i INTRODUCTION

From a survey carried out by the European Commission in 2009, three-quarters of those interviewed stated that corruption in Germany was quite a substantial problem. In the years following, several political initiatives have been set into motion to combat corruption and enhance measures of compliance in Germany. Judging from one of the most important indicators, the corruption awareness index published by Transparency International, Germany has even further improved its worldwide ranking. In 2014 Germany held the 12th position in the ranking and improved in 2015 to a respectable 10th place. In comparison with the other G20 states, Germany comes after Canada in second place together with the United Kingdom. However, because of the extensive media coverage, it is likely that the public perception is that corruption cases have been occurring more than ever before. The recent modifications and extensions to the corpus of statutory offences regarding corruption are contributing to the fact that the law enforcement authorities will continue to expand their future investigations into new areas.

For a number of years it has been observed throughout Germany that in the campaign against white-collar crime, prosecution authorities have tended to pursue transgressions more frequently and have adopted a tougher stance. The pursuit to unearth evidence relating to prosecutable offences has involved extensive searches by investigators across private residences and business premises in Germany and around the world. For this reason globalisation leads to an internationalisation in criminal prosecution. The case of a Ukrainian oligarch2 is an example: American authorities investigated this case for many years on the grounds of suspected bribery concerning a nine-figure sum, leading to the imprisonment of the accused in Austria. Instead of the accused being extradited to the United States, he was released on bail for the record sum of €125 million. In the early summer of 2016, this case caused quite a stir, even in Germany, when the State Office of Criminal Investigation was searched by the German Federal Office of Criminal Investigation because of suspected bribery of two investigators. This demonstrates that the criminal investigation authorities in Germany take their duty to combat bribery and corruption very seriously, and have been wide-ranging in their efforts to discharge that duty.

ii DOMESTIC BRIBERY: LEGAL FRAMEWORK

i Overview

Under German law, three different forms of bribery and corruption are categorised in the German Criminal Code (StGB), which provides for the following anti-bribery provisions:

  • a Sections 299 to 302 – addressing bribery in business dealings and the health sector;
  • b Sections 331 to 338 – covering bribery of public officials; and
  • c Sections 108b to 108e – concerning bribery in connection with elections.

Within these three remits the law makes a distinction between active and passive bribery. The former is where the party supplies the payment or benefit, while the latter is the illegal receipt of the payment or benefit.

One important aspect of the StGB is the low threshold that is applied specifically to public officials, which increases the chances of criminal liability. This was put in place in an attempt to stop public officials being targeted for bribery. Nevertheless in all three areas cited above it is essential to prove that the parties agreed to enter into an illegal transaction.

A moot point is that the legislature has targeted anti-corruption in the public sector, but the exact scope of the term ‘public official’ is difficult to define. However, Section 11(1) No. 2 of the StGB attempts to include anyone who serves the state or can be defined as an extended arm of the state, so that state activities outsourced to companies can be governed by the code.

ii Gifts and gratuities

The StGB does not just apply to illegal financial inducements but extends to all forms of gifts, gratuities and invitations that the recipient is perceived to benefit from. Again, there is little tolerance regarding the actions of public officials (Sections 331 and 333 of the StGB) so that even hospitality of low value may incur criminal liability. The private sector is afforded some leniency in this respect.

In some cases, where gifts and gratuities are deemed socially acceptable, the law will take a slightly more relaxed stance. This causes some uncertainty as there is no official guideline that specifically addresses what constitutes ‘socially acceptable’. A general rule of thumb is that anything below €30 is acceptable provided that it is given in the correct circumstances.3 As this is essentially a judgement call that results in individual interpretation, many companies’ compliance regulations err on the side of caution by establishing a blanket prohibition on the giving and receiving of such small gratuities.

