Financial crime in Germany: overview

A Q&A guide to financial and business crime in Germany.

The Q&A gives a high level overview of matters relating to corporate fraud, bribery and corruption, insider dealing and market abuse, money laundering and terrorist financing, financial record keeping, due diligence, corporate liability, immunity and leniency, and whistleblowing.

To compare answers across multiple jurisdictions, visit the Financial and Business Crime Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to financial and business crime law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corporatecrime-mjg.

Contents

Fraud

Regulatory provisions and authorities

1. What are the main regulatory provisions and legislation relevant to corporate or business fraud?

Germany is a federal jurisdiction with 16 states. The main regulatory provisions are the:

  • Criminal Code (Strafgesetzbuch).

  • Code of Criminal Procedure (Strafprozeßordnung).

These provisions apply at both federal and state levels.

In general, the police and prosecuting authorities of the respective federal states investigate the crimes committed there. The Federal Criminal Police Office (Bundeskriminalamt) only has prevailing competence in cases of international organised crime (such as in relation to drug dealing and money laundering) or state offences (terrorism, treason and so on).

All crimes (including business crimes) are prosecuted by the Public Prosecutor's Office. However, in practice the competent police (supervised by the prosecutor) effectively leads the investigations.

Some of the prosecution offices and police departments have specialised units that focus on white collar crime. Each federal state has its own judicial circuits with its own Public Prosecutor's Offices.

There are also other specialised investigating authorities. These include the:

  • Tax authorities, which are competent to investigate tax crimes (section 386, Tax Code (Abgabenordnung)).

  • Custom authorities, which investigate violations of foreign trade regulations and labour law.

  • Cartel authorities, which are exclusively competent in anti-trust law (section 82, Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen).

For more information on the regulatory authorities, see box: The regulatory authorities.

Offences

2. What are the specific offences relevant to corporate or business fraud?

The most relevant financial crimes in the context of corporate business are:

  • Fraud (section 263, Criminal Code). This includes subsidy fraud, insurance fraud, or obtaining services or credit by deception (sections 264 to 265b).

  • Embezzlement (section 266, Criminal Code). This includes the non-payment and misuse of wages and salaries (section 266a).

Related offences include:

  • Bribery in the commercial sector (section 299ff, Criminal Code).

  • Bribery in the public sector (section 331ff, Criminal Code).

  • Tax evasion (section 370, Tax Act).

  • Money laundering (section 261, Criminal Code).

  • Criminal anti-competition of public bids (section 298, Criminal Code).

The following offences are qualified as fraud offences under German law:

  • General fraud (section 263, Criminal Code). A person who deceives somebody with the intent of obtaining for himself or a third person an unlawful material benefit and thereby damages the property of another commits fraud. Specific intent directed at enriching oneself or a third party is required. The offence can also be attempted (section 263(2)).

  • Subsidy fraud (section 264, Criminal Code). It is a criminal offence to make incorrect or incomplete statements to a public authority competent to approve a subsidy, in relation to facts relevant for the grant of the subsidy to oneself or other party, if these statements are made on behalf either of himself or a third party and are advantageous either to himself or that third party. Gross negligence is sufficient to trigger criminal liability (section 264(4)).

  • Capital investment fraud in connection with the sale of securities (section 264a, Criminal Code). This provision criminalises a person who, in connection with the sale of securities, subscription rights or shares intended to grant participation in the yield of an enterprise (or an offer to increase the capital investment in such shares), makes incorrect favourable statements or keeps unfavourable facts secret in prospectuses, representations or surveys about the net assets, to a considerable number of persons, in relation to circumstances relevant to the decision about acquisition or increase. This provision is to prohibit untrue advertising claims, as they endanger the property of possible buyers and also endanger the trustworthiness of the capital market. Unlike in the case of general fraud, in the case of capital investment fraud, damage to property is not a necessary element of the offence.

  • Accounting fraud (section 331, Commercial Code (Handelsgesetzbuch)).Members of the managing board or the board of supervisors who misrepresent or conceal the state of affairs of a company (or company group) in the opening balance sheet, annual report, status report, interim balance sheet or balance sheet oath are punishable by up to three years of imprisonment or a fine. The provision requires intentional conduct. False statements or non-disclosure of relevant information to the auditor are also punishable under this provision.

  • Embezzlement (section 266, Criminal Code). Persons who violate fiduciary duties and thereby cause damage to the property interests of a third party are, in the case of intentional conduct, subject to imprisonment not exceeding five years or a fine.

The offences outlined above are not strict liability offences and generally require criminal intent.

In general, assistance and incitement are also punishable. In some cases, when the law so provides, negligence or gross negligence (such as in case of money laundering) will suffice. Some offences can also be committed by omission (for example, if the law imposes a duty to act and the person fails to do so (section 13, Criminal Code).

Attempt is only punishable if the relevant statutory offence provides so explicitly (for example, attempted fraud under section 263(2) of the Criminal Code read in conjunction with section 22ff).

Enforcement

3. Which authorities have the powers of prosecution, investigation and enforcement in cases of corporate or business fraud? What are these powers and what are the consequences of non-compliance?

Authorities

In Germany's federal jurisdiction system the competencies of its judicial branch are divided between the 16 states and the federation. The basic principle of this distribution of work is that judicial functions are the responsibility of the states unless it is a matter is of great importance or must necessarily be handled by federal authorities or courts to ensure uniformity of court rulings in Germany. Important cases (mainly concerning state security and international crimes) are handled by the general federal prosecutor in Karlsruhe, but for most cases, district prosecutors or general prosecutors of the respective federal state are competent. As a general principle, all crimes, including business or corporate crime, are investigated and prosecuted by the Public Prosecutor's Office and the competent police of the respective federal states. The Federal Criminal Police Office have prevailing competence only in the case of:

  • International organised crime (for example, drug dealing).

  • State offences (terrorism, treason, and so on).

The police is supervised by the prosecutor, but, in practice, effectively leads the investigations. Some of the prosecution offices and police departments have specialised units with a focus on white collar crime. Each federal state has its own judicial circuits with its own Public Prosecutor's Offices. Moreover, for certain types of business crimes there are specialised authorities. Therefore tax authorities are competent to investigate tax crimes (Section 386 of the German Fiscal Code (AO)), and cartel authorities are exclusively competent in anti-trust law (Section 82 of the Act Against Restraints of Competition (GWB)). Moreover, the custom authorities are competent for the prosecution of certain crimes, for example those related to foreign trade, illegal employment issues, some cross-border related offences, and so on.

For more information on the [prosecuting authority] see box: The authorities.

Prosecution powers

The Code of Criminal Procedure allows for some compulsory measures for finding and securing evidence, securing objects subject to deprivation or confiscation, and apprehending the accused (section 94, CCP and the following). Examples include confiscation, telephone tapping, eavesdropping operations in private residences or public areas, grid searches (that is, where the police and prosecution services electronically search certain databases containing the personal data of a large proportion of the population (mainly non-suspects), by applying specific criteria that suspects typically meet, and identifying a small quantity of suspects from a big mass of data), use of technical aids, use of undercover agents and informers, and search and seizure. . If there is a risk of the accused leaving the jurisdiction or hiding evidence, such person can also be held in pre-trial detention (section 112, CCP).

Powers of interview

Interrogations related to a criminal investigation process can be conducted either by the competent police or the prosecution office. The Code of Criminal Procedure (CCP) regulates the hearing of the accused (sections 136 and 163a) and the hearing of witness (sections 48, 58 and 161a). The accused is only obliged to appear if summoned by the prosecution office (section 163a(3)). In case of non-compliance, the accused can be brought before the prosecutor compulsorily. The accused must be informed about the charges and his rights, including the right not to incriminate himself and the right to be represented by counsel (section 136, CCP). Witnesses are obliged to appear before the judge (section 48(1), CCP). They have the obligation to testify, unless they can rely on a special right to refuse to give evidence, for example when:

  • The defendant is a family member (section 52, CCP).

  • Their testimony might incriminate themselves or a family member (section 55, CCP).

