Global Investigations Review - The law and practice of international investigations

Securities & Related Investigations

Last verified on Thursday 19th September 2019

Germany

Gabriele Apfelbacher and Valentin M Pfisterer
Cleary Gottlieb Steen & Hamilton LLP

    Regulatory environment

  1. 1.What are your country’s primary securities or related law enforcement authorities? 
  2. The institutional set-up – regulatory and supervisory authorities in the securities and derivatives markets

    There is no single authority in charge of the regulation and supervision of the securities and derivatives markets and the activities and conduct of market participants in those markets in Germany, but a network of authorities on state, federal and European level with distinct and, in some cases, overlapping supervisory, regulatory and enforcement tasks.

    The Federal Financial Supervisory Authority (BaFin) is the primary supervisor for the securities and derivatives markets, particularly as it relates to market conduct. With respect to financial accounting matters, it is assisted by the Financial Reporting Enforcement Panel (FREP), a private association charged with the review for compliance with applicable accounting standards of financial statements published by publicly listed companies. To the extent BaFin applies directly applicable EU securities law or national securities law harmonised by EU legal acts, it takes into account guidelines and other acts issued by the European Securities and Markets Authority (ESMA) which is tasked, among other things, with fostering supervisory convergence across Europe and the direct supervision of credit rating agencies and trade repositories (see chapter on European Union). Furthermore, and in addition to the securities and derivatives markets, BaFin regulates mutual funds and other collective investment vehicles, insurance companies, financial services providers and, most importantly, banks – the latter in close cooperation with the German Central Bank and the European Central Bank (ECB). Market conduct by these institutions is subject to either BaFin’s securities market or bank (or insurance) supervisory authority, or both.

    The various German stock exchanges, including the Frankfurt Stock Exchange, Germany’s most important stock exchange, operate what are known as “regulated markets”. They are organised as public law institutions and, as such, themselves have certain supervisory powers over exchange participants.  At each stock exchange, there is a special surveillance taskforce that monitors the trading activities of stock exchange participants and reports suspicious trading activities to the board of the stock exchange and BaFin. The stock exchanges themselves are not supervised for their compliance with the legal provisions and administrative standards and guidelines applicable to them by BaFin but at state level by the respective ministry of economic affairs. The relevant state ministries also supervise multilateral trading facilities (MTFs) (ie, certain trading venues that do not qualify as regulated markets) operated by stock exchanges, whereas BaFin, as part of its banking supervision mandate, supervises MTFs operated by banks or financial services institutions.

    Competition authorities, such as the Federal Cartel Office or the European Commission, have also become key authorities in the securities or financial markets in which conduct of market participants involves elements of anticompetitive behaviour, as was the case, for example, in the LIBOR and FX fixing cases.

    Relevant securities and related laws

    The institutional diversity in securities and derivatives markets regulation and supervision in Germany is due to, and corresponds to, the broad range of laws and regulations applicable to market participants and their activities. There is no single statute on securities and derivatives markets regulation and supervision, but a large number of laws regulating particular aspects of them. For example, the Market Abuse Regulation (MAR) and the Securities Trading Act primarily govern the trading of securities and market conduct (in particular the prohibition of market abuse and insider trading, the obligation to disclose significant holdings of voting rights and periodic financial reporting obligations); the Prospectus Regulation, together with rules and regulations adopted thereunder and the Securities Prospectus Act, governs public offerings and listings of securities and related prospectus publication requirements; the Securities Takeover Act provides the legal framework applicable to public tender offers for listed equity and equity-linked securities and takeovers of listed companies; the Capital Investment Act primarily governs mutual funds and other collective investment vehicles; and the Stock Exchange Act regulates stock exchanges and the listing of securities on the regulated markets operated by them. The Stock Corporation Act, the Limited Liability Companies Act and the Commercial Code also play an important role in this context. They establish, among other things, corporate governance frameworks for corporations, limited liability companies and companies organised in other legal forms, set forth general duties of corporate officers and board members and address, among other things, aspects relevant to accounting and auditing. Given that banks and other financial institutions are key participants in the securities and derivatives markets, as operators of trading venues, underwriters, intermediaries or proprietary traders, the Banking Act and the rules and regulations adopted thereunder are also of particular significance in the supervision and enforcement context.

    Overall, the regulation of securities and derivatives markets is heavily influenced by EU legislation, either directly applicable or aimed at the harmonisation of national laws. The relevant legal acts enacted at EU level include, inter alia, the recast Markets in Financial Instruments Directive (MiFID II), the Markets in Financial Instruments Regulation (MiFIR) as well as the European Market Infrastructure Regulation (EMIR) governing securities and derivatives markets generally; MAR and the Directive on Criminal Sanctions for Market Abuse addressing market abuse and insider trading; the Prospectus Regulation setting forth prospectus publication requirements; the Transparency Directive dealing with disclosure of significant holdings of voting rights and periodic financial reporting obligations and the Takeover Directive relating to public tender offers and takeovers; as well as the UCITS V and AIFM Directives containing rules applicable to mutual funds and other collective investment vehicles.   

    Banking supervision is also governed by directly applicable EU laws or national laws harmonised by EU legal acts, including the Capital Requirements Directive IV (CRD IV), the Capital Requirements Regulation (CRR) and the Bank Recovery and Resolution Directive (BRRD), in each case as amended recently, as well as the Single Supervisory Mechanism Regulation and the Single Supervisory Mechanism Framework Regulation that empower the ECB as banking supervisor.  

    Criminal prosecution in the securities and derivatives markets   

    While BaFin and the other authorities mentioned above are administrative authorities and, as such, are charged with regulation, supervision and enforcement to the extent these tasks are administrative in nature, criminal law enforcement is exclusively vested in the public prosecutor’s office at the state level. This is due to the conceptual distinction between (substantive and procedural) administrative law and criminal law in Germany. Hence, whenever an offence qualifies as criminal in nature only the competent public prosecutor is empowered to open a criminal investigation, irrespective of whether the offence is contained in a supervisory statute (such as the ones mentioned above), the Criminal Code or any other statute. 

  3. 2.What are the principal violations or legal issues that the securities or related law enforcement authorities investigate?
  4. Given the conceptual distinction between administrative law and criminal law in Germany (see question 1), principal violations or legal issues in the area of capital markets and securities law fall in either of these two categories. Jurisdiction and responsibility to investigate offences is generally allocated in line with this conceptual distinction. As a result, supervisory authorities will investigate potential administrative offences and the public prosecutor will investigate potential criminal offences (see question 3). In practice, most violations constitute administrative, not criminal offences.

    Typical (administrative) offences in the area of capital markets and securities law, generally investigated by BaFin, relate to disclosure requirements (such as non-compliance with ad hoc disclosure obligations relating to insider information, directors’ dealings and significant holdings of voting rights or non-compliance with periodic financial reporting obligations), market conduct, prospectus publication requirements and other matters. Depending on the facts and circumstances, BaFin can levy hefty fines of up to 15 per cent of the total annual turnover of the corporate group of the offender or three times the amount of the profits gained or losses avoided because of the offence. 

    In the area of banking supervision, BaFin investigates non-compliance with certain requirements applicable to financial institutions such as, inter alia, large exposure limits, own funds, risk management and, increasingly, IT governance and security requirements.

    Competition authorities investigate cases of market conduct amounting to price fixing or other violations of German or European competition laws including on securities, foreign exchange, commodities, derivatives or other financial markets, as in the LIBOR and FX fixing cases.   

    The most prominent (criminal) offences investigated by the public prosecutor in the area of capital markets and securities law are market manipulation (in some cases punishable by imprisonment of up to 10 years) and insider trading (including attempts thereof), capital investment or accounting fraud as well as, in the area of banking supervision, the illegal provision of banking or financial services. Increasingly, public prosecutors also focus on internet and IT-related offences such as hacking and computer fraud including “pishing”.  Money laundering- and tax-related offences also play an important role in criminal investigations in the area of capital markets, securities and bank supervisory laws.

