The Asset Tracing and Recovery Review: Germany
The German law system features a variety of criminal law and civil law remedies for tracing and recovering assets lost through fraudulent actions. Although the tracing of those assets is mainly done by way and during the course of criminal law investigations, and although a criminal law reform in 2017 enhanced the possibilities for aggrieved persons to recover assets or obtain compensation through criminal proceedings, recovery and compensation can still mainly be achieved by civil lawsuits and subsequent enforcement of judgments rendered.
i Criminal law enforcement
Domestic and overseas fraud and money laundering offences (as far as German criminal authorities are competent) are primarily investigated by the public prosecutor's offices and their special departments with the support of the police. Unless otherwise mandated (e.g., by a state public prosecutor's office), the Federal Criminal Police Office (BKA) generally does not conduct its own investigations into fraud and money laundering but provides support to the state police forces (e.g., by delegating investigators to them). In addition, the Central Office for Financial Transaction Investigations (Financial Intelligence Unit (FIU))2 is responsible for the collection and analysis of information on cross-border offences and providing central databases.
The level of transparency in financial matters has increased over the past few years, leading to effective criminal law enforcement, which also benefits aggrieved persons with regard to recovery of their assets. In this regard, the German Money Laundering Act (MLA) sets out identification, recording and notification obligations of financial institutions and a wide number of other persons and businesses to help the state prosecution services trace profits from serious criminal activities, combat money laundering and prevent illegal funds being introduced into the financial system. According to the 2018 annual report of the FIU, which is the addressee of notifications under the MLA, in 2018 the number of reported cases of suspected money laundering increased to 77,252 – 29 per cent compared to 2017 and an enormous 69 per cent compared with 2016 – resulting in a new peak since the introduction of the MLA in 1993.
ii Overview of the German system of civil justice
Regardless of any criminal investigation into fraud cases, every person injured by fraudulent action is free to take action under civil law, for example, to assert claims for recovery or damages before the civil courts.
At the larger regional courts, which are the entry-level courts for cases with a value in dispute of more than €5,000, there are chambers for commercial matters that are, inter alia, basically competent for cases of directors' liability with regard to their company or post-M&A disputes between companies, including disputes for fraudulent misrepresentations. In addition, some of the larger regional courts have formed specialised chambers for certain kinds of dispute, such as banking or securities matters. The judges sitting in these specialist chambers often have an in-depth understanding of the legal as well as business issues arising in their respective fields of expertise.
The average period between the commencement and conclusion of a civil action is around five to nine months at trial level before the regional courts, and between six and nine months at first appellate level before the higher regional courts. Of course, complex fraud litigation cases may take longer, in particular when involving time-consuming elements such as the taking of evidence abroad.
Legal rights and remedies
i Civil and criminal remedies
A legal person affected by fraud can bring claims for damages in tort against everyone who illegally and culpably caused damage to it pursuant to Section 823(2) of the German Civil Code in conjunction with a statute intended to also protect the damaged person.3 Thus, not only a company's own employees or (former) directors who breached their duties with regard to their company can be held liable by the same, but also third parties (e.g., when they teamed up with or assisted a dishonest employee, handled stolen goods or bribed an employee of a damaged company).
Given the possible lack of financial power of individuals, whether a company can be made responsible for actions of its dishonest directors or other employees may become crucial for a successful outcome of the litigation. Under German law, business associations are liable for any damage that a member of a board or a duly appointed representative may, in carrying out his or her duty, cause to a third party.4 A company could also be liable for damage caused on the part of normal employees for a failure of internal organisation and supervision of its employees, provided that proper organisation and supervision would have prevented the fraud.5
If a victim is able to make out the claim, generally speaking the defendant is obliged to put the victim in the position he or she would have been in had the circumstance obliging him or her to pay damages not occurred, or if such restoration is not possible or not sufficient to compensate the victim in money. The court cannot award punitive or treble damages, as is the case in common law jurisdictions.
In general, the injured person bringing forward a claim has to show and prove the alleged losses caused by the fraudulent action. There can, however, be specific evidentiary rules in fraud cases (see Section IV.iv).