  • They are bound by professional secret (section 53, CCP).

Powers of search/to compel disclosure

The police can search the premises or the person of the accused (section 102, CCP) or of third parties (section 103, CCP). Searches may be ordered only by the judge and, in exigent circumstances, also by the public prosecution office and police (section 105, CCP).

German authorities do not have formal powers to compel disclosure. However, in practice prosecution authorities may find ways to "convince" a person to disclose certain evidence, for example, by showing a search warrant and making it clear that the warrant will be enforced if the concerned person does not co-operate and provide the missing evidence voluntarily.

Court orders or injunctions

In Germany, the Public Prosecutor's Office is in charge of the criminal investigation (sections 160 and 161, CCP). In this regard the judge only plays a minor part. However, the most intrusive investigation measures (for example, house searches, arrest, confiscation, telephone tapping or eavesdropping) require a previous court order (Richtervorbehalt). For some of these measures, in the case of imminent danger, the police or prosecution authorities are authorised to order the measure if a court order is obtained directly afterwards. If a court order is required by law, the prosecutor submits an application to the competent judge and the judge either:

  • Issues an order allowing for this measure (in practice, almost always).

  • Rejects the application, in the very rare case that the judge finds that the legal requirements are not met.

The investigating judge has, however, no distinct competence to authorise measures without a previous request of the prosecutor (unlike in the French system). Section 165 of the CCP regulates the competence for the investigating judge to authorise measures in the case of imminent danger and no availability of a prosecutor, but due to the organisation of the prosecution offices the practical relevance is low.

Freezing orders for money, bank accounts and other properties can be issued based on Section 111b of the CCP and EU regulations (for example, in conjunction with blacklistings). Disclosure orders for documents and other items may be addressed to companies in corporate crimes based on Section 94 of the CCP. After conviction, interim measures such as interim prohibition to drive or to hold an office can be ordered by a court, along with the main punishment.

Moreover, cartel authorities can issue preliminary injunctions (for example, a prohibition of concentration) to regulate matters on a temporary basis until a final decision is taken (sections 60 and 40(2) of the Act Against Restraints of Competition).

Protections available

Legal remedies are available against these prosecution measures or court orders under the Code of Criminal Procedure (sections 98, 117 and 304 and the following). Written correspondence between the accused and persons subject to professional confidentiality (such as lawyers, tax advisors and so on) is exempted from seizure (section 97).

Penalties

4. What are the potential penalties or liabilities for participating in corporate or business fraud?

Civil/administrative proceedings or penalties

Corporate bodies. Companies can face administrative sanctions, which are set out in section 130, 30 of the Regulatory Offences Act. If the requirements of section 130, 30 are fulfilled (that is, a person representing the company has committed a criminal offence by which the company's duties were violated or by which the company was supposed to be enriched, and the offence is not yet statute barred), fines can be imposed against a company (or other association) in isolation or with a sanction against the manager in question.

The decision to impose a fine (and the specific amount) is within the discretion of the prosecuting authority (section 47, Trade Regulation Act (Gewerbeordnung)). Unlike in the case of individuals, there are no further rules determining how to apply this discretionary power.

Decisions on fines in excess of EUR200 and which cannot be appealed are entered into the Central Business Register (Gewerbezentralregister) (section 149(2)(3), Trade Regulation Act).

On a recommendation from the Organisation for Economic Co-operation and Development (OECD), the maximum fine was raised from EUR1 million to EUR10 million on 30 June 2013.

In cases of violations of a supervisory obligation which lead to breaches that are reinforced with an administrative fine, the highest possible fine is determined by the highest fine threatened for the breach in question. The fine to be imposed is determined in accordance with the general rules, for example:

  • The basic significance of the violation in question.

  • The degree of guilt of the offender.

The weight and extent of the damage caused to the legal interests are also taken into account.

In addition to monetary fines, other sanctions are as follows:

  • Objects or proceeds of crime can be confiscated by court order (sections 29 and 29a, Regulatory Offences Act, and sections 73 and 75, Criminal Code).

  • Business activities can be barred based on administrative decisions of unreliability (section 97(4) , Anti-Cartel Code).

  • The competent authority can prohibit business activities if there are facts that establish the unreliability of the business owner or person engaged in the management of the business, as far as the prohibition is necessary for the protection of the general public or the employees of the business (section 35, Industrial Code).

The Federal Office of Justice (Bundesamt für Justiz), subordinated to the Ministry of Justice, keeps a Central Business Register (Gewerbezentralregister) in which final administrative decisions that prohibit the conduct of business activities are registered (section 149, Industrial Code). Administrative bans on activities regarding banking or capital market activities are carried out by the German Federal Financial Supervisory Agency (BAFIN). Individual criminal verdicts and employment bans are registered in the Federal Register of Criminal and Court Records.

Individuals. Managers may be subject to the regulatory offence under Section 30 of the Act on Regulatory Offences (for example, if they have committed an offence by which the duties of the company have been violated or the company has been enriched). Besides this, individuals are mainly subject to criminal sanctions (see below, Criminal proceedings or penalties). See also below, Civil suits.

Criminal proceedings or penalties

Corporate bodies. Companies can be fined under the requirements of section 130, 30 of the Regulatory Offences Act (see above, Civil/administrative proceedings of penalties). However, while the law provides for these consequences, in practice many of these cases are settled out of court.

Individuals. The penalties for individuals are either a monetary fine or imprisonment, as provided for in the relevant statute.

For general fraud under section 263 of the Criminal Code, the punishment ranges between a monetary fine and imprisonment of up to five years (for very serious cases, up to ten years). The same rules apply to subsidy fraud.

Capital investment fraud is punishable by imprisonment for up to three years or a fine. Whoever commits misrepresentation in connection with sales of securities will be liable to imprisonment not exceeding three years or a fine. The same penalty is provided for accounting fraud.

In addition to these penalties, other sanctions are as follows:

  • Objects or proceeds of crime can be confiscated by court order (sections 29 and 29a, Regulatory Offences Act, and sections 73 and 75, Criminal Code).

  • Professional bans (section 70, Criminal Code).

Moreover, one should note that individual criminal verdicts and employment bans are registered in the Federal Register of Criminal and Court Records.

Right to bail. Section 116 of the CCP provides the possibility for the judge to suspend the execution of the pre-trail detention (section 112, CCP) in case its purpose can be accomplished by less radical measures. If a warrant of arrest is justified merely by a risk of flight, the judge will suspend execution of the arrest warrant, provided that it can be expected that the purpose of remand detention may also be achieved by less severe measures. As such a less severe measure, namely depositing an appropriate amount of security comes in consideration (section 116(1) s. 2, No 4, CCP).

German criminal law does not provide post-charge suspension or bail, for example a finally convicted person has no opportunity to avoid imprisonment.

Civil suits

Civil suits are available separately from criminal proceedings. If a (criminal or other) law has been violated by negligence or intent, the caused damage must be restored.

Class actions are not possible under German law. However, to some extent the Initiation of Model Case Proceedings in respect of Investors in the Capital Markets Act (Kapitalanleger-Musterverfahrensgesetz) (KapMuG) presents an exception to this rule. This applies to proceedings before a court of first instance in which claimants assert claims for damages in compensation due to the provision of false or misleading capital markets-related public information or failure to provide such information. Both parties can file an application for the establishment of model case proceedings to:

  • Determine the existence or non-existence of conditions.

  • Justify or rule out the claim.

  • Clarify legal questions.

If at least nine additional applications are filed in similar cases within six months, the higher regional court can commence model case proceedings (for which it selects one of the claimants to be the model claimant). The KapMuG constitutes the first venture into the realm of class actions, and still remains a rare exception in Germany.

The concept of punitive damages does not exist in Germany.

 

Bribery and corruption

Regulatory provisions and authorities

5. What are the main regulatory provisions and legislation relevant to bribery and corruption?

The main regulatory provisions and legislation relevant to bribery and corruption are the same as for corporate or business fraud (the police and prosecution authorities) (see Question 1).

