The diesel emissions scandal and the so-called cum/ex trades have unleashed unprecedented enforcement activity by German criminal prosecution authorities against national and international companies. In their wake, the German legislator is determined to expand the enforcement options available to sanction corporate crimes with the introduction of a new Corporate Sanctions Act, the draft of which is currently coordinated within the Federal Government. This Act will also impact how internal investigations with a German nexus are conducted. In the current enforcement environment, investigations into tax evasion, money laundering and insider trading are high on the agenda of German criminal prosecution authorities.
- Investigations trends/developments
- Significant law reforms impacting corporate criminal liability
- Internal investigations – key developments
- Sectors targeted by law reforms or enforcement action
- Cross-border co-ordinated enforcement activity
- Financial crime issue predictions for 2020
The enforcement environment in Germany remained active in 2019. Criminal prosecution authorities raided several leading businesses and imposed significant corporate administrative fines. A sizeable number of public prosecutors appear to be less open-minded about settling investigations into corporate crimes outside of a main public criminal trial. In line with this observation, four financial services companies were summoned to appear before the Regional Court in Bonn in the first main criminal trial concerning cum/ex trades as so-called “confiscation participants”.
Following several corporate scandals, the German Federal Ministry of Justice prepared a draft bill of a Corporate Sanctions Act. If enacted in its current form, it will significantly affect the sanctioning of corporate crimes in Germany. The draft bill increases the ceiling on corporate fines for large companies with an annual turnover of more than EUR100 million to 10% of the company’s average annual worldwide turnover per case while allowing for the unlimited confiscation of economic benefits.
The draft bill also introduces new ways to sanction companies. If the corporate crime impacted a large number of individuals or entities, the competent court may order that the judgment against the company be made public. As an ultima ratio in particular cases, the court may even order the liquidation of the company although this particular sanction currently appears to be among those that may be deleted from the draft. The draft bill also introduces new mechanisms to resolve proceedings against companies.
These mechanisms include the possibility of appointing an expert to verify whether the company has taken appropriate compliance measures to prevent future criminal offences. Furthermore, the draft bill provides for the possibility to sanction activities abroad to which German criminal law currently does not apply. Read more.
The German Federal Ministry of Finance published the first “National Risk Analysis” in October 2019. The analysis identifies how to overcome the challenges to combating money laundering and terrorist financing in Germany. The National Risk Analysis identified the following business sectors and activities as having the highest risks of money-laundering and terrorist financing: anonymous transaction opportunities, the real estate sector, the banking sector, cross-border activities and payment services.
Those already obliged under existing money-laundering laws now face the task of taking into account the findings of the National Risk Analysis within the framework of their own risk analyses and prevention systems.
German law does not have the concept of legal privilege. As a consequence, internal investigation reports and interview notes only enjoy a very limited protection from seizure by German criminal prosecution authorities. Attorney-work products may be exempted from seizure if they were produced with a view to defending a company in current or imminent proceedings aimed at the imposition of a corporate administrative fine or confiscation order. While the legal threshold for seizing documents at law firms continues to be high, German authorities raided at least two major law firms recently, one in 2019 and another one early in 2020.
There are moves afoot to make granting employees certain rights during an internal investigation one of the relevant considerations for a significant reduction of a potential corporate sanction. This would affect the conduct of internal investigations which have a German nexus. The draft bill for a Corporate Sanctions Act envisages that a corporate sanction can be reduced if, inter alia:
- a third party commissioned with the investigation is not also acting as defence counsel for the company or any individual defendant; and
- the internal investigation must have been conducted in accordance with the principles of fair proceedings. In relation to employee interviews, this means that:
- employees are cautioned before interview;
- they are notified of, and granted, the right to independent legal representation or to consult a member of the works council; and
- they are advised in advance of, and have a right to remain silent to, any question which could expose the interviewee, or their relatives, to the risk of being prosecuted.
German criminal prosecution authorities often lack the resources to swiftly investigate complex corporate crimes and increasingly suggest that companies conduct an internal investigation, the results of which they are expected to hand to the authorities. Such behaviour may lead to co-operation credit, thus increasing the possibility of a less severe sanction.
Following the General Data Protection Regulation's entry into force, companies have become more cautious when reviewing personal data, such as e-mail, during internal investigations.
Enforcement actions by German criminal prosecution authorities into cum/ex trades have affected most of the national banks and international banks. The investigations into the diesel emissions scandal have concerned many car manufacturers and car components suppliers. The National Risk Analysis may lead to greater scrutiny of the real estate sector in the coming year.
Many large-scale investigations have a cross-border element and require the German authorities to reach out to foreign authorities in mutual legal assistance procedures. However, we have not yet seen a joint approach such as the one taken by the French Parquet National Financier (PNF), the UK Serious Fraud Office (SFO) and the U.S. Department of Justice (DoJ) in the Airbus bribery and corruption case resolved in January 2020.
Cybercrime incidents, such as the notorious “fake president” fraud cases and data theft, will continue to pose a business critical threat to companies. In addition, we observe an increase in whistle-blower reports and internal investigations regarding potential harassment cases (#MeToo investigations). In line with the current trend of Environment, Social and Governance-compliant investments, potential human rights issues in the supply chain could attract increased scrutiny from authorities. We also expect a rise in investigations into allegations of money laundering, particularly in the real estate sector.
Finally, in-house legal and investigation teams will need to attend closely to further developments around the draft Corporate Sanctions Act.
This article is part of the Cross-border White Collar Crime and Investigations Review. Read our overviews and insights in other jurisdictions here.
“The compliance practice maintains extremely good connections in the financial sector, which ensure capacity utilization in the course of cum-ex matters at A&O.”
JUVE Handbook Germany, 2019/2020 – Compliance
“Allen & Overy has market leading capabilities at the interface with the tax practice.”
Legal 500 Germany 2018
“The hallmarks of the practice include cross-border investigations into possible market manipulation, cartel infringements and tax fraud.”
Legal 500 Germany 2018
“Also held in high esteem for its capabilities in regulatory investigations concerning financial trading and tax structures.”
Chambers Europe 2018, 2019 – Germany
[Wolf Bussian] is “very clever and extremely sociable”.
JUVE Handbook Germany, 2019/2020
Jan Erik Windthorst is “Creative, highly professional”.
JUVE Handbook Germany, 2019/2020
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