Restitution of benefits
A victim of a fraud may also have claims for the restitution of benefits that another person unjustifiably obtained in connection with the fraud, in particular based on the provisions for unjustified enrichment.6 In the current context, such claims aim at siphoning off benefits gained by the defendant in connection with the fraud and actually belonging to the victim.
Restitution of profits gained by the disposal of a victim's assets can only be achieved in two cases. First, this is possible if an unauthorised person, be it an employee of the victim or a third party, disposes of these assets and the decision is effective against the victim. This might happen, for example, where the person acquiring the assets from the unauthorised person obtains title to them and, thus, the company involved is not entitled to reclaim these particular assets (see Section II.i). Second, a victim can also siphon off the profits if the person passing on the assets knew that they did not belong to him or her and that he or she was not entitled to do so.
A victim basically has to prove that the defendant obtained a benefit and the extent of that benefit. However, the defendant can be obliged to disclose necessary information, and possibly to make a statement in this respect, if the victim does not know the relevant facts through no fault of his or her own.
Restitution of physical objects
In the case of theft or embezzlement of assets, a victim may demand restitution of those particular assets, including physical objects, on the basis of a claim for damages (because of the defendant's primary obligation to restore the victim's position) or based on a claim for unjustified enrichment given the prerequisites for such claims.
Furthermore, the victim may also have a claim for restitution of particular physical objects against any person who is currently in possession of those objects even though that person has not acted culpably or illegally with regard to the victim.7 Such a claim as the latter, for restitution of objects in the current context, ordinarily requires the victim to still have title to the objects in question (as to title as defence, see Section II.ii).
As initially stated, a victim of criminal activity has to pursue the final recovery of assets or (financial) compensation mainly through civil proceedings. However, a criminal law reform in 2017 enhanced the possibilities for aggrieved persons to recover assets or obtain compensation through criminal proceedings. Pursuant to previous German law, the confiscation of proceeds of a crime was not ordered by the criminal courts if potential civil claims by injured persons existed.8 Thus, the criminal law measures for tracing and securing assets (see Section III.i) primarily served to secure these civil claims. The current legal situation provides that investigative authorities can also confiscate the proceeds of a crime or the equivalent compensation for the benefit of the injured person even if the latter has civil claims that it could (also) pursue in the civil courts. However, the new regime of criminal asset recovery has still not sufficiently been tested in practice yet.
German criminal procedure law also provides that injured persons may assert civil claims against an accused person arising from a criminal offence in criminal proceedings by way of a joinder procedure.9 In practice, however, the joinder procedure does not play a significant role in fraud, and especially white-collar crime cases, and recovery is sought through civil proceedings.
ii Defences to fraud claims
A defendant faced with a claim for restitution of a stolen or embezzled physical object may invoke the defence that he or she obtained title to the object. This may be the case where he or she acquired the object in good faith (i.e., believing that the asset did belong to the person disposing of it). Thus, for example, a company could claim its belongings from anyone who knowingly accepted them from its dishonest employee.
However, a victim of fraud may still have title to its belongings regardless of whether the current possessor acquired them in good faith: according to German law, a person basically cannot lose title to objects that were removed from his or her possession without his or her consent; thus, he or she may claim restitution of those objects. Where the victim, however, agrees to an object being given away – even if the consent is based on incorrect assumptions due to fraud – a third party can obtain title to it. In the latter case, a company might lose its property but can claim the financial damage it suffered from the wrongdoer.
Statute of limitations
As a standard defence, a defendant may invoke the statute of limitations. The standard limitation period of three years10 applies to tort claims. The limitation period starts to run at the end of the year in which a claim arose and the victim obtained (or should have obtained without gross negligence) knowledge of the circumstances giving rise to the claim and of the identity of the wrongdoer.
Seizure and evidence
i Securing assets and proceeds
Civil procedural means
German law provides for two general categories of provisional relief – attachment and preliminary injunction – which can also serve to preserve assets to safeguard the interests of a victim of any fraudulent action.
