Germany

• Investigations trends/developments
• Significant law reforms impacting corporate criminal liability
• Internal investigations – key developments
• Sectors targeted by law reforms or enforcement action
• Cross-border coordinated enforcement activity
• Financial crime issue predictions for 2022

Investigations trends/developments

The German criminal prosecution authorities will continue their enforcement activities against domestic and international financial institutions, as well as their managers and employees in relation to cum/ex trades in 2023. The investigations and court proceedings have gained further traction after the German Federal Court of Justice (Bundesgerichtshof) upheld a judgment of the Bonn Regional Court in July 2021, confirming the defendants’ conviction of severe tax evasion due to their involvement in cum/ex trading.

Investigations into Wirecard will also proceed in 2023. The criminal trial against the former CEO of Wirecard and other former senior Wirecard managers regarding allegations of fraud, balance sheet manipulation and other offences will likely continue throughout the year. The Munich Regional Court has scheduled 100 days of hearings for the trial, which is expected only to conclude in 2024.

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) will continue its financial reporting enforcement examination of the German housing company, Adler Group. In 2022, the German Federal Financial Supervisory Authority issued two press releases, reporting that the consolidated financial statements of Adler Real Estate AG, as at 31 December 2019, contained errors and that the company’s consolidated total assets were overstated by EUR 3.9 billion. The German Federal Financial Supervisory Authority’s powers to conduct financial reporting enforcement examinations were expanded in 2021 by the Financial Market Integrity Strengthening Act (Gesetz zur Stärkung der Finanzmarktintegrität), which was passed in response to the Wirecard case. Several media outlets have also reported that the Public Prosecutor’s Offices in Berlin and Frankfurt are conducting criminal investigation proceedings into the Adler Group.

Cyber-crime incidents have continued to rise sharply, according to a report of the German Federal Ministry of the Interior (Bundesministerium des Innern und für Heimat) published in October 2022. Several German authorities and major German companies have fallen victim to ransomware attacks. Criminal investigation proceedings into a large number of cybersecurity incidents are ongoing. The German Federal Government plans to expand the Federal Office for Information Security’s (Bundesamt für Sicherheit in der Informationstechnik) operations to respond to the ever-increasing threats.

Significant law reforms impacting corporate criminal liability

Even though the legal initiative to adopt the wholly new Corporate Sanctions Act (Verbandssanktionengesetz) was unsuccessful, the current German Federal Government still intends to revise the existing corporate sanctions rules and implement a legal framework for internal investigations. However, the wording in the coalition agreement suggests an amendment of the existing laws concerning corporate sanctions, rather than the adoption of an entirely new act.

Internal investigations – key developments

The German Federal Labour Court (Bundesarbeitsgericht) has acknowledged that companies can claim the costs of an internal investigation, conducted by an external law firm, from an employee in certain circumstances. However, the court has set out strict requirements for such a claim such as a concrete suspicion of serious misconduct as the trigger of the internal investigation and proof of an intentional and serious breach of a significant employment-related contractual duty, or even criminal behaviour, by the relevant employee. It is therefore essential for companies to consider these requirements, in particular documentation requirements, prior to any investigation to safeguard their compensation claims. In another decision, the German Federal Labour Court stated that the two-week period of notice for extraordinary termination of employment begins when the employer’s managing director is informed about the facts warranting the termination (e.g. by virtue of being provided with an investigation report). The German Federal Labour Court also stated that, in the relevant matter, the earlier knowledge of the relevant facts by the employer’s compliance function did not trigger the notice period.

Sectors targeted by law reforms or enforcement action

With effect from January 2023, companies operating in Germany and employing 3000 people or more will be subject to an entirely new set of rules obliging them to review their supply chains at least once a year and to enact a supply chain-related compliance management system. The newly imposed due diligence obligations under the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) aim to minimise the risk of infringements of human rights and environmental standards. German companies will have to ensure that their suppliers comply with the regulations. Such a trend is already clearly visible in the market, irrespective of the location of those suppliers. Companies may be increasingly exposed to litigation due to possible private enforcement measures by non-governmental organisations and workers’ unions and may even be required to terminate relationships with suppliers. The law will also become directly applicable to German companies normally employing 1000 people or more as of 1 January 2024.

The EU Whistleblower Directive is about to be implemented in Germany by the Whistleblower Protection Act (Hinweisgeberschutzgesetz), which, among other things, requires companies with 50 or more employees to set up an internal reporting office and is intended to apply to numerous violations of EU and national law. The Whistleblower Protection Act will enable whistleblowers to claim damages for any potential retaliation measures. We expect the Whistleblower Protection Act to come into force towards the end of Q1/2023. Companies which do not already have this sort of internal reporting mechanism in place will need to amend their compliance system accordingly.

Money laundering is a priority for the German Federal Government, which intends to set up a new federal authority. The planned German Federal Financial Criminal Police Office (Bundesfinanzkriminalamt) is aimed at improving the investigation and enforcement of suspected infringements of anti-money laundering laws. Against the backdrop of the significant extension of the criminal offence of money laundering (Section 261 of the German Criminal Code) in March 2021, we expect more enforcement activity in connection with money laundering in the near future. The German Federal Government may take further steps to improve compliance with anti-money laundering laws in view of recommendations received from the Financial Action Task Force in their Mutual Evaluation Report 2022.

Cross-border coordinated enforcement activity

German criminal prosecution authorities are said to have set up joint investigation teams with their counterparts in other European countries in order to trace the cum/ex transactions throughout Europe. These joint investigations are most likely to persist, alongside the ongoing investigations regarding the cum/ex complex.

Due to the severe fish mortality incident in the river “Oder” in 2022, the competent German Federal and State ministries set up a task force with their Polish counterparts to investigate the matter. However, the investigations were ultimately carried out by two separate expert commissions that also came to different conclusion as to the root cause of the incident. Against this background, environmental associations have demanded to implement a better international cooperation in the course of the final adoption of the EU Directive on combating environmental crime, which is expected in the course of 2023.

Financial crime issue predictions for 2023

We expect a rise in the number of criminal investigations into allegations of money laundering. We also anticipate that enforcement actions into notification requirements vis-à-vis the German Transparency Register, which contains information on the beneficial owners of legal entities, will remain at a high level in 2023. Upon creation of a new Federal Financial Criminal Police Office, additional resources will further increase the focus of enforcement activity in respect of anti-money laundering laws.

We also expect the first regulatory enquiries into compliance with the new Supply Chain Due Diligence Act, which will come into force in 2023. The Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle), the competent regulatory authority for the new law, will likely issue detailed guidance on the implementation of the legal requirement, which companies required to comply with the law need to take into account.

In view of the wide-reaching expansion of the European Union’s financial and economic sanctions against Russia in response to the country’s military attack on Ukraine, we also expect to see enforcement activity by German criminal prosecution authorities into non-compliance with the applicable sanctions regulations. While intentional violations of the European Union’s sanctions can be prosecuted as criminal offences under German law, negligent violations of the relevant provisions can be sanctioned as administrative offences.

This article is part of the Allen & Overy Cross-border White collar Crime and Investigations Review. Please visit the review homepage for our overviews and insights in other jurisdictions. 

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