    In recent times, the rise of cryptocurrencies and digital coins and tokens has caught the attention of regulators, including BaFin, and public prosecutors, and they have started to take action against operators of bespoke trading venues, cryptocurrency traders and issuers of security tokens in cases in which they operated without an appropriate license or prospectus, as the case may be.

  5. 3.If there is more than one authority involved in a securities or related investigation, how is jurisdiction allocated? What is the interplay between the securities regulator and the public prosecutor?
  6. Jurisdiction is generally allocated in line with the conceptual distinction between administrative law and criminal law (see questions 1 and 2). As a result, supervisory authorities will investigate potential administrative offences and the public prosecutor will investigate potential criminal offences. Notwithstanding the above, under certain conditions, administrative offences may be investigated by the public prosecutor’s office and may ultimately be sanctioned by a criminal court. The public prosecutor may take over the prosecution of an administrative offence in cases in which such administrative offence is connected to a criminal offence. This requirement is met in a case in which, for example, a board member is prosecuted for a criminal offence in the context of his or her corporate responsibilities and such conduct is attributable to the company which, in turn, qualifies as an administrative offence by the company. In these cases, the public prosecutor will usually investigate both the criminal offence of the board member and the administrative offence of the company.

    Within the category of potential administrative offences, jurisdiction is generally allocated by subject matter: BaFin as the principal capital markets supervisor conducts most securities-related investigations (see question 2). To the extent the subject matter concerns banks or other financial institutions and their compliance with the Banking Act or applicable EU legal acts such as, for example, the CRR, BaFin shares its supervisory authority with the German Central Bank and, particularly in respect of the largest German banks and financial institutions, the ECB.

    Any investigation involving potentially criminal conduct is the sole responsibility of the public prosecutor. If BaFin (or any other competent regulator), in the course of its investigation, learns of facts suggesting criminal conduct, it will report such facts and refer the case to the competent public prosecutor for further investigation and initiation of criminal proceedings. The same applies vice versa. Apart from these formal mechanisms of referral and cooperation, there are informal contacts and meetings between BaFin and the federal and state criminal police offices and public prosecutors’ offices both on a regular and on an ad hoc basis.

  7. 4.Do the securities or related law enforcement authorities have investigatory powers? Can they bring administrative, civil or criminal proceedings? 
  8. In supervisory investigations in the area of capital markets and securities, the relevant supervisory and enforcement authorities generally have broad investigatory powers. BaFin may, for example, request from market participants and other persons any information, documents, records or communications it considers necessary to fulfil its supervisory mandate. BaFin may also carry out onsite inspections and investigations, and it is authorised to summon and question individuals such as employees, service providers or customers (see questions 23 et seq). Under its banking supervisory mandate, BaFin may conduct special audits without a particular cause. In the case of non-compliance, BaFin may enforce its requests and orders by way of execution by substitution, penalty payments and coercion.

    These proceedings are – and remain – administrative in nature. It is important to note that, in contrast to criminal proceedings, administrative proceedings, including investigations, are generally out-of-court proceedings, unless the investigated party or any other concerned party challenges individual investigatory measures before a court. In practice, however, companies usually cooperate with BaFin and comply with BaFin’s orders, and administrative enforcement measures or judicial proceedings are rarely relevant.

    In criminal investigations, the public prosecutor may, based on a judicial order, request and seize any given object (including documents), if such object could be of importance as evidence for the investigation, or search private and business premises. It may also summon and question witnesses and request documents from other public authorities (see questions 23 et seq). Public prosecutors frequently request specific information and documents or entire case files from BaFin. In addition to these “traditional” investigatory powers, the public prosecutor is authorised to use a whole range of more modern investigatory powers, including, for instance, the interception of telecommunications or “online searches” (in each case subject to a judicial order or other prerequisites, as applicable, and the principle of proportionality). Once the public prosecutor has gathered enough evidence, it will bring charges before a (criminal) court.

    In view of the conceptual distinction between administrative and criminal law in Germany, supervisory authorities such as BaFin may only conduct administrative proceedings, whereas the public prosecutor is limited to criminal law enforcement (subject to the exceptions laid out above (see question 2)). Intended to primarily serve the public interest, both administrative and criminal proceedings do not specifically pursue the claims or interests of private third parties. Therefore, neither the supervisory authorities, nor the public prosecutor will initiate civil proceedings as a means of pursuing their mandate. Civil proceedings can only be brought by individuals or companies, for example, if they suffered a loss as a result of market misconduct by other individuals or companies (although some market conduct rules are not specifically intended to protect private third parties’ rights and interests and, as a consequence, provide no basis for damages claims of such private third parties) (see question 49).

  9. 5.Are regulatory or criminal securities and related investigations public? Under what circumstances? 
  10. Investigations conducted by supervisory and criminal law enforcement authorities are generally not public. In Germany, public officials at both federal and state level, including BaFin officials as well as public prosecutors, are subject to strict professional secrecy as a matter of law. The unauthorised disclosure by a public official to third parties of facts which have come to his or her attention in the exercise of his or her duties qualifies as a criminal offence. More specifically, pursuant to the German Banking Act and in line with CRD IV and MiFID II, individuals employed by BaFin may not disclose or use without authorisation facts which are confidential and have come to their attention in the exercise of their duties, in particular business and trade secrets. In exceptional cases, however, state press statutes and state and federal freedom of information acts may grant third parties a right to request specific information on such investigations from these authorities. This has recently been confirmed by a ruling of the Court of Justice of the European Union pursuant to which, under certain circumstances, a private third party may, based on a freedom of information act, request certain information obtained by a national supervisory authority in the exercise of its supervisory mandate, subject to a balancing of interests test.

    Following the conclusion of administrative proceedings, including investigations, certain orders or fines may be registered with the central business register. In addition, certain sanctions or fines imposed by supervisory authorities such as BaFin may or must be published on the relevant authority’s website, generally even where such sanctions or fines are still subject to appeal. European law in the area of capital markets and securities regulation, including MiFID II and MAR, as well as European law and, where applicable, its implementation into local law in the area of banking regulation and supervision increasingly mandate such "naming and shaming".

    In criminal proceedings, investigations conducted by the public prosecutor are non-public. Following the conclusion of the preliminary proceedings, ie, the investigatory stage of the criminal proceedings conducted by the public prosecutor, however, the indictment and the subsequent main proceedings in court are necessarily public by virtue of the principle of publicity.

  11. 6.Are regulatory or criminal securities and related investigations targeted at the company or the individuals involved, or both?
  12. Investigations that are administrative in nature (ie, supervisory investigations) may be targeted at both individuals and companies and, correspondingly, fines and sanctions may be imposed on both individuals and companies (see question 37).

    German criminal law is based on the principle of culpability and the assumption that only natural persons can be guilty of a crime within the meaning of criminal law. Hence, under German criminal law, only natural persons can incur criminal liability and, as a result, criminal investigations can only be targeted at individuals. Corporate criminal liability and, more specifically, the introduction of a corporate criminal code has been a topic of discussion for years but has not been introduced to date (see question 40). Under certain circumstances, however, a criminal act committed by an individual may be attributed to a company and, as a result, an administrative sanction may be levied on that company (see question 3).

    In August 2019, the federal government published a draft bill on corporate sanctions intended to address the particularities of corporate misconduct. If enacted as proposed, the draft bill on corporate sanctions will not introduce corporate criminal liability but rather expand the scope of administrative powers and sanctions available to punish corporate misconduct.

