The Council of the European Union has agreed on a modified text in the ongoing legislative process for a new directive on combating corruption in the EU. According to the directive, companies could face turnover-based fines and other drastic sanctions. At the same time, the European legislator points out what companies can do right now to protect themselves from the threat of sanctions.
Proposed directive and position of the Council of the European Union
In May 2023, the European Commission (“Commission”) announced a far-reaching package of measures for effectively combating corruption in the EU. The package also included a proposal by the Commission for a directive on combating corruption (“Commission Proposal”). In addition to measures to better prevent and combat corruption in the EU, the Directive sets new minimum standards for defining punishable corruption offences and stipulates far-reaching sanctions – in particular for companies. The Council of the European Union has now submitted (on 14 June 2024) a slightly modified text (“Draft Directive”). Using this as a basis, the Council intends to start negotiations with the European Parliament, which already presented its position in February 2024, in order to produce a final version of the Directive.
Common definitions of criminal offences
The Member States will have to incorporate definitions of individual criminal offences into their respective national law in order to harmonise anti-corruption measures in the private and public sectors on the basis of a uniform standard of protection across the EU. The Draft Directive lists definitions for the following criminal offences in Articles 7 to 13:
- Active and passive bribery in the public and private sector,
- misappropriation of property by a public official,
- giving or receiving undue advantages,
- trading in influence,
- abuse of functions,
- obstruction of justice and
- illicit enrichment of public officials from corruption offences.
In addition to liability for the commission of a criminal offence, any involvement (incitement or aiding and abetting) in such offences will also be punishable as a criminal offence, according to Article 14 of the Draft Directive. Unlike the Commission’s Proposal, the Draft Directive does not include provisions on criminal liability for the attempt to commit an offence.
Penalties for natural persons
The Directive lays down minimum lengths for the maximum term of imprisonment for natural persons. Whereas the Commission’s Proposal provided for maximum terms of imprisonment of at least four to six years, the Draft Directive provides for a maximum term of imprisonment of at least two to four years. This notwithstanding, it will be possible to impose further sanctions such as fines; removal, suspension and reassignment from public office; disqualification from practising a profession or trade; and revocation or withdrawal of permits to pursue activities in connection with the offence committed.
Sanctions for legal entities
Legal entities are also to be held liable for corruption offences committed by persons who have “a leading position”. In addition to the liability for active corruption, the breach of supervisory duties on the part of the person who has the leading position will be sufficient for the company to be held liable. This meets the attribution standard already found in section 30 Act on Regulatory Offences (Ordnungswidrigkeitengesetz, “OWiG”) – for breaches of supervisory duties, usually in conjunction with section 130 OWiG – which generally allows companies to be fined if their management commits criminal or administrative offences.
The proposed fines, which are calculated as a percentage of turnover, seem particularly drastic. Depending on the offence, the maximum fines set by the Member States must be no less than 3% or 5% of the total worldwide turnover of the legal entity in the preceding business year or at least EUR 24 million or EUR 40 million, respectively. It remains to be seen whether the European legislator sees the need to base these fines on group turnover as opposed to that of the individual company; this would have massive consequences for multinational groups. Under section 30 OWiG, German law currently provides for fines of up to EUR 10 million, although this maximum can be exceeded as part of asset confiscation if the economic advantage gained from the offence is higher.
The Draft Directive also codifies further sanctions against companies: In addition to excluding the company concerned from public benefits or aid, it allows the competent authorities to issue trade bans or revoke or withdraw permits, among other things. Authorities that have concluded contracts with the company concerned will have an extraordinary right of termination. The Draft Directive also provides for companies to be placed under judicial supervision, wound up or closed down.
Compliance measures counted as mitigating circumstances
The Draft Directive also sets out a standardised catalogue of penalties that the Member States must take into account when transposing the Directive into national law. The following factors, in particular, can have a mitigating effect:
- Establishing appropriate internal controls and compliance programmes to prevent corruption – both as a preventive mechanism before the offence is committed and as a remedial measure. The failed draft German Corporate Sanctions Act already provided for this as a mitigating circumstance and, in the case of relevant deficiencies, as an aggravating circumstance.
- Taking remedial measures immediately after discovery of an offence (for example, through an internal investigation or cooperation with the investigation of the matter). This mitigating factor is reminiscent of the provision of the (failed) draft German Corporate Sanctions Act that required that a substantial contribution be made to the investigation.
- Another mitigating factor under the Draft Directive is voluntary disclosure. The draft German Corporate Sanctions Act did not expressly provide for such voluntary disclosure as a mitigating factor; however, it would probably have had to be taken into account indirectly when assessing the significance of the contribution to the investigation.
It is common practice among authorities in many Member States to take both the establishment of compliance programmes and cooperation with the investigation of an incident into account as mitigating factors when determining penalties. In Germany, too, it has become standard in higher court rulings that courts and investigative authorities take compliance management systems into account as a mitigating factor when assessing fines. The Federal Court of Justice most recently confirmed this in a decision from 2022 (see Federal Court of Justice, decision of 27 April 2022 – 5 StR 278/21). Now those mitigating factors are to be established by law throughout the EU – raising hopes for greater legal certainty for businesses and decision makers in critical situations.
National anti-corruption units
The Draft Directive also requires that Member States implement preventive anti-corruption measures in their national legislation. Member States are to raise public awareness of the “harmfulness of corruption” and ensure transparency and accountability in public administration. Member States must also establish one or more bodies or organisational units tasked with the prevention of corruption (“anti-corruption units”), reminiscent of the French Anti-Corruption Agency (AFA) and the Federal Office for Economic Affairs and Export Control (BAFA) in its capacity as the authority responsible for monitoring compliance with the Act on Corporate Due Diligence Obligations in Supply Chains (LkSG). Member States must provide their anti-corruption units with an adequate number of qualified staff and financial resources necessary to ensure their independence. While the Directive does not define anti-corruption units’ specific tasks and competencies, their mere establishment will create a certain level of awareness of anti-corruption efforts.
Conclusion
Although changes to the Draft Directive are to be expected in the course of the legislative process, the draft already signals the Member States’ determination to get tougher on corruption. Under the current draft, companies could face fines of up to five percent of their worldwide turnover – which would result in significantly more severe penalties than current German law affords. At the same time, the European legislator is creating legal certainty by providing an explicit legal basis for considering preventive measures and cooperative behaviour as mitigating factors. In particular, the bar for what counts as cooperation on establishing the facts for purposes of mitigating a sentence appears to be much lower than in the draft of the German Corporate Sanctions Act. It remains to be seen whether the German legislator will limit itself to reforming section 30 OWiG or make a new attempt at passing a corporate sanctions act. In any case, corporate decision makers should familiarise themselves with the regulations early on and critically review their compliance measures to ensure they are appropriate – and implement new measures where required.