Investigations traits/developments
The exercise ranges of German felony prosecution authorities and courts surpassed latest benchmarks because the authorities labored via backlogs attributable to the pandemic. Of their wake, the frequency of daybreak raids elevated. Search and seizure measures in company crime circumstances usually prolong to the non-public properties of administrators and senior staff, which may very well be a response to expanded distant working in lots of firms.
Firms have to be conscious that within the present German tax enforcement surroundings, there may be an elevated tendency of tax authorities to deliver tax controversies to the eye of felony prosecution authorities which beforehand would have been handled in tax proceedings solely, eg tax audits and financial courtroom proceedings. Numerous felony investigation proceedings have been initiated towards the backdrop of such notifications, which concern, eg switch pricing preparations and the tax residency of international firms and contain a number of nationwide and worldwide non-public fairness and real-estate corporations.
The chance of being subjected to felony proceedings has considerably elevated for firms which have been traditionally concerned in cum/cum transactions in German shares. Typically talking, cum/cum transactions concerned the switch of German shares from a international shareholder to a German entity earlier than the dividend file date, and a subsequent retransfer to the international shareholder, with the intention of lowering or avoiding German withholding taxes on dividends. Varied German public prosecutors’ places of work have launched investigations into cum/cum buying and selling in 2023.
German felony prosecution authorities have stepped up enforcement of EU sanctions violations, significantly for monetary and financial sanctions imposed towards Russia. The German Federal Prosecutor Common and native Public Prosecutor’s Workplaces began felony investigation proceedings into prohibited transactions, a few of which resulted in defendants being arrested and brought into pre-trial detention.
The Federal Court docket of Justice (Bundesgerichtshof) dominated that the initiation of a ‘self-cleaning course of’ after the onset of an investigation may end up in a discount in fines. Within the case beneath overview, the corporate, whose staff have been accused and later convicted of fraud and bribery, applied complete compliance measures and a whistleblower safety process. In its judgment, the Federal Court docket of Justice defined the positive calculation. Notably, the courtroom pointed to the optimistic influence of implementing a compliance administration system, constructing on an analogous sentiment in a call from 2017.
Necessary regulation reforms impacting company felony legal responsibility
A lot of the Second German Sanctions Enforcement Act (zweites Sanktionsdurchsetzungsgesetz), aimed toward enhancing the enforcement of sanctions, got here into power in December 2022. It offers, amongst different issues, for the institution of a federal central sanctions enforcement authority (Zentralstelle für Sanktionsdurchsetzung), the potential of monitorships to make sure sanctions compliance, the creation of a register on the belongings of sanctioned individuals, a ban on money funds in actual property transactions, and direct applicability of the United Nation’s sanctions lists in Germany.
The German Provide Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) grew to become efficient in January 2023. Firms with over 3000 staff and, ranging from 2024, firms with over 1,000 staff, are obliged to adjust to a complete set of due diligence necessities. The brand new authorized obligations embody danger evaluation, third-party due diligence, and reporting necessities. The potential penalties of non-compliance may be substantial: the Federal Workplace of Financial Affairs and Export Management (Bundesamt für Wirtschaft und Ausfuhrkontrolle) can levy fines of as much as EUR100,000 or EUR500,000 relying on the violation and fines of as much as 2% of an organization’s common annual turnover for firms with an annual turnover of over EUR400 million.
Inner investigations – key developments
The Whistleblower Safety Act (Hinweisgeberschutzgesetz) got here into power in July 2023. Now all firms using greater than 50 individuals should set up an inside reporting workplace (interne Meldestelle). The Whistleblower Safety Act allows whistleblowers to assert damages for retaliation measures and reverses the burden of proof on exhibiting causation between reporting and retaliation. Its scope encompasses whistleblowing associated to felony offences, administrative offences in addition to violations of EU regulation. A failure to adjust to the Whistleblower Safety Act could end in company administrative fines (Unternehmensgeldbußen) of as much as EUR500,000.
Sectors focused by regulation reforms or felony enforcement motion
The draft of the Combatting Monetary Crimes Act (Finanzkriminalitätsbekämpfungsgesetz) was launched by the German Ministry of Finance (Bundesministerium der Finanzen) in July 2023. The regulation is meant to assist fight monetary crimes extra successfully and implement sanctions extra rigorously. At its core is the proposal to determine a Federal Workplace for Countering Monetary Crimes (Bundesamt zur Bekämpfung der Finanzkriminalität). The Federal Workplace would assume an oversight position within the battle towards cash laundering, the prosecution of economic crimes, and the investigation of suspicious transactions. It would focus extra on unlawful monetary flows (‘observe the cash’ strategy) than on predicate offences to raised determine cash laundering networks. We anticipate that the Federal Workplace, as soon as operational, will spark a rise of enforcement actions for suspicions of cash laundering. That is prone to end in extra enquiries and work for anti-financial crime groups at monetary establishments.
Cross-border coordinated investigation or enforcement exercise
French and German authorities raided a number of main worldwide monetary establishments in Paris in a joint investigative operation in March 2023. daybreak raids have been based mostly on a tax evasion investigation that has been underway since December 2021. The search and seizure measure concerned quite a few French investigating judges, in addition to six prosecutors from Cologne, Germany.
Predictions for 2024
The German authorities will proceed to give attention to the prosecution of tax offenses in 2024. We anticipate the opening of additional felony trials into cum/ex transactions within the coming 12 months, together with towards senior staff of worldwide monetary establishments, and an enlargement of felony investigation proceedings into cum/cum transactions. We consider that German authorities can even give attention to investigating suspected non-compliance with the Provide Chain Due Diligence Act, the Whistleblower Safety Act, the Cash Laundering Act, and EU sanctions towards Russia. We may additionally see a rise of regulatory investigations into alleged ‘greenwashing’, specifically in respect of economic merchandise.
Constantly enhancing their tax compliance programs is of utmost significance for firms working within the inflexible German tax enforcement surroundings. Managing provide chain dangers and evaluating environmental claims can be an necessary risk-mitigating technique. Firms exterior the monetary sector, particularly firms commercially buying and selling in items, that are ‘obliged entities’ inside the which means of the German Cash Laundering Act, ought to give attention to the implementation and enchancment of anti-money laundering and counter-terrorism financing compliance administration programs. The identical applies for sanctions compliance administration programs, which are sometimes inadequate even at firms participating in worldwide enterprise transactions.
This text is a part of our Cross-Border White Collar Crime and Investigations Overview. Please click here for our overviews and insights in other jurisdictions.