In addition, for bribery of European officials, a special Act implementing the Act on the Protocol of 1996 to the Convention on the protection of the European Communities' financial interests (Gesetz zu dem Protokoll vom 27 September 1996 zum Übereinkommen über den Schutz der finanziellen Interessen der Europäischen Gemeinschaften (EU-Bestechungsgesetz - EUBestG) applies.

Bribery of foreign public officials outside of the EU is also punished under the Act on the Convention of 1997 on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention) (Gesetz zu dem Übereinkommen vom 17. Dezember 1997 über die Bekämpfung der Bestechung ausländischer Amtsträger im internationalen Geschäftsverkehr).

 
6. What international anti-corruption conventions apply in your jurisdiction?

Germany has ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1998.

Germany has also signed the following anti-corruption conventions:

  • The two Council of Europe Conventions against Corruption (Criminal Law Convention on Corruption).

  • Council of Europe Civil Law Convention on Corruption 1999 (Civil Law Convention on Corruption).

  • Additional Protocol to the Criminal Law Convention on Corruption of 15 May 2003.

Germany also signed the UN Convention against Corruption (UNCAC) in 2003, though this was not ratified until April 2014 because Germany was reluctant to criminalise bribing members of parliament (only vote buying/selling was criminalised (section 108e, German Criminal Code)). However, UNCAC was ratified by the German parliament on 23 April 2014 and came into force 1 September 2014.

See also Question 7, Foreign public officials.

Offences

7. What are the specific bribery and corruption offences in your jurisdiction?

Foreign public officials

Corruption in international business has been a criminal offence in Germany since 1998. Germany ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1998, by passing the Act on Combating International Bribery (Gesetz zu dem Übereinkommen vom 17. Dezember 1997 über die Bekämpfung der Bestechung ausländischer Amtsträger im internationalen Geschäftsverkehr, IntBestG, German Official Gazette (Bundesgesetzblatt, BGBl.) of 1998, part II, p. 2327), which came into force on 15 February 1999.

This Act on Combating International Bribery complements the provisions on bribery in the public sector under the Criminal Code, which are set out in sections 331 to 335. The Criminal Code provides four types of offences of bribery in the public sector:

  • Passive bribery (taking bribes) in fulfilling one's public duty (section 331).

  • Passive bribery (taking bribes) as incentive for violating one's duties (section 332).

  • Active bribery (giving bribes) in fulfilling one's public duty (section 333).

  • Active bribery (giving bribes) as incentive for violating of one's duties (section 334).

While the second and fourth offences require the bribed person to perform a violation of his official duty, the first and third offences refer to a situation where the bribed person performs the act in accordance with his duties.

The Act on Combating International Bribery only applies to the fourth offence (active bribery as incentive for violating one's duties). For this offence to occur, the Act requires all of the following elements:

  • Any advantage (pecuniary or other).

  • A public official (for example, a foreign public official, person entrusted with special public service functions, or soldier) as recipient of the advantage.

  • The offering, promising, or granting of the advantage.

  • The advantage being given in return for the violation of the recipient's official duty (both past and future violations are included).

According to section 334(2) of the German Criminal Code, read in conjunction with Article 2§1 of the Act on Combatting International Bribery, the offence also includes the corruption of national or foreign judges. Under Article 2§2, foreign members of parliament are also included.

However, in Germany the corruption of members of parliament until recently was only criminal in the event that someone undertook to buy or sell votes (section 108e, Criminal Code). In 2012, this led to only 15 police investigations based on this offence (compared to 8,175 investigations on corruption offences in Germany overall (Bundeskriminalamt, "Korruption, Bundeslagebild 2012", p.4, retrievable (see www.bka.de/EN)). As of September 2014, bribing members of parliament with "unjustified advantages" (or being bribed) has become an offence. However, it is not an unjustified advantage if the receiving of the advantage is in accordance with the legal provisions applicable to the recipient (a political mandate or political function is not considered an unjustified advantage). Due to these and some other limitations, the new law has been harshly criticised for being too narrow and lacking substance.

Domestic public officials

There are four criminal offences relating to public officials under the criminal code (see above, Foreign public officials). Under section 333 of the Criminal Code, a person will commit an offence if they intentionally offer, promise or grant a benefit to any of the following:

  • A public official.

  • A person entrusted with special public service functions.

  • A soldier in the Armed Forces.

  • A judge or arbitrator.

The benefit may be beneficiary either for one of those listed persons or for a third party.

Such a person will be liable to imprisonment for a term not exceeding three years or a fine. Intentional conduct is necessary.

Section 334 is a qualification of section 333 in that, in addition to the requirements already set out above, the offence requires the official to violate his official duty.

Sections 331 and 332 punish passive bribery (for example, demanding, allowing oneself to be promised or accepting a benefit for himself or a third person).

Commercial bribery

Commercial bribery is criminalised under section 299 of the Criminal Code. Under Section 299, an employee or agent of a legal entity will commit an offence if they intentionally demand, allow to be promised, or accept a benefit for himself or another in a business transaction as consideration for according an unfair preference to another in the competitive purchase of goods or commercial services.

Such a person will be liable to imprisonment for a term not exceeding three years or a fine.

According to section 301(1), prosecutions for the offence of taking and giving bribes in commercial practice under section 299 can only be made on request, unless the prosecuting authority considers on its own initiative that a prosecution is required due to special public interest. Section 299(3) also includes acts of bribery committed in relation to foreign businesses.

Defences

8. What defences, safe harbours or exemptions are available and who can qualify?

There are no specific defences, safe harbours or exemptions with regard to bribery, but the general defence of error in law or fact applies.

Facilitation or "grease" payments are not permitted in Germany. Public officials are not allowed to accept any gifts, rewards or other advantages, even after the termination of their service (section 71, Act on Public Officials).

Exceptions require former prior written consent from the superior authority. Giving bribes is not punishable if the competent public authority, within the scope of its powers, either (section 333(3), Criminal Code):

  • Previously authorises the acceptance of the benefit by the recipient.

  • Authorises it upon prompt report by the recipient.

The provisions relating to bribery expressly include indirect bribery.

 
9. Can associated persons (such as spouses) and agents be liable for these offences and in what circumstances?

While passive bribery in the public sector only applies to certain offenders (such as public officials), active bribery can be committed by anyone.

Advantages for third parties (including spouses and agents) are also included in the offence.

Enforcement

10. Which authorities have the powers of prosecution, investigation and enforcement in cases of bribery and corruption? What are these powers and what are the consequences of non-compliance?

Authorities

There are no special anti-corruption investigators in Germany. The relevant authorities are therefore the same as for corporate fraud (see Question 1). However, it may be the case that specialised white collar prosecution offices will have special units dealing only with the bribery of foreign public officials. In relation to extra-territorial jurisdiction, see Question 30.

For more information on the [prosecuting authority] see box: The authorities.

Prosecution powers

Prosecution powers are the same are the same as for corporate or business fraud (see Question 1).

Powers of interview

Powers of interview are the same as for corporate or business fraud (see Question 1).

Powers of search/to compel disclosure

Powers of search/to compel disclosure are the same as for corporate or business fraud (see Question 1).

Court orders or injunctions

Court orders or injunctions are the same as for corporate or business fraud (see Question 1).

Protections available

Protections available are the same as for corporate or business fraud (see Question 1).

Penalties

11. What are the potential penalties for participating in bribery and corruption?

Civil/administrative proceedings or penalties

Corporate bodies. Administrative fines can be imposed on companies. As with business fraud, business activities can be barred based on administrative decisions of unreliability (see Question 4, Civil/administrative proceedings or penalties).

There is no general exclusion from public tenders for corruption activities at federal level. Over the last ten years there have been discussions on introducing a "corruption register" for the Federal Republic of Germany. Draft legislation on this matter was last introduced in November 2012, but was blocked in the last session of the parliament of the former legislative period. On 26 June 2014, the ministers of justice of the federal states agreed that a federal corruption register should be established. However, it is unknown whether we will see such a register in the near future and what form it will take.

