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Additional compliance burdens to be expected | Hengeler Mueller News
Internal Investigations, Crisis Management and Compliance

Additional compliance burdens to be expected

In November 2021, Germany's new governing parties, the Social Democrats (SPD), Greens and the Free Democrats (FDP), presented their coalition agreement. It was formally signed in December. On three key compliance issues – corporate sanctions, whistleblower protection and human rights protection in supply chain management – there are indications that, in the medium term, implementation of the new Government's plans will create significant additional regulatory burdens for German business.

Corporate sanctions

According to their agreement, the coalition parties intend to review the provisions on corporate sanctions, including those on sanction amounts, in order to increase legal certainty for companies with regard to their compliance obligations and to create a precise legal framework for internal investigations. Even from an initial review, one cannot help thinking that the new provisions will be principally designed to introduce higher sanctions for companies. Even though the primary reason given for their introduction is to create greater legal certainty, this does not necessitate a corporate sanctions law, as apparently favoured by representatives of the SPD and the Greens. By the same token, discussion on the draft German Act on the Sanctioning of Entities (Verbandssanktionengesetz) during the last legislative term showed that lawmakers very quickly reached their limits in providing for specific compliance obligations due to the diverse nature of the parties affected by the regulations. The same is likely to apply to the establishment of detailed provisions on internal investigations: among other reasons, this is because of the immediate relevance to labour and co-determination law, as well as to data protection law, which is primarily established by European law.

Whistleblower protection – implementation of the EU Whistleblower Directive 

Another item on the Government's agenda is the legal certainty and practical transposition of the EU Whistleblower Directive. Whistleblowers are to be protected against any legal disadvantages - not only when reporting breaches of EU law, but also when reporting significant rule breaches or other significant misconduct where detection is notably in the public interest. During the last legislative term, implementation of the EU Whistleblower Directive failed due to opposition from the Conservatives to overachieving the transposition of the Directive into national law (also known as "gold-plating"). Now, gold-plating will be carried out, i.e. statutory whistleblower protection, not only in the case of breaches of EU law as provided for in the Directive, but also in cases far beyond that. What might seem appropriate from the whistleblower's viewpoint raises serious questions from the perspective of other affected parties. In some cases, whistleblower protection may entail far-reaching encroachments on the affected companies' fundamental rights (and possible restrictions on the functions of relevant government bodies). The coalition agreement appears to provide for such protection even where there has been no violation of law but (lawful) "considerable misconduct". –If this policy decision would be transposed into law, the transposition act's conformity with constitutional law would require a thorough review.

Supply chains 

Furthermore, the new Government is backing an effective EU Due Diligence Act based on the UN Guiding Principles on Business and Human Rights that does not place undue strain on SMEs. Moreover, the German Act on Corporate Due Diligence in Supply Chains is to be implemented without alteration and will possibly be improved. From a company perspective, keeping the current version of the German Act on Corporate Due Diligence in Supply Chains and implementing it unaltered can be viewed as being in the interests of legal certainty and predictability. Supporting an "effective EU Due Diligence Act" will, however, probably result in further increases to the administrative burden and create sanction risks for companies. In light of how the European law-making process has evolved, it is anticipated that obligations beyond those which are applicable under national law – in particular for SMEs – will be included at the EU level. 

Outlook 

Implementation of the amendments, as proposed in the coalition agreement with regard to current compliance matters, would materially change the legal framework for the companies concerned. Currently, it appears probable that this will result in an additional burden on them for preventive compliance and possibly lead to subsequent stricter sanctioning as well. Companies should therefore assess the draft legislative proposals in good time and address any necessary concerns. Equally, this may also present opportunities, particularly with a view to refining compliance management systems and taking account of ESG considerations. Companies should exploit these opportunities at the earliest possible stage.

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