Criminal bribery and corruption liability of companies under German law

Many thanks to Dr. Andreas Fillmann and Nina K. Hesse from Squire Sanders’ Frankfurt Office for preparing the following article.

Criminal liability in the public sector

Generally, bribery and corruption are regulated under the German Criminal Code (Strafgesetzbuch). On hand corruption of public officials is unlawful in circumstances where an individual person offers, promises or grants a public official an advantage for the accomplishment of an act which is contrary to his or her duty (Section 334 of the Criminal Code – Strafgesetzbuch ) or in accordance with his or her duty (Section 333 of the Criminal Code). These rules apply regardless of whether the act has occurred or have yet to occur. On the other hand the public official acts unlawful in these situations if they accept an advantage (Sections 331 and 332 of the Criminal Code).

Can companies be held criminally liable?

The German jurisdiction does not, however, extend the criminal liability to companies or other “legal entities.” In Germany, unlike in the United States, only individuals can be subject to criminal prosecutions.

Although companies cannot be criminally prosecuted under German law, a company can be held liable under Germany’s Administrative Offences Act (Ordnungswidrigkeitengesetz) for an act of corruption committed by a person with managerial responsibility for the company if, as a result of the offence, duties of the company were violated or the company was enriched or intended to be enriched. A company may also be held liable for failure to take reasonable supervisory measures to prevent bribery by its employees. Furthermore, a company’s responsibility exists independently of whether or not an individual person is held criminally liable. Companies can be fined up to EUR 1 million (for each count of a related criminal offence), but stand to lose much more through confiscation of any economic advantage gained through the bribes. Other possible sanctions are definite or indefinite disbarment (may be limited to tenders for public orders) and revocation of permission or license to operate a certain business.

It should also be noted that there is no “facilitation/grease payments” or “promotional expenses” exemption under German law. However, as long as a matter does not involve a violation of the public official duties, the offering or acceptance of a benefit is not punishable.

Is commercial bribery and bribery of foreign agents illegal?

Corruption in the course of business and trade is also unlawful (Section 299 of the Criminal Code). It occurs if, during the course of a business transaction, an employee or agent intentionally demands, allows himself to be promised, or accepts a benefit for himself or another as consideration for giving an unfair preference in the competitive purchase of goods or commercial services. To be guilty of active commercial bribery, the defendant must have acted “for competitive purposes” to obtain “an unfair preference in the purchase of goods or commercial services.” Passive commercial bribery requires the recipient to accept (or allow to be promised) a briber “as consideration for according an unfair preference to another in the competitive purchase of goods or commercial services”.

Further, active commercial bribery of foreign employees/agents requires the defendant to act “in order to obtain or retain an unfair preference in a competitive purchase or an unfair advantage in international business transactions.”

Prosecution and penalties

Bribery in commercial practice is prosecuted only upon a criminal request or if the prosecutor’s office considers ex officio that criminal proceedings are required because of a special public interest.

As regards penalties, individuals convicted of committing a bribery offence in commercial practice shall be liable for a term of imprisonment between three months and five years (in less serious cases, imprisonment for not more than three years or a fine).  That sanction applies for each count of bribery, however, the total term of imprisonment must not exceed 10 years. Individuals are also subject to confiscation of the gross profit or revenue obtained as a result of the bribery offence.

Is the law applied extraterritorially?

The prohibition in principle applies to both domestic and foreign corruption. Companies are guilty of an administrative offence if their management has failed to fulfill the supervisory measures required to prevent bribery by employees of the company (Section 130 of the Administrative Offences Act). For that reason one has to start off by asking in what circumstances persons who are working or acting for foreign companies may be prosecuted for foreign bribery, thereby rendering the companies criminally accountable (i.e. it is irrelevant whether the company involved is a domestic or a foreign one).

Finally, acts committed by German citizens or acts committed against either German or other EU member state public officials are unlawful, regardless of where the criminal offences have been committed.

Overview of bribery and corruption offences

The following chart gives an overview of the requirements for a criminal liability of companies and employees/agents under German anti-bribery and corruption laws: