"Tell me, how do you feel about compliance?" – Overview on the new draft law on sanctions for associations
Already in August 2019, the German Federal Government had presented a new draft bill for a law on sanctions for associations. The draft at that time was based on the march route set out in the coalition agreement of March 12, 2018: "We want to ensure that economic crime is effectively prosecuted and appropriately punished. That is why we are reorganising the law on sanctions for companies."
However, after the first draft had been heavily criticised, the draft's new version has been published on April 22, 2020 (Act on Strengthening the Integrity in Business - "VerSanG-E"). This is intended to ensure that white-collar crime is effectively combated and that companies profiting from employee misconduct are also effectively held accountable. It is generally intended to strengthen confidence in the integrity of the economy and to benefit the majority of companies in Germany, which behave in a law-abiding and fair manner.
In our newsletter from April 27, 2020, we had already given a first brief overview of the incentive system for compliance measures. To prepare you and your company for the most important planned new regulations, and in particular to instruct your compliance department accordingly, we now present the most important key points of the VerSanG-E below.
Scope of application
Basically, the VerSanG-E regulates the sanctioning of commercially active associations, because of criminal offences, by which the obligations affecting the association have been violated or by which the association has been or should be enriched (Sec. 1 VerSanG-E).
According to Sec. 2 para. 1 no. 1 VerSanG-E, an association is again each legal entity of the public or private law, the not legally responsible association (nicht rechtsfähiger Verein) and the legally responsible partnership (rechtsfähige Personengesellschaft). Excluded from the scope of application are therefore those associations which pursue a non-profit-making purpose. However, the Administrative Offences Act (Ordnungswidrigkeitengesetz – "OWiG") continues to apply to these associations. In terms of territory, the VerSanG-E covers not only offences committed in Germany, but also offences committed abroad as long as the association has its headquarters in Germany.
Pursuant to Sec. 2 para. 1 no. 2 VerSanG-E, the "managing persons" included in the scope of application are the persons authorised to represent the organs of a legal entity, members of the executive board of an unincorporated association, partners authorised to represent an incorporated partnership, general representatives, authorised signatories (Generalbevollmächtigte) and authorised agents of an association (Handlungsbevollmächtigte) as well as any other person who acts responsibly for the management of the business or enterprise of an association.
The act of the association is described in Sec. 2 Sec. 1 no. 3 VerSanG-E as a criminal offence, by which the obligations which affect the association have been violated or by which the association has been or should be enriched.
In contrast to the official principle of the OWiG, the VerSanG-E now applies the so-called legality principle. From now on, this means that the public prosecutor's offices are obliged to initiate preliminary proceedings against affected associations if there are viable reasons for suspicion.
If according to Sec. 3 para. 1 VerSanG-E someone has committed an association offence as a leading person or otherwise committed an association offence in the exercise of the association's affairs, if leading persons of the association could have prevented or considerably aggravated the offence by taking reasonable precautions to avoid association offences such as in particular organisation, selection, guidance and supervision, an association sanction is imposed in each case.
According to Sec. 8 VerSanG-E, association sanctions are the association fee sanction and the so-called warning with reservation of the right to an association fee sanction.
According to Sec. 9 para. 1 VerSanG-E, the amount of the association's monetary sanction is in principle
- at least one thousand euro and at most ten million euro in the case of an intentional association act; and
- at least five hundred euro and at most five million euro in the case of negligent association acts.
For an association with an average annual turnover of more than one hundred million Euro, the association's monetary sanction according to Sec. 9 para. 2 VerSanG-E is
- at least ten thousand Euro and at most ten percent of the average annual turnover in the case of an intentional association act; and
- at least five thousand Euro and at most five percent of the average annual turnover in the case of negligent association acts.
However, the worldwide turnover of all natural persons and associations is taken into account, provided that they form an economic unit with the association to be sanctioned.
According to the draft's explanatory statement, it is important for the assessment of the fine to what extent the association that has been fined fulfils its obligation to prevent legal violations from the sphere of the company and has installed an effective compliance management system that must be designed to prevent legal violations. Sec. 17 para. 1 VerSanG-E also allows a mitigation of the association sanctions if the association or third parties commissioned by it contribute significantly to the clarification of the association's offence. However, the prerequisite for mitigation of sanctions is unrestricted cooperation with the authorities, the making of a substantial contribution to the clarification and the observance of the principles of a fair trial in the clarification.
The warning with an association sanction reservation should be possible according to Sec. 10 para. 1 VerSanG-E, in order to avoid a "delinquency" in the future. The competent court may impose conditions and issue instructions. According to Sec. 13 para. 2 VerSanG-E, the instructions worth mentioning include in particular to take certain precautions to avoid association offences and to prove these precautions by a certificate of a competent body. The association shall therefore prove the establishment, implementation and observance of compliance measures.
It is also noteworthy that according to Sec. 14 VerSanG-E the court can order the public announcement of the conviction in case of a large number of injured parties by the association act. However, in order to exclude a "pillory effect" here, according to the draft's explanatory statement, the public announcement should be omitted if the association has already compensated for any damages.
Establishment of a "register of association sanctions"
According to Sec. 54 para. 1 VerSanG-E, a new "register of association sanctions" (Verbandssanktionenregister) is to be established as a separate central register at the Federal Office of Justice as the register authority. According to Sec. 54 para. 2 VerSanG-E, this register shall contain final court decisions on imposed association sanctions as well as final decisions on the setting of fines exceeding 300 Euros under the OWiG. Pursuant to Sec. 55 para. 1 VerSanG-E, in addition to the data on the association in the case of association sanctions, the specific legal designation of the association's statute as well as its type and amount and the order of public announcement are to be entered.
The Act on Associations Sanctions will come – albeit in a watered-down form to the original draft of August 2019. The associations and interest groups involved have time until June 12, 2020, to submit comments on the VerSanG-E, so that any (minimal) changes to it would still be possible. However, it is only a matter of time before the law is passed. Accordingly, we recommend that you inform your company's internal compliance departments at an early stage and take measures in line with the draft law.
Schalast will be happy to support you with any questions on this topic. Please feel free to contact our teams at our locations in Frankfurt am Main, Hamburg and Berlin at any time.