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How a Proposal for German Corporate Criminal Reform Would Affect Privilege and Internal Investigations

Photo: A German flag waving in front of the Reichstag, the national German parliament building, in Berlin, Germany.

 

If a proposal for corporate criminal reform in Germany is adopted in current form, in-house counsel may face new challenges in investigating their company’s potential wrongdoing. Last year’s draft of the Corporate Sanctions Act (Verbandssanktionengesetz, the “VerSanG-E”) enhances corporate sanctions for business-related crimes, facilitates enforcement measures against corporations, and promotes internal investigations and corporate compliance programs by reducing sanctions for companies that conduct internal investigations and have compliance programs. 

So, how does a law that incentivizes internal investigations and corporate compliance programs also make them more challenging? By limiting legal privilege for internal investigations to only those investigations that occur post-indictment. This would be a change from the current scope of privilege in Germany and turns the traditional notion of a corporate compliance program on its head.  

[Related: Deal or No Deal, Brexit is a Big Loss for Privilege in the European Union]

Usually, when a compliance program uncovers some evidence or an employee reports suspicions of corporate wrongdoing, the company will then investigate the potential offense. When there is credible evidence that something may indeed have gone wrong, these investigations can be quite extensive. Often, much of an internal investigation has occurred before any corporate decision to inform the government of the matter is made. Under the VerSanG-E proposal, none of this pre-indictment investigation — even if conducted by outside counsel — would be protected by privilege. 

As ACC notes in its statement on the VerSanG-E, this anti-privilege provision of the law undermines the other incentives the law contains to encourage companies to engage in internal investigations. The protection of legal privilege is critical. Moreover, commentators in the German legal community have also noted the problems with the law’s proposed restrictions on privilege.

Protecting employee communications with investigating counsel from disclosure to the government allows counsel to better uncover the true facts and circumstances around alleged wrongdoing because privilege: (1) encourages employees and officers to be more candid; (2) enhances the likelihood that employees and officers will proactively seek advice from lawyers when they suspect wrongdoing; and (3) improves the lawyer’s ability to assess the effectiveness of corporate compliance initiatives. 

Other provisions of interest in the law include: 

  • A new legal framework for offenses committed by corporations (traditionally, individuals have been prosecuted, not corporations); 
  • Extraterritoriality, in that it applies to criminal offenses committed outside of Germany if the offense is attributable to a corporation incorporated or that has its principal place of business in Germany;  
  • Significant increases in monetary sanctions against corporations; and  
  • Reductions in sanctions for corporations that have an effective corporate compliance program.  

As the German parliament has not yet approved the law, there may be changes to its final iteration. ACC will continue to advocate for the protection of privilege globally.

About the Author

Mary BlatchMary Blatch is the senior director of advocacy at Association of Corporate Counsel.


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