Implications of the German Corporate Liability Act for Public Procurement Law Compliance

08.03.2021

With the draft of the Corporate Liability Act (VerSanG), the Federal Government has implemented its long-cherished plan to introduce corporate sanctions. The background to the amendment is that companies currently have their misconduct only sanctioned as an administrative offence. This means, among other things, that authorities have discretion to decide whether to prosecute such misconduct. In addition, the fines that can be imposed under the Administrative Offences Act are capped at 10 million EUR, irrespective of the size of the company.

The law on corporate sanctions is intended to remedy this situation and enable appropriate punishment of corporate crime. In addition, the VerSanG is aimed at introducing a register of corporate sanctions and to create additional incentives for compliance measures. Finally, its introduction also entails changes in other areas of law, including public procurement law. These topics will be covered in this briefing.

Effects on the grounds of exclusion pursuant to Sections 123 and 124 of the Act against Restraints of Competition

The draft VerSanG does not significantly change the provisions on the exclusion of unsuitable tenderers. Only Section 123 ACR, which governs the mandatory exclusion, will be adapted so that tenderers can also be excluded on grounds of corporate sanction. Previously, this was only possible if an administrative fine was imposed on the company or if the misconduct of one of its managers could be attributed to it.

There is a significant difference between the VerSanG and Section 123 ACR regarding the attribution of misconduct of employees to the company. If the offence was not committed by a manager, a company will nevertheless be liable under the VerSanG if the person in question acted on behalf of the company and managers could have pre-vented or impeded the offence by taking reasonable precautions.

The attribution standard in the VerSanG is thus noticeably broader than that in Section 123 para. 3 ACR, according to which only managers’ misconduct is attributable to the company. Under EU law, however, the amendment is not problematic. In practice, it could lead to more exclusions, as up to now the attribution of misconduct has often caused difficulties.

Section 124 ACR remains unchanged. This does not mean, however, that corporate sanction offences cannot constitute discretionary grounds for exclusion. After all, companies are not only liable for property or tax offences, but also for environmental offences or offences against competition. The only conditions are that the offence violated the company’s duties or was intended to benefit the company financially.

If, for example, a corporate sanction was imposed for collusive tendering (Section 298 of the Criminal Code), the company can be excluded from the tender process pursuant to Section 124 para. 1 no. 4 ARC on the basis of agreement restricting competition. Showing a final decision on the imposition of a corporate sanction will continue to satisfy the standard of proof of the provision (“demonstrable”). The question of whether investigative proceedings or witness statements also suffice will, however, remain.

Consequences for the competition register

As already mentioned, the VerSanG also aims to create a corporate sanction register. This is an information system that is intended to support the judiciary in the as-sessment of sanctions, comparable to the Federal Central Criminal Register. The corporate sanction register may not be consulted for the purposes of a procurement pro-cedure. For this purpose, contracting authorities must refer to the competition register, which is yet to be created. The competition register pursues a different purpose: facilitating the review of a tenderer’s suitability. Moreover, in contrast to the corporate sanction register, it provides for the possibility of early removal in the event of self-cleaning. The two registers will therefore coexist in the future.

However, the draft VerSanG also results in changes to the Competition Register Act (WRegG). In the future, the authorities will not only enter final decisions on administra-tive fines, criminal convictions and summary punishments, but will also enter final decisions on the imposition of corporate sanctions. The offences to be entered remain the same.

Here, the attribution norms in the VerSanG and ACR again become relevant: due to the different provisions, decisions on the imposition of a corporate sanction can be entered in the competition register even though they would not have led to an exclusion under Section 123 ACR. This is the case if a corporate sanction is not based on the actions of a manager, as their conduct can only be attributed to the company under the VerSanG, but not under Section 123 para. 3 ACR. In these cases, the decision is en-tered in the competition register without the need to examine attribution under public procurement law.

The draft Competition Register Ordinance (WRegVO), which is a precondition for the competition register to be put in operation, does not yet regulate the entry of corporate sanctions. It only stipulates in general terms that the authorities transmit the legal designation and the time of the offence. Thus, it is practically impossible for the contracting authority to determine what the corporate’s liability is based on from the competition register. Independent investigations will often be impossible or unreasonable for the vast majority of contracting authorities. It can therefore only be hoped that this tension will be removed.

Compliance measures and self-cleaning

The VerSanG provides strong incentives to invest in compliance measures. A court may take into account such measures when assessing the fine. Circumstances taken into consideration include the company’s efforts to uncover the offence and compensate the damage, as well as the precautions taken to avoid or detect future offences.

In this, VerSanG presents a significant difference to self-cleaning under public procurement law. While clarification, compensation and precautions to avoid future mis-conduct are also required under Section 125 ARC, a simple effort does not suffice here. Rather, public procurement law requires compensation for all damages, active coop-eration with the investigating authorities (and in some cases the contracting authority) as well as technical, organisational and personnel measures to prevent future miscon-duct. In this respect, public procurement law sets higher standards for compliance measures.

The situation is different, however, in the case of internal investigations. This is the area of focus for the VerSanG. An internal investigation can mitigate the corporate sanction. Here, the VerSanG possibly sets higher requirements than public procurement law. Section 125 ACR sets as requirement an explanation, which can often only be achieved through internal investigations. However, Section 125 does not explicitly require them. In order to mitigate the corporate sanction, the company must, among other things, contribute significantly to the clarification of the offence, cooperate continuously and fully with the authorities and make the results of the investigation, including all essential documents, available to them.

It is still unclear how these internal investigations relate to self-cleaning measures under public procurement law since the ACR also requires active cooperation with the investigating authorities and the contracting authority. Considering the significant legal consequences, this is also appropriate. However, it remains to be seen whether internal investigations under the VerSanG simultaneously fulfil the requirements of active cooperation under Section 125 No. 2 ACR. For companies pursuing self-cleaning under public procurement law, there will probably therefore be no way around compliance measures pursuant to Section 125 ACR.

Since both drafts still have to pass the Bundestag and Bundesrat, it cannot be ruled out that the VerSanG and the WRegVO will undergo some changes. BLOMSTEIN is monitoring further developments and will keep you informed. If you have any questions about the potential impact of the proposals on your company or your industry, Dr Pascal Friton and Dr Christopher Wolters will be happy to answer them at any time.

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