Global Investigations Review - The law and practice of international investigations

The Practitioner’s Guide to Global Investigations

Germany

Hogan Lovells

General context and principles

1          Identify the highest-profile corporate investigation under way in your country, describing and commenting on its most noteworthy aspects as it relates to your country.

European regulators have been and still are investigating various automobile manufacturers around alleged irregularities with NOx emissions of diesel engines.

In this regard, we observe in particular three aspects:

  • increased focus on regulatory topics;
  • rise of individual liability; and
  • interest of German authorities in cross-border investigations.

2          Outline the legal framework for corporate liability in your country.

There is no corporate criminal liability under German law. However, the same result is often achieved through the Law on Administrative Offences. On the grounds of a breach of supervisory duties the management board can be held liable under this law for administrative or criminal offences committed by an employee. The company can then face a maximum fine of €10 million and additional disgorgement.

A draft bill on criminal liability of companies for misconduct of individuals and for management’s failure to supervise is currently pending. The potential sanctions under this draft bill include fines of up to 10 per cent of global annual turnover, disgorgement and exclusion from subsidies and public contracts.


3          In your country, what law enforcement authorities regulate corporations? How is jurisdiction between the authorities allocated? Do the authorities have policies relating to the prosecution of corporations?

Several law enforcement authorities regulate corporations in Germany, including the public prosecutor’s office, administrative authorities and regulatory offices. Jurisdiction is allocated by territory and there are specialty departments.


4          What grounds must the authorities in your country have to initiate an investigation? Is a certain threshold of suspicion necessary to trigger an investigation?

As soon as the public investigator obtains knowledge of sufficient factual indications for a criminal offence (initial suspicion), he or she must initiate investigations. For some exhaustively listed offences, an investigation may only be initiated if a demand for prosecution has been made.


5          Does double jeopardy, or a similar concept, apply to prevent a corporation from facing criminal exposure in your country after it resolves charges on the same core set of facts in another country?

In general, double jeopardy is prohibited under German law, although this depends on the countries involved. However, this prohibition does not apply per se to administrative sanctions – and therefore not to corporations. A corporation that faced administrative or criminal sanctions in another country can in addition be fined by German authorities based on the same set of facts. However, German authorities in general take into account whether a corporation has already incurred sanctions from a foreign authority, in which case the fine or disgorgement in most cases will be reduced as part of an overall assessment.


6          Describe the principal challenges in your country that arise in cross-border investigations, and explain whether and how such challenges are dependent on other countries involved.

The principal challenges stem from data privacy and labour laws.

Data privacy laws not only apply to transfer of data abroad, but also to any processing of data. This includes securing, collecting and reviewing data, and the creation of work-product such as interview file notes and final reports. An early assessment of the local data privacy laws and the documentation of the steps taken is therefore crucial.

Labour laws pose challenges during and after an investigation. During the investigation, they may require the involvement of a works council. After an investigation, German labour laws are very strict when it comes to sanctions.


7          What bearing do the decisions of foreign authorities have on an investigation of the same matter in your country?

Investigations of foreign authorities generally do not obstruct investigations of German authorities. German authorities must assess relevant cases independently, if necessary, with the assistance of a foreign authority. However, factually the scope of an investigation may be reduced, as authorities increasingly take the approach of co-operating with foreign authorities and aligning investigative measures. This in particular applies between authorities of EU countries.

As regards the effect of decisions of foreign authorities on decisions of German authorities, see question 5.


8          Do your country’s law enforcement authorities have regard to corporate culture in assessing a company’s liability for misconduct?

Corporate culture is relevant from a legal perspective. Liability of management for lack of supervision can be derived from a poor tone at the top. In addition, corporate culture is considered a crucial tool for the implementation of a compliance system. The implementation of a compliance system – as opposed to the mere existence of a compliance system on paper – is relevant for removal or reduction of liability.

In addition, corporate culture is generally taken into account in the overall assessment when determining fines.


9          What are the top priorities for your country’s law enforcement authorities?

Fraud and embezzlement cases are getting more and more important, in particular, investigations around fraud relating to regulatory questions. Another focus lies on improper use of company assets by management.