Following the recent legislative reform, even socially acceptable benefits may be considered to satisfy the specific requirements, provided there is a benefit-motivated breach of duty within the meaning of Section 299 paragraph 1, No. 2 StGB. Therefore, setting a general zero-tolerance limit in internal compliance guidelines is advisable.

iii Electoral bribery

Section 108e of the StGB governs the corruption and bribery of members of parliament. In addition to buying and selling votes, it is now a criminal offence to propose, promise or grant any benefit or inducement to any member of a parliamentary assembly, municipal council, European Parliament, legislature of a foreign country, or indeed an assembly of an international organisation, and to influence a member to vote for or against or abstain on a measure. Section 108e also incorporates passive bribery, where a member accepts an illegal inducement.

However, in constructing this Section it has been recognised that many aspects of legislative work may be inhibited, as parliamentary proceedings involve a certain ‘trading’ of support to achieve consensus. Therefore an important stipulation has been added to the Subsection: for criminal sanctions to be applied, any giving or receiving of a benefit must be deemed as ‘unjustified’. The Subsection accommodates recognised parliamentary custom and practice as well as party donations that are permissible under administrative and electoral law.

With regard to donations for members of parliament and political parties, there are general limitations, such as the prohibition of anonymous donations of more than €500, as well as extensive notification requirements for amounts of €5,000 or more for members of parliament and €10,000 in respect of political parties.

Iii ENFORCEMENT: DOMESTIC BRIBERY

i Institutional framework

The federal law relating to bribery and corruption in Germany applies across all 16 states. This universal application has some quirks as the actual enforcement of the law is the responsibility of the organs of the individual states. As a result, there is a somewhat piecemeal approach to enforcement. Some federal states have instituted units that have a specific focus on issues relating to the prosecution of white-collar crime.

In recent times, since the legislative reform became effective, additional specialised prosecution departments have been formed in some federal states, to follow up criminal offences in the healthcare sector in particular and to intensify the fight against corruption in this field. There are 115 regional courts in Germany and each one has its own prosecution office, which means there is a degree of uncertainty in relation to bribery and corruption proceedings. Prosecutors’ offices have divergent attitudes when it comes to what should be prosecuted and courts sometimes take conflicting views on the application of the law. It is therefore harder to make an objective assessment on the most likely outcome of a prosecution when considering all 16 states.

ii Plea-bargaining

German law does not have an established practice of plea-bargaining as such. Nonetheless, because of recent decisions emanating from the Federal Constitutional Court and the Federal Court of Justice, the practice of plea-bargaining has been put in the public eye. Owing to the occurrence of different negotiated bargains and the absence of a specific set of guidelines to regulate their establishment, the German government provided a set of rules in 2009 in Section 257c of the German Code of Criminal Procedure (StPO) to ensure the process has a degree of commonality.

Fundamental to the rules is the stipulation that the court must receive a proposal, and based around that, an agreement will be settled between the court, prosecution and defence. This agreement avoids any reference to an admission of guilt or innocence. Rather, the emphasis of the agreement is upon the criminal sanction to be applied to the defendant and under such an agreement it is normal to obtain a confession from the defendant. Section 257c of the StPO states that all discussions and resulting negotiations are to be set down for the public record. However, a number of first instance courts have been ignoring this new requirement, causing the higher courts to rule that where the requisite transparency is missing a concluded plea bargain would be illegal even though it has been effectively agreed by all sides.4 In its ruling of March 2013, the Constitutional Court further held that culpability or guilt is still not founded solely on confession. The confession is one part of the forensic process and has to be consistent with all other evidence placed before the court. Following that, in a more recent ruling the Constitutional Court went to further lengths to clarify what constitutes a valid plea bargain under Section 257c of the StPO.5

To avoid the rather extensive stipulations of Section 257c of the StPO, the court at first instance has the option to take part in the procedure adopted under Section 153a of the StPO in agreement with the prosecutor and the accused. This is a special procedure where a case does not actually come to trial but rather is settled using other means, subject to the satisfaction of the authorities. This is usually in the form of restitution or payment of an agreed sum of money to the treasury or a non-profit organisation to conclude the proceedings. The latter is an established procedure, usually in relation to more minor offences, but did acquire a certain notoriety when bribery proceedings against a British Formula 1 racing official were concluded in this way through the payment of an agreed sum. In this case it was quite a considerable amount (approximately €85 million) although this did not constitute a financial penalty or crime, or indeed judgment of criminal culpability. It is not only the scale of the payment that has provoked a discussion on the applicability of Section 153a, but the anomalies in justice that the procedure might throw up. A bank official who accepted a payment made by the accused was punished with a lengthy prison sentence.

