Criminal proceedings against entities under German law only are possible under provisions of the Code of Administrative Offences (Gesetz über Ordnungswidrigkeiten). The applicable provisions have recently been tightened and now provide the imposition of a fine of up to ten million Euros upon an entity that has failed to perform its duties regarding the prevention of criminal conduct of employees.
However, this punishment is still not grave enough a threat to make companies set up compliance systems suited to fight misconduct of employees effectively, says Mr Thomas Kutschaty, Minister of Justice of North Rhine-Westphalia. Furthermore, the classification of such misdemeanors as Administrative offences does not do justice to the immense implications of many such proceedings, especially since in public perception typical Administrative offences are of subordinate importance, such as traffic offences or noise nuisance. Also, since structures in companies are often inscrutable it is at times rather difficult to attribute a certain offence to a particular employee. Difficulties of proof could be avoided if the focus of a criminal investigation would shift to the company.
Therefore in September 2013 the government of North Rhine-Westphalia introduced a legislative proposal designed to implement provisions of a corporate criminal law into the federal penal law. The intended penalties are significant. The presented bill provides for fines of up to 10% of the average annual turnover of a company. In addition, the draft makes provisions for affected companies to be excluded from being awarded public contracts for at least a period of one year which in fact might constitute a severe punishment for many companies.
Yet, the probability of the implementation of such legal provisions cannot be foreseen, although the German Governments coalition agreement provides that the topic shall be further developed. The legislative draft has been praised by organizations such as Transparency International Germany, yet also strong criticism has been issued. Especially company associations such as the Chamber of Industry and Commerce have expressed concerns with regard to the extent of the punitive measures awardable.
It should be a matter of fact that not least with regard to anti-corruption measures the discussed provisions could be of utmost importance. An effective compliance would become even more important for companies, in particular since not only severe monetary fines are possible but also the loss of contracts and public humiliation in court are a threat.