10        How are internal investigations viewed by local enforcement bodies in your country?

German authorities increasingly take the approach that internal investigations can supplement their own investigations. Especially in larger cases, an investigation could sometimes not be completed in due time without participation by the companies.


Before an internal investigation

11        How do allegations of misconduct most often come to light in companies in your country?

Allegations mostly come to light through whistleblowers, standard internal reviews and tax audits. Whistleblower reports are mostly directed to the company. However, there are also many cases in which whistleblowers approach authorities, business partners, customers and the press.


12        Are search warrants or dawn raids on companies a feature of law enforcement in your country? Describe any legal limitations on authorities executing search warrants or dawn raids, and what redress the company has if those limits are exceeded.

Both search warrants and dawn raids are common features of law enforcement.

There are various formal and material requirements stipulated by law. In particular, the search warrant must be issued by a court and in writing. Only in case of imminent danger can it be issued by the prosecutor. In addition, there must be sufficient factual indications that a crime or offence was committed. Most importantly, all measures during a dawn raid must undergo a balancing of interests test.


13        How can privileged material be lawfully protected from seizure during a dawn raid or in response to a search warrant in your country?

German privilege rules are very narrow.

Communication with and documents created by inside counsel in general are not privileged under German law. The courts have in some cases provided higher privilege protection to documents prepared by inside counsel, holding that documents prepared by inside counsel can be protected if drafted for the purpose of defence by outside counsel. However, before the case law becomes settled law, there is at least a significant risk that documents created by inside counsel are not considered to be privileged.

With regard to documents created by and communication with outside counsel, the following applies: documents in the custody of external counsel are generally protected; documents in the custody of the company are only protected in limited cases.


14        Are there any privileges in your country that would prevent an individual or company from providing testimony? Under what circumstances may an individual’s testimony be compelled in your country? What consequences flow in your country from such compelled testimony?

Under German law, both witnesses and suspects may be assisted by a lawyer.

Nobody is obliged to give testimony to the police. Only when questioned by the prosecutor or a judge is there an obligation to testify, in which case testimony can be compelled, in particular by imposing fines and imprisonment for up to six weeks. Exceptions from the obligation to testify are stipulated in cases of self-incrimination, or family relations between witness and suspects, or if the witness is a person subject to professional secrecy or an assistant of such person.


15        What legal protections are in place for whistleblowers in your country?

Despite different initiatives and draft bills, there is no specific law governing whistleblower protection.

However, German labour law allows dismissals and other sanctions only under narrow circumstances. According to case law, if an employee makes a testimony to fulfil legal duties, this cannot be considered reason for an instant dismissal. According to other case law, however, a dismissal with immediate effect may be justified if the employee discloses information to authorities or the public before disclosing internally. Such an internal disclosure may not be needed in particular cases, for example, in cases where the employee would have faced charges if he or she had not reported the misconduct.


16        What rights do employees possess under local employment law that determine how they are treated within a company if their conduct is within the scope of an investigation? What employment rights would attach if they are deemed to have engaged in misconduct? Does it differ for officers and directors of the company?

It is broadly accepted that employees must co-operate with their employer under the employment contract as far as the facts relate to activities conducted or perceptions made as part of their work. If unrelated to their work, a balancing of interests test will decide whether or not a duty to co-operate exists. The employee’s position in the company (e.g., an auditor versus a production site employee) may also be a relevant factor. In addition, a balancing of interests test needs to be applied if the employee would incriminate himself or herself by the co-operation. However, even then, a duty to co-operate is generally assumed.

Whether employees have a right for counsel to attend has not yet been fully settled in case law.


17        Are there disciplinary or other steps that a company must take in your country when an employee is implicated or suspected of misconduct, such as suspension or in relation to compensation? Can an employee be dismissed for refusing to participate in an internal investigation?

Refusing to participate in an internal investigation could be seen as misconduct only if the employee were obliged to participate in the investigation (see question 16). Furthermore, a dismissal for misconduct generally requires an employee to have received a formal warning first and then violating the same or similar contractual obligations again.