IV FOREIGN BRIBERY: LEGAL FRAMEWORK

The scope of application of the German anti-bribery statutes was extended, especially on the European level, with effect from 26 November 2015. EU office holders, such as officials or civil servants of EU institutions, as well as other parties that carry out EU duties, are now explicitly covered under Section 11 paragraph 1, No. 2a StGB.

Substantial parts of the previously applicable EU Bribery Act and the Act on Combating International Bribery have to exist at the same time.

V ASSOCIATED OFFENCES: FINANCIAL Record-keeping AND MONEY LAUNDERING

As in all developed nations, Germany imposes stringent requirements for accounting and financial reporting, which have been set up to preserve the confidence and security of equity holders. Higher demands are made on publicly listed companies. Accounting checks and auditing are conducted on a more stringent basis by public authorities and commercial auditors. Section 200 of the German Fiscal Code empowers the tax authorities to carry out thorough investigations and compels taxpayers to keep accurate and reliable accounts of commercial transactions. Poor bookkeeping and inaccurate ledgers, as well as funds that appear to have been inappropriately allocated or potentially employed for the purposes of corruption, arouse suspicion. Section 266 of the StGB provides that such illegal allocation, potential use and actual use is a breach of trust against the company and its shareholders.

The criminalisation of money laundering is governed by Section 261 of the StGB. Concealing the origin of payments or the location of money and other assets originating from another predicate offence is a criminal offence itself. The predicate offences are often felonies (i.e., offences that are punishable by a custodial sentence of more than one year); however, certain listed offences may constitute a predicate offence for the purposes of the provision, such as fraud and embezzlement, as long as these acts were performed commercially or were committed by a criminal organisation. Based on the recommendations of the Financial Action Task Force and the Organisation for Economic Co-operation and Development (OECD), and with effect from the end of 2015, Section 261 StGB was tightened to penalise self-laundering to an even greater extent.

Money laundering is punishable by a prison sentence of three months to five years. Only in special circumstances may a fine be imposed as the sanction. It should be noted that even gross negligence with regard to the knowledge or ignorance of where the money or object originated from is sufficient to satisfy the specific requirements of Section 261(5) of the StGB.

VI ENFORCEMENT: FOREIGN BRIBERY AND ASSOCIATED OFFENCES

It is a challenge to collect evidence for any bribery that has been committed on foreign soil. Likewise, when the keeping of proper records is lax it is difficult to defend against such a charge. In some developing countries there is only a bare minimum of record-keeping. In such circumstances, where ‘sham’ invoices or dubious service agreements were concluded, the burden of proof is placed on defendants to validate their business purpose and to demonstrate the legitimacy of their transactions.

VII INTERNATIONAL ORGANISATIONS AND AGREEMENTS

As a member of the Group of States against Corruption that was set up by the Council of Europe in 1999, Germany is part of the international community that monitors states’ compliance with anti-corruption standards. Furthermore, Germany is a signatory to the following international treaties on anti-corruption:

  • a the OECD Anti-Bribery Convention;
  • b the United Nations Convention against Corruption;
  • c the United Nations Convention against Transnational Organized Crime; and
  • d the Council of Europe Criminal Law Convention on Corruption (awaiting ratification).

At the European level, the European Anti-Fraud Office (OLAF) is of particular importance. This body, among other things, is responsible for combating corruption within EU institutions and offices and has been highly successful. Between 2010 and 2015 it concluded over 1,400 investigations, recommended the recovery of over €3 billion to the EU budget and issued over 1,600 recommendations for actions to be taken by the competent authorities of the Member States and the EU. This appears to be a particularly remarkable and extraordinary performance by OLAF, dealing with a number of very complex cases in 2015 with the involvement of only 422 staff and a budget of €57.7 million.

