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PSPD    People's Solidarity for Participatory Democracy

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  • 2000.07.31
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Preventative Measures and Criminal Sanctions against Corruption in the Federal Republic of Germany

by Prof. Dr. Juergen Meyer


Introduction

Corruption within government is a problem faced by virtually all cultures. In the public domain, regular political or administrative scandals draw attention to the fact that influence is exerted on decision makers whereby the latter are offered rewards for taking certain measures. The latest examples in the Federal Republic are the current inquiries into donations made to the CDU. In the civil service, the main areas affected are those where the state and its institutions are monopolists , so to speak, whether due to the size of the contracts such as in the construction industry or due to the state's power to grant authorisations. In addition, however, corruption also takes place in the private sector, in particular in commercial life. This mainly concerns competition law since bribing employees of a competing company always involves a risk of distorting the competitive position.

The essential difference between corruption in the private sector and that in the public sector is basically to be found in the difference between the protected subject matter affected by the corruption. In the private sector, this is generally only the owner of the company, provided the corruption does not endanger free competition, whereas in the public sector, in addition to the material harm itself, the confidence of the public in the state's objectivity and respect for the law is put at risk.

This clearly shows that corruption is always capable of harming the social order in a community organised under the rule of law. In the Federal Republic of Germany, this order, i.e. the social structure, is regulated by a large body of norms and statutes. Two essential principles on which the democratic order of the Federal Republic is based, are contained in the Basic Law. Firstly, it states in Article 20(3) GG (Basic Law):

The Legislative is bound by the Constitution; the Executive and the Judiciary are bound by statute and law.

The fact that the executive is bound by statute is illustrated in particular by the fact that all legal rules and individual rulings issued by the executive must be in line with superior laws. This principle is broken where, in areas of the executive which are particularly prone to corruption, decisions are influenced by motives based on individual interests alien to the system. The second main element of the rule of law, is made up of what is known as the principle of the separation of powers, which provides for the fundamental separation of state power into the legislative, the executive and the judiciary. The aim of the separation of powers is served by dividing the personnel and organisational structures of state functions, by a system of checks and balances and by all other methods of deconstructing power. Corruption can upset the fundamental balance which exists between the powers and thus also harm the democratic order which is orientated towards the public interest.

There are many forms of corruption which are of relevance for the criminal law. A relatively harmless variety is represented by cases where an official receives a one-off payment of low value for carrying out a specific official act. More dangerous situations arise where this sort of relationship takes root, giving rise to permanent structures, so that it is no longer a question of a one-off payment. As soon as structures are formed which are intended for a longer term existence and which allow the exertion of influence on decisions by authorities, corruption quickly approaches the level of white-collar crime or organised crime. The importance of this type of crime has grown substantially over the last few years, not least due to the convergence of the EU member states and the increased possibility for companies to operate across borders. In Germany too, there are now more collusive links between civil servants and companies, mainly in the field acquisitions and the award of contracts. The offences committed in this context are no longer limited to bribery. Acts carried out with the participation of civil servants increasingly involve breach of trust and falsification of documents. Among owners of companies numerous crimes come up for consideration, in particular in the context of cartel-type agreements between bidders for contracts in the construction sector.

Only in recent years has there been an increasing awareness of the problem. This kicked off a debate about necessary changes to the criminal law and the creation of preventative rules in other areas of law which led to various legislative plans for reform under the last Federal Government. Thus for example, on 22nd January 1994, the 28th St G (Criminal Law Amendment Act) of 13th January 1994, came into force, which inserted S. 108e into the Criminal Code, making it an offence to bribe Members of Parliament. On 15.12.1996, the Federal Government submitted a draft law to combat corruption which was passed by Parliament on 13th August 1997.