Commencing an internal investigation

18        Is it common practice in your country to prepare a document setting out terms of reference or investigatory scope before commencing an internal investigation? What issues would it cover?

We consider it crucial to prepare an investigation plan at the beginning of an investigation. An investigation plan describes the scope, approach, timing and the responsibilities for the individual items. In general, it also indicates the measures that need to be taken to secure data, the soft copy and hard copy that needs to be reviewed and the interviews that need to be conducted. It might also outline the steps relating to the communication and disclosure approach.


19        If an issue comes to light prior to the authorities in your country becoming aware or engaged, what internal steps should a company take? Are there internal steps that a company is legally or ethically required to take?

As part of its supervisory duties, management has certain investigation duties. The extent of these duties depends on the individual case. Whether a company has a duty to report should be assessed at the beginning of each investigation.

In most cases there is no obligation to report conduct to the criminal prosecutor. Reporting obligations may arise if an imminent criminal offence could be stopped. This does not apply to the detection of past criminal offences.

Depending on the case there might be reporting obligations to other authorities, in particular regulatory and tax authorities, for example, if product safety issues arise or if past tax evasions were detected. The respective authorities might, in turn, inform the criminal prosecutor.

Other potential reporting duties can in particular exist towards the advisory board, shareholders, investors, banks, insurers, customers and the works council.


20        At what point must a company in your country publicly disclose the existence of an internal investigation or contact from law enforcement?

In most cases, there is no duty to publicly disclose the mere existence of an internal investigation.

However, companies listed on the stock exchange must sometimes publish specific information publicly if there is a certain impact on the company, in particular if it is of substantial relevance to capital markets.


21        When would management typically brief the board of a company in your country about an internal investigation or contact from law enforcement officials?

There is no legally defined point in time when this has to occur. This will depend on the individual case. It is generally done very early.


22        What internal steps should a company in your country take if it receives a notice or subpoena from a law enforcement authority seeking the production or preservation of documents or data?

In general, this decision depends on the individual circumstances of the case and the nature of the request.

If authorities have issued a binding request, companies should in general co-operate, unless there are indications that the request is not effective or if the right to refuse testimony may apply (see question 14). In such cases the company should decide if a potential refusal shall be communicated via external counsel or the company itself.

In the case of a non-binding request, it has to be decided based on the individual case whether co-operation appears to be advisable. The company may decide to co-operate, in particular for strategic reasons.


23        How can the lawfulness or scope of a notice or subpoena from a law enforcement authority be challenged in your country?

As regards criminal proceedings, the lawfulness and the scope of a search warrant as well as the production of documents or electronically stored information may be challenged before courts. Subpoenas regarding summoning of witnesses, however, are not challengeable themselves. In these cases only the resulting court decision may be challenged.


Attorney–client privilege

24        May attorney–client privilege be claimed over any aspects of internal investigations in your country? What steps should a company take in your country to protect the privilege or confidentiality of an internal investigation?

The company should consider involvement of outside counsel. As communication with and documents created by inside counsel are generally not protected (only by very limited case law, see question 13), an investigation is only placed under greater protection if conducted by outside counsel.

Furthermore, privilege protection will more likely be granted if the advice is provided in relation to a (potential) investigation by authorities. To show this, ideally a separate engagement letter should be set up for this investigation.

To further ensure privilege it is advisable to store work-product on outside counsel’s servers instead of keeping them on company-owned premises. Privileged documents should be labelled accordingly to prevent investigators from accidental access. However, the mere placing of the label does not automatically entail privilege.


25        Set out the key principles or elements of the attorney–client privilege in your country as it relates to corporations. Who is the holder of the privilege? Are there any differences when the client is an individual?

The client of the outside counsel and thus the company is the holder of the privilege. There are no significant differences when the client is an individual. However, if the client is only a witness, the privilege claim can most likely not be made.


26        Does the attorney–client privilege apply equally to inside and outside counsel in your country?

Communication with and documents created by inside counsel in most cases are not privileged under German law. There is only individual case law that provided higher privilege protection also to documents prepared by an inside counsel (see question 13). It should be noted, however, that even documents created by outside counsel are not necessarily privileged if in custody of the company.


