I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or to the advantage of the company).
Under German law, there is no criminal liability for companies as the German Criminal Code (Strafgesetzbuch or StGB) only applies to individuals. However, there is administrative liability for companies under the Act on Regulatory Offenses (Ordnungswidrigkeitengesetz or OWiG).
Companies can be held liable (see Section 30 OWiG) if a representative of the company commits a criminal or administrative offense, the result of which is a violation of the company’s incumbent duties, or where the company has been enriched or was intended to be enriched. A person who merely acts for the company will not be automatically considered a representative; they must have a managerial function which entitles them to represent the company.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Generally, there are no restrictions on certain types of crimes or infringements if duties incumbent on the company have been violated as a result of a criminal offense or a regulatory offense, or if the company has been enriched or was intended to be enriched. As such, companies can be held liable for all common offenses, such as bribery, fraud, extortion and antitrust violations.
3. Identification of companies and entities to which liability may apply
In general, all types of companies, entities and associations can be held liable under German law regardless of whether they are private or public, incorporated or a partnership, for profit or not-for-profit.
4. Corporate liability for crimes committed abroad by a company’s representatives or subsidiaries
If a criminal or administrative offense committed by a representative of the company is punishable under German law, the company can be held liable (ie, corporate liability of a company only arises if the offenses committed by the representative are subject to criminal or administrative liability).
Whether a criminal or administrative offense committed by a representative of the company is punishable under German law depends on the specific offense. Generally speaking, crimes committed abroad by or against a German citizen are punishable under German law. Some offenses such as public or private corruption apply extraterritorially, thereby equally expanding the scope of corporate administrative liability of companies in Germany.
A company cannot be held directly liable for administrative offenses committed by a subsidiary. If a member or an employee of the subsidiary is also a representative of the parent company, liability for the latter may arise if the conditions outlined above are met.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Whether or not a company can be held liable for its predecessors’ offenses depends on the nature of its business activities: courts compare the degree to which the new and the old company are virtually identical (“substance over form”). Also, administrative fines may be imposed on a legal successor if a company succeeds another company by universal or partially universal succession. However, in the latter case, German law caps the fine, which may be imposed on the legal successor, to the value of the assets that have been assumed. The fines must be proportional to the fines that would have been imposed on the predecessor.
II. Applicable sanctions
1. Type of sanctions applicable to the company
No criminal sanctions apply. Administrative fines may amount to:
- EUR 10 million in case the representative committed a criminal offense with intent
- EUR 5 million in case the representative committed a criminal offense negligently
Provided the representative committed an administrative offense, the administrative fine for the company is capped at the maximum fine for the individual multiplied by a factor of 10.
In addition to the fine, any profit gained by the offense may be forfeited.
The decision whether and to which extent an administrative fine is imposed is at the discretion of the competent authority.
2. Interim measures, cease and desist orders, bans and confiscatory measures
Depending on the offense at hand (committed by the representative), the competent authority may implement various interim measures to halt the alleged misconduct. These measures include cease and desist orders, bans and confiscatory measures.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Directors and managers commit an administrative offense if they fail to take the supervisory measures required to prevent contraventions where such contraventions could have been prevented, or made much more difficult, if there had been proper supervision. The law, however, does not specify which supervisory measures are “proper” and “required.” The District Court in Munich handed down a decision in 2013 in which it defined the compliance-related duties of the board of directors of a German stock corporation. The following key points of the decision may serve as an indicative reading of “proper” and “required” supervisory measures:
- As a consequence of their duty of legality, each board member is obliged to organize and monitor the company in a way that no violations of law occur. Board members violate their duties if they implement a deficient compliance system and if they do not sufficiently monitor the compliance system.
- In case of a respective risk exposure, board members are only deemed to have complied with their organizational duty if he they implement a compliance organization aiming at damage prevention and risk control. Decisive factors for the extent of the compliance organization are: type, size and organization of the company; applicable laws; geographical presence; and previous compliance incidents.
- The adherence to the duty of legality and therefore the implementation of an effective compliance system are joint obligations of all board members. The board is obliged to obtain comprehensive information about known compliance incidents on a continuous basis. It must assess whether or not the implemented compliance system is adequate enough to effectively prevent violations of compulsory laws.