    Investigation procedure

  13. 7.How do the securities and related law enforcement authorities typically begin an investigation?
  14. In its capacity as supervisory authority, BaFin receives vast amounts of corporate and market information included in, for instance, regulatory filings, ad hoc and periodic financial disclosure, and voting rights notifications, and it monitors securities trading and price movements. As a matter of routine and, in part, through software tools, BaFin analyses, compares, contrasts and evaluates the information so obtained and, where it identifies unusual or suspicious patterns and/or cases of potential non-compliance or wrongdoing, opens an investigation. In such cases, BaFin will usually request information or documents from companies and individuals involved or make use of any other investigatory powers it has available (see question 4). Note that BaFin generally has broad discretion whether or not to open an investigation and, if so, how to proceed.

    The public prosecutor’s office initiates criminal proceedings when it becomes aware, through any means, of conduct that may amount to a criminal offence. BaFin often reports suspicious patterns or cases to the public prosecutor and, in doing so, causes the public prosecutor to initiate criminal proceedings. The public prosecutor will usually request information or documents from companies and individuals involved or make use of any other investigatory powers it has available (see question 4). Note that the public prosecutor generally has no discretion whether or not to initiate criminal proceedings; rather, criminal offences generally must be prosecuted if there is an initial suspicion (ie, factual indications that a criminal offence was committed).

  15. 8.What level of suspicion of wrongdoing is required for the securities or related law enforcement authorities to begin an investigation?
  16. BaFin will generally open an investigation when it identifies unusual or suspicious patterns and/or cases of potential non-compliance or wrongdoing. Even more broadly, based on the Securities Trading Act, it may investigate financial services providers without particular cause.  Similarly, in the area of banking supervision, BaFin is authorised to initiate investigations at any time as part of its regular supervisory activities. Note that BaFin generally has broad discretion whether or not to open an investigation and, if so, how to proceed.

    The public prosecutor’s office initiates criminal proceedings when it becomes aware, through any means, of conduct that may amount to a criminal offence. This requires an initial suspicion (ie, factual indications that a criminal offence was committed). Note that the public prosecutor generally has no discretion whether or not to initiate criminal proceedings; rather, criminal offences generally must be prosecuted if an initial suspicion exists.

  17. 9.May the securities or related law enforcement authorities conduct dawn raids? Does this depend on the nature and seriousness of the allegations?
  18. In Germany, the inviolability of private premises of both companies and individuals is constitutionally protected.

    Nevertheless, BaFin and, in the area of banking supervision, German Central Bank officers may enter private premises during regular business hours if necessary to fulfil their supervisory tasks. More stringent requirements apply to onsite inspections outside regular business hours. In this case, both BaFin and German Central Bank officers may enter private premises only if (i) necessary to prevent imminent danger to public safety and order or (ii) if factual indications suggest that provisions of the Securities Trading Act, the Banking Act or other relevant statutes have been violated.

    The public prosecutor may, in the course of a criminal investigation, conduct a dawn raid subject to certain requirements. In the case of the private or business premises of an individual suspected of a crime, the public prosecutor may enter such premises if the search is expected to lead to the discovery of evidence. In the case of the premises of other persons including companies (which, as such, cannot be the target of criminal proceedings), the public prosecutor may enter such premises if the search is necessary either to follow the traces of a criminal offence or to seize objects of potential importance for the investigation, provided that factual indications suggest that the trace or the object sought is located on such premises. Additional restrictions apply to searches carried out during night time, unless the relevant premises are publicly accessible. Also, absent imminent danger, a court order is necessary.

  19. 10.

    Must the findings of a company's internal review be reported to the securities or related law enforcement authorities? When and under what circumstances?

  20. As part of their general compliance obligation, companies often internally investigate cases of actual or potential wrongdoing, individually or in close cooperation with BaFin. There is, however, no specific legal requirement for a company to hand over the report on an internal investigation to BaFin or any other supervisory authority. Should the findings contained in such report be of some significance, companies will nevertheless consider informing BaFin proactively.

    Banks and other financial institutions are required to report to BaFin, without undue delay, any facts coming to their attention that cause them to suspect that certain provisions of MAR relating to insider trading and market manipulation, as well as prohibitions of uncovered short sales, have been violated or, pursuant to the Money Laundering Act, in cases of suspected money laundering. Such reports on suspicious activity are a key source for initiating an investigation.

  21. 11.Are whistleblowers a frequent source of information for securities and related investigations? 
  22. While German companies, in particular listed companies and financial institutions, have long been under general statutory obligations to establish adequate risk management and control systems, including with respect to risks associated with compliance failures in legal matters, statutory rules on whistleblowing have only been introduced in the recent past. Based on the German Banking Act, implementing CRD IV, banks and other financial institutions are required to establish a process allowing employees to report misconduct or suspected criminal behaviour to a competent body of the company while keeping their identity confidential. Also, in July 2016, BaFin itself has established a central whistleblower hotline that allows market participants to report misconduct or suspected criminal behaviour in the area of capital markets and securities, banking supervision and other areas within BaFin’s jurisdiction while ensuring anonymity of the whistleblower. Pursuant to the BaFin Annual Reports 2016 and 2017, in the first 18 months following the inception of the central whistleblower hotline, BaFin received around 750 whistleblower notices. Pursuant to the BaFin Annual Report 2018, BaFin received 665 whistleblower notices in 2018.

    While German law does not prescribe to reward whistleblowers as is the case in the US, companies in Germany are generally free to offer bonuses or other rewards for whistleblowing, although that is not the general practice. 

    At the EU level, legislative procedures are currently ongoing in relation to a Directive aimed at harmonising the national laws on the protection of persons reporting on breaches of EU law (also referred to as “whistleblower directive”) and, once enacted, the whistleblower directive may require amendments to the German statutory rules on whistleblowing.

  23. 12.Describe the typical phases of a securities or related investigation in your country.
  24. Supervisory investigations are usually initiated by supervisory authorities  such as BaFin. Note that BaFin generally has broad discretion whether or not to open an investigation and, if so, how to proceed. As a general rule, where BaFin identifies unusual or suspicious patterns and/or cases of potential non-compliance or wrongdoing, it will refer the matter to the internal Enforcement Department, which opens an investigation. In such cases, BaFin will usually submit a formal information or document request to the company or individual concerned, summon and question individuals, request information from third parties including other public authorities or make use of any other investigatory powers it has available (see question 4). BaFin will grant the company or individual concerned an opportunity to be heard. Should BaFin conclude that an administrative offence has been committed, it will impose a fine or other sanction. Otherwise, it will close the investigation. If BaFin considers the investigated conduct a criminal offence, it will refer the case to the public prosecutor and, going forward, focus on those aspects of the case that could constitute administrative offences. BaFin generally closely coordinates its activities with the public prosecutor (see question 34). Criminal proceedings are conducted more formally in three phases. Note that the public prosecutor generally has no discretion whether or not to initiate criminal proceedings; rather, criminal offences generally must be prosecuted if there is an initial suspicion, ie, factual indications that a criminal offence was committed. In preliminary proceedings, the public prosecutor investigates the facts of an alleged criminal offence; such preliminary proceedings may be closed under certain circumstances including, for example, if  sufficient evidence cannot be found or if the alleged offender agrees to pay a fine or to accept other sanctions (see questions 42 et seq). If the public prosecutor has gathered sufficient evidence, it will bring charges to the competent criminal court. The criminal court decides in intermediate proceedings whether or not to admit the charges and open the main proceedings. It will admit the charges and open the main proceedings if there are sufficient grounds to suspect that the accused has committed a criminal offence. The main proceedings (which include the public trial hearings) may eventually be closed, or result in an acquittal or conviction (see question 34).

  25. 13.What are the mechanisms by which a securities or related law enforcement authority may cooperate and coordinate with authorities outside your jurisdiction?
  26. As a result of the continuous strengthening of mutual legal and administrative assistance arrangements on the European and international level, BaFin, as well as other German regulators, have become increasingly interconnected with their European and international counterparts.