VIII LEGISLATIVE DEVELOPMENTS

i Corruption in healthcare

The practice of pharmaceutical companies, particularly through their sales teams, of giving out complementary gifts and benefits to private practice doctors, by way of medical devices, junkets or other forms of award, has been under scrutiny for a considerable length of time. Legal opinion inclined towards the view that this practice was in breach of Sections 299 and 331 et seq. of the StGB. However, in March 2012, the Federal Supreme Court ruled that the provisions in question did not extend to the aforementioned practice as private practice doctors do not constitute ‘public officials’ or ‘agents’ under the terms of the applicable provisions. Furthermore, when these doctors were contracted to public health insurance companies, they were still not considered to be public officials or agents.6 Thus, the granting of gifts and benefits to private practice doctors fell out of the ambit of the statute.

In the meantime, the legislative authority has responded to the verdict of the Federal Supreme Court regarding new elements of crime. The new Sections 299a and 299b of the StGB have been in force since June 2016, governing bribery and corruption in the healthcare sector. The purposes of these are twofold: first, to provide regulations that will ensure fair competition in the healthcare sector, and second, to maintain patients’ confidence in decisions made by medical practitioners. This involves not only private medical practitioners, but also other professional healthcare service providers, such as dentists, pharmacists, psychotherapists and nurses. Numerous cooperative practices – as used in the past by pharmaceutical companies and medical professionals, for example – became illegal with this change in the law. As a consequence, the courts will have to determine where the exact borderline between legal and illegal cooperation can be drawn in the future.

ii ‘Revolving doors’

Another issue that has been under scrutiny recently is the practice of politicians and senior public officials transferring to rewarding positions in the private sector. Although this occurs in Germany relatively infrequently, instances where top politicians and secretaries of state have moved into senior positions in business have been widely reported in the press and subsequently frowned upon. As a result, new legislation was introduced, which entered into force in July 2015. It stipulates a transition period of between 12 to 18 months before current and previous members of the government who wish to move out of public service can take up positions in the commercial or private sectors. Current or previous members are also obligated to notify the government about their intentions to move elsewhere. This provides the government with the option of disallowing the request, thereby leading to considerations of monetary compensation should an official be denied approval to take up a post.

The law provides that in the first instance an independent panel should review the position change and passes its recommendation to the federal government. As the membership of this panel has only been established since July 2016, there has been no practical application of the new procedure as yet. However, the next parliamentary elections, in late summer 2017, are expected to produce some changes that will put the new regime of ‘governmental self-control’ to the test.

iii Reform of private sector bribery offences

In the course of combating corruption in Germany a new law entered into force on 26 November 2015, modifying the central provision for corruption (Section 299 StGB). By changing both the content and the scope of its application the provision has been extended significantly. A key innovation is the introduction of the ‘employer model’, on the basis of which it is now a criminal act to offer, promise or grant (and the same for passive bribery) an employee or agent of an enterprise a benefit for himself or herself or another ‘for violating his duties vis-à-vis the enterprise’ while procuring goods or commercial services.

The new approach is particularly relevant in terms of practical application in that now even socially acceptable gifts and invitations – which in itself provides a reasonable scope – can be criminally relevant, where offered or otherwise expressed to induce or in part motivate the carrying out of breaches of duty. An international dimension to this has been provided through the amendment of existing German law to extend its area of applicability to the bribery and corruption of German and European officials. In that regard, German law can now apply, irrespective of the crime location and, under certain circumstances, irrespective of the nationality of the offender. Notably, by extending the application of Sections 331 and 333 StGB in relation to accepting or granting an advantage, the hitherto unpunished payment of ‘accelerated fees’ or bribes to European officials is now punishable. In the light of these changes in the law, numerous companies and institutions will have to revise fundamentally their compliance policies.