An attachment secures a monetary claim. Therefore, it is the proper remedy for a victim intending to preserve the alleged wrongdoer's assets to secure a possible claim for damages and compensation against the latter.
In addition to an attachment claim, a victim must demonstrate a ground for attachment. A ground for attachment exists if there is reason to fear that the enforcement of a subsequently rendered judgment in Germany (see Section V.iii on the enforceability of foreign judgments in Germany and the consequences for attachments) would otherwise be frustrated or made considerably more difficult due to the actions or the financial situation of the defendant. The attachment of the defendant's assets must, therefore, be necessary to protect provisionally the claimant's prospects of executing a judgment rendered in the future. A ground for attachment might also be assumed if there are reasons to believe that the defendant's conduct qualifies as fraud or the embezzlement of assets.
Depending on the circumstances, the court may notify the defendant of an application, set a deadline for a written response and schedule an oral hearing. The court will then issue an order of attachment. However, in most cases the court will not schedule a hearing, but will issue an attachment order ex parte. This allows the claimant to obtain a court order securing its claims without giving the defendant time to thwart the security. Furthermore, this procedure is very fast. Normally, it does not take more than two or three days, sometimes even only hours, from filing an application to obtaining a court order.
A preliminary injunction secures all non-monetary claims. A victim applying for a preliminary injunction must have a claim with respect to the assets it wants to preserve by way of injunctive relief. Therefore, a preliminary injunction would be the proper remedy if the victim seeks to preserve its specific assets to secure a claim for recovery of those assets.
As a victim must demonstrate a ground for an attachment, similarly the victim further has to state the reason why an injunction is necessary to safeguard its rights. Both the injunction claim and the injunction ground have to be supported by prima facie evidence.
The procedure for rendering an injunction order or judgment is largely identical to the one in attachment proceedings. However, the court can only render a decision without an oral hearing in extremely urgent cases.
Use of criminal compulsory measures
German civil procedural law does not allow compulsory measures such as a search of premises or seizure of assets on behalf of private persons for the purpose of tracing assets for civil proceedings. However, such compulsory measures are admissible in criminal investigations. They may also be used for the private interests of an aggrieved person, who could thus also benefit from the special investigative powers for its private litigation.
In the course of a criminal investigation, the public prosecutor is also entitled to trace and secure assets to support an aggrieved company's possible civil claims arising out of the alleged criminal offence.11 For these purposes, the available means are search and seizure as well as the attachment of assets. The only prerequisite is that a company has a civil claim (e.g., for the recovery of assets, damages or unjustified enrichment) against the accused person arising from the criminal offence. It does not matter when a company intends to enforce the claim, or if it intends to do so at all.
Against this background, it can be advantageous for an aggrieved person to notify the public prosecutor of facts that relate to the dispute and that allegedly constitute a criminal offence, even though an obligation to report on alleged crimes generally does not exist under German law (with the exception of money laundering offences under certain circumstances and crimes that are not relevant in the case at hand). The goal is to bring about a criminal investigation. The public prosecutor is under a legal obligation to initiate investigations when notified of a reasonable suspicion of a crime having been committed. Via the special powers used in the course of that investigation, it might be possible to trace and secure (otherwise hidden) assets and evidence (see Section III.ii), and to make it easier to enforce civil claims.12
ii Obtaining evidence
One of the fundamental principles of German civil procedural law is that each party itself has to obtain the evidence it needs. Therefore, an extensive pre-action disclosure by a defendant or third parties, as is the case in common law jurisdictions, is not provided for by German law. German civil procedural law features other concepts to cope with a claimant's possible deficiencies regarding information and evidence. In addition, however, German law also provides some specific, albeit limited, instruments to obtain information from a defendant or third parties prior to commencing an action.
Overview of general procedural concepts
With regard to a claimant's lack of information and evidence, German law features the following concepts.
- First, it is admissible to plead certain facts as true even if a party has little evidence that they are true. It may, for example, be sufficient to state only general observations indicating certain facts, or to provide reasonable assumptions. The party may try to substantiate the allegations in more detail and to prove them in the course of the proceedings.
