Before the German federal election in 2021, there was much public debate about the former government's draft Corporate Sanctions Act, which aimed to introduce a new framework for prosecuting and sanctioning companies. The bill did not pass the Bundestag and while the current government has also announced that it wants to reform this area of law, it plans to make only targeted adjustments to the existing legal framework. Contrary to what this development might suggest, it is important to understand that the current legal situation in Germany already allows for the imposition of corporate fines for criminal or administrative offences – and in recent years, prosecutors and courts have been using this tool more and more frequently.
Requirements for corporate fines
Under German law, companies cannot be defendants in criminal proceedings, because only individuals can commit offences. That is the basis for the often-used maxim that there is no corporate criminal liability in Germany. However, there is a statute that allows the imposition of an administrative fine against companies (Sec. 30 of the German Act on Administrative Offences (OWiG)). Such a corporate fine can be levied if a person with a "managerial position" has committed a criminal or administrative offence, as a result of which duties of the company have been violated, or where the company has been enriched or was intended to be enriched. A managerial position includes persons with supervisory and control powers relating to a specific area of the company, such as executives, directors, and certain heads of divisions and departments. Criteria for a managerial position are personnel, budget or departmental responsibility, and the power to represent the company. Corporate fines can also be levied on foreign companies. Although this may pose practical problems, such as international enforcement, it is done on a regular basis.
Offences by employees not holding a managerial position do not trigger a corporate fine. However, in such cases, prosecutors often invoke a breach of supervisory duty by someone with a managerial position. Breach of the latter is an administrative offence that is committed if someone omits to take the supervisory measures required to prevent business-related criminal or administrative offences within the company, when the underlying offence would have been prevented, or made much more difficult, if there had been proper supervision. Where a regular employee has committed an offence, prosecutors therefore usually claim that there was a lack of supervision by management, allowing them to impose a fine on the company.
Amount of corporate fines
For an underlying criminal offence, the current maximum corporate fine is 10 million euros for intentional violations and 5 million euros for negligent violations. This is also the case for violations of supervisory duty where the underlying offence is a crime. This rather low amount has been one of the main criticisms of the current framework and the draft Corporate Sanctions Act suggested raising the maximum fine to 10 per cent of the company's annual turnover. However, the maximum fines for administrative offences in certain areas of regulation, for example antitrust, capital markets, data protection and anti-money laundering, already amount to a certain percentage of the company's annual turnover. Notably for larger companies, this leads to the paradoxical consequence that administrative offences can result in higher corporate fines than related criminal offences.
Proceeds from an underlying offence can also be confiscated beyond any statutory maximum fine. The confiscated amount will be included in the total fine. This has resulted in corporate fines reaching hundreds of millions of euros, despite the statutory maximum for these offences being 5 million euros.
The extent to which the maximum permissible amount of a fine is limited in an individual case depends on the gravity of the offence and the economic circumstances of the company. Consideration will also be given to whether the company has taken appropriate compliance measures and to what extent it has cooperated with the authorities.
Competent authority and proceeding
There is no central federal agency competent to prosecute companies.
With regard to underlying criminal offences, more than 100 local public prosecutors’ offices at state level are also competent to prosecute companies. However, only a criminal court can impose a corporate fine in such cases.
For underlying administrative offences, the competent regulatory authority can prosecute companies and impose a corporate fine. In tax law, for example, this would be the local tax office. However, the prosecutor's office can always take over the case.
If a corporate fine is based on a breach of supervisory duty which is linked to an underlying criminal offence, the local public prosecutor's office prosecutes and levies the corporate fine. Accordingly, proceedings against companies where fines are levied can be concluded prior to a potential criminal trial against the responsible individuals. On the other hand, fines for breaches of supervisory duty linked to an administrative offence can be imposed by the competent regulatory authority, if the prosecutor's office does not take over the matter.
As a general rule, in contrast to criminal proceedings against individuals, it is at the discretion of the competent authority or court whether or not to prosecute and sanction companies. The draft Corporate Sanctions Act also aimed to introduce mandatory proceedings against companies. But in practice, prosecutor's offices, especially those in bigger cities, have been prosecuting companies under the existing rules for quite some time.
While the government has not specified what changes it wants to make, in practice, German and foreign companies can already be subject to heavy fines as prosecutors claim that there is a lack of supervision in order to impose them. To protect themselves, in particular against accusations of having violated their supervisory duties, companies must have adequate compliance programs in place, and in the case of investigations against employees, they should develop a corporate defence strategy at an early stage.