Criminal Sanctions

In the area of criminal sanctions, the Anti-Corruption Act mainly gave rise to changes in relation to bribery offences governed by Sections 331 et seq. of the Criminal Code. In practice, these had become increasingly regarded as insufficient. Initially, the previous legal situation had led in particular to gaps in criminal liability, in cases where public tasks were being performed by private organisations, due to the narrow definition of official under Section 11(1) No. 2 Criminal Code. This meant that, in the case of the managing director of a state-owned company with the legal structure of a GmbH (limited company), it was difficult to establish that he fulfilled the characteristics of an official. Therefore, for the purposes of clarification, Section 11(1) No.2, paragraph c) Criminal Code was extended to say that, notwithstanding the form of organisation chosen for the performance of the task , the person who fulfils the position of official is the person who has to carry out public administration tasks in the offices referred to. Also, under the old law, conviction for accepting or offering some advantage depended on there being an intentionally very close connection between the (promised or required) advantage and the (desired or committed) official act. This relationship, referred to as an unlawful arrangement formed the core element of the German law on bribery, but in practice often led to difficulties of definition, such as where a payment could not clearly be attributed to an official act due to the time lapse between them, or had intentionally not been allocated to a concrete official act (so-called sweeteners or payments for general improvement of the business climate ). The wording inserted with the Anti-Corruption Act now takes account of the performance of official duties as such. With the express inclusion of donations to third parties within the scope of bribery offences, further uncertainties have been removed. Under the old law, donations to third parties were only covered if these were in some way of indirect benefit to the official. This gave rise to difficulties, mainly in the case of donations to organisations or associations, such as parties, of which the office holder is a member. The new regulation takes account of these problems. In addition, S. 335 Criminal Code inserted the elements of an offence for particularly serious cases of bribery and corruption, which, following the example of the rules on theft, fraud, breach of trust and falsification of documents, now provides for sentences of up to ten years. The standard examples given in Subsection 2 mainly attempt to cover the area of organised crime (see No. 3: the offender is acting on a commercial basis or as a member of a ring which has formed for the purpose of committing such acts on a continuous basis ) and, under Nos. 1 and 2, also include acts relating to large scale bribes and cases in which the offender continuously accepts bribes in return for carrying out official acts in the future. The sentences for officials were increased moderately from two to three years and for judges from three to five years imprisonment.

In addition to the reform of bribery offences, a new Part 26 was added to the Criminal Code under the heading Offences in restraint of Competition , which has integrated into the Criminal Code (Sections 299, 300 Criminal Code) a provision formerly established outside the criminal law under S. 12 UWG (Law against Unfair Competition) (Bribery of Employees). The grounds for the bill stated in this regard that corruption in business also represented socially and ethically objectionable behaviour , and this was particularly emphasised by its being integrated into the core Act of the criminal law. In accordance with the aforementioned regulation, sentences under S. 299 were increased to up to three years and for particularly serious cases (S. 300) to up to five years imprisonment. In addition, S. 298 Criminal Code has created a separate offence of Anti-competitive Agreements in relation to Tenders . The creation of a separate offence seemed necessary because improper practices in this area particularly in the case of the awarding of public contracts in the construction industry were not necessary linked to bribery, and criminal liability for fraud ( Tendering or Submission Fraud ) often failed on the question of establishing pecuniary damage. This led to the unsatisfactory result that tender agreements could not be punished under criminal law but only as administrative offences with the imposition of administrative fines (see e.g. Sections 25, 38(1) No. 8 GWB (Law against anti-competitive practices). The fact that there was an urgent need for action in this respect can be gauged by the huge number of substantial administrative fines which have been imposed on companies and responsible individuals over the last few decades. The elements of the offence under Section 298 Criminal Code, require that an offer is made in relation to a tender for goods and services which is based on an agreement whose purpose is to make the organiser accept a specific offer .

Finally, Sections 302 and 338 Criminal Code have extended the possibilities for imposing criminal sanctions to seize profits (Forfeiture of Assets S. 43a Criminal Code) and for further forfeiture (S. 73 d Criminal Code) in particularly serious cases of bribery and corruption (in business). Thereunder, profits from corrupt practices are generally subject to further forfeiture under Section 73d Criminal Code, if the offender is acting on a commercial basis or as part of a ring which has formed for the purpose of committing such acts on a continuous basis.

In addition, the 28th Criminal Law Amendment Act dated 13th January 1994 added bribing Members of Parliament (S. 108e Criminal Code) to the Criminal Code. This was motivated by the dangers threatening the free exercise of the electoral mandate and the political parliamentary system by the close professional proximity of MPs to interest groups, by lobbying on a massive scale and other circumstances which encourage corruption. The new offence has been heavily criticised because it only covers reprehensible voting behaviour by the elected representative on parliamentary panels and thus only imposes criminal liability in relation to a small part of the parliamentary work of an MP. Consultancy work by MPs is not taken into account, neither is work carried out within the parliamentary party or in working groups, where a large part of parliamentary work is carried out. The provision is subject to an additional, substantial limitation as a result of the requirement for a concrete unlawful arrangement, so that gifts and benefits given without an agreement to vote in a particular way but in the general expectation that the receiver will be more willing to look kindly on the interests of the donor in the future (known as payments for the cultivation of the political landscape ), will not be covered and neither will payments to reward specific voting behaviour made after the event. Little wonder therefore that the provision has so far proven to be virtually meaningless making an adjustment imperative in this case.