    EU level

    Beyond informal cooperation, there are several formal mechanisms and channels for the cooperation and the exchange of information between supervisory authorities within the EU. Under MiFID II, for example, the competent national authorities within the EU, including BaFin, are under a general obligation to cooperate. For instance, they are obliged to supply each other with the information required for the purposes of carrying out their respective supervisory duties. Furthermore, such competent national authorities may request from each other cooperation in supervisory activities including onsite verifications and investigations. In such case, the authority to which such request has been addressed is required to either carry out the requested verifications or investigations itself or allow the requesting authority or auditors or experts to carry out the requested verifications or investigations. ESMA is authorised to participate in such and other activities where carried out jointly by two or more competent national authorities with a view to fostering convergence of supervisory practices across the EU.

    With respect to police and judicial cooperation in criminal matters within the EU, the public prosecutor can avail itself of the instruments provided by the mutual legal assistance framework at EU level including, importantly, the Framework Decision 2006/960/JHA. These legal instruments allow for mutual information exchange between criminal law enforcement authorities across EU borders. Cooperation or exchange of information between criminal law enforcement authorities is usually initiated by a formal request. However, the relevant legal acts also provide for a spontaneous information exchange by which criminal law enforcement authorities of the member states may exchange information relating to criminal matters without a formal request to that effect.

    International level

    In the area of capital markets and securities regulation and supervision, in line with MiFID II, national competent authorities, including BaFin, may exchange information with the competent authorities of countries outside of the European Economic Area (EEA) based on cooperation arrangements, provided such arrangements establish certain safeguards. Among other things, the information disclosed to a third country authority must be made subject to guarantees of professional secrecy and it may only be exchanged for purposes within the supervisory mandate of the receiving authority. Also, to the extent the relevant information qualifies as personal data, such information must be exchanged in accordance with the General Data Protection Regulation (GDPR) (see questions 20 and 21). Also in related areas, subject-matter specific arrangements on exchange of information and cooperation with non-EEA countries are in place such as, for instance, the Convention on Cybercrime concluded within the framework of the Council of Europe.

    Administrative cooperation beyond such subject matter-specific arrangements as well as police and judicial cooperation in criminal matters with public authorities outside the EU are generally governed by bilateral or multilateral international agreements or treaties known as mutual legal assistance treaties (MLATs). Such agreements and treaties include, within Europe, the multilateral European Convention on Mutual Assistance in Criminal Matters concluded within the framework of the Council of Europe and, specifically between Germany and the US, the bilateral 2003 Agreement on Mutual Legal Assistance in Criminal Matters, as amended in 2006 (Germany–US MLAT). The Germany–US MLAT, for example, allows, among other things, for the search and seizure of objects (including documents) and the cross-border transfer of certain objects (including documents) by German criminal law enforcement authorities to US authorities on their behalf (and vice versa). International cooperation between criminal law enforcement authorities based on MLATs is usually initiated by a formal request on the part of the requesting authority addressed to a central authority in the target country. Following a review of the request by such central authority, it will refer the request to the competent authority, provided the requirements set forth in the applicable MLAT are met. With formal MLAT procedures often being considered time-consuming, burdensome, complex or potentially open to political influence, US and other foreign law enforcement authorities often prefer to gather information through informal channels of cooperation or voluntary cooperation on the part of the companies or individuals involved in the course of investigations (as to the limits, see question 20).

  27. 14.Will a securities or related law enforcement authority take into account findings by a law enforcement authority outside your jurisdiction in the course of its investigation?
  28. The cooperation and, more specifically, the mutual exchange of information between supervisory authorities within and outside the EU is permissible and, under certain conditions, required under MiFID II and other European and public international law and, where applicable, its implementation into local law (see question No. 13). Correspondingly, BaFin and other domestic supervisory authorities may generally take into account and use information received from foreign supervisory authorities, including findings by a foreign authority gathered in the course of its investigation, subject to certain conditions and limitations. To the extent that such information qualifies as personal data, for example, the receipt, processing and use of such information must be adequate, relevant and limited to what is necessary in relation to the purposes for which they are processed. Also, the information received from foreign authorities may generally only be used for purposes within BaFin’s supervisory mandate and corresponding administrative and court proceedings. Moreover, in cases in which information received from foreign authorities was only provided to BaFin for an explicitly stated purpose, such information may only be used for such purpose except in duly justified circumstances. Information received from foreign authorities may not be taken into account or used by BaFin if the information gathering by the foreign authority resulted, or the subsequent use by BaFin would result, in a breach of mandatory public international law or would otherwise violate fundamental principles of German law.

    Similarly, the public prosecutor may generally take into account and use information received from foreign law enforcement authorities, including findings gathered in the course of an investigation of such authorities. The use by the public prosecutor of such information is subject to similar conditions and limitations as those stated above, in particular those originating from mandatory public international law or fundamental principles of German law.

    Document production

  29. 15.What can the securities and related law enforcement authorities require to be produced as part of an investigation? Do the powers of a regulator differ from those of the public prosecutor?
  30. In supervisory investigations in the area of capital markets and securities, the relevant supervisory and enforcement authorities generally have broad investigatory powers. BaFin may, for example, request from market participants and other persons any information, documents, records or communications it considers necessary to fulfil its supervisory mandate. In addition, BaFin has specific powers to request production of information from certain providers of financial services including, for example, information on their algorithmic trading and trading systems operated by them, if necessary to ensure compliance with the Securities Trading Act. In case of non-compliance, BaFin may force the release of the requested documents by way of execution by substitution, penalty payments and coercion. In practice, however, companies under BaFin supervision typically comply at first request (see question 26).

    Similarly, in criminal investigations, the public prosecutor may, absent imminent danger based on a judicial order, request and seize any given object (including documents), if such object could be of importance as evidence for the investigation.

  31. 16.Will a litigation hold or will other instruction to preserve documentation need to be issued? When?
  32. In Germany, there are no specific rules requiring a litigation hold although, in practice, companies routinely issue such document preservation instructions in the context of enforcement matters. Companies are subject to general rules on document preservation under the Commercial Act for certain time periods depending on the nature of the document. Financial services providers, under the Securities Trading Act, are subject to additional record-keeping and document preservation requirements. BaFin may also issue a document preservation order relating to documents potentially relevant to a specific investigation.

    Generally, individuals who knowingly destroy evidence run the risk of committing a criminal offence if their conduct impedes criminal investigations. Litigation hold instructions or document preservation orders can effectively address this concern.

  33. 17.Can the securities and related law enforcement authorities request the production of materials protected by attorney-client privilege or work-product doctrine? Can the securities and related law enforcement authorities use protected materials if it obtains them from third parties?
  34. The protection of the attorney-client relationship in Germany is more limited as compared to the US or other common law jurisdictions, and there is no such far-reaching and well-established concept as attorney–client privilege or work-product doctrine as in these jurisdictions.

    In Germany, the attorney is subject to – and benefits from – a strict professional secrecy obligation. External legal advisers can therefore not be forced to testify against their clients in administrative or criminal investigations or other proceedings in court.

    However, the legal protection from seizure of documents prepared by an attorney for his client is limited, even in cases in which such documents are held in the possession of the attorney.  Documents prepared for his client (individual) by an attorney are only exempt from seizure in cases in which the client is, or can reasonably be expected to become, the subject of a criminal investigation. Similarly, documents prepared by an attorney for a corporate client may generally be seized (provided the statutory requirements are met), unless factual indications suggest that the company may become the subject of an administrative investigation connected to a criminal investigation. This is the case where, for example, a board member is prosecuted for a criminal offence in the context of his or her corporate responsibilities and such conduct is attributable to the company, which, in turn, qualifies as an administrative offence by the company. In these cases, the public prosecutor will usually investigate both the criminal offence of the board member and the administrative offence of the company (see question 3). As a consequence, and as confirmed by a recent decision of the Federal Constitutional Court, reports on internal investigations are not per se excluded from seizure by the public prosecutor (see question 11).

