The German government has published a Bill to make corporations criminally liable and this is likely to have far-reaching implications for wealth managers based in Germany if, as expected, it becomes law in 2021. This article looks at its main points and asks how private banks and others might prepare for it.

 The Bill proposes to allow German courts to fine companies with average global revenues of more than €100 million up to 10% of their global revenues. Its main objectives are as follows.

In many regards, Germany is following a global trend in favour of the introduction of corporate criminal liability, although it proposes to criminalise a wider range of offences than other European countries do and issue harsher penalties of up to 10% of global revenues. The German Government, however, scrapped the most severe measure, a corporate death penalty, which appeared in an earlier draft. It is incredible to think, then, that less than 20 years ago Germany businesses were complaining that the bribes and kickbacks they paid to foreigners would no longer be tax-deductible.

Although the law may not be ratified before 2021, companies with operations in Germany must act now to assess their risks and take steps to offset them, the better to shield themselves from criminal prosecution. The Bill's title is “Law for the Strengthening of the Integrity of the Economy” (Gesetzes zur Stärkung der Integrität in der Wirtschaft).

Why does Germany want to make corporations liable for crimes?

Germany is unusual in the Western world for not having a corporate criminal liability law, despite several attempts by previous governments to introduce one. Companies can only be fined for regulatory offences, with penalties capped at €10 million - a figure that nobody views as an effective deterrent for multinational corporations any more.

Some German lawyers have in the past argued that companies are not able to commit crimes and that responsibility for them must instead always lie with individuals. In recent years, however, the debate has shifted, with the public coming to believe that some wrongdoing is systematic rather than merely the result of the actions of individuals. High-profile scandals, such as diesel emissions fraud or the “cum-ex” tax fraud, have clearly contributed to this.

What crimes does the new law target?

The draft law has a wide reach and applies the criminal code to companies. However, in practice, enforcement of the law will likely focus on economic crimes. There are two ways in which an entity can be found liable:

First, the law considers acts committed by a senior manager to be made on behalf of the company. A senior manager can be a company director, a member of a board, an authorised representative or any other senior manager with responsibility for the running or operation of the company.

Second, the law proposes to hold a company liable for crimes committed by any employee if the act would have been prevented, or would have been significantly less likely to happen, had appropriate compliance steps been taken. The include measures related to organisation, governance and oversight.

The UK has laws that contain elements of corporate criminal liability such as the Bribery Act 2010 and the tax-focused Corporate Criminal Offences Act 2017, but plans to widen legislation in the UK have been delayed. The German proposal is more ambitious than anything yet proposed in the British Isles.

Might the law have any effect on operations outside Germany?

The Bill targets German legal entities with a commercial purpose, such as banks, but excludes charities. A foreign bank is only a target if it has a registered entity or branch in Germany. The scope of the law is therefore not as extraterritorial as the US Foreign Corrupt Practices Act 1977, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act 2001 and other American laws.