Non-criminal Measures

Of far greater effect in the fight against corruption are the numerous administrative and fiscal measures which have recently been applied more rigorously in Germany. I would therefore like to devote special attention to these preventative measures to stem corruption.

Fiscal Measures

In the last legislative period, the SPD parliamentary party submitted a bill to Parliament for a taxation law to combat corruption. By an amendment to Section 4(5) No. 10 EStG (Income Tax Act), this provided, in particular, that the tax deductible status of bribes and slush money at home and abroad should be completely abolished, and extended the exemptions from the obligation to maintain tax confidentiality under Section 30(4) No. 5 AO (Tax Code) to include corruption offences.

The then government unfortunately decided on a half-hearted reform by limiting the tax deductible status of bribes in the 1996 tax law. The addition of Section 4(5) No. 10 EStG to the 1996 tax law, undertaken by the mediation committee, provided that donation of benefits and the accompanying payments should not be tax deductible company expenditure if, as a result of the donation or receipt of benefits, there has been a legally binding conviction under criminal law, or proceedings under Sections 153 to 154c StPO (Code of Criminal Procedure) have been suspended, or if a legally binding administrative fine has been imposed as a result of the granting or receipt of the donation . Thus only certain slush monies paid to recipients within Germany represented non-deductible company expenditure. By linking it to a criminal conviction for bribery under Section 334 Criminal Code, payments of slush money to foreign recipients remained tax deductible due to the narrow definition of official in Section 11(1) No. 2 Criminal Code. It was also unclear whether convictions under foreign criminal law would give rise to a ban on tax deductibility under Section 4(5) No. 10 EStG.

The SPD bill was rejected on the 27.5.1998, by the governing parties in the committee responsible, without any sound reasoning being submitted. It was not taken up again until the Tax Relief Act 1999/2000/2002 dated 24.3.1999, following the change of government, when the recognition of corruption payments as company expenditure by the income tax law was abolished by the amendment to Section 4(5) No. 10 EStG. Under this section, deductible status as a company expense irrespective of the success of the bribe is already denied if the payment represents an unlawful practice which fulfils the elements of a criminal offence or an administrative offence. The rule is not only applicable to officials, as they are called, but also to the private sector, where there is a criminal breach of competition rules, and, as well as payments in cash, also includes benefits in kind such as e.g. payment of flight costs.

Prevention

Law on Public Service and Secondary Employment

In addition to reforms of the criminal law, the law to combat corruption also contains changes to the law on public service and the disciplinary measures against civil servants. Changes in civil service law mainly concern the question of the acceptance of gifts during and after the civil servant's period of service. In addition, the law contains provisions relating to the mandatory requirements for discharge from public service, announced in disciplinary proceedings. In this respect, the Second Law on Secondary Employment dated 9.9.1997 is also of importance, whereby the exercise of secondary employment by civil servants and employees in public service is restricted, particularly where there is a risk of a conflict of interests. It contains extended duties to provide notification and information by civil servants and soldiers, which may also include details as to the type and scope of the work being undertaken. In the event of unreasonable demands on time, the administrative authority has the possibility of forbidding the secondary work from being undertaken.

Other Administrative Measures

In the last legislative period, the SPD parliamentary party looked intensively at possibilities for preventing corruption and, among other things, it worked out a comprehensive list of administrative measures. In the introductory remarks on the resolution proposal from the SPD parliamentary party in Bundestag Publication No. 13/8084, it gives as the grounds: Measures to combat corruption increase the efficiency of the administration. After the recent corruption and fraud scandals, they also help to restore confidence in civil servants and representatives of public bodies and thus also in the ability of the administration to function, and to prevent the waste of public funds which corruption entails. I would like to briefly summarise some of the demands which were made by my party at the time.