- Second, in fields where the opponent typically has better knowledge of particular facts, its response to the claimant's allegations must be more precise and must rebut the allegations in a more detailed way.13 Where specific information and evidence is typically not available to the claimant, but is available to the defendant, the burden of providing and proving the respective facts may even shift.
- Third, the defendant (as well as the claimant) is required to state truthfully and completely all the alleged facts on which its defence is based. Violations of this obligation may constitute a criminal offence under German law.
Against the above background, the victim's need to obtain information and evidence prior to commencing an action is therefore not as strong as it is in common law jurisdictions.
Enforcing substantive law claims for disclosure
In addition to the above concepts compensating for a claimant's information deficiencies, German law provides for specific instruments to obtain information prior to commencing an action. In this regard, disclosure may either be based on a contractual or a statutory claim against a third party or a defendant:
- the claimant may have contractual claims for disclosure of information (e.g., a harmed company against its employees);
- irrespective of a contractual relationship, the claimant may be entitled to ask the possessor of an object for an inspection of the object.14 For this to be the case, the company must have a claim in respect of that object against its possessor or wish to obtain certainty as to whether such a claim exists. Such a claim could be, for instance, a claim for recovery of assets; and
- the claimant may also be entitled to claim inspection of a document against its possessor.15 Unlike the above right for inspection of other objects, this right does not require that a company has a claim in respect of the document, but the content of the document must be related to the claimant.
If the wrongdoers or third parties do not comply with the above claims, they need to be enforced in a separate civil lawsuit prior to commencing an action against the wrongdoers. In a pending lawsuit, the court may order the production of information under certain restrictions.
The above claims for inspection, however, may also be enforced by way of a preliminary injunction.
Criminal means and inspection of criminal files
In the course of a criminal investigation, the public prosecutor will use his or her special powers to collect a host of information.
The premises or other assets of the suspect and of third parties as well as these persons themselves may be searched to trace evidence for the criminal offence under investigation. An item that might serve as evidence may be secured. If the possessor of the item resists handing over the possible evidence voluntarily, the public prosecutor may seize it compulsorily.
The victim of a fraudulent action planning a civil lawsuit may make a request for inspection of the files that contain the information gathered by the above means via an attorney. To be successful, an attorney needs to state a justified interest to inspect the files. It will often be sufficient for the attorney to truthfully state that his or her client intends to prepare a civil action against the person accused in the criminal proceedings, and that the information contained in the files may be relevant for this purpose.
Fraud in specific contexts
i Banking and money laundering
German anti-money laundering legislation is contained in Section 261 of the Criminal Code, which makes money laundering a criminal offence, and in the MLA, which sets out identification, recording and notification obligations of financial institutions and other persons (see Section I.i).
Because of criticism by the Financial Action Task Force – an intergovernmental body established in 1989 at the OECD by, inter alia, Germany – that there were shortcomings in the German legal system with regard to anti-money laundering and terrorist funding legislation,16 and by the European Union with regard to Germany's implementation of the Third EU Directive on Money Laundering, the MLA was considerably amended in 2012. In particular, the types and numbers of individuals and businesses that are obliged under the MLA were significantly increased. Where before financial institutions, lawyers, auditors and trustees were affected by the former German anti-money laundering law, now nearly the entire retail and wholesale sector is also affected. Pursuant to the 2018 annual report of the FIU (see Section I.i), in 2018 the vast majority of suspicious transaction reports (approximately 99 per cent) were still filed by the financial sector.
In June 2015, the Fourth EU Directive on Money Laundering17 came into force, and was implemented by Germany in June 2017. Again, along with other laws, the MLA was largely revised with the aim of preventing and combating money laundering and terrorist financing more effectively. Besides having new provisions on the reorganised FIU (see Section I.i), the MLA provides for the establishment of a central register to which companies have to report information on their beneficial ownership (transparency register).
With the Fifth EU Directive on Money Laundering,18 which came into force in July 2018 and was implemented by Germany in January 2020, the transparency register became publicly accessible and its scope was extended.
