German business awaits internal-investigation protocols in face of anticipated corporate sanctions law


With lawmakers in Berlin expected to pass the Corporate Sanctions Law within the coming year, German businesses are expected to adopt comprehensive protocols for internal investigations in order to comply with this new and potentially high-risk regulatory climate.

According to legal analysts, the new law will cause public prosecutors to investigate corporations if evidence of malfeasance is detected in the way of corruption, regulatory violations or financial crimes, and will dramatically increase the penalties against a business. 

These penalties are expected to be onerous, including fines of 10% of annual worldwide group turnover. In addition, assets obtained from the criminal offences can be confiscated.

In response, Germany's legal community is recommending that businesses lose no time in preparing systems to investigate wrongdoing internally should evidence come to light.

Internal investigations, of course, provide corporations with the ability to better supervise their workforce and ensure compliance. But in the case of wrongdoing, a rapid and robust investigation by a company that immediately exposes any improper acts by rogue personnel and provides prosecutors with "clarification assistance" on the matter can result in significantly reduced penalties.

Specifically, if companies respond to a public prosecution with their own internal investigation that exposes wrongdoing and supplies evidence to the satisfaction of state investigators, a company will find the upper limit for sanctions reduced by one-half and no application of minimum sanctions. What is more, the court will not announce its judgment in public in the Corporate Sanctions Register.

In short, corporations that practise full disclosure with their own internal investigations stand to pay less in fines and avoid bad publicity.

But in light of German employment law and statutes governing Works Councils and data protection, what type of internal investigation can a German company implement now before the sanctions law is passed?   

First and foremost, when a company's leadership uncovers evidence of wrongdoing, they can question any staff member who might have pertinent information, including potential suspects and witnesses. Questions pertaining to an employee's main role in the workplace have to be answered. Since an employee has no right to refuse to give a statement, interviewees who do not want to answer often retreat into memory gaps. Hence, questions should be carefully crafted ahead of time.

In order to collect evidence for later assessment, formal interviews should be conducted. Employees and managers concerned are obliged to take part in the questioning so long as the interviews themselves are conducted in an appropriate place and time and the queries concern their primary duties in the workplace.

Staff members being questioned should be adequately informed about the reasons for the interview. Corporations cannot base interviews on groundless suspicion or use them as fishing expeditions for potential wrongdoing.

In terms of making records of interviews, audio or video recordings are possible, but only with the consent of all involved. And even with consent, experts warn that digital recordings of interviews can produce lengthy transcripts in which the precise meanings of statements are not always clear.

Given these considerations, some legal analysts advise that it may be more efficient to take written minutes of an interview, which the interviewee can later review, correct if necessary and ultimately sign.

Who can and should participate in these interviews? Even in a company with a Works Council installed to represent the interest of employees, these councils have no legal right to participate in interviews.

Nevertheless, Works Councils must be notified if an internal investigation is taking place and some analysts even recommend that council members be permitted to sit in on the interview in order support the staff member being questioned.

With support at hand on their side of the table, interview subjects are often more confident and forthcoming, and interviews can be more productive.

As stated, adopting a system for internal investigations into a company's corporate culture can be an invaluable asset after Germany adopts it Corporate Sanctions Law. But there are some caveats to keep in mind.

Not all internal investigations are considered equal. To be eligible for a reduction in penalties, an internal investigation must contribute significantly to clarifying an offense. In short, the investigation must reveal and provide actual evidence to prosecutors. Moreover, the internal investigation must be conducted in accordance with the rule of law. This means, for example, that the employees involved should be informed of a newly created right to refuse to provide information.

Companies can use outside help in their internal investigations, such as employing law firms that have partners and digital resources that specialize in such inquiries. But lawmakers demand that "Chinese walls" be erected in these investigations, and that lawyers investigating wrongdoings not serve as defense attorneys representing the company during court proceedings. A single law firm can do both jobs, but a firm must allocate its staff accordingly so that investigators are not also leading the defense.

For more information on Germany's Corporate Sanctions Law, CMS digital resources for corporate inquires and how CMS can assist any corporation wishing to launch an internal investigation, contact your regular CMS source or local CMS experts Martin Lutzeler and Laura Blumhoff.