Particular importance should still be attributed to preventative measures in the area of awarding public contracts. The main thing to strive for is the setting up of a national information system (corruption register) with the aim of exchanging information on the companies being excluded from contests as a result of serious misconduct. In addition, when public contracts are awarded (including development collaboration) the following criteria should generally be followed. In order to combat manipulation, there should be strict separation of personnel throughout the whole award process, i.e. the invitation to tender, the award of the contract and the implementation of contracts, and at least two employees should be involved. For this reason, in administrative divisions which are particularly prone to corruption, the rotation principle should be introduced and a maximum period of employment should be established for the employees in this division.

Basically, the selection of companies, to be taken into account when contracts are being awarded, should take place according to the following mandatory criteria. For example, there could be a requirement as has long been normal practice in the USA - that, in awarding contracts, only those companies will be taken into account which have a general code of conduct forbidding all forms of corruption, imposing consequences under employment law in the event of any breach and declaring the code to be an essential part of the contract of employment, as well as those companies which regularly agree anti-corruption clauses and appropriate contractual penalties with their business partners. On the other hand, those companies against whom, or against whose representatives, an administrative fine, an order for summary punishment or a criminal sentence has been imposed, or where a criminal investigation or criminal proceedings have been suspended, during the last two years, should be excluded from the award process.

Finally, government agreements for the award of contracts must contain anti-corruption clauses and contractual penalties as well as an obligation to pay a lump sum in damages in the event that an agreement is proven to exist which represents an unlawful restriction on competition. Equally, the VOB (contracting rules for the award of public works contracts) or the corresponding statute on the award of contracts, must be supplemented by clauses which allow for even greater prevention of manipulation. An additional requirement relates to the work of the Federal Audit Office and the Audit Offices for the L nder, which are required to carry out their work more rigorously as regards supervising the award of public contracts.

Some of these ideas were implemented with respect to the Federal Administration by the guideline on combating corruption, issued on 17.6.1998 on the basis of Article 86, sentence 1 GG (Basic Law), which was directed at all federal administrative offices (the highest federal authorities, authorities for direct and indirect federal administration, federal courts, Federal Special Fund and recipients of grants mainly supported institutionally by the government). Its aim is to determine and control all fields of work which are at risk of corruption. In general, this aim is to be achieved by ensuring the application of the Many-Eyes principle, with the involvement of several employees or organisational units, by way of joint checking, more intensive supervision and higher levels of transparency as regards decision-making. It requires certain organisational units to be entrusted to carry out internal audits whereby ongoing and finished procedures are continuously checked and supervised on a random basis. The employees should be made aware of the danger of corruption and informed about the consequences of corrupt practices (where appropriate by handing out generally applicable codes of practice). In organisational units at risk of corruption, particular care must be taken in the selection of personnel and regular rotation should be the aim. Basically, the period of deployment must be fixed and any extensions for urgent reasons must be recorded in writing. In addition, special contact personnel must be appointed as a precautionary measure against corruption, who, in the event that a disciplinary offence is suspected, will inform the relevant department managers responsible for investigating the case. Where an offence of corruption is suspected, the department managers must inform the public prosecutor and the highest administrative authority immediately and initiate internal inquiries and measures to prevent concealment.

In addition, the guideline contains special provisions with regard to the award of public works contracts. As before, these should basically be awarded on the basis of a public invitation to tender, and exceptions, i.e. the reasons justifying a failure to give priority to a public invitation to tender or to a public procedure, should be recorded in writing in each individual case. Contracts relating to construction, services or other work in return for remuneration, must include, where appropriate, anti-corruption clauses, which provide for a reasonable contractual penalty to be paid in the event of practices which justify exclusion from the bidding. Where private companies are involved in performing tasks for public authorities, where necessary, the individual employees of such companies must be placed under a duty to fulfil their obligations under the contract conscientiously. Finally, the departments must check whether a bidder or an applicant has committed serious misconduct which calls its reliability into question and may lead to its exclusion from the bidding. Serious misconduct can be said to have taken place, in particular, where bidders or applicants are proven to have offered, promised or granted a benefit to the employee of a public department dealing with the preparation or implementation of the award procedure, or to a third party.

Instruments with a similar content can now be found in all the administrative offices of the L nder. These oblige authorities, institutions and other public offices of the L nder to set up or extend suitable supervisory mechanisms corresponding with the aforementioned requirements. It is also required that, in the event of a concrete suspicion of corruption, the superior must be informed and the police or public prosecutor notified if a criminal offence is suspected. Further innovations relate to the procedure for the award of contracts. In the case of contracts with a value above a certain amount, the bidders may be required to provide a security copy of the offer which is then kept by a department not involved in the award of the contract. This is intended to prevent possible manipulation of the offer documentation.