    Also, the supervisory authorities or the public prosecutor may generally take into account and use materials originating from an attorney–client relationship and received from third parties, unless the information gathering by the third party resulted, or the subsequent use by the public prosecutor, would result, in a breach of mandatory public international law or would otherwise violate fundamental principles of German law (see question 14).

  35. 18.How is confidential information or commercially sensitive information treated by the securities and related law enforcement authorities?
  36. Investigations conducted by supervisory and criminal law enforcement authorities are generally not public. In Germany, public officials at both federal and state level, including BaFin officials as well as public prosecutors, are subject to strict professional secrecy as a matter of law. The unauthorised disclosure by a public official to third parties of facts that have come to his or her attention in the exercise of his or her duties qualifies as a criminal offence. More specifically, pursuant to the German Banking Act and in line with CRD IV and MiFID II, individuals employed by BaFin may not disclose or use without authorisation facts which are confidential and have come to their attention in the exercise of their duties, in particular business and trade secrets. In exceptional cases, however, state press statutes and state and federal freedom of information acts may grant third parties a right to request specific information on such investigations from these authorities. This has recently been confirmed by a ruling of the Court of Justice of the European Union pursuant to which, under certain circumstances, a private third party may, based on a freedom of information act, request certain information obtained by a national supervisory authority in the exercise of its supervisory mandate, subject to a balancing of interests test.

    Also, it is important to note that information which qualifies as confidential at the time when it comes to BaFin’s attention may lose its confidential character over time. The Court of Justice of the European Union recently held that sensitive commercial information provided to a national regulator, as a general rule, loses its confidential nature after five years, unless the party relying on the confidential nature of the information can show that the information continues to constitute an essential element of its commercial position.

  37. 19.Can the target of a document request exercise a right not to produce?
  38. In supervisory or criminal investigations, individuals may refuse to provide information in case of self-incrimination, although documents may nevertheless be seized. Similarly, companies that do not adequately or in a timely manner comply with document requests from BaFin or the public prosecutor may become subject of a search. External legal advisers are subject to – and benefit from – a strict professional secrecy obligation and can therefore not be forced to testify against their clients. However, the legal protection from seizure of documents prepared by an attorney for his client is limited, even in cases in which such documents are held in the possession of the attorney. As a consequence, and as confirmed by a recent decision of the Federal Constitutional Court, reports on internal investigations are not per se excluded from seizure by the public prosecutor (see question 11 and 17).

  39. 20.

    Do any data privacy, bank secrecy or other laws restrict the production of materials to a securities or related law enforcement authority in your jurisdiction? An authority outside your jurisdiction? May the company under investigation provide personal or bank customer data on a voluntary basis?

  40. Directly applicable in each EU jurisdiction, including Germany, the GDPR generally prohibits a data controller from processing personal data, including transferring personal data to a third party, absent a specific statutory authorisation. Similarly, bank secrecy principles, based on the contractual relationship between banks and their customers, subject German banks to strict confidentiality relating to customer data. Both data privacy laws and bank secrecy principles, however, are not absolute. A formal request or order by a competent German supervisory authority, including BaFin or the public prosecutor, overrides data privacy and bank secrecy.

    Requests or orders from foreign public authorities, in contrast, are generally not considered sufficient to override the limitations provided by data privacy laws and bank secrecy principles, in particular in the case of public authorities located in countries that provide no adequate level of data protection (third countries). Pursuant to the GDPR, judgments of third-country courts or decisions of third-country administrative authorities requiring a data controller to transfer or disclose personal data may only be recognised or enforceable if based on an international agreement, such as an MLAT, in force between the requesting third country and the EU or the relevant member state, subject to certain exemptions (see question 13). As a consequence, and in view of the severe penalties which may be imposed in case of non-compliance with the restrictions on data transfers to third countries, companies should not, including on a voluntary basis, directly produce personal or customer information to foreign public authorities outside such formal channels of administrative cooperation (see question No. 22).

  41. 21.Are there any data privacy, bank secrecy or other laws that restrict where documents or other communications may be stored or reviewed for the investigation?
  42. The collection and review by companies of personal data in the context of investigations often raise difficult data privacy and, where applicable, bank secrecy issues, and must therefore be carefully planned and executed. Once the relevant data sets have been collected – which, in satisfaction of proportionality considerations, typically happens in various stages and expanding in scope –, the storage and review of such data themselves, often carried out by outside providers such as law firms and forensic accounting firms, must also comply with applicable data protection principles and requirements. As a general rule, personal data must be processed in a manner that ensures appropriate security of such data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures. In practice, the data sets should be stored on platforms hosted within the territorial scope of application of the GDPR (ie, in Germany or any other member state of the EEA). In view of the restrictions on data transfers to countries that provide no adequate level of data protection (third countries) contained in the GDPR and the severe penalties which may be imposed in case of non-compliance with such restrictions, companies should pay particular attention to avoid, or to properly structure, data transfers to such third countries (including the US) (see question 20).

  43. 22.Are the securities and related law enforcement authorities able to obtain documents from outside the country?
  44. BaFin may request documents from foreign branches of domestic financial services providers, subject only to a notification of the competent foreign supervisor. Otherwise, it may request from the competent supervisory authority of the host country the cooperation in supervisory activities. In such case, the authority to which such request has been addressed is required to either carry out the requested activity itself or allow BaFin or auditors or experts to carry out the requested activity. This also applies to document production requests (see question 13).

    The public prosecutor may obtain documents from foreign authorities through instruments of mutual legal assistance in criminal matters. Such instruments include, at EU level, the Framework Decision 2006/960/JHA, and, within Europe more broadly, the multilateral European Convention on Mutual Assistance in Criminal Matters concluded within the framework of the Council of Europe. With respect to non-European countries such as the US, the public prosecutor can usually rely on existing MLATs such as the Germany-US MLAT (see question 13).

    Witness interviews

  45. 23.Will the securities and related law enforcement authorities conduct witness interviews? If so, will the interviews be on the record? Will the interviews be made public?
  46. BaFin may conduct witness interviews. Under the Securities Trading Act, for example, BaFin is authorised to summon and question any person – whether alleged offenders or witnesses – if necessary to ensure compliance with the Securities Trading Act. BaFin may tape, prepare minutes or otherwise record a witness interview and will usually do so. The corresponding tapes or documents are not made public unless so required in subsequent court proceedings (see question 5).

    The public prosecutor may also summon and question witnesses. Such witness interviews necessarily have to be on the record. These records are generally not public but may be made public in the course of subsequent court proceedings (see question 5).

  47. 24.Can witnesses exercise a right not to testify? Will any adverse inference be drawn if they do so?
  48. Witnesses have a right not to testify based on personal grounds, such as a close family relationship between the witness and the alleged offender, or professional grounds, such as statutory professional secrecy of attorneys, auditors or tax consultants. Data privacy or contractual confidentiality obligations such as bank secrecy principles, however, are no basis to refuse to testify, and a formal interrogation by a competent German supervisory authority, including BaFin, or the public prosecutor overrides data privacy and bank secrecy protections (see question 20). Also, witnesses may refuse to answer any questions if, by doing so, they would incriminate themselves. No adverse inferences may be drawn from the alleged offender’s decision to invoke his right not to testify.

  49. 25.Do witnesses receive separate counsel? Who provides counsel for witnesses?
  50. Typically, at least in high-profile cases, corporate executives and employees called to testify receive separate counsel. In practice, the company will often make suggestions as to suitable counsel but the executive or employee is free to choose. The company pays or reimburses the legal fees, unless the executive or employee is eventually convicted.

    Advocacy

  51. 26.Can the target of a securities or related investigation challenge the investigation in court while the investigation is ongoing?
  52. Individual investigatory measures such as orders, requests or summons by BaFin or any other supervisory authority are generally subject to court review and may be challenged before the competent administrative court, although that rarely happens. As measures taken in the course of an investigation are typically immediately enforceable, it will often be necessary, in addition to filing a formal objection with BaFin itself, to apply for an interim judicial order.