The Federal Financial Supervisory Authority (BaFin) is responsible for the prevention of money laundering offences and terrorist financing in the financial sector. In this capacity, BaFin supervises financial institutions to assess whether they comply with measures designed to prevent money laundering and terrorist financing.
Civil liability may arise as a consequence of criminal insolvency offences. For example, directors of a company face criminal liability as well as civil liability for damage with regard to third parties for failing to comply with their duty to file for insolvency within the necessary time after the occurrence of the insolvency.19
Another aspect with regard to asset recovery in the context of insolvency is the power of insolvency administrators under German insolvency law to challenge, under certain circumstances, transactions that have been entered into within certain periods before the commencement of insolvency proceedings. For example, a gratuitous benefit (i.e., any benefit to which the receiver was not entitled) is voidable and, if challenged by an insolvency administrator, has to be restored if it was granted within four years of the filing for insolvency.20
The same applies to transactions entered into on behalf of an insolvent company in the 10 years prior to a petition for commencement of insolvency proceedings or after such a petition, with the intent of harming the company's creditors, if the beneficiary of the transaction had knowledge of this intent at the time of the transaction.21 This is actually relevant in practice: first, it is not necessary that the relevant intent on the part of the insolvent company to harm creditors was the primary purpose of the transaction; it suffices that the persons representing the company were aware of such a consequence and accepted it. Second, whether the beneficiary of the transaction had knowledge of the intent to harm creditors is presumed in various cases set by law or developed in case law (e.g., in cases where the beneficiary knew that the illiquidity of a company was imminent and that a transaction was detrimental to the creditors of the company).22
Finally, an insolvency administrator has special information rights as regards an insolvent company and its directors or other representatives with respect to circumstances relating to the insolvency proceedings.23 On that basis, the director of the insolvent company even has to disclose facts that could constitute a claim of the company against him or her.24
Under German arbitration law, both local courts and arbitral tribunals have the power to order interim measures of protection (e.g., to attach property to secure payment claims or to secure evidence that could be relevant for a tribunal's decision).25
If an arbitral award conflicts with public policy, the aggrieved party may request the setting aside of the award before the local court.26 Although the local court has no right to review the legality of the arbitral award with respect to substantive issues, it may set aside the award if it was attained by means of bribery, fraud, false statements or perjury.27
iv Fraud's effect on evidentiary rules and legal privilege
There are particular fraud-related evidentiary rules under German law. One example is shown above with regard to the possible challenge of particular transactions by an insolvency administrator (see Section IV.ii).
Another example concerns general damage claims, in which the burden of proof regarding damage caused by fraudulent activity, which lies with the claimant, may be supported by the procedural possibility of a German court estimating the losses if the exact calculation appears too difficult or costly,28 or even by the alleviation of the burden of proof altogether. Alleviation, for example, has been developed by case law in favour of a company whose employee has accepted bribes for awarding a contract for goods and services: the company can at least claim an amount equal to the bribe without being required to further calculate and prove an actual loss in this amount. This is based on the assumption that the bribing party will generally increase the price for the goods and services to be paid by the company by the amount of the bribe to refinance the bribe.
i Conflict of law and choice of law in fraud claims
Under German law, a distinction must be made between the applicable law with regard to torts and damages arising therefrom and the jurisdiction of German courts; one does not necessarily follow the other.
When an action is filed with a German court, the court first determines the international jurisdiction of the German courts.
Generally, the courts at the place of the domicile of any individual person or seat of a company have international jurisdiction over the individual or company respectively.
In addition, with particular respect to torts, the courts both at the place in which the tort was committed and at the place where the damage occurred have international jurisdiction.29
Even if a defendant has no domicile in Germany and no element of a tort occurred in Germany, lawsuits concerning monetary claims against the non-domiciliary can come within the jurisdiction of the German court in whose district the non-domiciliary's assets are located.30 It is acknowledged in case law, however, that for a German court to assume jurisdiction based on this provision, the subject matter of the dispute must have a sufficient domestic link to Germany. Such a sufficient domestic link may exist, for example, where the plaintiff is a German resident or one of the parties has German nationality.