iv Corporate criminal liability

As yet, the principle of corporate criminal liability does not exist under German law. German law provides for corporate liability from the aspect of administrative law rather than criminal law. This is constituted under the Administrative Offences Act (OWiG) and considers corporate liability upon company leadership for gross negligence or wilful misconduct if they disregard their duty to prevent their employees engaging in criminal activity (Sections 30 and 130 of the OWiG). Financial penalties can be significant, assets can be seized and accounts for profit made. Yet the state of North Rhine-Westphalia is pushing ahead with its own draft legislation to put corporate criminal liability on its statute book. Jurists cast doubt on the merit of this proposed change in the law. Indeed, in August 2014, the German Institute for Compliance proposed that there should be more focus on strengthening the articles of the OWiG rather than tampering with the precepts of criminal law under the StGB. The Institute and others would like to see more emphasis placed on companies’ internal compliance policies and systems and, should corporations fail in this regard, then they should make amends through stiff fines. Equally, sanctions should be reduced for those companies that have made every attempt to implement rigorous compliance systems and methods. At this time it still remains to be seen which approach will win out.

The discussion concerning the introduction of corporate criminal liability continues and the numbers in support increase. Furthermore, the VW emissions scandal and the penalties facing the company in the United States have led to the voices of supporters of this measure becoming louder. The government has been assessing for quite some time whether to introduce corporate criminal liability in relation to multinational corporations, but although the discussion has been wide-ranging and has gone on for several years, the introduction of corporate criminal liability in Germany has not yet moved closer to becoming reality.

IX OTHER LAWS AFFECTING THE RESPONSE TO CORRUPTION

For years there has been persistent discussion in Germany as to whether a nationwide register of corruption violations should be introduced. The basic tenet behind this proposal is that a central register should be available in which corporations that have been particularly conspicuous in connection with white-collar crime and corruption offences should be registered. This register would serve as an aid when public contracts are being advertised for tender as companies on the register would not be considered. In this way companies with a poor track record would be restricted from receiving public contracts and corruption could be effectively combated. Critics of this method, which has already often been attempted to be implemented, cite that these proposals do not consider sufficiently the requirements of constitutional law. There are corruption registers in some states but they have all been set up with different structures. The criteria used for including companies in such a register and the ramifications thereof vary considerably. Proponents of a standardised system of corruption registers refer to the positive experience of the individual states and bemoan the present fragmentation of registers and the lack of uniformity in dealing with such cases. The introduction of a nationwide corruption register is the subject of continued discussion. However, the recent initiative, in June 2016, to develop a corresponding draft law gained no consensus, so no concrete measures are expected in the near future.

X COMPLIANCE

i Corruption structures

The following two types of corruption are generally identified: situational corruption and structural corruption.7 Situational corruption occurs primarily in single cases where the participants often do not know each other and where the benefits attained are of relatively low value. Often this type of corruption is not planned and does not repeat itself. However, structural corruption is distinguished by its planned method, high degree of organisation and occurrence on a repetitive basis. Indeed, it is not seldom that there is a development of corrupt relationships over a long period that include ultimately numerous companies and individuals.

In Germany, it is almost exclusively cases of structural corruption that are known. According to the federal status index of the German Federal Office of Criminal Investigation, in 2014 some 98 per cent of all 20,263 registered corruption cases fell into this category.8 In previous years, most corruption offences committed alternated between the areas of the private sector and the public general administrative sector. It is noticeable that corruption connections generally continue over a very long period. In 2014 some 66 per cent of connections had been in existence longer than a year and 49 per cent longer than three years. This could be perceived as the sign of a deficit in the control systems and that year after year there are a large number of offences that are committed under the radar of the competent authorities. Furthermore, criminal investigation authorities are reliant on corporations’ own compliance systems and whistle-blowing. In 2014, more than two-thirds of legal proceedings in this regard were instigated on the basis of such information being received. The great importance of companies having their own compliance systems is shown further in a survey conducted by the international auditing firm Ernst & Young in 2015: of those surveyed, 66 per cent stated that their company had anti-bribery and anti-corruption guidelines in place and 37 per cent stated that members of staff had been investigated because of offences in connection with breaches of company procedures.9 Compared with previous surveys from 2013 and 2011, this form of self-control has been steadily been increasing.

