an effective and well documented CMS in place.