Germany: five key aspects multinationals should know about the Anti-Bribery and Anti-Corruption law

In the following, we outline five key aspects of the German Anti-Bribery and Anti‑Corruption law (the ABAC law) that multinationals may not be aware of but which they should keep in mind when it comes to bribery and corruption in connection with a corporate client in Germany.

In case of bribery and corruption incidents, not only the well-known FCPA and UK Bribery Act pose considerable legal risks, but also the German ABAC law provides for severe sanctions that apply to any international company operating in Germany.

Attention should be paid to the fact that the scope of application of the German ABAC law (which is part of the German Criminal Code) might be broader than you think when it comes to bribery payments also outside Germany.

In order to be targeted by the German prosecution authorities, the active commitment of offences is not required. It can be sufficient if offences are tolerated within a company or if appropriate preventive measures are not taken by the responsible persons. Thus, in the case of bribery and corruption, looking the other way will not help.

Furthermore, if a bribe payment is in question, also related offences under German Criminal law should be taken into account. In such cases, it might not (only) be bribery.

As a result of the possible sanctions under German ABAC law, any incident of bribery and corruption can get more expensive for the companies involved than expected and should therefore be taken very seriously. However, it is important to proceed with caution: there are criminal tax pitfalls for corporate executives, even if they were not in charge at the time of the actual bribery.

1. The German ABAC law reaches farther than you might think

The application beyond their own national borders of the US Foreign Corrupt Practices Act and the UK Bribery Act is well known. Any international company operating in Germany, however, also is affected by the German ABAC law.  Like the US and UK laws, the German ABAC law’s reach is broadly extraterritorial: an act of bribery committed outside Germany by a company operating in Germany may be implicated.

In principle, the application of the German ABAC law is linked to the commission of the offense in Germany. However, the law empowers German authorities to initiate criminal proceedings (for aiding and abetting) if bribery taking place anywhere in the world was facilitated from Germany.

Such facilitation is to be understood very broadly; even any toleration if required for committing the bribery or any (verbal) acceptance of the bribery abroad can be regarded as (psychological) facilitation of the bribery. For example, if responsible persons in a parental company only discuss the granting of bribe payments made by foreign subsidiaries and do not object to those payments, the regulators could see this as aiding and abetting of the bribery payments.

The German ABAC law can also apply if the offense is committed abroad by a German employee of the company and the bribery is punishable abroad.

Furthermore, the German ABAC law always applies when the bribe involves a German public official or public mandate holder.

2. Looking the other way will not help

In cases of bribery, even those who, as responsible managers, have done nothing to facilitate bribery payments can find themselves facing possible criminal prosecution – precisely because they did nothing.

Under German law, a company’s management has a duty of supervision. When there are indications that a company is involved in bribe payment, if the management does not intervene, the company may face sanctions, and individual members of management may face personal charges as well. The same applies if appropriate measures to prevent bribes, such as the establishment of a compliance management system, have not been taken.

Looking the other way is no excuse; instead, should a corruption incident be uncovered, it is important for the company to closely examine the actions taken by management to ensure overall compliance.

3. It might not (only) be bribery

The criminal law risks do not always lie solely in the bribery transaction itself. Most notably, under German criminal law, embezzlement and money laundering are usually closely linked to bribery offenses, reaching beyond the original transaction. For example, the running of "black coffers" (funds outside the official company accounts) can be seen a criminal offense of embezzlement,­ even if no bribe is paid from these coffers.

Bribery payments themselves are incriminated, meaning that any further handling of these funds carries the risk of prosecution for money laundering if German criminal prosecution authorities assume a breach of due diligence in the handling of these funds. That is, your company may be at risk even if you neither grant nor accept bribes – if all you did was handle another company’s illegal proceeds without appropriate checks.

In addition, in the case of suspicion of money laundering, companies may be subject to far-reaching reporting obligations, the violation of which can be punished with considerable fines.

4. Bribery can get expensive

By international standards, the size of corporate fines provided for in German law in case of bribery and corruption offenses may, at first glance, seem low: a maximum of €10 million.

Note, however, that this €10 million limit applies to each individual bribery transaction. Should a company be found to have committed numerous bribery transactions, the fines can add up dramatically.

These potential sanctions go even farther. Even if the bribe payment only amounted to a few thousand euros, the total business volume arising as a result of the bribe payment could be claimed by the authorities, without limit. The authorities can claim the business volume and any other profit of the bribery transaction, and they have up to 30 years after the actual bribery transaction took place to do so.

5. And there are tax pitfalls as well, even for new management

We often observe that bribery is revealed after a change of management. Seeking to clean house, new management uncovers evidence of bribery and corruption and reports the incidents to the authorities.

Attention! This procedure may be commendable, but, for new executives, criminal law risks lurk. Often, bribe payments have been claimed as business expenses and thus have reduced the corporate tax burden in Germany. If the new management becomes aware that this took place, it is obliged to correct the corresponding tax return with the competent tax authorities, and to do so without delay.

Failing to correct these tax returns can in itself be regarded as tax evasion, and the new executives can be held culpable, even if they were not in charge at the time of the actual bribery. Sanctions against not just the company but the new management are possible, also if it was the new management that actively investigated and reported the bribery to the authorities.

Find out more about the implications of the German ABC law for your business operations by contacting either of the authors.