ii Public enterprises

For publicly owned companies, compliance procedures are of particular importance, as they often operate in commercial areas in which there is little or no competition; for example, water supply, healthcare establishments and public transport companies. On the one hand, there is naturally a latent risk of abuse with types of monopoly position, while on the other hand, public companies can easily find themselves victims of price-fixing when the market for the services to be purchased is very small. Additionally, when there is a compliance offence then there is a further dimension of damage, namely the resultant political fallout. To take account of these risks, the Public Corporate Governance Codex (PCGK), which also contains compliance principles, was instituted in 2009. This Codex, containing a number of recommendations and proposals, was introduced at a federal level and reflects the current statutory position. Furthermore, while no new ‘hard law’ was actually introduced, the impact of these guidelines has been considerable. As is shown by the German Corporate Governance Code, which is the corresponding Code in the commercial sector, most companies strive to follow the recommendations as this is a reflection of how a company sees itself, and the improved public image and fulfilment of these requirements constitute a form of quality seal. Additionally, the ‘comply or explain’ principle applies to the Code regulations, so companies that do not follow the Code recommendations must disclose their variances annually and justify them accordingly. The political dimension is particularly pertinent when public companies are found to be at fault, and the importance of the PCGK should not be underestimated. Equally, the juxtaposition of parallel codes generated at the federal, state and municipal levels merits important consideration, as these are often very different from each other and can vary greatly in detail.10

XI OUTLOOK AND CONCLUSIONS

The theme of corruption has been, and will remain, sharply in focus in Germany. There have been and will continue to be new legal initiatives introduced, as well as new categories of offence, particularly in relation to corruption in the healthcare sector. Further developments can particularly be expected in this sector, which will lead to additional tension as new red lines are drawn in what were formerly legal grey areas. Their exact course will only become visible over time. It is expected that the number of sensational national and international corruption cases will remain high for the time being. Even though Germany is a country that generally has low levels of corruption, it can be assumed that law enforcement officers will continue to work with increasing commitment to combat bribery and corruption. The consistent prosecution of corruption offences will in turn have the effect of increasing the number of companies that both implement compliance guidelines and continue refining them, and the carrying out of internal investigations shall also become more widespread.

Footnotes

1 Sabine Stetter is managing partner at stetter Legal.

2 Press reports dating from 22 April 2016 (www.zeit.de/gesellschaft/zeitgeschehen/2016-04/mecklenburg-vorpommern-lka-schmiergelder-verdacht#!top-of-overscroll; www.ndr.de/nachrichten/mecklenburg-vorpommern/Korruptionsverdacht-beim-LKA-Mecklenburg-Vorpommern,korruption200.html).

3 Schlund, NJW-Spezial (2014), p. 568 with further references.

4 Federal Constitutional Court, Judgment of 19 March 2013, 2 BvR 2628/10 et al.

5 Federal Constitutional Court, Decisions of 25–26 August 2014, 2 BvR 2048/13, 2 BvR 2172/13, 2 BvR 2400/13.

6 Federal Supreme Court, GSSt 2/11, CCZ 2012, p. 199.

7 See Bannenberg, Handbuch des Wirtschafts- und Steuerstrafrecht (2014), Chapter 14, point 7.

8 Bundeskriminalamt, ‘Bundeslagebild Korruption 2013’, p. 5 and following.

9 Ernst & Young, ‘EMEIA Fraud Survey – Ergebnisse für Deutschland, May 2012’; available at www.ey.com/Publication/vwLUAssetsPI/Praesentation_zur_EY_Fraud_Survey_2015/$FILE/EY-EMEIA-Fraud-Survey-Deutschland-2015.pdf.

10 Institut für den öffentlichen Sektor e.V., ‘Public Corporate Governance Kodizes im Vergleich’, available at: www.publicgovernance.de/docs/PG_Winter_2012_Schwerpunkt_Public_Corporate_Governance_Kodizes_im_Vergleich.pdf.