At present, certain federal states have introduced specific anti-corruption registers which apply at a regional level. For example, North-Rhine-Westphalia introduced an Anti-Corruption Act on 16 December 2004, on the basis of which corrupt companies may be registered and barred from public procurement. The state of Berlin also introduced such a register in 2006, and so did Hamburg.

Individuals. Under the Regulatory Offences Act, the responsible leader and supervisor of an enterprise may be fined for violating his supervisory duties (section 130).

Criminal proceedings

Corporate bodies. Companies can be fined under the requirements of section 130, 30 of the Regulatory Offences Act (see Question 4, Civil/administrative proceedings or penalties). However, while the law provides for these consequences, in practice many of these cases are settled out of court.

Individuals. The penalties for the bribery of foreign or domestic officials is either a fine or imprisonment for up to five years (up to ten years in very serious cases (section 335, Criminal Code)).

Commercial bribery is punishable for up to three years (up to five years in very serious cases (section 300, Criminal Code)). Commercial bribery can only be prosecuted on request of the injured person or if the prosecution considers that the public interest so requires.

Right to bail. See

Question 4.

Tax treatment

12. Are there any circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense?

Since the giving of bribes constitutes a criminal offence, bribery-related expenses are not tax deductible (section 4(5) no.10, Income Tax Act). This also relates to companies paying bribes.

The receiver of a bribe must pay income tax. Ransom payments are not usually illegal and can be tax-deductible.

 

Insider dealing and market abuse

Regulatory provisions and authorities

13. What are the main regulatory provisions and legislation relevant to insider dealing and market abuse?

Insider dealing and market abuse are generally regulated under section 38 of the Securities Trading Act (Wertpapierhandelsgesetz).

The regulatory body responsible for investigating insider dealing and market abuse is the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BAFIN). BAFIN has the right and obligation to notify the Public Prosecutor's Office about any facts giving rise to suspicion that a criminal offence has been committed.

BAFIN has published rules (MACOMP) specifying minimum requirements for both (section 31ff):

  • Compliance.

  • Conduct, organisation and transparency.

MACOMP is designed to give guidance, particularly to smaller enterprises. It contains sample lists of possible measures to help enterprises comply with the requirements of the provisions.

For more information on BAFIN see box: The regulatory authorities.

Offences

14. What are the specific insider dealing and market abuse offences?

Insider trading

It is an offence to intentionally acquire securities from an insider or sell securities to an insider (section 38(1), Securities Trading Act). The penalty is imprisonment for a term not exceeding five years, or a criminal fine.

"Inside information" is defined as any specific information that would, if it became public knowledge, be likely to have a significant influence on the stock exchange or market price of the securities, in relation to circumstances which:

  • Are not publicly known.

  • Relates to the securities (or the issuers of the securities).

This is assumed to be the case if a reasonable investor would take such information into consideration when deciding on a specific investment (section 13(1), Securities Trading Act).

Under the Securities Trading Act, a person is prohibited from (section 14):

  • Making use of inside information to acquire or dispose of insider securities for his own account, or for the account of a third party.

  • Disclosing or making available inside information to a third party without the authority to do so.

  • Recommending, on the basis of inside information, that a third party acquire or dispose of the "insider securities", or otherwise inducing a third party to do so.

Market abuse

Market manipulation is regulated under sections 38(2) and 20a of the Securities Trading Act. A person is prohibited from (section 20a):

  • Supplying false or misleading information in relation to circumstances of crucial importance for the valuation of financial instruments, or the withholding of such information in contravention of statutory provisions, if this has the potential to influence the domestic stock exchange, market price of a financial instrument, or affect the price of a financial instrument on an organised market in another EU member state or state of the European Economic Area (EEA).

  • Initiating transactions or issuing purchases/sales that have the potential to generate false or misleading signals that affect the supply or demand, the stock exchange or market price of financial instruments, or create an artificial price level.

  • Executing any other deceptive act which has the potential to influence the domestic stock exchange or market price of a financial instrument, or the price of a financial instrument on an organised market in another EU member state or state of the EEA.

Violations are punishable if the person exerts an influence on the domestic stock exchange, the market price of a financial instrument, or on a commodity (that is, an economic good of a fungible nature capable of being delivered (for example, metals, ores and alloys, agricultural products and energy such as electricity)).

Defences

15. What defences, safe harbours or exemptions are available and who can qualify?

Section 14(2) of the Securities Trading Act provides a safe harbour for "buyback" programmes and measures for stabilising the price of financial instruments, if such actions are carried out in compliance with Regulation (EC) 2273/2003 implementing Directive 2003/6/EC as regards exemptions for buy-back programmes and stabilisation of financial instruments (Buyback and Stabilisation Regulation).

Section 15(3) of the Securities Trading Act provides a basis for the temporary non-disclosure of insider information.

Enforcement

16. Which authorities have the powers of prosecution, investigation and enforcement in cases of insider dealing and market abuse? What are these powers and what are the consequences of non-compliance?

Authorities

SeeQuestion 13.

In addition, the Public Prosecutor's Office has its general competence of prosecution. In relation to extra-territorial jurisdiction, see Question 30.

For more information on the [prosecuting authority] see box: The authorities.

Prosecution powers

See Question 13. The Federal Financial Supervisory Authority (BAFIN) is the regulatory body responsible for investigating insider dealing and market abuse. It exerts the supervision of the provisions of the Securities Trading Act and investigates infringements against duties and prohibition of the Securities Trading Act. The responsibilities and powers of BAFIN are set out in section 4 of the Securities Trading Act (see Question 13).

Under this section (paragraph 3), BAFIN can:

  • Request information and documents.

  • Summon and interrogate persons.

However, these measures can only be taken if necessary to ensure compliance with the provisions of the Act based on factual circumstances. During regular business hours, officials of BAFIN (and any person duly authorised by it) can enter the premises of any person required to provide information under section 4(3) (see also section 4(4)). However, if access to the premises is sought outside of business hours, or if the premises are located in an apartment/private dwelling, access can only be granted if:

  • It is necessary to prevent imminent danger to public order and security.

  • There is evidence indicating that the affected person is violating the provisions of the Act.

BAFIN can also deploy auditors and experts to assist in its investigations (sections 4(11) and 36). BAFIN must report any facts suggesting that a criminal offence under section 38 has been committed to the competent Public Prosecutor's Office (section 4(5)) that conducts the prosecution. In this regard the Public Prosecutor's Office has all the conventional rights of investigation and prosecution under the Code of Criminal Procedure (see Question 3).

Powers of interview

There are no specific interrogation powers. For general interrogation powers, see Question 3.

Powers of search/to disclosure

There are no specific search/disclosure powers. See Question 3.

Court orders or injunctions

Court orders or injunctions are the same as for corporate or business fraud (see Question 3).

Protections available

An accused party may, in most cases retroactively, complain about the regulatory authority's investigative measures by BAFIN to the competent administrative complaint authority or the administrative court. In very exceptional cases, for example, when gross procedural rules were violated, this may result in the illegally obtained evidence to be excluded/inadmissible in court. Legal remedies available against prosecution measures or court orders are the same as for corporate or business fraud (see Question 3).

Penalties

17. What are the potential penalties for participating in insider dealing and market abuse?

Civil/administrative proceedings or penalties

The Financial Supervisory Authority (BAFIN) (see Question 13) has the power to:

  • Demand the dismissal of a manager.

  • Prohibit him from exercising his functions.

To exerciser this power, the manager must have either:

  • Failed to satisfy the statutory requirements relating to his reliability and required qualifications.

  • Continued to intentionally or recklessly violate the Banking Act after already receiving a warning from BAFIN.

In the event of sustained breaches, BAFIN can also revoke the banking licence (section 35(2) no. 6, Banking Act).

If the offender has abused his professional position and grossly violated his professional duties, which leads to a criminal conviction, he may be banned from his profession (section 70, Criminal Code).

Criminal proceedings or penalties

Individuals found guilty of insider trading are subject to imprisonment for up to five years or a fine (section 38, Securities Trading Act). The same applies to intentional market manipulation.

