GERMANY: An Introduction to Dispute Resolution: White-Collar Crime: Defence Counsel

The general framework for German white-collar criminal law is laid down in the German Criminal Code (Strafgesetzbuch). In addition, important criminal provisions can be found in numerous separate laws. As a result, some standard commercial criminal offenses are laid down in the German Criminal Code (such as fraud, corruption and theft), while other – often newer – criminal provisions can be found in specific legal acts. For example, criminal liability for insider trading and market manipulation is laid down in the German Securities Trading Act (Wertpapierhandelsgesetz), while criminal liability for tax evasion is addressed in the German Tax Code (Abgabenordnung). From a practitioner’s perspective, money laundering proceedings, sanctions and embargo violations, tax evasion and capital market offenses such as insider trading, market manipulation and accounting violations have become particularly significant in the area of white-collar crime in recent years.

Responding to international criticism for how Germany has so far conducted financial investigations in complex cases, the Federal Government has proposed a new draft law to combat financial crime (Combating Financial Crimes Act). The draft bill is intended to step-up the fight against financial crime in Germany and it notably provides for the establishment of a Federal Financial Crime Agency as a new specialised federal authority. Financial flow analyses, criminal and administrative investigations, and supervisory powers are to be bundled under the umbrella of the new agency. Under the draft bill, a key piece of the new agency will be a new Money Laundering Investigative Centre, where the most significant cases of international money laundering with links to Germany will be investigated.

Although German law does not – yet – formally recognise criminal liability of corporations, it provides for a liability mechanism under the Administrative Offences Act (Ordnungswidrigkeitengesetz) which can lead to similar results. The Administrative Offences Act contains provisions for fining an enterprise in cases where a person in a management position commits a criminal offence that benefits the enterprise, or if management intentionally or negligently fails to comply with its necessary supervisory duties to prevent criminal offences by its employees. The fines can be severe, in addition to confiscation or disgorgement of profits.

Criminal proceedings are governed by the Code of Criminal Procedure (Strafprozessordnung). From the point of view of those affected, criminal proceedings as such are often no less distressing than an actual penalty that may be imposed only at the end of the proceedings. To understand the particularities of enforcement, one must take into account that Germany is a federal republic consisting of 16 member states. Whereas the substantive criminal offences are federal law and apply equally in each of the 16 states, enforcement generally lies within the responsibility of each individual state. Accordingly, each state has its own courts and its own prosecution agencies, which are usually located in larger cities. Currently, there are more than 100 regional courts throughout Germany, each of which has its own prosecution. This large number of prosecution offices sometimes results in diverging prosecution trends, which makes it difficult to predict how a specific case will be regarded by the competent prosecution. As a result, we have recently seen comparable cases regarding tax evasion, corruption, or market manipulation where the prosecution in one state took a rather rigorous approach, whereas the prosecution in another state dropped all charges and terminated the investigation.

Although German law does not formally recognise a guilty plea as understood in some common law jurisdictions, the Code of Criminal Procedure provides for a form of plea agreement. The agreement may not address the verdict of guilty or not guilty but only the penalty to be imposed on the defendant. As part of the bargain, the defendant is typically required to make a confession. Any discussions and negotiations regarding such an agreement that have taken place among the court, the prosecution and the defence must be recorded and made public. According to an important decision of the Federal Constitutional Court, bargains that violate the duty for transparency and documentation will generally render illegal a plea bargain that has nonetheless been concluded. Furthermore, the Federal Constitutional Court pointed out that the principle of individual guilt prohibits a conviction being solely based on a formal confession. Instead, criminal courts must verify whether the confession is consistent with other available evidence. Following a number of decisions of the Federal Constitutional Court and the Federal Supreme Court, plea-bargaining continues to be in the spotlight. Apart from a formal plea agreement, the Code of Criminal Procedure also provides for other options for ending proceedings by mutual agreement, most notably the possibility of discontinuing proceedings subject to certain conditions, such as making restitution or paying a certain amount of money, which is technically not a criminal fine.

Since 2017, forfeiture of proceeds of crime – which is intended to deprive the offender of all illicit benefits from an offense – is mandatory, and it has since become of paramount importance in prosecution practice. While asset forfeiture is technically not considered a punishment, from the point of view of those affected it often yields results that equal, or even exceed, a punishment. This is largely due to the so-called gross-doctrine (Brutto-Prinzip). According to this principle, no expenses for the crime are to be deducted from the proceeds of the crime. As a result, the mandatory forfeiture of assets often extends to a significantly higher amount than the actual profits derived from the crime, often resulting in disproportionate confiscation orders which can have devastating financial consequences for the offender. The courts are increasingly looking for ways to mitigate disproportionate consequences, and recent case law might tip the scale in a more reasonable direction. For example, the Federal Court of Justice ruled that anything that was used as a means to commit the crime cannot at the same time be considered as proceeds of the crime.