Similar self-regulatory mechanisms can be increasingly found in the private sector too, which represent an effective supplement to the preventative measures being undertaken by the state. This mainly involves the in-house development of codes of ethics generally covering business operations at risk of corruption which result in making the relevant abstract requirements under criminal law more concrete. Compliance is either ensured by the company management, in-house bodies or persons especially deployed to deal with corruption. This has long been standard practice in the USA. In Germany, a work group of the leading medical insurance companies and the Federal Professional Association for the Medical Product Industry, published a Medical Product Code on 12.5.1997. Its aim was to clarify the legally permissible business practices between medical institutes, their employees, doctors, other service providers and the manufacturers of medical products. Based on the applicable laws, it clarifies in easily comprehensible terms, under what circumstances donations and other support payments from the medical product industry may be accepted or undertaken.

International Initiatives

Endeavours to combat corruption have also taken on greater impetus recently at international level. Of greatest importance are the OECD Convention to Combat the Corruption of Foreign Officials in International Business and the EU Convention on the Protection of the Financial Interests of the European Community.

On 26.7.1995, the Member States of the EU signed the Convention on the Protection of the Financial Interests of the European Community. The Member States thereby undertook to ensure that corrupt practices to the detriment of the financial interests of the EC, as well as involvement in such practices, could be punished, under their own national legal systems, by way of effective and appropriate penalties, which also provided sufficient deterrent. The Convention has been supplemented by two protocols. The first protocol dated 27.9.1996, which is intended to combat corrupt practices which harm the financial interests of the EU, was transposed into German law by way of the EU Corruption Act dated 10.9.1998. In the said protocol, the EU Member States undertake to impose penalties, under their own national legal systems, in cases of bribery and corruption particularly where EC officials or officials of Member States of the EU are involved, insofar as the act may harm the financial interests of the EC. Since, under the old law, as has already been mentioned, only those officials appointed under German law were covered by the elements of the bribery offence, this gave rise to a gap in criminal liability. Thus under the EU Corruption Act, judges from another EU Member State or members of a Court of the EC, community civil servants and members of the Commission and the Court of Auditors of the EC as well as officials of another EU Member State fall within the scope of Sections 332 et seq. Criminal Code. By contrast with the obligation arising under the Protocol, the widening of the elements of the offence by way of the EU Corruption Act, takes place irrespective of whether the corrupt act could harm the financial interests of the EC. The second Protocol dated 19.6.1997, which has not yet been transposed into German law, contains, in particular, provisions relating to money laundering and the responsibility of legal entities.

Of particular importance for the Member States of the European Union, is the setting up of the European Anti-Fraud Office ( office de la lutte anti-fraude , known as OLAF). OLAF began its work on 1.6.1999. Its task is both to initiate investigations where irregularities are suspected to have taken place within the organs or institutions of the European Union and to carry out investigations in the Member States. These tasks had previously been carried out by the Commission Task Force to Combat Fraud (UCLAF, unit de coordination de la lutte anti-fraude ). Its significant weak point was its organisational link to the Commission considering its responsibility for carrying out internal investigations and this is what finally led to the creation of the Anti-Fraud Office, which works on a fully independent basis.

The Convention to Combat the Corruption of Foreign Officials in International Business, which was developed by the Organisation for Economic Co-operation and Development, was transposed into German law by way of the IntBestG (Law on Combating International Corruption) dated 10.9.1998. Article 1 of the Convention obliges the signatory states to threaten with punishment any person who, in order to obtain or keep a contract or other unfair advantage for himself or a third party in international business, offers, promises or grants a benefit to a foreign official in return for the official undertaking or omitting to undertake some action during the course of exercising his duty. The main provision in the IntBestG is therefore the provision, which gives equal status to foreign and national officials in the event of corrupt practices, contained in Article 2, Section 1 IntBestG, which states that active corruption pursuant to Section 334 StGB is extended to cover judges, officials and soldiers of a foreign country or international organisation provided that such corruption relates to a future judicial action or official function and is committed in order to obtain or secure, for oneself or a third party, a contract or unfair advantage in international business. This equal status provision does not however apply to the passive side of the corrupt act, i.e. being open to corruption and acceptance of bribes.

The measures against corruption which I have outlined, show that the saying formulated by the Romans some 2000 years ago, pecunia non olet ( there's nothing wrong with money ) no longer applies in all cases.


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