In its session on 18 September 2020, the Bundesrat commented on the Federal Government’s draft bill of the German Corporate Liability Act [Verbandssanktionengesetz - VerSanG] in accordance with Article 76 II German Constitution [Grundgesetz - GG]. The Committee's recommendation to reject the draft bill in its entirety was not accepted. However, the Bundesrat does propose several rather far-reaching amendments and additions. These aim not least to protect the interests of small and medium-sized enterprises.
Below, we are presenting some of the Bundesrat’s statements that we felt are of importance. You can find the complete statement of the Bundesrat here (only available in German).
The extent to which the effects on small and medium-sized enterprises fulfil the criterion of reasonableness should be examined in the further legislative procedure. Some corporate crimes might have to be deleted completely for these enterprises. Also with regard to precautions which serve to prevent corporate crimes from the outset, a graduated approach is sought, as small and medium-sized enterprises would not be able to cope with the administrative burden. In order to ensure that the graduated approach is sufficiently defined, more specific regulations need to be created.
2. Statements on amendments to the content of individual paragraphs:
2.1 § 2 II No. 3 VerSanG: The geographical scope of application the law is to be reduced even further to prevent the law enforcement authorities from being overburdened by foreign offences.
2.2 § 3 I No. 2 VerSanG is to be formulated in such a way that the failure of managing officers to take suitable precautions not only has to objectively be in breach of duties, but also culpably (wilful or negligent).
2.3 An important provision to limit the legal consequences can be found in the proposed § 6 sentence 2 - new - VerSanG: "In such cases, the corporate sanction may not exceed the value of the assumed assets as well as the amount of the corporate sanction reasonable for the legal predecessor."
2.4 The proposed amendments to §§ 35 et seq. VerSanG were particularly far-reaching: The introduction of the principle of mandatory prosecution and the very broad scope of application of the VerSanG would in many cases lead to sanction proceedings against enterprises for which there is no recognisable need for such sanction proceedings.
The law enforcement authorities therefore need to be given a broad scope of discretion regarding prosecution. According to the current statement of the Bundesrat, prosecution should be refrained from:
a. if the focus lies in the area of individual responsibility.
b. if the corporation is personally or economically virtually identical to the offenders and no sanctions are necessary.
The statement of the Bundesrat did not assume the introduction of a generally bound scope of discretion regarding prosecution. However, the discretion is bound in such a way that, in the case of serious punishable offences, the involvement of several executive officers and in cases of repetition, prosecution generally cannot be refrained from.
Against this background, a new version of § 35 has been proposed, which we reproduce in full below:
New version of § 35:
"§ 35 Abstention from prosecution
(1) If the corporation’s responsibility is of no considerable consequence alongside the individual fault, because
1. the focus of the fault lies in the area of individual responsibility for the corporate crime,
2. the corporation is personally or economically virtually identical to the perpetrators of the corporate crime and a sanctioning of the corporation in addition to punishing the perpetrators of the corporate crime does not seem necessary,
3. as a result of the corporate crime, the corporation has suffered consequences which are so serious that the public interest does not require the prosecution,
4. the corporation has no business assets and no business operations of its own and therefore a sanction does not seem necessary, the prosecuting authority may refrain from prosecuting the corporation at its dutiful discretion In doing so, it takes into account whether the efforts associated with the investigation would be in proportion to the significance of the case or to the sanction to be expected in the event of a conviction, as well as the consequences of a possible sanction for third parties. The limitation must be put on record.
(2) The prosecuting authority shall not refrain from prosecuting the corporation if the imposition of a corporate sanction is a required impact on the corporation because of the significance and seriousness of the corporate crime or because of the seriousness or extent of the failure to take reasonable precautions to avoid corporate crimes. This is usually the case when
1. the corporate crime is a crime perpetrated by a managing officer,
2. the corporate crime is punishable by a custodial sentence in at least the amount of the minimum sentence and involves several of the corporation's managing officers, or
3. it was preceded by similar corporate crimes of managing officers of the corporation within the time period specified in § 21.
(3) Paragraph 2 applies to the resumption of proceedings which have been discontinued in accordance with paragraph 1, provided that the limitation period has not expired in the meantime.”
2.5 On grounds of this new version of §§ 35 et seq. VerSanG, § 3 II VerSanG would also have to be deleted. This provision did not deal with a material injustice, rather it was intended to bind the discretion to prosecute, which is why it has found its place in §§ 35 et seq.
2.6 § 5 No. 2 VerSanG: According to the statement of the Bundesrat, this should be deleted. It is not evident why the immunity of the offender should affect the corporate sanction.
2.7 § 14 VerSanG: In the opinion of the Bundesrat, this should also be deleted. There should be no public announcement.
2.8 § 24 I VerSanG: Furthermore, the Bundesrat also requests a fundamental review of the procedural part of the Corporate Liability Act in order to make the procedure more effective and less susceptible to abuse. It is not sufficiently clear which provisions of the German Criminal Code [Strafprozessordnung - StPO] are to be applicable.
2.9 § 38 (5) sentence 2 - new - VerSanG: The following sentence should be added to § 38 (5): "§ 153c (1) StPO shall also apply if the corporate crime was committed abroad or if a case of § 2 (2) exists.”
2.10 The Bundesrat proposes a supplementation of § 39 I VerSanG for the case of factual insolvency with the following wording: "... or has become factually insolvent due to over-indebtedness or illiquidity". The meaning and purpose of the sanction proceedings cannot be achieved in this case. However, it should also be examined whether supplementary provisions need to be created in connection with § 39 III VerbSanG, so that the law enforcement authorities are informed of when the insolvency proceedings have been discontinued.
2.11 The transitional period until entry into force is to be increased to three years.
This shows that the discussion on the German Corporate Liability Act is far from over. Countless proposals of the Bundesrat will meet with the approval of company representatives - especially the proposals that aim to relieve the burden on small and medium-sized companies.