27        To what extent is waiver of the attorney–client privilege regarded as a co-operative step in your country? Are there any contexts where privilege waiver is mandatory or required?

Submitting privileged documents to authorities is in general regarded as a co-operative step that can result in a reduction of the fine by contributing to a positive overall assessment. At the same time, owing to the generally limited privilege protection, the relevance of this question is not as great as in the US or UK. There is also no general concept of waiving privilege under German law. The effect when disclosing documents is, however, factually the same: as privilege depends on who has custody of the document, documents disclosed to non-protected persons may lose privilege.


28        Does the concept of limited waiver of privilege exist as a concept in your jurisdiction? What is its scope?

The concepts of waiving privilege and of disclosure between civil parties do not exist in Germany. Therefore, submitting documents to an authority does not result in an obligation to submit them to a third party. However, third parties may, under certain circumstances, inspect the authority’s files.


29        If privilege has been waived on a limited basis in another country, can privilege be maintained in your own country?

Waiving privilege in another country has no direct legal effect on privilege claims in Germany. However, waiving privilege in one country by submitting documents to third parties can factually result in a loss of privilege (see above).


30        Do common interest privileges exist as concepts in your country? What are the requirements and scope?

The concept of common interest privilege does not exist in Germany.


31        Can privilege be claimed over the assistance given by third parties to lawyers?

Privilege can be claimed over the assistants of lawyers as well – with the limitation that protection is very limited if work-product is in the custody of the company.


Witness interviews

32        Does your country permit the interviewing of witnesses as part of an internal investigation?

Yes. Interviewing witnesses is a common tool for information gathering during an investigation.


33        Can the attorney–client privilege be claimed over internal witness interviews or attorney reports in your country?

The underlying facts to the content of a conversation cannot be rendered privileged, even if the interview is conducted by outside counsel.

As regards the written description of the conversation, courts have ruled on which minutes taken by outside counsel can be subject to seizure.

Practical approaches to protect the written description of the information provided by interviewees are detailed lawyer file notes (instead of ‘protocols’ or ‘minutes’ that might be under disclosure obligations) created by outside counsel who attended the interview. Such notes can be stored on the servers of outside counsel and provided to the client online via an extranet on the servers of the external law firm.


34        When conducting a witness interview of an employee in your country, what legal or ethical requirements or guidance must be adhered to? Are there different requirements when interviewing third parties?

Interview proceedings should be tailored to the individual requirements of a case.

In any case, steps should be taken to ensure that the statutory timelines for disciplinary measures (e.g., for written warnings or terminations) are not triggered by the interviews. To this end, and for cultural reasons, interviews with employees should not be referred to as ‘interrogations’ (Befragungen) or ‘hearings’ (Anhörungen). By using the term ‘interview’ (Gespräch) or ‘meeting’ (Besprechung) instead, the risk of incorrect interpretation can be reduced.

As to the information about legal rights, there is no general and statutory obligation to instruct employees about the legal circumstances and their rights. Nevertheless, it is advisable to consider the following elements as part of an introductory explanation. Many companies in Germany also consider these explanations to be ethically required:

  • a brief description on background of (internal) investigation and subject matter;
  • the role and status of lawyers present, confidentiality obligations (including an Upjohn warning if relations to US law exist);
  • the labour law duty to co-operate and to answer work-related questions truthfully and completely;
  • possible privilege against self-incrimination;
  • documentation, storage and use of information and documents provided (e.g., for reports, for disclosure); and
  • a data privacy waiver.

35        How is an internal interview typically conducted in your country? Are documents put to the witness? May or must employees in your country have their own legal representation at the interview?

The general set-up will be determined case by case.

Employees have no strict legal right for their counsel or other parties such as a representative of the works council to attend. However, to reduce risks of escalation and to have a fair set-up (equality of arms), companies often allow employee representatives to attend.


Reporting to the authorities

36        Are there circumstances under which reporting misconduct to law enforcement authorities is mandatory in your country?

