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At Large: In Germany, a weird tolerance for corporate crime

For at least ten years, Germany’s financial regulator heard detailed complaints from reliable sources about a $2 billion accounting fraud at Wirecard AG but failed to act.

The Wall Street Journal said the warnings to BaFin (the Federal Financial Supervisory Authority) came from U.S. authorities, investors, journalists, and possibly even company insiders. Instead of investigating the red flags, BaFin attacked Wirecard’s critics.

The Journal’s report then said, “Germany has a patchy record in fighting corporate crime. Volkswagen AG’s giant emissions-cheating scandal was uncovered by California. The U.S. has imposed more money-laundering fines on troubled German lender Deutsche Bank AG than Germany has.”

The Journal didn’t mention anti-bribery enforcement but should have. It’s an excellent way to measure the robustness of a country’s commitment to fighting corporate crime.

Here’s the record: Since 2008, the DOJ and SEC have prosecuted ten German firms for FCPA offenses, imposing total financial penalties of $1.4 billion. The enforcement streak started with Siemens. That was followed by FCPA cases against SAP, Allianz, Linde Group, Zimmer Biomet, Bilfinger, Deutsche Telekom, and Daimler. The two most recent FCPA cases against German companies, both in 2019, involved Fresenius and Deutsche Bank.

In other words, the United States, not Germany, has led anti-bribery enforcement against German companies. If Germany had prosecuted those ten companies first, it’s unlikely the DOJ and SEC would have stepped in.

So, what’s the problem with German enforcement? Berlin-based Transparency International said, “Wirecard is not an isolated case.” TI blamed “structural problems in the German legal system” and the lack of legal protections for whistleblowers.

Meanwhile, the German government fired BaFin from its role in overseeing financial markets. A Justice Ministry spokesman said Germany is reviewing the extent of reforms needed to ensure “functioning and transparent capital markets.”

Are German regulators entirely to blame? No. BaFin didn’t cause the Wirecard scandal, just as German prosecutors didn’t cause the FCPA violations. Company executives and employees committed the crimes that underlie the scandals.

So another question arises: What’s wrong with German compliance? There’s no simple answer. Who can say which came first: The laissez-faire attitude of German regulators toward corporate lawbreakers, or the lawbreaking attitude of German executives?

Whatever the root cause, it’s clear that changes are needed in the cultures of both government and business. Otherwise, Germany won’t overcome what appears to be a weird tolerance for white-collar lawlessness.

Am I being unfair to Germany? After all, the United States has prosecuted a dozen UK-based companies for FCPA offenses since 2008, compared with ten German companies. True. But, the UK responded with the powerful Bribery Act, and with SFO enforcement actions against Rolls-Royce, Airbus, Alstom, Unaoil, Innospec, F.H. Bertling, and many others.

France? Six French companies have faced FCPA charges since 2008. And like the UK, France has responded by enacting Sapin II, a potentially far-reaching anti-corruption law.

Both the UK Bribery Act and Sapin II signaled cultural shifts toward enforcement, and both laws have been driving UK and French companies to adopt more effective compliance programs. Is there any similar cultural shift happening today in Germany? Perhaps the Wirecard scandal, which rivals Enron’s rise and fall for gruesome corporate and regulatory behavior, will be the catalyst for change that Germany needs.

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10 Comments

  1. Hi Dick, although I moved from Germany to Switzerland, let me “defend” the German situation a little bit. In fact, the Siemens case was detected and investigated first by the Munich prosecutor before US came in. Also many others of the cases you mentioned are/were prosecuted and fined in Germany bringing Germany in the OECD statistics of prosecution of foreign bribery cases on a high score close to the US. The legal system is a little bit outdated as based on administrative law but still has collected billions of company fines in the last 15 years for overseas corruption and other white collar crime cases. And the government is just in the process of enacting a new law on the responsibilities of companies and Compliance which will – despite some remaining criticism also from my side – be a quite modern legal framework. Just to put this into the context and thank you for having this important discussion. Best Klaus Moosmayer