    Similarly, individual investigatory measures taken by the public prosecutor in criminal proceedings are subject to judicial review and can be challenged before the competent criminal court.

  53. 27.What opportunity will there be to respond to a securities or related law enforcement authority’s theories or allegations prior to the authority bringing charges?
  54. In the course of an administrative investigation, a company or individual may, at any time, present its case informally to BaFin. Also, before BaFin imposes a fine or sanction or otherwise takes a final decision with regard to a company or an individual, such company or individual has a right to be heard. It is important to note that, in contrast to criminal proceedings, administrative proceedings, including investigations, are generally out-of-court proceedings, unless the investigated party or any other concerned party challenges individual investigatory measures before a court. In practice, however, companies usually cooperate with BaFin and comply with BaFin’s orders, and administrative enforcement measures, and judicial proceedings are rarely relevant (see question 4).

    Likewise, in criminal proceedings, the alleged individual may present his or her case informally to the public prosecutor at any time. The individual has a right to be heard before the public prosecutor or the criminal court takes any measure that could potentially be detrimental to his or her rights and interests (unless this would frustrate the goal of the measure). In particular, the alleged offender may respond to the theories and allegations of the public prosecutor before the opening of main proceedings and, in court, before a verdict is issued.

  55. 28.

    What form does the advocacy with a securities or related law enforcement authority typically take? 

  56. Advocacy with BaFin or the public prosecutor in the context of securities or related investigations typically takes the form of letters, submissions and presentations.

  57. 29.Are statements or advocacy positions taken by an investigated party during the investigation process deemed admissions and binding in future proceedings? Would such statements be made public?
  58. Depending on the contents and the wording of statements or advocacy positions taken by an investigated party during an investigation, such statement or position may be considered an admission. While they may be revoked or not be binding in future court proceedings, they may be used as evidence in such future court proceedings. Statements or advocacy positions taken by an investigated party are not public but may be made public in subsequent court proceedings (see question 5).

    Timing

  59. 30.What is the limitation period for charges for securities and related violations?
  60. The typical administrative offences in the area of securities and derivatives markets are subject to a limitation period of three years. The limitation period for most criminal offences in this area (ie, market manipulation and insider trading by primary insiders) is five years and, for the most serious offences, 10 years (see question 2).

  61. 31.When does the limitation period begin to run?
  62. With respect to both administrative and criminal offences, the limitation period begins to run as soon as the offence is committed.  In German criminal law, there is settled case law to the effect that a criminal offence can be considered committed when the criminal act has come to a conclusion, after all the statutory elements of the crime are fulfilled. While this may generally be easy to determine, in some cases (eg, breach of supervisory obligations by a company director or officer) it can be difficult to determine the relevant point in time.

  63. 32.What can suspend the running of the limitation period? Can the securities and related law enforcement authorities request a tolling agreement?
  64. In both administrative and criminal proceedings, including investigations, the limitation period is suspended on a number of grounds, such as the first interrogation of the investigated party, an order by the prosecuting authority or a court for seizure or search (and by judicial decisions upholding such order) and any request by the prosecuting authority or a court to undertake an investigatory measure in a foreign country. As a general rule, the statute of limitations period is reset after each interruption.

    Contractual agreements and other arrangements regarding tolling, suspension or interruption of the statute of limitations are unknown in administrative or criminal proceedings in Germany.

  65. 33.How long does a securities or related investigation typically take?
  66. Depending on the nature, importance and complexity of the matter, a securities or related investigation can take anywhere from several months to several years to complete. At times, investigations fall dormant and never come back to life.

    Resolution

  67. 34.What is the process for closing an investigation if the investigation does not reveal a violation of securities or related laws? Will the securities or related law enforcement authorities provide written confirmation that the investigation is closed without action?
  68. There are no specific rules on how to close an (administrative) securities investigation if no violations of securities or related laws have been identified. To the extent the investigation was based on allegations of an administrative offence and involves a fine or other administrative sanction, however, the investigated party will be informed of the respective decision upon request or if it has a legitimate interest in being notified. At times, investigations fall dormant and never come back to life and the company subject to the investigation has no interest in drawing renewed attention to the matter.

    Preliminary criminal proceedings will be closed if the investigation did not reveal sufficient indicia that a criminal offence has been committed. The public prosecutor will formally inform the accused individual about the decision if (i) he or she was questioned in this capacity, (ii) a warrant of arrest was issued, (iii) he or she explicitly requested such notice or (iv) he or she otherwise has a particular interest in the notification. If the accused individual is found not guilty in the course of the intermediate proceedings or the main proceedings, the court will provisionally close the proceedings or discharge the accused individual.

  69. 35.How will the resolution or settlement process be initiated?
  70. While in theory a settlement process can be initiated by the supervisory authority, public prosecutor or the investigated party, in practice it is usually the investigated party who initiates settlement discussions or, in criminal proceedings, a closure of proceedings following the payment of a fine or acceptance of other conditions.

  71. 36.Who decides whether to proceed with charges and what charges to select? 
  72. The supervisory authority in charge of the investigation decides, at its discretion, whether to proceed with charges and what charges to select. Of course, BaFin is subject to the applicable laws and regulations and the respective decision can be challenged in court by the investigated party (see question 26).

    In preliminary criminal proceedings, the public prosecutor, based on the findings obtained during the investigation, selects the charges it considers applicable and submits an indictment to the competent court. In the course of the intermediate proceedings, the court may decide to open the main proceedings based on different charges if the facts support other charges. Similarly, if the facts so suggest, the court may modify the charges in the course of the main proceedings.

  73. 37.What factors would a securities or related law enforcement authority consider in selecting charges and the severity of any penalty or fine?
  74. As regards the selection of the charges, both supervisory authorities and the public prosecutor may select the charges provided for by law and substantiated by the facts established as a result of their investigations (see question 36).

    As regards the severity of the penalty or fine, in most cases, the sanctions for a breach of a provision as well as the maximum and, sometimes, the minimum fine are prescribed by law.  Within these parameters, a variety of factors will be considered to arrive at the sanction ultimately imposed, such as the severity of the offence, degree of guilt, motives and aims, the modus operandi and the consequences of the offence as well as the offender’s prior history and personal and financial circumstances.

    Administrative sanctions under the Securities Trading Act for certain violations of MAR, for example, may amount to up to €5 million (individuals) and up to €15 million or 15 per cent of the total annual turnover of the corporate group of the offender or three times the amount of the profits gained or losses avoided because of the offence (companies). In addition to monetary fines, the supervisory authority may also impose other restrictions, such as temporary or permanent disqualification from carrying out commercial activities, or may impose any other measure within the limits of proportionality to protect the public interest.

    With regard to criminal sanctions, the maximum fines for typical offences related to securities and derivatives markets are five years of imprisonment (in addition to disgorgement of profits), and, for the most severe offences, up to 10 years of imprisonment.

  75. 38.What remedies can the securities or related law enforcement authorities consider? How are penalties calculated?
  76. BaFin, as the primary supervisory authority, not only has the powers to sanction misconduct, but also to ensure future compliance. Therefore, beyond monetary fines, disgorgement of profits and other sanctions, BaFin has broad powers to ensure that the offender does not continue to engage in illegal conduct. The measures available to BaFin range from informal measures, such as warnings or reprimands, to the withdrawal of relevant licences or disbarment. Similarly, in the area of banking supervision, measures available to BaFin include the withdrawal of a bank’s licence to conduct banking business in Germany and the closure of their business premises.

    Administrative penalties imposed by BaFin on companies are calculated based on its sentencing guidelines (as most recently revised on 23 February 2017). Pursuant to these guidelines, a “base amount” will be determined based on the market capitalisation of the company and the severity of the offence. Such base amount will be adjusted downwards by mitigating factors, such as admission or cooperation, and upwards by aggravating factors, such as intransigence and repeat offences. The financial means of the offender will also be taken into account.  In the event of a settlement, BaFin will reduce the applicable penalty in accordance with BaFin’s settlement guidance (see question 44). 