In the case of negligence, a fine can be imposed (section 39, Insider Trading Act).

For sanctions applying to legal entities, see Question 4, Criminal proceedings or penalties: Corporate bodies.

Civil suits

Persons adversely affected by insider trading or market abuse can claim damages under general civil law provisions. However, violations of section 20a of the Insider Trading Act (prohibiting market manipulation) that cause damage do not entitle the wronged party to a tort action, since section 20a is intended to protect the financial market rather than individual interests.

Issuers of financial instruments can be liable for damages incurred by a third party as a result of either (sections 37b and 37c, Insider Trading Act):

  • Not promptly publishing insider information which should be available/accessible to the public.

  • Publishing false insider information.

The concept of punitive damages does not exist in Germany.

 

Money laundering, terrorist financing and financial/trade sanctions

Regulatory provisions and authorities

18. What are the main regulatory provisions relevant to money laundering, terrorist financing and/or breach of financial/trade sanctions?

Money laundering

Money laundering is a criminal offence under section 261 of the Criminal Code.

Further relevant provisions on money laundering and/or terrorist financing can be found in the Money Laundering Act (Geldwäschegesetz).

Although there is no general obligation on individuals to report crimes to the government or authorities (however, see Question 32), an exception to this rule applies in relation to money laundering (section 11, Money Laundering Act).

Suspicions of money laundering should be reported to the Financial Intelligence Unit (FIU) of the Federal Criminal Police Office. The FIU collects all notifications on suspicions and must inform the competent authorities without delay (section 10, Money Laundering Act).

Terrorist financing

EC Regulations. The following EC Regulations are directly applicable in Germany:

  • Regulation (EC) 2580/2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism.

  • Regulation (EC) 881/2002 on measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaida network and the Taliban.

These Regulations prohibit the making available of financial assets and funds for terrorist purposes to certain blacklisted persons (both individuals and companies).

Violation of these Regulations is also punishable under the German law.

Suspicions of terrorist financing should also be reported to the FIU of the Federal Criminal Police Office.

Money Laundering Act. Sections 3 to 9 of the Money Laundering Act imposes a due diligence duty to denounce suspicious transactions in relation to money laundering. This duty applies to certain professions (financial institutions, lawyers, legal advisors, auditors and so on). Until 2005, such notifications were predominantly based on a (presumed) terrorist listing.

Criminal Code. Section 89a of the Criminal Code prohibits the preparation of terrorist offences, including by financing. This law was introduced to implement both the:

  • Council of Europe Convention on the Prevention of Terrorism.

  • European Framework Decision of 28 November 2008 amending Framework Decision 2002/475/JHA on combating terrorism.

Financial/trade sanctions

Economic sanctions are generally provided for by the Foreign Trade and Payments Act. This Act regulates crimes (section 17), misdemeanours (section 18) and regulatory offences (generally implying negligence) (section 19).

Suspicions of money laundering should be reported to the FIU.

For more information on the Federal Criminal Police Office see box: The regulatory authorities.

Offences

19. What are the specific offences relating to money laundering, terrorist financing and breach of financial/trade sanctions?

Money laundering

The central provision concerning money laundering is section 261 of the Criminal Code. If an object derives from the proceeds of certain listed offence (for example, embezzlement, bribery, blackmail or fraud), it is a criminal offence to hide, conceal the origin, or obstruct or endanger the investigation of the object's:

  • Origin.

  • Discovery.

  • Seizure.

  • Official confiscation.

The offence can be committed intentionally or by gross negligence (section 261(5)) and attempts are also punishable (section 261(3)).

Terrorist financing

Terrorist financing is prohibited under the following rules:

  • Criminal Code. Section 89a of the Criminal Code criminalises "the preparation of a serious offence endangering the state by collecting, accepting or providing not unsubstantial assets for the purpose of its commission (among other things)". This offence is punishable by imprisonment from six months to ten years.

  • Foreign Trade and Payments Act. Under Section 18(1)(1.b) of the Foreign Trade and Payments Act, a prison sentence from three months to five years is imposed on anyone who (knowingly) violates a prohibition on the disposal of frozen money and economic assets of a "directly applicable act of the European Communities or the European Union published in the Official Journal of the European Communities or the European Union which serves to implement an economic sanction adopted by the Council of the European Union in the field of Common Foreign and Security Policy". A person who negligently violates such a prohibition can also be fined (section 19(1)).

  • Regulatory Offences Act. Companies can be fined for such violations under section 130, 30 of the Regulatory Offences Act.

Financial/trade sanctions

The Foreign Trade and Payments Act regulates violations of arms embargos.

Under Section 17(1), it is a criminal offence to violate an:

  • Ordinance that has been issued to implement an economic sanction adopted by the:

    • Security Council of the UN, under Chapter VII of the Charter of the United Nations; or

    • Council of the EU, in the field of Common Foreign and Security Policy.

  • Enforceable order based on such an ordinance, to the extent that the ordinance refers to certain specified goods for certain circumstances.

Section 18 criminalises intentional violations of other restrictions in relation to export, import, transit, transfer and so on.

Section 19 criminalises negligent behavior and other regulatory offences in the context of arms embargoes.

Defences

20. What defences, safe harbours or exemptions are available and who can qualify?

Although not a defence in the general sense, the offences of money laundering and terrorist financing generally require criminal intent (or at least, gross negligence). Therefore, it may be difficult to prove that the accused had knowledge of all the constituting elements of the offence.

Money laundering

A person is not guilty of money laundering if he:

  • Voluntarily reports or causes the offence to be reported to the competent public authority, unless the money laundering offence had already been discovered in whole or in part at the time and the offender knew or could reasonably have known this.

  • Causes the object (that is, the laundered property) to be officially secured.

Terrorist financing

For the offence of preparation of a serious violent offence (terrorist financing), the court has the discretion to mitigate the sentence or order a discharge for the offence if (section 89a, Criminal Code):

  • The offender voluntarily gives up further preparation of the serious violent offence endangering the state.

  • The offender averts or substantially reduces a danger caused and recognised by him that others will further prepare or commit the offence.

  • Voluntarily prevents the completion of the offence.

If the danger is averted or substantially reduced regardless of the offender's contribution, or the completion of the serious violent offence endangering the state is prevented, the offender's voluntary and earnest efforts to achieve that object will suffice.

Financial/trade sanctions

For intentional violations against EC regulations under section 18 of the Foreign Trade and Payment Act, punishment is excluded if the person acts within two days of the publication of the relevant regulation in the Official Gazette of the EU and has no knowledge of the prohibition or the requirement for special permission at the time of carrying out the act. However, this is an interpretative guidance rather than a specific defence, as it presumes that a person will have the required knowledge if the relevant EC regulation has been published for more than two days. This provision was introduced only recently to the Act. Previously, publication in the German official Gazette was required, which would always take place some weeks after publication at EU level.

Enforcement

21. Which authorities have the powers of prosecution, investigation and enforcement in cases of money laundering? What are these powers and what are the consequences of non-compliance?

Authorities

Money laundering. The competent authorities t are the same as for corporate or business fraud (see Question 3).

Terrorist financing. The regulator's powers of enforcement are the same as for corporate or business fraud (see Question 3). Within the scope of section 18(1) of the Act on Financial Administration (Finanzverwaltungsgesetz – FVG), the following authorities may also be competent:

  • Main customs office (Hauptzollamt).

  • Customs investigators (Zollfahndungsstelle).

Financial/trade sanctions For violations of the Foreign Trade and Payments Act, the competent authorities are the:

  • Main customs office (Hauptzollamt).

  • Customs investigators (Zollfahndungsstelle).

In relation to extra-territorial jurisdiction, see Question 30.

For more information on the customs and tax authorities/investigators, see box: The regulatory authorities.

Prosecution powers

Terrorist financing. The regulator's powers of enforcement are the same as for corporate or business fraud (see Question 3).