  2. Dear Richard, expanding on Klaus’ comments (which are exactly right and up to the point): there is no substantial issue with current enforcement in Germany if it comes to corporate crime. One just has to accept that it is different – and less in the public focus perhaps. Siemens started with a dawn-raid by local prosecutors and corporate fines in Germany against Siemens were fierce, US authorities jumped on the case. In addition to the companies mentioned above, German prosecutors were (and are) active in hundreds of cases, including those without US nexus that never appeared on the US (e.g. FCPA) “radar screen”. Additional factors might include (i) the absence of corporate criminal liability under current German laws (i.e. enforcement is always directed towards individuals, with related administrative fines against corporations being the exception rather than the norm), (ii) enforcement competences being fragmented among local prosecutors (some of which are more active than others in this field), and (iii) the general absence of public transparency into criminal proceedings, which is why many enforcement cases in Germany go unnoticed by the wider business and legal community. Overall, enforcement of bribery (and other corporate crime) in Germany is much less visible than e.g. FCPA enforcement is. Accordingly, there might still be a (mis-)perception within some businesses that an appropriate Compliance Management System is an optional cost factor rather than a benefit. However, this will probably change indeed should the Corporate Sanctions Act as currently proposed be enacted. There is a good chance that this upcoming legislation (which goes back to 2013 in its origin) will bring Germany up to speed on the regulatory front if compared to its OECD peers, some of which you correctly point out in your article.

  3. Expanding further on the comments already made, Germany’s record is better with regard to enforcement against individuals than companies. When the OECD Working Group on Bribery adopted the Phase 4 Report on Germany in June 2018, the press release was entitled “Germany’s strong anti-bribery enforcement against individuals needs to be matched by comparably strong enforcement against companies.” At the time, Germany had 328 cases against individuals and 18 against companies. The new law on sanctions for companies will hopefully change this imbalance. Publishing court decisions without anonymization, especially of corporate data, would be another element that I find important, as detailed in my blog, and also, as recently advocated in an essay in the Süddeutsche Zeitung for transparency of corporate reporting in general.

  4. This has been and is an excellent discussion and general analysis of Germany’s attention and enforcement to date on anti-corruption. Please let’s keep monitoring Germany’s said future attention and enforcement. Many and sincere thanks to all.

    • Agree with Humberto G Kuhn

  5. Thank you for your article and the ensuing thoughtful discussion. Germany’s administrative ethos (“verfassungsrecht vergeht, verwaltungrecht besteht” Otto Mayer) is generally deferential to entities. However, as mentioned in an earlier comment, there is a robust adherence to OECD requirements, systemwide, while applying the frugality measures followed in the administration to the compliance measures as well. Germany is now the nation with the highest economic growth and a noticeably impressive record in managing the pandemic. Maintaining that growth requires the adoption of a compliance management style that fits the governing rules of their administrative law.

  6. Like others I have the feeling that the blog is a bit too harsh on Germany.

    Official OECD data shows that the picture is somewhat different and there are a number of legal actions against medium size companies that are not publicized (see http://www.oecd.org/corruption/data-on-enforcement-of-the-anti-bribery-convention.htm).

    This being said it will be interesting to see if and how the new law designed to introduce criminal liability for legal persons in 2021 will change the landscape.

    Beyond the particular of Germany, the blog has the merit to raise a serious question: what is the real willingness of G7 countries to continue to push for a strong enforcement against “their own companies” at a time of crisis ?

    On this I would argue that the jury is still out.

  7. Great article and follow-on discussion. I am writing from Brazil, where a civil statute was passed in 2013 (effective 2014), but which truly was not the game-changer. At the individual level another statute was also passed back then and it was reformed by President Bolsonaro (who decided to not veto sections passed by the Congress) and which may greatly undermine all prior efforts. That is just part of the big issues Brazil’s anticorruption efforts from 2014 to 2020 have been facing. I am hoping Germany will play tough against corruption to show how it can be done. Many German companies invest in Brazil and the fight against corruption requires a global effort and approach sometimes, maybe always.

  8. appreciate the instructive and important discussion. As former CCO of thyssenkrupp, an industrial German conglomerate, having been involved and fined over the last 20 years for various compliance and corruption cases (which finally led to a strong compliance culture in the company) I can confirm general effectiveness of the German prosecution system. I also believe that despite all criticism the new Corporate Sanctions Law will fuel efforts to invest in compliance management systems. However, Richards article shows that international perception of the German enforcement practice is poor. And: e.g. Wirecard/BaFin or the dawn raid of Germans AML agency (the Financial Intelligence Unit) some weeks ago due to a high backlogs of SARs on money laundering… maybe it’s not only perception. In my view one of the root causes lies in the federal system and that a strong federal agency is missing providing companies and prosecutors guidance for effective compliance, promoting the German approach on an international level and ensuring a level national playing field in enforcing criminal law.

    Looking forward to the discussion! Christoph


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