February 17, 2014 3968 VIEWS

Monday, February 17, 2014 6.20 AM / by Florian Block  of CMS Hasche Sigle


White Collar Crime - Germany


In September 2013 the North Rhine Westphalia state government presented a bill to introduce a criminal code for organisations on a federal level. In contrast to existing applicable law, it provides for criminal liability of legal entities and partnerships.


According to the North Rhine Westphalia government, the bill is a response to the insufficient preventative and deterrent effect of existing penalties against companies, particularly Sections 30 and 130 of the Administrative Offences Act. The main criticism is that the provisions do not give companies sufficient incentive to establish effective compliance systems. In addition, it is often the case with company-related financial crimes that individual employees are held responsible for personal misconduct – although their level of fault is only minor – while the companies often go unpunished. Due to complex organisational structures, it is often difficult to attribute the crime to an individual. Therefore, according to the North Rhine Westphalia government, the company should be the focus of the criminal investigation.



Criminal liability of organisations
In future, all legal entities, partnerships with legal capacity and organisations without legal capacity (the term 'association' is used in the bill) should be criminally liable. The risk of criminal liability exists irrespective of the legal form of the company. The requirement is a breach of applicable laws by an employee, director or officer of the organisation when acting on behalf of the organisation. This includes all criminal offences which infringe company obligations or enrich or aim to enrich the company. According to the North Rhine Westphalia government, criminal infringements by employees should be punished, but the company should also be punished for its failure to implement reasonable supervisory measures through management or other senior staff which could have prevented such infringements or at least made them more difficult in the first place.


Among other things, the bill provides for fines of up to 10% of the average total turnover of the company and, in certain cases, publication of the conviction. Additionally, companies should be excluded from being awarded public contracts or subsidies for at least one year. In the event of persistent repetition and the danger of recidivism by decision makers, the bill stipulates that the company may be dissolved.


Refraining from imposing penalties
As stipulated under the law of other foreign jurisdictions (eg, the UK Bribery Act), the bill allows for the possibility of waiving a penalty if the company has implemented sufficient compliance structures to avoid criminal offences and other statutory infringements.



Reactions to the bill have thus far been mixed. Whereas Transparency International Germany has reacted positively to the initiative, the bill has received strong criticism from some legal commentaries and company associations.


It is unclear whether the bill will enter into force and, if so, what the final version will look like. The Autumn Conference of the State Ministers of Justice welcomed the bill. First, the bill must be discussed with other state judicial administrations before it is submitted to the Federal Council. If the Federal Council adopts the bill, it is unclear what stance the federal government will take. The coalition agreement of the new government mentions that the law governing administrative offences by companies should be further developed, and that criminal liability for multinational corporations should be explored. However, this does not mean that the existing version of the bill will be adopted.


If this version or a similar version of the criminal code for organisations comes into force, the requirement for an effective compliance function will be anchored explicitly in a criminal code for the first time (as is the case in some other jurisdictions, such as the United Kingdom). A working compliance function is essential for companies to be able to avert risks.


For further information on this topic please contact Florian Block at CMS Hasche Sigle by telephone (+49 89 23807 264), fax (+49 89 23807 40605) or email (florian.block@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.


Source: ILO is a premium online legal update service for major companies and law firms worldwide. Register at www.iloinfo.com.


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