If a case has an international dimension, the German court determines the applicable substantive law based on the German and European conflict-of-law rules. By applying these rules, the court may conclude that foreign substantive law is applicable to a case. Pursuant to Article 4(1) of Rome II, for example, the law of the place where the damage occurred applies to tort matters.
However, in tort matters the conflict-of-law rules also allow the parties to choose the applicable law.31 Therefore, if all parties plead under German law, a court might take this as an implicit choice of German law by the parties. This might even be done if the parties were seemingly unaware of the possibility that foreign law could apply to their case.
ii Collection of evidence in support of proceedings abroad
German authorities and both the civil and criminal courts execute requests for the taking of evidence in support of civil or criminal proceedings abroad. General preconditions are that the foreign authority issues a request for assistance, the request is granted and the particular measure is permissible under or not contrary to German law.
German civil courts grant judicial assistance by taking evidence in accordance with the Brussels Evidence Regulation, the Hague Evidence Convention and bilateral international treaties, and based on the international principles of judicial assistance contained in the Regulation on Judicial Assistance in Civil Matters.
The interaction between German criminal prosecution services and courts, respectively, and other overseas authorities by way of mutual assistance and other cooperative measures in criminal matters, is governed by a number of multilateral or bilateral treaties and by the German Code on International Judicial Assistance in Criminal Matters. Germany has become a signatory to a number of treaties that are designed to facilitate cross-border asset recovery, such as the European Convention on Legal Assistance in Criminal Matters, the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and the United Nations Convention against Corruption of 2003.
iii Seizure of assets or proceeds of fraud in support of the victim of fraud
It is possible to attach property in Germany in support of (pending) civil proceedings abroad. However, since attachment proceedings under German law are designed to protect provisionally a plaintiff's payment claims and its prospects of executing a (foreign) judgment rendered in the future, an attachment will only be ordered by the court if a future judgment can be enforced in Germany.
If not otherwise provided for in a convention, the recognition and enforcement of foreign judgments in Germany is only possible if, inter alia, reciprocity is guaranteed (see Section V.iv). According to the German Federal Court of Justice, reciprocity is guaranteed if the recognition and enforcement of a German judgment in a foreign country is not considerably more difficult than the recognition and enforcement of the foreign judgment in Germany. Such reciprocity may not be guaranteed in the relationship between Germany and several non-European countries. In consequence, an attachment of property in Germany is not possible in support of pending proceedings in those countries.
When German authorities grant judicial assistance to overseas investigators they can use any of the powers referred to above. Assistance can, therefore, include investigative measures such as the taking of statements or execution of searches, seizure of evidence, service and enforcement of orders and decisions, as well as the extradition of individuals. Judicial assistance cannot be granted if it would contravene German public policy.
iv Enforcement of judgments granted abroad in relation to fraud claims
Enforcement of foreign civil judgments in Germany is governed by European law (in particular the Brussels Regulation 2012), international treaties, or – if neither of the latter applies – by German statutory law.32
In the latter case, upon request of the judgment creditor the competent German court has to decide on the enforceability of a foreign judgment. The German court will deny enforceability if the judgment cannot be recognised. There is a set of grounds according to which a foreign judgment is not recognised,33 of which the lack of reciprocity and the contradiction of public policy are to be highlighted in the context of fraud litigation.
In a decision of 1992, the Federal Court of Justice refused the enforcement of a US award for punitive damages as contradicting German public policy.34 The Court held that German civil law focuses on the compensation of the plaintiff and does not intend to punish the defendant; German law clearly distinguishes between the law of damages and public prosecution and criminal law. Recent case law, however, tends to be more inclined to accept punitive damages. As in 2013 and 2015, the Federal Constitutional Court held that a (class) action for punitive damages did not per se conflict with essential principles of the rule of law.35 However, that decision dealt with (only) the service of the action for punitive damages in Germany; the enforcement of those actions has not been tested in court in recent times.36
v Fraud as a defence to enforcement of judgments granted abroad
The German court has no right to review the legality of a foreign judgment to be enforced in Germany.37 Therefore, a defendant cannot in principle prevent the enforcement of a foreign judgment in Germany on the grounds that the factual basis of such a judgment is incorrect.