III. Measures and “models” of prevention and their effects on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
A company cannot be held directly liable for failure to implement adequate measures that will prevent its representatives from committing offenses. Companies are only liable for their representatives’ actual misconduct. Despite an ongoing academic debate on this topic, implementing compliance measures with the intention of preventing misconduct by corporate representatives does not directly affect prospective administrative fines. However, the competent authority may take a compliance program into account when exercising their discretion on administrative fines (whether at all or total amount fined). No clear legal rules guide their reasoning as yet.
By all means, implementing a compliance program indirectly benefits the company. If the company has an effective compliance program in place, its managers and directors are less likely to violate their supervisory duties, which, in turn, prevents the company from being subjected to administrative fines.
German law requires the implementation of a compliance program in just a few specific cases (eg, Section 25 a Banking Act).
2. Modality according to which a compliance “model” must be adopted in order to benefit from the exemption from responsibility or from the mitigated punishment (codes of ethics, procedures, etc.)
The German Criminal Code neither recognizes nor regulates the elements of a compliance program. There are, however, several special regulations that apply to, for example, financial institutions. Provisions in the German Administrative Offense Act, the German Stock Corporation Act and the German Corporate Governance Codex require companies – in general terms – to implement a compliance program. German civil courts are in the process of establishing a best practice (cf. Section II.3).
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
A company can be held liable if its management violates its supervisory duties. Supervision by the management and the fulfilment of supervisory duties depend on the type of company. Stock corporations are required to maintain a supervisory board that oversees the board of directors. In smaller companies, monitoring the company management may be the owner’s responsibility.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
Given that companies are not subject to criminal, but rather to administrative liability, legal fines are often remitted by non-judicial official bodies, such as the public prosecutors, the Federal Cartel Office or the German Federal Agency for Financial Market Supervision.
Courts may fine companies in a so-called joint criminal proceeding. The administrative proceeding against the company and the criminal proceeding against representatives of the company are generally combined.
2. Possibility of the application of interim measures
The authorities may merely adopt interim measures to secure the enforcement of an administrative fine once they have issued the administrative fining notice.
3. Plea bargains and related effects on the corporate liability
The prosecution of administrative offenses and fines lies within the duty-bound discretion of the prosecuting authority. Pleading guilty to an administrative offense, which subsequently eases the authority’s investigation, may have a positive effect on the authority’s final decision to apply sanctions against the company. However, there are no clear rules binding or guiding the competent authorities on the subject of a company’s cooperation or affirmation of alleged administrative offenses.
4. Imposition of sanctions against the company
All fines, regardless of whether they are judicial or administrative, are imposed via a formal, enforceable decision. Depending on the misconduct, the courts or authorities may also (alternatively or cumulatively) forfeit profits, impose bans, etc.
5. Permanence of corporate liability if the crime is extinguished
Corporate liability is strictly dependent on the misconduct of its representative. Therefore, corporate liability becomes time-barred once the representative’s crime may not be prosecuted anymore.
V. Corporate liability in multinational groups
Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
Misconduct by directors, managers or representatives of a local company does not directly trigger liability of the parent company. However, if the alleged misconduct would have or could have been prevented by a more effective group compliance program, the parent company and its management’s liability for violation of the supervisory duty of the parent company’s management may be triggered.
In practice, German authorities will only initiate proceedings against parent companies that dispose of sufficient assets in Germany.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
Infamous case law has developed around corruption and bribery issues in publicly discussed cases on corporate liability. Well-known cases have been brought by public prosecution services. All four were held liable for their representatives’ misconduct on the account of bribery and corruption.
2. Proposed or contemplated new legislation
The German Federal Ministry for Economic Affairs and Energy aims at creating a Federal Register to protect the competition for public tenders and concessions (Register zum Schutz des Wettbewerbs und um öffentliche Aufträge und Konzessionen). The register will establish a ban of noncompliant companies from public tenders.
 Section 30 (1) OWiG applies, when someone acts:
- as an entity authorized to represent a legal person or as a member of such an entity
- as chairman of the executive committee of an association without legal capacity or as a member of such committee
- as a partner authorized to represent a partnership with legal capacity
- as the authorized representative with full power of attorney or in a managerial position as procura-holder or the authorized representative with a commercial power of attorney of a legal person or of an association of persons referred to in numbers 2 or 3, or
- as another person responsible on behalf of the management of the operation or enterprise forming part of a legal person, or of an association of persons referred to in numbers 2 or 3, also covering supervision of the conduct of business or other exercise of controlling powers in a managerial position.