Germany - The Strategic View - Business Crime 2016

Dr. Christian Pelz and Dr. Martin Schorn describe the significant changes to Germany’s business crime statutory framework – including those in the health sector –as well as the adoption of the Second Market Abuse Directive

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1. What trends, in terms of activity or focus, have you seen in the prosecution of business crimes in your jurisdiction in the last 12 months?

In the last year, certain investigations were the trigger of discussions in the public and legal community.  Investigations against financial institutions with respect to tax evasion in connection with cum-ex or cum-transactions are increasing.  The same applies to investigations for tax evasion due to the recent restrictions on immunity from prosecution following a self-disclosure.  Corruption and bribery will remain a major focus of prosecutors and regulators.  Due to a recently passed bill on bribery in the health sector, it can be expected that this will be the number one hot topic in future.

2. Are enforcement agencies particularly focused on any specific industries or crimes?

Prosecutors are ex officio obliged to investigate any suspected offence which they become aware of.  Since they do not have discretion, they cannot focus on particular fields of criminal law.  However, there is a tendency for much stricter persecution of offences against the budget, the social security system or other interests of the general public.

3. Are enforcement agencies more or less focused on pursuing cases against corporations or individuals?

Although German law does not acknowledge criminal liability of corporations, meaning that criminal investigations are conducted against individuals only, corporations can be fined.  The maximum fine for corporations was recently increased to 10 million Euros per incident, but can be even higher in cases where the administrative offence itself provides for a higher fine or if the profit obtained by the criminal conduct exceeds the maximum fine.  Ultimately, the differences between jurisdictions which provide for criminal liability of corporations are minor.  There is a tendency to sanction corporations for a much broader range of offences committed by directors, officers or employees and to impose increased corporate fines compared to the past.  In addition to that, prosecutors are determined to prosecute board members for involvement in criminal activity.  If no active participation can be proven, prosecution is often based on the concept of aiding and abetting by omission, charging directors that they did not implement adequate procedures to prevent offences although they were aware of signs of such.

4. Does the legal framework concerning the prosecution of business crimes allow for extraterritorial enforcement?  Are such matters being pursued?

In general, criminal law is applicable if the criminal conduct was committed or the results of the offence occurred in Germany.  This allows prosecution abroad if at least a part of the conduct occurred in Germany.  In addition, German criminal law provides that a participant of an offence who acted in Germany can be prosecuted even if the main offence was committed abroad and is not punishable under applicable local law.

Moreover, a number of offences are punishable even if committed abroad, mostly under the condition that the perpetrator is a German citizen.  This in particular applies for bribery and export control violations.  Further, German law allows investigation against German nationals for all kind of offences committed abroad under the condition of double jeopardy.  Thus, some kind of extraterritorial reach will be achieved, although mostly limited to German nationals.

5. What judicial or legislative developments have impacted the prosecution of business crimes in your jurisdiction in the last 12 months?  Are there any significant proposals for reform of the legal framework that governs business crimes in your jurisdiction?

There have been a number of significant changes to the German statutory framework of business crime.  The first is the introduction of the so-called agent principal model into the legal provisions for private bribery.  This means that any breach of an employee or agent of his duties, vis-à-vis his principal or employer, will be punished.  However, it must be stressed that the provisions on private bribery still follow the competition model prohibiting activities in violation of free and fair trade practices, so that disclosure to and the consent of the employer or principal does not prevent criminal liability.

In the course of these legislative changes, the scope of the statutory provisions for bribery of foreign public officials was extended.  Not only bribery, but also giving an advantage to a European public official, is now punishable.  Further, the requirement of cross-border business dealings regarding the bribery of foreign public officials was skipped.

The second important change was the introduction of a legal provision that criminalises corruption in the healthcare industry.  Under the previous legal regime, granting or offering a benefit to self-employed physicians, dentists, pharmacists and other healthcare professionals was not regarded as corruption, as these healthcare professionals would neither qualify as public officials nor as employees of a business.  The practical implications of this change for the pharmaceutical industry can hardly be overestimated; e.g. the common practice of “sponsoring” registered doctors, whether in the form of remunerated participation in clinical studies, in the form of advisory agreements or giving remunerated lectures, will in future require a critical review.  A critical review must also be applied to rebates on the purchase of medicines or medical products which are designed for direct use by the medical practitioner or one of their professional assistants, such as dental implants or prostheses.