However, if a foreign judgment was obtained by the intentional giving of false evidence in the course of proceedings, or otherwise illegal manipulation of the outcome of foreign proceedings contrary to public policy, this can under certain circumstances be set against the enforcement of a foreign judgment.38 The defendant opposing the enforcement carries the burden of proof for the facts constituting the fraudulent nature of the judgment. Furthermore, it has to be taken into account whether the defendant has exhausted all remedies available to it during the foreign proceedings to prevent the fraudulently obtained judgment. In a 2014 decision, the Federal Court of Justice confirmed that a defendant is not entitled to invoke the intentional giving of false evidence by a claimant against enforcement if the defendant appealed, or could have appealed, in the respective country against the foreign judgment to be enforced in Germany.39
As envisaged in the governmental coalition agreement in 2013, a proper corporate criminal law is looming. Whereas some legislative proposals have fizzled out, 'Dieselgate' (the Volkswagen emissions scandal that began in September 2015) revived the subject again.
Despite harsh criticism of previous drafts in the legislative process, not only by trade associations but also by legal experts, in June 2020 the government issued the draft of the Act to Strengthen Integrity in Business, the main component of which is the Act on the Sanctioning of Corporate-Related Crimes (Corporate Sanctions Act).40 One of its main features, in contrast to the existing law on corporate fines (as mere discretionary by-products of the criminal liability of directors), is the implementation of the principle of legality obliging the public prosecution service to investigate and sanction corporate crimes against a corporate entity as such. In consequence, investigations and sanction proceedings against companies might increase significantly. Of particular relevance are also the provisions on corporate compliance systems and, in particular, on internal investigations.41 For the first time, the draft Corporate Sanctions Act expressly provides for an essential reduction of corporate sanctions if a company:
- has made a significant contribution to clarifying an offence;
- is cooperating fully with the prosecution authorities; and
- is carrying out an internal investigation and making available its findings, including essential documents and the final investigation report.
If this comes into force, it might collaterally also enhance the asset recovery of aggrieved third parties.
Already successful developments have also been initiated at the EU level. Germany has recently implemented the Fifth EU Directive on Money Laundering (see Section IV.i). Once more, this extends the applicable reporting duties and provides further amendments regarding virtual currencies and beneficial ownership registers.
1 Florian Wettner is a partner at METIS Rechtsanwälte PartG mbB.
2 By the German Law of June 2017 implementing the Fourth EU Directive on Money Laundering (see Section IV.i), the FIU was renamed as the Central Office for Financial Transaction Investigations and reorganised. As a consequence, it is no longer under the authority of the BKA but of the General Directorate of Customs.
3 For example, under Section 263 of the Criminal Code for fraud, Section 266 of the Criminal Code for breach of trust or Section 261 of the Criminal Code for money laundering.
4 Section 31 of the Civil Code.
5 Section 831 of the Civil Code.
6 Section 812 et seq. of the Civil Code.
7 Section 985 et seq. of the Civil Code.
8 Section 73(1) of the Criminal Code (old version).
9 Section 403 et seq. of the Code of Criminal Procedure.
10 Section 195 of the Civil Code.
11 Section 111b of the Criminal Procedure Code.
12 As to the information rights and duties of (damaged) companies in relation to criminal law enforcement agencies in the context of internal compliance investigations, see details in Wettner/Mann, DStR 2014, p. 655 et seq.
13 Federal Court of Justice, Decision of 10 February 2015 (Docket No. VI ZR 343/13), NJW-RR, 2015, p. 1279 et seq., with special regard to damage claims for infringements of criminal law. See also Federal Court of Justice, Decision of 24 October 2014 (Docket No. V ZR 45/13), ZIP, 2015, p. 263 et seq., as to the required precise pleading of the second acquirer of a mortgage if the owner of the land invokes, based on concrete and comprehensible facts, that the second acquirer knew that the original beneficiary acquired the mortgage only fraudulently.
