EU-wide corporate criminal law: Tightening the reins

The Council of the European Union recently submitted its proposal in the ongoing legislative process for a new directive to combat corruption in the EU.

The new directive will allow the EU to impose worldwide turnover-related fines and other penalties on companies that are liable for corruption offenses. The EU is toughening laws – and some see this as the start of EU-wide corporate sanctions.

However, the EU legislature has set out steps that companies can take today to protect themselves from these impending sanctions.

Harmonized offenses

The key element of the draft directive is that the rules on corruption will be harmonized for the first time at EU level in the public and private sectors. In addition, all EU member states will be obliged to criminalize the same acts of corruption and to define these acts in the same way.

Specifically, this concerns bribery in the public and private sectors, embezzlement, improper influence, obstruction of justice, and enrichment through corruption related offenses.

In addition to perpetration, Art. 14 of the draft directive also provides for criminal liability for participation (instigation or aiding and abetting) in such offenses. The draft directive, in contrast to the European Commission proposal, does not regulate attempted offenses.

Penalties

The Council agreed that member states must put in place effective, proportionate, and dissuasive criminal penalties to sanction these crimes.

For companies

Legal entities will face penalties in the form of fines ranging from at least 3 percent to as much as 5 percent of the past financial year’s total worldwide turnover or at least EUR 24 to EUR 40 million, depending on the offense.

It remains to be seen whether the EU legislature will also consider a group-wide approach on the turnover beyond the legal person to be necessary. This may have massive consequences for multinational groups.

According to Art. 16 of the draft, a legal entity can be held liable for a criminal offense if this offense was committed “for its benefit by a person who holds a leading position within the legal person concerned.”

The draft also codifies further measures. The punitive measures envisaged in the draft are robust. In addition to fines and penalties, these include exclusion from public grants or aid, exclusion from access to public funding (including tendering procedures, subsidies, permits, licenses), temporary or permanent bans on carrying out business activities, and withdrawal of permits and authorizations for activities that led to or facilitated the offense.

Authorities that have concluded contracts with affected companies will be allowed to cancel or withdraw from the contract.

Finally, the affected company can be placed under judicial supervision, and facilities that were used to commit the offense can be closed or liquidated.

For natural persons

The draft directive provides for a minimum custodial sentence of two to four years for the criminal offenses that will be punishable under EU law.

In addition to fines, possible sanctions include dismissal, suspension, and transfer from public office, a ban on practicing a profession or trade, and the revocation or withdrawal of licenses to carry out activities related to the offense committed.

Establishment of national anti-corruption units

The Council also concurred that member states must implement measures to enhance public awareness of the detrimental impact of corruption, and to guarantee transparency and accountability in public administration to prevent corruption.

The practical implementation is not yet determined. However, requirements are being standardized.

It is the responsibility of the member states to establish the necessary bodies or units to prevent and combat corruption. These units must be able to operate independently and must be provided with an appropriate number of qualified staff and sufficient financial resources. Which specific tasks and competences the anti-corruption units should hold is still open. However, these units will likely increase the awareness of corruption.

Extended jurisdiction

Member states may extend their jurisdiction to acts committed outside their territory in various circumstances, especially if the offense is committed for the benefit of a legal person established in its territory or for the benefit of a legal person in respect of any business done in whole or in part on its territory.

Preventive measures

The draft directive outlines a standardized catalogue of penalties that member states must consider when implementing sanctioning provisions. The directive also points out the conditions that can have a mitigating effect. These conditions are:

• Establishment of appropriate internal control measures and compliance programs to prevent corruption – both as a preventative measure before the offense is committed and as a remedial measure
  
  
• Initiation of remedial measures immediately after discovery of the offense, eg, through an internal investigation or cooperation in the investigation of the facts
  
  
• Voluntary self-disclosure

In many EU member states, it is common practice for authorities to require both the establishment of compliance programs and participation in the investigation.

In Germany, for example, courts and investigating authorities now also take compliance management systems into account as a mitigating factor when assessing fines.

The new legislation would require the EU member states to establish a legal framework for mitigating penalties across the entire EU. Especially when accompanied with clear sentencing guidelines, this could provide legal clarity for businesses and decision makers in critical situations.

Conclusion

The current draft – though possibly subject to further amendments – demonstrates the member states' focus on more robust anti-corruption measures. The introduction of turnover-related sanctions would likely result in a significant tightening of existing national regulations.

At the same time, the EU legislature is creating clarity through further harmonization and the implementation of a legal basis for the consideration of preventive and investigative measures.

In this way, well-prepared companies operating in the EU may approach future legal challenges in connection with corruption with greater confidence.