Financial/trade sanctions. Customs investigators monitor the cross-border exchange of goods and oversee compliance with export/import restrictions and bans. Their officials have the same powers and obligations as investigators in criminal proceedings under the Code of Criminal Procedure.

Since violations of export/import regulations often qualify in parallel as a tax offence under section 372 of the Tax Act, the customs investigators also have the power to search documents (including electronic information) (section 404, Tax Act and section 110, Code of Criminal Procedure).

Powers of interview

See Question 3.

Powers of search/to compel disclosure

See Question 3.

Court orders or injunctions

See Question 3.

Protections available

See Question 3.

Penalties

22. What are the penalties for participating in money laundering, terrorist financing offences and/or for breaches of financial/trade sanctions?

Money laundering

Right to bail. The right to bail is the same as for corporate or business fraud (see Question 4).

Penalties. Under the Criminal Code, intentional money laundering is punishable by imprisonment from three months to five years. In very serious cases, the penalty can be imprisonment from six months to ten years (section 261(4)).

In cases of gross negligence, the penalties are imprisonment of not more than two years, or a fine.

Companies can be fined for such violations under section 130, 30 of the Regulatory Offences Act.

Terrorist financing

Right to bail. The right to bail is the same as for corporate or business fraud (see Question 4).

Penalties. Under the Criminal Code, the punishment for preparation of a serious violent offence (terrorist financing) is imprisonment from six months to ten years (section 89a(1)).

In less serious cases, the penalty is imprisonment for three months to five years.

Companies can be fined for such violations under section 130, 30 of the Regulatory Offences Act.

Financial/trade sanctions

Right to bail.The right to bail is the same as for corporate or business fraud (see Question 4).

Penalties. Under the Foreign Trade and Payments Act, violations of arms embargoes are punishable by a prison sentence of between one and ten years (section 17). In less serious cases, the punishment is imprisonment for up to three years, or a fine.

Violations of other trade regulations are punishable by a prison sentence of up to five years, or a fine (section 18).

For both offences, in serious cases, punishment may be increased to not less than one year (for example, when acting for the secret service of a foreign power) or less than two years (for example, when acting for gain and as a member of a gang).

Companies can be fined for such violations under section 130, 30 of the Regulatory Offences Act.

 

Financial record keeping

23. What are the general requirements for financial record keeping and disclosure?

Financial record keeping

Merchants and legal entities must keep business records in which they must enter any commercial transaction and their financial position, in accordance with German accepted accounting principles (section 238, Commercial Code)

Annual financial statements, including a balance sheet and a profit and loss account, must also be prepared (sections 242 and 264, Commercial Code).

Disclosure requirements

There are numerous provisions pertaining to disclosure requirements for undertakings in their various legal forms. The main provisions are:

  • The company's board must disclose annual financial statements and management reports, which must then be published in the Federal Gazette (Bundesanzeiger) (section 325(1), Commercial Code).

  • The company's board must inform its shareholders about any loss of 50% of its share capital (section 92(1), Corporation law).

 
24. What are the penalties for failure to keep or disclose accurate financial records?

Failure to keep accurate financial records

Insolvency. If a company becomes insolvent, the directors' failure to carry out book-keeping duties and compile annual financial statements can be sanctioned with of up to five years imprisonment (in special cases, up to ten years), or a fine (section 283(1), no. 5-7, Criminal Code). Negligent violations are punishable with two years' imprisonment or a fine.

In less serious cases, violations of book-keeping duties can be sanctioned with imprisonment of up to two years or a fine (section 283b, Criminal Code).

The offence only entails liability in the following circumstances:

  • The offender has suspended payments.

  • Insolvency proceedings have been instituted in relation to the offender's assets.

  • The application to institute proceedings has been rejected due to lack of available assets.

Tax evasion. If false financial records or annual financial reports lead to tax evasion, the punishment is a fine or imprisonment up to five years (section 370(1), Tax Act). In cases of gross negligence, such failure is punishable with a fine of up to EUR50,000 (section 378, Tax Act).

Failure to disclose accurate financial records

Failure to comply with certain disclosure obligations relating to annual financial statements, management reports and other documents can be sanctioned with a fine of up to EUR25,000 (section 335(1), Commercial Code).

 
25. Are the financial record keeping rules used to prosecute white-collar crimes?

Financial record-keeping rules play an important role in the prosecution of white-collar crimes (including fraud and bribery). The main reason is that knowledgeable offenders frequently manipulate their financial records to "cover their tracks".

Apart from this, due to the strict requirements relating to the content of financial records and the statutory deadlines for their submission, it is a relatively easy exercise to prove wrongdoing. In this sense, the applicable provisions sometimes serve a catch-all function.

 

Due diligence

26. What are the general due diligence requirements and procedures in relation to corruption, fraud or money laundering when contracting with external parties?

The due diligence process is not regulated under German law. There are no statutory due diligence requirements in relation to corruption, fraud or money laundering when contracting with external parties.

However, due diligence procedures are common practice in the case of mergers and acquisitions. Integrity due diligences are becoming increasingly common when entering into agreements with new business partners.

 

Cartels

27. Are cartels prohibited in your jurisdiction? How are cartel offences defined? Under what circumstances can a corporate body be subject to criminal liability for cartel offences?

Regulatory provisions

The main regulatory provisions and legislation relevant to cartels generally are the:

  • Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen) (ARC). Section 1 of the ARC prohibits agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition.

Under section 2, some agreements are exempted from the prohibition, for example if they contribute to the improvement of the production or distribution of goods or if they promote technical or economic progress under profit participation of the consumers. The exemptions apply as long as the restraints imposed to the participating corporate bodies are not essential, or they do not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

Section 3 of the Act provides a special possibility of permission for mid-sized companies (Mittelstandskartelle). Sections 28 and the following regulate exceptions from section 1 for specific branches. Sections 35 and the following state additional rules of merger control for the participating corporate bodies reaching a specific volume of sales.

Section 81 of the Act Against Restraints of Competition regulates a number of administrative offences related to infringements outside German criminal law, namely infringements against Article 101 of the TFEU (section 81(1)) and section 1 of the Act Against Restraints of Competition (section 81(2)).

  • Treaty on the Functioning of the European Union (TFEU): Article 101(1) of the TFEU has a similar content as section 1 of the Act Against Restraints of Competition and regulates a prohibition for cartels which are able to impair the trade between the Member States of the European Union for being incompatible with the internal market. Like the German Act Against Restraints of Competition, European Law provides the possibility for a cartel to be permitted under the same requirements. (Article 101(3), TFEU)

  • Regulation (EC) No 1/2003 regulates the implementation of the Article 101 of the TFEU.

Offences

Section 298 of the Criminal Code (Criminal anti-competition of public bids) provides the only criminal act relevant to cartels in Germany. This provision criminalises bidding within the frame of a tender or about goods or services if the bid is based on an unlawful agreement whose purpose is to cause the organiser to accept a particular offer ("bidding cartels").

Authorities

In cases of cartels there are specialised investigating cartel authorities, which are exclusively competent for fine proceedings in anti-trust law (section 82, Act Against Restraints of Competition). These include the:

  • Public Prosecutor’s Office for offences within the scope of the Criminal Code.

  • Federal Cartel Office (Bundeskartellamt).

  • Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Technologie).

  • Competent cartel authorities of the federal state (Landeskartellbehörde).

In general, the Federal Cartel Office supervises the compliance of the Act Against Restraints of Competition if not another cartel authority is competent under the Act and the effects of non-compliance outreach the territory of a federal state (section 48(2), Act Against Restraints of Competition). Moreover, the Federal Cartel Office and the competent cartel authorities of the federal state are the competent cartel authorities within the meaning of article 35(1) of the Regulation (EC) No 1/2003 ensuring the effective practice of articles 101 and 102 of the TFEU (section 50(1), Act Against Restraints of Competition).

Prosecution powers

Regarding criminal offences under section 298 of the Criminal Code the powers of the Public Prosecutor's Office are the same as for corporate or business fraud. The Powers of the competent cartel authorities are set out in sections 57 and the following of the ARC .