14 Section 809 of the Civil Code.
15 Section 810 of the Civil Code.
16 The Financial Action Task Force has submitted the Third Follow-up Report, Mutual Evaluation of Germany, June 2014, concluding that Germany had made sufficient progress in addressing the deficiencies identified in its 2010 mutual evaluation report, and could be removed from the regular follow-up process: accessible at www.fatf-gafi.org/topics/mutualevaluations/documents/follow-up-report-germany-2014.html.
17 EU Directive 2015/849.
18 EU Directive 2018/843.
19 Section 15a(4) of the Insolvency Act.
20 Section 134 (1) of the Insolvency Act.
21 Section 133(1) of the Insolvency Act.
22 ibid.; cf. Federal Court of Justice, decision of 21 January 2016 (Docket No. IX ZR 84/13), Wertpapiermitteilungen 2016, p. 366 et seq. and decision of 8 January 2015 (Docket No. IX ZR 198/13), Der Betrieb, 2015, p. 301 et seq.: if the creditor knew that the debtor ran a kind of Ponzi scheme, this is deemed to be an indication that the creditor also knew that the debtor's illiquidity was at least imminent.
23 Sections 97, 101 of the Insolvency Act.
24 See Federal Court of Justice, Decision of 5 March 2015 (Docket No. IX ZB 62/14), ZIP, 2015, p. 791 et seq.
25 Sections 1033 and 1041 of the Civil Procedure Code.
26 Section 1059(2) No. 2(b) of the Civil Procedure Code.
27 See Higher Regional Court Cologne, Decision of 7 August 2015 (Docket No. 1 U 76/14), SchiedsVZ 2015, p. 295 et seq.; as to the similar legal situation with regard to fraud as a defence to enforcement of foreign judgments, see Section V.v.
28 Section 287 of the Civil Procedure Code.
29 Section 32 of the Civil Procedure Code.
30 Section 23 of the Civil Procedure Code.
31 Article 14 of Rome II.
32 Sections 722 et seq. and 328 of the Civil Procedure Code.
33 Section 328(1) Civil Procedure Code.
34 Federal Court of Justice, Decision of 4 June 1992 (Docket No. IX ZR 149/91), Bundesgerichtshofentscheidungen, Vol. 118, p. 312.
35 Federal Constitutional Court, Decision of 9 January 2013 (Docket No. 2 BvR 2805/12), Neue Juristische Wochenschrift, 2013, p. 990 and Decision of 3 November 2015 (Docket No. 2 BvR 2019/09), Wertpapiermitteilungen 2016, p. 51, 53.
36 See Federal Court of Justice, Decision of 22 June 2017 (Docket No. IX ZB 61/16), Wertpapiermitteilungen 2017, p. 1428 et seq. The Court held the enforcement of an Italian decision that awarded the defendant lump-sum damages (possibly exceeding its actually proven cost of proceedings) due to vexatious litigation of the claimant as lawful as the damages did not contradict German public policy. The lower courts had come to the same conclusion reasoning, inter alia, that the damages were not comparable to US punitive damages.
37 Section 723(1) of the Civil Procedure Code.
38 Federal Court of Justice, Decision of 29 April 1999 (Docket No. IX ZR 263/97), Bundesgerichtshofentscheidungen, Vol. 141, p. 286 et seq. (Prozessbetrug).
39 Federal Court of Justice, Decision of 15 May 2014 (Docket No. IX ZB 26/13), Neue Juristische Wochenschrift, 2014, p. 2,265 et seq.
40 Government draft of 16 June 2020, available under https://www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/Dokumente/RegE_Staerkung_Integritaet_Wirtschaft.pdf;jsessionid=BAC2C09E97ACAC17DB54ED91FADB2EA5.2_cid289?__blob=publicationFile&v=2
41 See Wettner/Walter, 'Management Interner Untersuchungen', in Schulz (ed.), Compliance Management im Unternehmen, 2nd ed. 2020, still to be published.