Current trends in white-collar crime in Germany

December 2021  |  SPECIAL REPORT: WHITE-COLLAR CRIME

Financier Worldwide Magazine

December 2021 Issue

Since the former chief executive of Deutsche Post AG was arrested for tax evasion in front of running cameras in 2008, the prosecution of white-collar crimes has increasingly become a focus of public attention in Germany. In recent years, hardly a month has passed without reports on criminal investigations.

Over the last few years, facts were uncovered in the context of the ‘diesel emissions scandal’, ‘cum-ex trades’ and the breakdown of Wirecard AG, the extent of which had previously been unimaginable. The public pressure on policymakers, supervisory authorities, investigators and courts following these scandals led to substantial changes to the environment for a successful defence.

The impact of the public on criminal proceedings should not be underestimated.

Firstly, whereas from the defence lawyer’s standpoint it is almost always better to not address ongoing proceedings publicly, investors, supervisory authorities and business partners nowadays mostly expect instant public statements. In the event of investigations, companies thus declare almost automatically that they will fully cooperate and conduct internal investigations in order to clear up the allegations.

However, it is often not considered in this regard that investigating authorities take such declarations literally and then actually demand cooperation and clarification. In most cases, this will be the right defence strategy. However, an early public commitment severely limits courses of action for the defence.

Internal investigation is often met with scepticism in Germany. To the extent that it is limited to the processing of historical facts for investigating authorities, it is welcomed by public prosecutors. However, German investigating authorities consider legal analysis of the facts and in particular questioning witnesses to be their duty, and thus internal investigations are often met with mistrust.

In the context of internal investigations, recently there have even been searches at law firms and seizures of documents containing legal advice, as there is only a very limited understanding of legal privilege in Germany. It has also not proven helpful to the reputation of legal advisers that partners of a renowned international law firm were remanded in custody and the law firm itself was searched repeatedly in the context of cum-ex proceedings.

Instant public statements about the facts, outraged denial of the allegations or even counterattacks against individuals who raised the allegations are risky. Investigating authorities are often annoyed if these statements later turn out to be false. Since the breakdown of Wirecard AG, which, for years, fought allegations against it with all legal means, it almost seems suspicious if companies vehemently defend themselves publicly against allegations.

However, even more decisive for the outcome of the proceedings is the public pressure on prosecutors and courts. Though it was established practice just a few years ago to end white-collar crime proceedings if defendants made a conditional payment while still presumed innocent (Section 153a German Code of Criminal Procedure), this is now virtually impossible.

Many public prosecutors fear that such agreements are regarded as unjust deals. This development goes so far that there have been several criminal proceedings against and searches at financial officials regarding cum-ex and employees of the Financial Crime Unit (the anti-money laundering authority) for not applying the law consistently enough. When in doubt, the authorities therefore no longer decide themselves, but refer cases to court, signifying an indictment in the criminal proceedings.

However, these indictments rarely lead to prison sentences, for various reasons. White-collar crime proceedings are often extensive and usually last for years. Even in the event of straightforward cases, the technical processing of data alone takes several months. In cross-border cases, mutual legal assistance procedures can take years, if at all successful. In addition, investigating authorities and the courts often have limited staff.

Furthermore, investigating authorities have to investigate all cases. Under German law, they cannot pick and choose simple or appealing cases to bring before the court. For white-collar crimes such as tax fraud, time and again there are also substantial legal uncertainties. When cases are finally brought before the courts, the offences often go back many years, which causes additional difficulties when assessing the evidence. Without the cooperation of crown witnesses, the facts are usually difficult to prove.

This increasingly leads to a point where – in the context of large criminal proceedings – public prosecutors and courts first look for a participant who is willing to make a confession and incriminate his accomplices in return for a mild sentence. While this ‘crown witness’ is subject to a very mild sentence, the defendant who does not confess should expect a long prison sentence.

As a result, all further participants usually agree to confess and largely waive the assertion of defence rights to avoid prison. This practice, however, often leads to the injustice that those most involved in the criminal offence also know the most, and thus can score the most points through their own statement. Defendants who were only marginally involved run the risk – as seen in the context of cum-ex – of facing a relatively lengthy prison sentence.

The legislator did not react to this development in recent years by improving court resources, but through subsequent adjustments to the law. In this regard, it is obviously not possible to change the criminal law itself retroactively. However, limitation rules, disgorgement laws and procedural rights can be amended after commission of an offence. The interpretation of tax laws can also change retroactively.

This can be seen, for example, in criminal tax law. After the German Supreme Court had established the principle that tax evasion exceeding €1m should lead to imprisonment, the statutes of limitation were gradually amended. Initially, investigations had to start within five years following the offence and had to be completed within 10 years following the offence. These periods of limitation were then doubled.

Now, investigating authorities have 15 years to initiate proceedings and must conclude them within 37.5 years. Furthermore, the legislator also subsequently amended the disgorgement laws. In the context of criminal proceedings, time-barred taxes can still be disgorged.

In tax law, interpretation has changed drastically in the last decade. In connection with cum-ex trades, the legislator and the authorities both assumed for years that they could not be challenged under certain circumstances. Nonetheless, prosecutors assume today that these trades were illegal in all cases and, in many cases, also a punishable, intentional crime.

At the company level, the principle remains that companies are not subject to criminal law. Therefore, companies cannot be subject to criminal sanctions. Instead, an administrative fine can be imposed on companies pursuant to the German Act on Regulatory Offences (Section 30) if managers committed criminal or administrative offences. Administrative fines have been substantially increased in recent years, from €1m to €10m.

In addition, an administrative fine may be increased if the company made a profit from the criminal offence. The maximum fine then equals the gross profit. Compared to other countries, administrative fines in these cases are still low. For that reason, the introduction of a corporate criminal law is under consideration. In this regard, the proposal is to calculate an administrative fine based on the company’s global revenues.

The industry and advisers themselves are for the most part responsible for these developments as some actors, for many years, almost shamelessly took advantage of the lenient treatment of white-collar crimes. This attitude led to a serious loss of reputation for the industry and advisers and stricter general conditions. It remains to be seen whether it will be possible to find a healthy balance between prosecution and defence rights.

 

Dr Bernd Gross is a managing partner at Feigen · Graf. Dr Gross can be contacted on +49 (0)6977 01960 or by email: gross@feigen-graf.de. Ms Taylor can be contacted by email: info@taylorlegal.de.

© Financier Worldwide

BY

Dr Bernd Gross

Feigen · Graf

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