Another important change is the adoption of the Second Market Abuse Directive into German law, including the direct application of the European Market Abuse Regulation.  The new legal framework allows enforcement agencies in cases of insider trading or market abuse to impose severe fines on legal entities of up to, whichever figure is higher, 15 million Euros or 15% of the of the total turnover of such entity or, in case of a holding company, of the total turnover of the whole group achieved in the business year preceding the decision of the authority.

The German government has recently adopted a draft bill for remodelling the rules on the skimming of proceeds of crime.  The bill will now be discussed in parliament.  If this bill comes into force, it will have a huge impact on companies if employees or agents are charged with criminal behaviour that the company has benefited from; e.g., the skimming of proceeds of crime will in future be possible even if there are claims for compensation of the injured party which, according to the current legal situation, prevents the law enforcement authorities from seizing profits.

6. How common is it for enforcement agencies in your jurisdiction to exchange information and cooperate internationally with other agencies?  What are the consequences of cross-border cooperation on prosecutions of entities and individuals in your jurisdiction?

International cooperation of law enforcement authorities in corporate and business crime cases is a usual practice even if there is no institutional exchange of information on business crimes as such.  The number of cases in which legal assistance is requested (or granted) is increasing.  In high-profile cases, even joint investigation teams from law enforcement agencies of EU Member States are created.  However, central corruption registers do not exist on a federal level in Germany, only on the state level in the states of Berlin and Nordrhein-Westfalen.

7. What unique challenges do entities or individuals face when enforcement agencies in your jurisdiction initiate an investigation?

Although there have been some attempts to introduce such a legal concept into German criminal law in recent years, there is still no criminal liability for legal entities.  However, corporations and legal entities can, as already described, be subject to often severe fines.  One significant difference in Germany compared to other, especially common law, jurisdictions, is that when investigations are initiated and searches and witness interrogations are made, communication between managers and employees of corporations with their in-house counsel will not be legally privileged.  Legal privilege will only apply to communication with external lawyers if the communication is in the possession of the external lawyer.  Further, in case of search and seizure measures, compliance departments will get raided in search of evidence and information that has already been collected by compliance officers.  Prosecutors often request and expect corporations to cooperate and disclose the findings of internal investigations and all documentation as well as interview records.

8. Do enforcement agencies in your jurisdiction provide incentives for individuals or entities to self-report a business crime or otherwise provide assistance to the government?  If so, what factors should individuals or entities consider when assessing whether to self-report a business crime or cooperate with a government investigation?

In cases of tax evasion, comprehensive self-disclosure and reimbursement of the evaded taxes can lead to impunity.  Nevertheless, there are a considerable number of prerequisites which need to be met.  Impunity after self-disclosure is not a general concept, but a rare exception in German criminal law and, besides tax evasion, only applies to some administrative offences in export control law.  However, early and comprehensive self-reporting will always lead to a mitigation of punishment, and so will cooperation with the investigators.  Whether it is recommended to self-report criminal wrongdoing and to cooperate with law enforcement agencies must therefore be decided on a case-by-case basis.

Apart from reporting obligations under money laundering laws, there are no obligations to report offences committed in the past.

A reward system for whistleblowers or other individuals who disclose criminal behaviour to law enforcement agencies does not exist.

9. Do enforcement agencies in your jurisdiction use non-prosecution agreements (“NPA”) or deferred prosecution agreements (“DPA”)?  If so, how do such agreements work in practice and what can entities or individuals do to reach an NPA or a DPA with enforcement agencies?  If not, do you believe it is likely that such agreements will become part of the legal framework in the next five years.

German law enforcement authorities do not make use of NPAs or DPAs.  The concept of entering into formal contractual settlements of criminal charges in this early stage of criminal proceedings is unknown to German law.  There are only formal rules on plea agreements in court hearings.

However, German criminal procedure law offers the option for prosecutors to discontinue prosecution, in particular if conditions and instructions imposed on the suspect eliminate public interest in further prosecution and if the degree of guilt does not present an obstacle.  Such conditions will usually include a payment of funds, the amount of which will relate to the personal financial capabilities of the suspect and his degree of guilt.  Such payment cannot be claimed by the suspect and is down to the discretionary decision of the prosecutor only.  However, business crimes with a complex factual background in which extensive investigations will be necessary may often be settled in this way in particular.  Payments made by prosecuted employees or managers can be reimbursed by the company. 

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