Under this section, the cartel authorities can:

  • Take evidence, especially interrogate persons (section 57, Act Against Restraints of Competition).

  • Seize objects (section 58, Act Against Restraints of Competition).

  • Request information from corporate bodies and corporate groups (section 59, Act Against Restraints of Competition).

  • Issue preliminary injunctions (section 60, Act Against Restraints of Competition).

Penalties

Civil/administrative proceedings or penalties

Corporate bodies. Companies can face administrative sanctions, which are set out in section 81 of the Act Against Restraints of Competition. The maximum fine on companies principally is 10% of the aggregate turnover generated in the preceded business year (section 81(4)). (See also Question 4, Civil/administrative proceedings of penalties).

Individuals. Individuals can be subject to the regulatory offence under Section 81. The maximum fine is EUR1 million (section 81(4)).

Criminal proceedings or penalties

Corporate bodies. Companies can be fined under the requirements of section 81 of the Act Against Restraints of Competition (see above, Question 4, Civil/administrative proceedings of penalties).

Individuals. Under section 298 of the Criminal Code, for criminal anti-competition of public bids individuals are penalised with:

  • Imprisonment for a term not exceeding five years.

  • A criminal fine.

 

Corporate liability

28. Under what circumstances can a corporate body itself be subject to criminal liability?

German law departs from the presumption that legal entities have no awareness of wrongdoing and therefore cannot be liable for criminal offences.

However, section 30, 130 of the Regulatory Offences Act only allows for a fine to be imposed on a legal entity if a representative or another person in a leading position has committed a criminal offence. This provision is applicable if either:

  • The association has gained (or was supposed to gain) a profit obtained through the criminal activity.

  • The committed offence includes a violation of duties which the entity is responsible for.

Therefore, for a company to be fined, it is necessary to hold an individual to be criminally liable first. As a consequence, if the relevant conditions are fulfilled, "corporate manslaughter" can only trigger a claim for damages and reparation under civil law or lead to a monetary fine.

However, the state of North Rhine-Westphalia recently introduced a bill in September 2013 to the German Federal Council (Bundesrat) and the Standing Conference of Justice Ministers (Justizministerkonferenz) in relation to the introduction of a Corporate Criminal Liability Act. This, as well as other legislative proposals, were discussed in Berlin at a conference of the Federal Ministry of Justice and Consumer Protection on 1 December 2014 on a panel led by Thomas Knierim.

 

Immunity and leniency

29. In what circumstances is it possible to obtain immunity/leniency for co-operation with the authorities?

In 2009, a general leniency provision was introduced into German law to allow mitigations or exemption from punishment in cases of substantive co-operation with the authorities (section 46b, Criminal Code). However, this rule only relates to serious offences carrying a significant prison sentence.

Leniency provisions also exist in specific areas of law, including:

  • Tax law, where whoever corrects or supplements incorrect or incomplete particulars held by the revenue authorities or furnishes previously omitted particulars is exempt from punishment (section 37(1), Tax Act).

  • Competition law (section 81(7), Act against Restraints of Competition).

  • Drug offences (section 31, Drug Offences Act).

 

Cross-border co-operation

30. What international agreements and legal instruments are available for local authorities?

Obtaining evidence

Germany is party to and bound by numerous international and European conventions and bilateral agreements, including the Schengen group (that is, an agreement in relation to internal border controls and a common visa policy with other European nations sharing a border with Germany).

At the level of the Council of Europe the most important treaties are the:

  • European Convention on Mutual Assistance in Criminal Matters 1959 (Convention on Mutual Assistance in Criminal Matters).

  • European Convention on Extradition 1957.

At the EU level, relevant treaties applicable in Germany are the:

  • Council Framework Decision of 13 June 2002 on the European Arrest Warrant and the Surrender Procedures between Member States [Official Journal L 190 of 18.7.2002].

  • Convention on Extradition between Member States (Council Act of 27 September 1996).

  • EC Convention on Mutual Assistance in Criminal Matters between the Member States 2000 and the Additional Protocol of 16 October 2001.

  • Council Framework Decision 2003/577/JHA of 22 July 2003 on the Execution in the European Union of Orders Freezing Property or Evidence.

However, from 22 May 2017, most of the EU instruments above will be replaced by Directive 2014/41/EU regarding the European Investigation Order in Criminal Matters (Investigation Order Directive).

In practice, authorities exchange information on criminal records with foreign authorities via the European Criminal Records Information System (ECRIS).

In the absence of any multi- or bilateral treaty, mutual legal assistance in criminal matters is also possible under the Act on Judicial Cooperation (IRG). Although not legally binding, the Guidelines for the Exchange with foreign authorities in criminal matters (RiVaSt) provide further guidance in this area.

Seizing assets

See above, Obtaining evidence.

Sharing information

See above, Obtaining evidence.

 
31. In what circumstance will domestic criminal courts assert extra-territorial jurisdiction?

German criminal law is generally based on the territoriality and the flag principle, which limits its effect to offences committed in Germany (section 3, Criminal Code).

However, there are certain exceptions, as follows:

  • Certain offences committed against domestic legal interests are punishable even if committed abroad (for example, offences committed by or against German public officials and bribing delegates (section 5, Criminal Code)).

  • German criminal law applies to certain, specifically enumerated offences that protect internationally recognised legal interests (such as subsidy fraud, falsification of money and human trafficking, and more generally, offences which on the basis of an international agreement are binding on the Federal Republic of Germany and therefore must be prosecuted despite being committed abroad (section 6, Criminal Code)).

  • German criminal law applies to offences committed abroad against a German citizen if the act is a criminal offence in the location of its commission, or if that location is not subject to any criminal jurisdiction (section 7(1), Criminal Code).

  • German criminal law applies to offences committed abroad if the act is a criminal offence in the location of its commission, or if that location is not subject to any criminal law jurisdiction, and if the offender either (section 7(2), Criminal Code):

    • was a German national at the time of the offence, or became a German national after the commission; or

    • was a foreign national at the time of the offence, is discovered in Germany and, although the Extradition Act would permit extradition for such an offence, is not extradited because a request for extradition was not made within a reasonable period of time, was rejected or was not feasible.

Moreover, there may be specific offences that are also prosecuted abroad (for example, the Foreign Trades and Payments Act explicitly states that acts must also be prosecuted when committed abroad by a German national (section 17(7)).

 
32. Does your jurisdiction have any statutes aimed at blocking the assertion of foreign jurisdictions within your territory? Are there statutes aimed at blocking the assertion of foreign jurisdictions within their territory?

There are no general provisions aimed at blocking the assertion of foreign jurisdictions in Germany. However, the extradition of suspects is subject to certain limitations, as follows:

  • The offence with which the suspect was charged must be punishable in both countries.

  • There must not be any risk of torture or other inhumane treatment.

  • The suspect must not be subject to the death penalty.

  • A fair trial must be guaranteed.

Under Article 16(2) of the German Constitution, German citizens will not be extradited (except by EU member states and international courts, if permitted explicitly by law).

 

Whistleblowing

33. Are whistleblowers given statutory protection?

German law provides very little protection for whistleblowers.

Under German labour law, employees have a duty to inform their superior of any imminent risk for security or health. In this context, the employee should not face any disadvantages if their superior initially disregards their complaint and he subsequently informs the competent authority (section s16(1) and 17(2), Labour Protection Law).

There are only a few criminal law obligations that deal with whistleblowing, for example:

  • Section 138 of the Criminal Code criminalises the failure to bring the planning of serious offences to the attention of the authorities. This obligation applies to everybody.

  • Section 11 of the Money Laundering Act contains an obligation to report suspicious transactions. This obligation applies to financial institutions, merchants and legal entities, as well as to certain practitioners such as tax advisors, auditors, attorneys and notaries.

Therefore, there is a lack of specific legal protection for whistleblowers. In particular, employment law does not contain any explicit rules for dealing with and protecting whistleblowers.