    Criminal sanctions are either a primarily monetary penalty or imprisonment and are prescribed by the law applicable to the case. There are no formal sentencing guidelines on criminal penalties but, with a view to determining the sanction, a variety of factors will be considered to arrive at the sanction. Among such factors are, pursuant to the Criminal Code, the severity of the offence, degree of guilt, motives and aims, the modus operandi and the consequences of the offence as well as the offender’s prior history and personal and financial circumstances (see question 37). There is settled case-law on how precisely a court should arrive at the sanction in an individual case, and the sanction ultimately imposed by the criminal court as well as the judgment more generally is subject to appeal (see question 46).  

  77. 39.Do illegal profits have to be disgorged, and if so, how are they determined?
  78. Both BaFin and criminal courts are authorised to order disgorgement of profits that the offender has gained from the illegal conduct. To the extent such profits cannot – or only with great difficulty – be determined, BaFin and criminal courts may estimate the respective amount.

  79. 40.Can criminal charges be brought against companies in your jurisdiction for violations of securities and related laws?
  80. German criminal law is based on the principle of culpability and the assumption that only natural persons can be guilty of a crime within the meaning of criminal law. Hence, under German criminal law, only natural persons can incur criminal liability and, as a result, criminal investigations can only be targeted at individuals. Corporate criminal liability and, more specifically, the introduction of a corporate criminal code has been a topic of discussion for years but has not been introduced to date. Under certain circumstances, however, a criminal act committed by an individual may be attributed to a company and, as a result, an administrative sanction may be levied on that company (see question 3).

    In August 2019, the Federal Government published a draft bill on corporate sanctions intended to address the particularities of corporate misconduct. If enacted as proposed, the draft bill on corporate sanctions will not introduce corporate criminal liability but rather expand the scope of administrative powers and sanctions available to punish corporate misconduct.

  81. 41.

    Will the securities and related law enforcement authorities provide a reduced penalty for cooperation? What standard will the authorities use when taking into account any cooperation?

  82. BaFin will consider the behaviour of the offender in the course of the investigation as a mitigating factor, as per the sentencing guidelines (see question 38). Generally, companies should have a keen self-interest in cooperating with BaFin, other supervisory authorities or the public prosecutor. If members of senior management of the company have themselves committed an offence or crime, the interests of the company and the self-interest of the executives should be clearly distinguished, and possible conflicts of interests should be properly addressed or resolved.

    Similarly in criminal investigations, among the factors to be considered with a view to determining the sanction are, pursuant to the Criminal Code, the defendant’s conduct after the offence, his or her efforts to make restitution for the harm caused and the defendant’s efforts at reconciliation with the victims. Also, real remorse or cooperative behaviour during the investigation will be considered in the defendant’s favour.

  83. 42.Are deferred prosecution agreements or non-prosecution agreements permitted?
  84. Deferred prosecution or non-prosecution agreements as often used in the US are unknown under German law. Administrative proceedings may, however, be terminated or closed based on a negotiated resolution (see question 44).

    In criminal proceedings, the public prosecutor may, in certain cases and subject to the consent of the competent criminal court, close the criminal proceedings following the payment of a fine or acceptance by the defendant of other conditions. If charges have already been brought, the criminal court, the prosecutor and the defendant may enter into a plea agreement. Such plea agreement involves an admission on the part of the defendant and, in return, a concession on the part of the criminal court regarding the verdict. While plea agreements have long been standard practice at German criminal courts, the corresponding statutory basis was enacted – and approved by the Federal Constitutional Court – only a few years ago.

  85. 43.Will a court need to approve the settlement agreement with a securities or related law enforcement authority?
  86. In contrast to criminal proceedings, administrative proceedings, including investigations, are generally out-of-court proceedings, unless the investigated party or any other concerned party challenges individual investigatory measures before a court. As a consequence, there is no statutory requirement for a court to approve any form of settlement arrangement.

    In criminal proceedings, any closure of proceedings by the public prosecutor following the payment of a fine or acceptance by the defendant of other conditions, whether negotiated or not, is subject to court approval. With respect to plea agreements, the court is a "party" to such agreements and, therefore, its consent is required.

  87. 44.If a settlement occurs, will an admission to certain facts or wrongdoing be required?
  88. In August 2019, BaFin has published an administrative guidance summarising its approach towards the settlement process in sanctions proceedings originating from securities investigations (settlement guidance). Pursuant to the settlement guidance, a settlement requires an admission on the part of the investigated party and, in return, a concession on the part of BaFin regarding the penalty. Note that the investigated party must have committed the relevant misconduct and, despite the admission, BaFin is legally required to duly investigate the facts underlying the admission.

    If criminal proceedings are closed by the public prosecutor following the payment of a fine or acceptance by the defendant of other conditions, no admission on the part of the alleged offender is necessary. In case of a plea agreement, the offender will have to admit certain facts or wrongdoing.

  89. 45.Can the findings or decisions of the securities or related law enforcement authorities be administratively appealed? Appealed to a court?
  90. Findings and decisions of supervisory authorities are subject to administrative and judicial review. Individual investigatory measures by BaFin or other supervisory authorities may be challenged by filing a formal objection. If not redressed, the measure can be challenged before the competent administrative court, although that rarely happens (see question 26). As measures taken in the course of an investigation are typically immediately enforceable, it will often be necessary, in addition to filing the formal objection, to apply for an interim judicial order. Administrative fines, in turn, must be challenged by filing a formal objection upon which, unless remedied, the case will be referred to the public prosecutor and, ultimately, to a criminal court.

    Individual investigatory measures taken by the public prosecutor in criminal proceedings are subject to judicial review and can be immediately challenged before the competent criminal court. Also, the sanction ultimately imposed by the criminal court as well as the judgment more generally is subject to appeal (see question 46).

  91. 46.If a decision can be administratively or judicially appealed, what are the consequences of an adverse decision on appeal? What are the consequences of a positive decision on appeal? 
  92. In administrative proceedings, the decision reached on administrative appeal, ie upon objection filed with the same or, where available, the superordinate authority, replaces the challenged decision of the supervisory authority. This is true whether the decision is adverse or positive.

    In both administrative or criminal proceedings, if an individual investigatory measure is unsuccessfully challenged before administrative or criminal courts, respectively, the courts will uphold the measure. Otherwise, they will either revoke the measure or declare it illegal, and, to the extent actually possible, order to reverse it. If an administrative fine is referred to a criminal court after a formal objection was filed, the court may issue a new decision, including imposing a fine, although this cannot be heavier than the original fine.

    Collateral consequences

  93. 47.

    What are some of the collateral consequences of a resolution or settlement with a securities or related law enforcement authority? 

  94. Following the conclusion of administrative proceedings, including investigations, certain orders or fines may be registered with the central business register. In addition, certain sanctions or fines imposed by supervisory authorities such as BaFin may or must be published on the relevant authority’s website, generally even where such sanctions or fines are still subject to appeal. European law in the area of capital markets and securities regulation, including MiFID II and MAR, as well as European law and, where applicable, its implementation into local law in the area of banking regulation and supervision increasingly mandate such "naming and shaming" (see question 5). Sanctions relating to activities in the securities markets typically do not trigger debarment from government contracts or the prohibition of trading in certain securities. Depending on the nature and severity of the misconduct, BaFin may, however, take administrative measures. In the case of particularly egregious offences, BaFin could, for example, revoke a bank’s or financial services provider’s licence to operate, in whole or in part, or impose other measures available under the Banking Act.

    Also, BaFin not only has the powers to sanction misconduct, but also to ensure future compliance. Therefore, beyond monetary fines, disgorgement of profits and other sanctions,BaFin has broad powers to ensure that the offender does not continue to engage in illegal conduct (see question 38).

  95. 48.

    What are some of the collateral consequences of a conviction or the imposition of liability by a court?

