Tougher sanctions – Draft legislation to combat corporate criminality

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The Bundesjustizministerium, Germany’s Federal Ministry of Justice, has submitted draft legislation designed to combat corporate criminality. The bill provides for, among other things, significantly harsher penalties.

Going forward, businesses could be faced with significantly harsher penalties in the event of serious legal violations. The Bundesjustizministerium has submitted draft legislation to this effect, as was first reported by the Süddeutsche Zeitung.

While the bill is not yet publicly available, media reports indicate that businesses should anticipate, among other things, the possibility of having to pay hefty sums in the event of legal violations. The reports suggest, for instance, that fines will be substantially increased. With the upper limit currently set at ten million euros, this will in future be ten percent of annual turnover in the case of companies with an annual turnover of more than 100 million euros. In other words, there is the prospect of sanctions running into billions of euros. Sanctions may be reduced considerably in return for cooperating with the investigating authorities or internal investigations.

The current upper limit of ten million euros for fines is said to have particularly hit small and medium-sized businesses but done little to deter financially robust corporations. This is now set to change.

The draft legislation also indicates that the prosecution of corporate criminality will no longer be at the discretion of the authorities. Instead, the public prosecutor’s office will have to open an investigation if a company comes under suspicion. This should lead to consistent enforcement of sanctions.

The new law is meant to ensure that companies are subject to greater accountability if executive bodies or officers commit criminal offenses or tolerate them at a lower level.

We at the commercial law firm MTR Rechtsanwälte note that it is not only significantly higher fines in response to criminal offenses that businesses need to be prepared for. The bill also creates new requirements for an effective compliance management system. Companies will be accountable not only for actions taken at an executive level but also for offenses committed by other employees if these ought to have been prevented by an effective compliance management system. The introduction of stricter compliance rules may also lead to penalties being reduced.

Compliance is becoming an increasingly important topic not only for corporations but also small and medium-sized businesses. Lawyers with experience can offer advice.

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