There is generally no obligation to report conduct to the criminal prosecutor. As regards reporting duties of other authorities, see question 19.


37        In what circumstances might you advise a company to self-report to law enforcement even if it has no legal obligation to do so? In what circumstances would that advice to self-report extend to countries beyond your country?

This will depend greatly on the individual case, weighing duties, risks and benefits.


38        What are the practical steps you need to take to self-report to law enforcement in your country?

This will depend on the case. Usually outside counsel makes contact with the prosecutor to set up a meeting. In the meeting the relevant facts are then described, including the available relevant evidence. If the investigation is ongoing the next steps are then discussed jointly. The prosecutor will often want to hear certain witnesses in person.


Responding to the authorities

39        In practice, how does a company in your country respond to a notice or subpoena from a law enforcement authority? Is it possible to enter into dialogue with the authorities to address their concerns before or even after charges are brought? How?

In Germany, it is usual to enter into a dialogue with the authorities. This is often done verbally first. Subsequently, German regulators often request written submissions including attachments with evidence for their files.


40        Are ongoing authority investigations subject to challenge before the courts?

Under German law, it is only possible to challenge individual measures taken in the process of an investigation, for example, seizure of documents. The investigation itself can in general not be challenged before courts. Although the accused may file a request to the prosecutor to stop proceedings, the subsequent decision of the prosecutor in most cases may not be challenged before the courts. Still, in very exceptional cases of arbitrary decisions by the prosecutor, a complaint may be possible.


41        In the event that authorities in your country and one or more other countries issue separate notices or subpoenas regarding the same facts or allegations, how should the company approach this?

When communicating with different authorities the key is to do so consistently. At the same time, the authority should not be given standard answers that do not entirely fit. This could be perceived as lack in co-operation and result in unexpected enforcement actions. In addition, while being consistent, local specifics – from a legal and cultural point of view – should be considered.


42        If a notice or subpoena from the authorities in your country seeks production of material relating to a particular matter that crosses borders, must the company search for and produce material in other countries to satisfy the request? What are the difficulties in that regard?

In general, the company may only be obliged to produce material if the documents were requested by means of a binding request (see question 22). This applies accordingly to material located outside Germany.

However, the obligation may not apply if producing a piece of evidence from a foreign country would violate the law of the country where the material is located. This would be the case particularly if the production of material would violate local blocking statutes.


43        Does law enforcement in your country routinely share information or investigative materials with law enforcement in other countries? What framework is in place in your country for co-operation with foreign authorities?

As part of several international treaties, German authorities closely co-operate with foreign authorities. For example, there is a network for secure communication to ensure fast and secure exchange on information relating to specific cases. International databases make information accessible for different authorities. Furthermore, there are bilateral agreements with Germany’s neighbouring states governing a close co-operation of police. In addition, international co-operation continues to be on the rise.


44        How would you advise a company that has received a request from a law enforcement authority in your country seeking documents from another country, where production would violate the laws of that other country?

This will greatly depend on the case and on the legal risks of providing such information on the one hand and the benefits of co-operating on the other. Generally, violating applicable laws is not an option.


45        Does your country have data protection statutes or blocking statutes? What related issues are implicated by complying with a notice or subpoena?

Germany does not have a blocking statute regime. Its data protection statutes are based on the European legislation.

Any communication with authorities can trigger applicability of data protection laws. Often, the request of the authority will be a sufficient justification for the disclosure. In more critical cases, it can be advisable to await a written formal request with the announcement of enforcement from the authority instead of acting on a mere voluntarily basis after a verbal request.


46        What are the risks in voluntary production versus compelled production of material to authorities in your country? Is this material discoverable by third parties? Is there any confidentiality attached to productions to law enforcement in your country?

Voluntary production can generally not be challenged before court. As regards discoverability, the right of third parties to inspection of files is not necessarily easier to obtain if the content of the file is based on voluntary disclosure.


Global settlements

47        Prior to any settlement with a law enforcement authority in your country, what considerations should companies be aware of?