  96. If a board member or a senior manager of a bank or financial institution is convicted by a criminal court, he or she may become ‘unfit’ to lead the institution. In this case, he or she will have to resign, or BaFin may request his or her removal from office. 

  97. 49.Can private securities or related legal claims proceed parallel to investigations by securities and related law enforcement authorities?
  98. Civil proceedings can be brought by individuals or companies, for example, if they suffered a loss as a result of market misconduct by other individuals or companies (although some market conduct rules are not specifically intended to protect private third parties’ rights and interests and, as a consequence, provide no basis for damages claims of such private third parties). Such civil proceedings can proceed parallel to any administrative or criminal proceedings, including investigations. However, plaintiffs will often wait for the outcome of the administrative or criminal proceedings in order to assess their prospects of success (although, in theory, the outcome of civil proceedings can deviate from the outcome of administrative or criminal proceedings, owing to different rules on burden of proof and other characteristics of the respective proceedings).

  99. 50.What effect will findings by an authority in another jurisdiction have in private proceedings?
  100. Private plaintiffs may use the findings and decisions of foreign authorities in civil proceedings to the extent they are public or the plaintiffs otherwise have access to them. Such findings and decisions, however, do not have any binding effect on civil courts.

  101. 51.Can private plaintiffs obtain access to the files or documents the securities or related law enforcement authorities collected during the investigation?
  102. Investigations conducted by supervisory and criminal law enforcement authorities are generally not public. In Germany, public officials at both federal and state level, including BaFin officials as well as public prosecutors, are subject to strict professional secrecy as a matter of law (see questions 5 and 18).

    As a consequence, third parties, including private plaintiffs, generally cannot obtain access to files or documents a supervisory authority collected during its investigation. In exceptional cases, however, state press statutes and state and federal freedom of information acts may grant third parties a right to request specific information on such investigations from these authorities. This has recently been confirmed by a ruling of the Court of Justice of the European Union pursuant to which, under certain circumstances, a private third party may, based on a freedom of information act, request certain information obtained by a national supervisory authority in the exercise of its supervisory mandate, subject to a balancing of interests test (see questions 5 and 18).

    Similarly, files and documents from criminal proceedings are generally not accessible to private plaintiffs or other third parties, unless they participate in the criminal proceedings.

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Questions

    Regulatory environment

  1. 1.What are your country’s primary securities or related law enforcement authorities? 
  2. 2.What are the principal violations or legal issues that the securities or related law enforcement authorities investigate?
  3. 3.If there is more than one authority involved in a securities or related investigation, how is jurisdiction allocated? What is the interplay between the securities regulator and the public prosecutor?
  4. 4.Do the securities or related law enforcement authorities have investigatory powers? Can they bring administrative, civil or criminal proceedings? 
  5. 5.Are regulatory or criminal securities and related investigations public? Under what circumstances? 
  6. 6.Are regulatory or criminal securities and related investigations targeted at the company or the individuals involved, or both?
  7. Investigation procedure

  8. 7.How do the securities and related law enforcement authorities typically begin an investigation?
  9. 8.What level of suspicion of wrongdoing is required for the securities or related law enforcement authorities to begin an investigation?
  10. 9.May the securities or related law enforcement authorities conduct dawn raids? Does this depend on the nature and seriousness of the allegations?
  11. 10.

    Must the findings of a company's internal review be reported to the securities or related law enforcement authorities? When and under what circumstances?


  12. 11.Are whistleblowers a frequent source of information for securities and related investigations? 
  13. 12.Describe the typical phases of a securities or related investigation in your country.
  14. 13.What are the mechanisms by which a securities or related law enforcement authority may cooperate and coordinate with authorities outside your jurisdiction?
  15. 14.Will a securities or related law enforcement authority take into account findings by a law enforcement authority outside your jurisdiction in the course of its investigation?
  16. Document production

  17. 15.What can the securities and related law enforcement authorities require to be produced as part of an investigation? Do the powers of a regulator differ from those of the public prosecutor?
  18. 16.Will a litigation hold or will other instruction to preserve documentation need to be issued? When?
  19. 17.Can the securities and related law enforcement authorities request the production of materials protected by attorney-client privilege or work-product doctrine? Can the securities and related law enforcement authorities use protected materials if it obtains them from third parties?
  20. 18.How is confidential information or commercially sensitive information treated by the securities and related law enforcement authorities?
  21. 19.Can the target of a document request exercise a right not to produce?
  22. 20.

    Do any data privacy, bank secrecy or other laws restrict the production of materials to a securities or related law enforcement authority in your jurisdiction? An authority outside your jurisdiction? May the company under investigation provide personal or bank customer data on a voluntary basis?


  23. 21.Are there any data privacy, bank secrecy or other laws that restrict where documents or other communications may be stored or reviewed for the investigation?
  24. 22.Are the securities and related law enforcement authorities able to obtain documents from outside the country?
  25. Witness interviews

  26. 23.Will the securities and related law enforcement authorities conduct witness interviews? If so, will the interviews be on the record? Will the interviews be made public?
  27. 24.Can witnesses exercise a right not to testify? Will any adverse inference be drawn if they do so?
  28. 25.Do witnesses receive separate counsel? Who provides counsel for witnesses?
  29. Advocacy

  30. 26.Can the target of a securities or related investigation challenge the investigation in court while the investigation is ongoing?
  31. 27.What opportunity will there be to respond to a securities or related law enforcement authority’s theories or allegations prior to the authority bringing charges?
  32. 28.

    What form does the advocacy with a securities or related law enforcement authority typically take? 


  33. 29.Are statements or advocacy positions taken by an investigated party during the investigation process deemed admissions and binding in future proceedings? Would such statements be made public?
  34. Timing

  35. 30.What is the limitation period for charges for securities and related violations?
  36. 31.When does the limitation period begin to run?
  37. 32.What can suspend the running of the limitation period? Can the securities and related law enforcement authorities request a tolling agreement?
  38. 33.How long does a securities or related investigation typically take?
  39. Resolution

  40. 34.What is the process for closing an investigation if the investigation does not reveal a violation of securities or related laws? Will the securities or related law enforcement authorities provide written confirmation that the investigation is closed without action?
  41. 35.How will the resolution or settlement process be initiated?
  42. 36.Who decides whether to proceed with charges and what charges to select? 
  43. 37.What factors would a securities or related law enforcement authority consider in selecting charges and the severity of any penalty or fine?
  44. 38.What remedies can the securities or related law enforcement authorities consider? How are penalties calculated?
  45. 39.Do illegal profits have to be disgorged, and if so, how are they determined?
  46. 40.Can criminal charges be brought against companies in your jurisdiction for violations of securities and related laws?
  47. 41.

    Will the securities and related law enforcement authorities provide a reduced penalty for cooperation? What standard will the authorities use when taking into account any cooperation?


  48. 42.Are deferred prosecution agreements or non-prosecution agreements permitted?
  49. 43.Will a court need to approve the settlement agreement with a securities or related law enforcement authority?
  50. 44.If a settlement occurs, will an admission to certain facts or wrongdoing be required?
  51. 45.Can the findings or decisions of the securities or related law enforcement authorities be administratively appealed? Appealed to a court?
  52. 46.If a decision can be administratively or judicially appealed, what are the consequences of an adverse decision on appeal? What are the consequences of a positive decision on appeal? 
  53. Collateral consequences

  54. 47.

    What are some of the collateral consequences of a resolution or settlement with a securities or related law enforcement authority? 


  55. 48.

    What are some of the collateral consequences of a conviction or the imposition of liability by a court?


  56. 49.Can private securities or related legal claims proceed parallel to investigations by securities and related law enforcement authorities?
  57. 50.What effect will findings by an authority in another jurisdiction have in private proceedings?
  58. 51.Can private plaintiffs obtain access to the files or documents the securities or related law enforcement authorities collected during the investigation?