Even the decision of the ECHR of 21 July 2011 provides only slight protection. In this case, the court's basic starting point was the principle that employees should normally first inform their superiors or other authorised persons of possible deplorable conditions or activities at work (sections 16(1) and 17(2), Labour Protection Law). The option of informing the general public could only be justified if first informing authorised persons was obviously impractical.

Therefore, in whistleblowing cases the decisive question is whether the employee has some other effective option to put an end to the unlawful situation. In the case, the court emphasised, critically, that German law does not give the whistleblower a legal right for such problems to be investigated internally and addressed.

In regard to the whistleblower systems in Germany, one should add that because of the negative historical background, both during the Nazi dictatorship as well as during the dictatorship of the communist party of the German Democratic Republic, people are especially reserved in relation to whistleblowers.

 

Reform, trends and developments

34. Are there any impending developments or proposals for reform?

The issue of corporate criminal liability is frequently and widely discussed with largely differing viewpoints. The discussion now involves the introduction of solutions.

Unfortunately, the regulation of independent internal investigations seems to be of no interest. In this field there are still a lot of unsolved matters and, unfortunately, practice in handling such investigations varies largely throughout Germany.

With regard to anti-corruption, Germany only ratified the UN Convention against Corruption (UNCAC) in April 2014 (see Question 6).

In addition, it may also be worth mentioning that in spring 2014 Germany started discussions about reforming the chapters in the Criminal Code in relation to murder and homicide. The present rules are still those established under the Nazi Regime some 75 years ago. From a liberal point of view, this will mark the beginning of a wider and more intensive effort to eliminate old and banned theories from German criminal statutes.

 

Market practice

35. What are the main steps foreign and local companies are taking to manage their exposure to corruption/corporate crime?

The main steps taken by companies to manage their exposure to corruption/corporate crime should involve setting up a robust compliance programme. This includes:

  • Making adequate policies (for example, on marketing, making and accepting gifts, training (including in the form of e-training) and whistleblower/ombudsman hotlines).

  • Making effective controls (for example, technical analysis of payments).

  • Conducting internal investigations, in the event that suspicions arise regarding criminal offences committed by employees of the company.

 

The regulatory authorities

Public Prosecutions Office (Staatsanwaltschaft)

W www.berlin.de/sen/justiz/strafverfolgung/sta

Status. Governmental organisation. Each court district has its own Public Prosecutor's Office. The Prosecutor's Office of Berlin is the largest in Germany with nearly 1,000 employees.

Principal responsibilities. Prosecuting criminal offences.

Federal Criminal Police Office (Bundeskriminalamt)

W www.bka.de/EN

Status. Governmental organisation.

Principal responsibilities. Responsible for law enforcement tasks in certain cases involving international and serious crime.

Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BAFIN)

W www.bafin.de/EN

Status. Governmental organisation.

Principal responsibilities. BAFIN supervises banks and financial services providers, insurance undertakings and securities trading.

Tax authorities/tax investigators

W Federal level: www.steuerliches-info-center.de/EN/FinanzverwaltungDerLaender/finanzverwaltungderlaender_node.html;jsessionid=640A7773B5E9CDAA0087C3789485F7AD)

W Regional level: www.berlin.de/sen/finanzen/steuern/finanzaemter/artikel.8718.php

Status. Governmental organisation.

Principal responsibilities. The tax authorities prosecute tax-related offences.

Customs authorities

W www.zoll.de/EN/Home/home_node.html

Status. Governmental organisation.

Principal responsibilities. The custom authorities and customs investigators prosecute certain tax-related offences and foreign trade offences.



Online resources

Gesetze im Internet

W www.gesetze-im-internet.de

W www.gesetze-im-internet.de/Teilliste_translations.html

Description. This resource is provided by the Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz). The English translations are intended solely as a convenience to the non-German-reading public. Any discrepancies or differences that may arise in translations of the official German versions of these materials are not binding and have no legal effect for compliance or enforcement purposes.



Contributor profiles

Anna Oehmichen

Knierim | Huber Rechtsanwälte GbR

T +49 6131 906 5500
F + 49 6131 906 5599
E Oehmichen@knierim-huber.com
W www.knierim-huber.com

Professional qualifications. Lawyer (Rechtsanwalt), Germany; Doctoral degree in comparative criminal law, Leiden University, 2009

Areas of practice. International criminal law and comparative criminal law; white collar crime law; anti-corruption law; corporate defence and internal investigations; foreign trade law.

Languages. German, English, French, Spanish, Dutch

Recent transactions

  • Internal investigations and compliance advice in a multinational mechanical engineering stock company.

  • Internal investigations in a German hypermarket chain's subsidiary in Czech Republic.

  • Individual criminal defence in a variety of cases, violations of the German Pharmaceutical Act, including money-laundering, tax offences and international criminal law.

Publications

  • Oehmichen, Negotiated Settlements for Corruption Offences: Position in Germany, in: Abiola Makinwa (Hrsg.), Negotiated Settlements for Corruption Offence: A European Perspective, 2015.

  • Oehmichen, UN-EU-Terrorist Listings – Legal Foundations and Impacts, ZIS 9/2014, 412-420, (www.zis-online.com/dat/artikel/2014_9_847.pdf).

  • Oehmichen, in: Volk (Hrsg.), Münchner Anwaltshandbuch Verteidigung in Wirtschafts- und Steuerstrafsachen, München, 2. Aufl. 2014, Article on Organisation of Defense, Banking Criminal Law, Accounting and Disclosure Criminal Law, Foreign Trade Criminal Law (together with Thomas Knierim).

  • Oehmichen, Die Modernisierung des Außenwirtschaftsstrafrechts, NZWiSt 2013, 339 ff. Article on the new law reform on foreign trade criminal law.

  • Oehmichen in: Mark Klamberg, Commentary on the Law of the International Criminal Court, Rome Statute of the International Criminal Court, 2014, Comment on Article 110 and Rules 223 and 224 (www.casematrixnetwork.org/cmn-knowledge-hub/icc-commentary-clicc).

For further publications, see www.knierimhuber.com/publikationen.php?autor=Oehmichen.

Thomas C Knierim

Knierim | Huber Rechtsanwälte GbR

T +49 6131 906 5500
F + 49 6131 906 5599
E knierim@knierim-huber.com
W www.knierim-huber.com

Professional qualifications. Lawyer (Rechtsanwalt), Germany; Lecturer for criminal and criminal procedural law at Martin-Luther-University in Halle-Wittenberg.

Areas of practice. White collar crime law; tax crime law; accounting crime law; anti-corruption law; corporate defence and internal investigations.

Languages. German, English

Recent transactions

  • Internal investigations and compliance advice in a multinational mechanical engineering stock company.

  • Criminal defence of companies in a variety of cases of fraud, subsidy fraud, embezzlement, bankruptcy, money laundering, tax offences.

  • Individual criminal defence in a variety of cases, violations of the German Pharmaceutical Act, including money-laundering, tax offences and international criminal law.

Publications

  • Knierim/Rübenstahl/Tsambikakis (eds.), Handbook Internal Investigations, Heidelberg, 2013.

  • Knierim in: Wabnitz/Janovsky, Handbuch Wirtschafts- und Steuerstrafrecht, München, 4. Aufl. 2014, Article on Compliance and Banking Criminal law.

  • Knierim in: Volk (Hrsg.), Münchner Anwaltshandbuch Verteidigung in Wirtschafts- und Steuerstrafsachen, München, 2. Aufl. 2014, Article on Organisation of Defense, Banking Criminal Law, Accounting and Disclosure Criminal Law, Foreign Trade Criminal Law (together with Anna Oehmichen).

  • Knierim in: Rotsch, Criminal Compliance, Baden-Baden, 2014, Article on Skills, Duties (together with Klaus Moosmayer) and a contribution to the criminalization of a Compliance Manager.

  • Knierim in: Widmaier/E. Müller/Schlothauer, Münchner Anwaltshandbuch Strafverteidigung, München, 2. Aufl. 2014, Article on Crimes against protected Data (together with Daniel Gutman).

For further publications, see www.knierimhuber.com/publikationen.php?autor=Knierim.


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