Various legal and strategic considerations need to be made. The risks and benefits of proceedings must be weighed against those of a settlement. The company should be aware of the scope of the settlement and make sure that it is defined comprehensively. The international implications should also be reviewed.

Prior to agreeing to settlement payments, the companies must follow the internal decision processes – also to avoid any allegations of misuse of company funds.


48        What types of penalties may companies or their directors, officers or employees face for misconduct in your country?

Individuals may face sanctions for their own misconduct depending on the individual criminal or administrative offence. These may include imprisonment, fines or official debarment from their profession.

Moreover, under administrative law, directors may face sanctions for misconduct of company employees in case of failure to implement sufficient supervisory measures.

Based on criminal or administrative offence of individuals, companies may face different sanctions, in particular fines, disgorgement and exclusion from subsidies and public contracts.


49        What do the authorities in your country take into account when fixing penalties?

Before a penalty is fixed, authorities consider the circumstances for and against the individual or the company. The aspects taken into account are in particular: motives, attitude reflected in the offence, degree of violation of duties, consequences of the offence, prior history, financial circumstances, degree of co-operation, and whether or not there is a positive forecast.


50        Are non-prosecution agreements or deferred prosecution agreements available in your jurisdiction for corporations?

In contrast to criminal proceedings against individuals, there are no non-prosecution or deferred prosecution agreements available under German law.


51        Is there a regime for suspension and debarment from government contracts in your country? Where there is a risk of suspension or debarment or other restrictions on continuing business in your country, what are the options available to a corporate wanting to settle in another country?

Corporations may be suspended from government contracts if they appear to be unreliable. Such unreliability can be the result of different forms of misconduct, for example, if they are subject to insolvency proceedings or if taxes have not been paid. An applicant in general has to be suspended from government contracts when the corporation or one of its official representatives has been found guilty for certain criminal offences, including corruption, and has received a fine of a certain amount.


52        Are ‘global’ settlements common in your country? What are the practical considerations?

So far there have been no explicit global settlements. However, there are examples of factual global settlements where the German authority took into account the sanctions imposed on the company by foreign authorities.


53        Are parallel private actions allowed? May private plaintiffs gain access to the authorities’ files?

Parallel civil actions are allowed. However, the court may decide to suspend civil proceedings until the criminal proceedings have been terminated. Private plaintiffs may also inspect the criminal files under certain conditions (see question 28).


Publicity and reputational issues

54        Outline the law in your country surrounding publicity of criminal cases at the investigatory stage and once a case is before a court.

The investigations are generally not public; with rather restrictive rules on the right to inspect the files by third parties.

Criminal trials, however, generally have to be public. An exception arises if the accused is under age or if certain private interests of the accused deserve protection. In the context of white-collar crime, these exceptions rarely apply.


55        What steps do you take to manage corporate communications in your country? Is it common for companies to use a public relations firm to manage a corporate crisis in your country?

To avoid a negative impact on reputation, external communication should follow a well-planned strategy. It should be borne in mind that the relationship with the media is two-sided: on the one hand it can be collaborative, thereby using the media to present the situation of the company in a more positive light; in the case of negative media coverage, on the other hand, it might be necessary to take a more reactive and combative approach, possibly including filing legal actions. Such legal actions must always be weighed against the risk of a further escalation of the situation, as follow-up coverage cast the company in an unfavourable light.

The appointment of a public relations adviser is common. The public relations adviser should develop a strategy together with the relevant stakeholders and experts as well as legal consultants as early as possible. It is important that all employees know who is responsible for dealing with the media and that no other person shall make public statements.


56        How is publicity managed when there are ongoing, related proceedings?

Public communication in case of ongoing proceeding must undergo a detailed strategic and legal analysis. The strategy should in particular stipulate how the company will act in cases where an accusation against a particular employee has been made.

In cases where a criminal investigation is pending with files opened, the company may in certain cases file a criminal complaint if the media quoted from these files and made them publicly available.


Duty to the market

57        Is disclosure to the market in circumstances where a settlement has been agreed but not yet made public mandatory?

A disclosure to the market depends on the nature of the settlement and other factors, like the relevance of the underlying facts to the capital markets (see question 20).


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