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Focus on Germany
OCTOBER 2013
Germany Focus
Continuing with our focus on the legal and business environments in Germany, here we speak to Benno Schwarz, partner at the Munich office of Gibson, Dunn & Crutcher LLP.
Germany has become a very active enforcer of sanctions and penalties for corporate misconduct. does this present a threat to foreign investors investing in Germany?
Indeed, in recent years, German prosecutors and courts have become very active enforcers of sanctions against corporations for compliance offenses. Multi-million Euro fines for bribery, tax evasion, or antitrust violations that were unheard of a decade ago, are no more uncommon in today’s German corporate world. While most listed companies have already adopted appropriately
increased the price tag for individual and corporate misconduct, as well as the scope and impact of potential sanctions, namely: (i) Current statutory maximum fines for individual offenses stemming from a lack of management oversight have been increased from EUR 1 million to EUR 10 million (for intentional conduct) and EUR 500,000 to EUR 1 million (for negligent conduct), respectively; (ii) in cases of universal succession under the German Transformation Act (Umwandlungsgesetz) a new concept of successor liability has been introduced permitting administrative fines
structured compliance
management programs in response to the increased exposure to corporate and personal liability, targets typically sought out by foreign investors being family-owned businesses and privately held companies of the so-called Mittelstand have been much slower to adopt their organizational behavior or compliance systems to the increased scrutiny. Therefore, for foreign investors in a German business, a robust compliance due diligence is the first important step that should be taken to limit these risks. One Euro invested on the front end to assess the specific exposure of the target is likely to save ten Euro on the back-end by avoiding expensive investigations, fines, and an eroding of the business base.
Which recent changes in the legislative framework lead to increased sanctions for corporate misconduct?
With a recent amendment of the German Administrative Offences Act
(OWiG) the German legislature has significantly
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imposed on the legal successors of a corporation, up to the value of the assets assumed by the legal successor; and (iii) procedurally, with regard to assets of corporations, which are subject
administrative fine proceedings, these assets may now be seized (Arrest) as soon as a regulatory authority has
to be
business community to acknowledge effective compliance management systems as a legal defense or an automatically operating mitigating factor to decrease the amount of the fines (a familiar concept under both, the FCPA or the U.K. Bribery Act). Rather, the individual court and/or regulatory authority retains discretion in each individual case whether (or not) to consider a company’s compliance efforts in mitigation. Since Germany has a federal court system and also the prosecutor’s offices are organized on a federal level, there are differences in approaching credits for maintaining an effective compliance management system when determining a fine.
to issued the
administrative order for such fines (as opposed to a court ruling that was required before the amendment took effect).
For foreign investors in a German business, a robust
compliance due diligence is the first important step that should be taken to limit these risks.
does an effective compliance management program create a legal defense against corporate liability
stemming from compliance violations, e.g. acts of bribery?
Unfortunately, no. The German legislature has rejected suggestions of the German
What are the typical issues you identify when conducting a compliance due diligence on German companies for foreign investors?
German companies often derive significant parts of their revenue from export activities into emerging markets, such as Russia, China, South America or MENA countries. In many cases the operations in these countries are run by local managers with limited controls and oversight from the German headquarters. Sometimes, these markets are run directly from the headquarters by way of direct sales through local agents that receive certain sales commissions. In both cases, there is often limited visibility how the specific transactions are initiated and executed by the agents. German tax authorities have become very sensitive to these issues and must report any suspicion of criminal offences (such as corruption offences) to the Federal
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