On May 9, 2017, the first criminal division of the Federal Court of Justice of Germany delivered a judgment that might revolutionise German competition law.
At the moment, the fact that a company has discharged its legal duty to prevent violations of law by implementing an effective compliance management system is not taken into account when calculating the fine that is imposed on the company found in breach of the law. While in other countries such as France and the UK fines are reduced by up to 10% if the company can prove that they have already implemented such a system, the German Federal Cartel Office and the European Commission do not consider this to be a mitigating factor.
Now, however, it seems the German courts have taken a leap forward: the Court held that the implementation of such a system may be regarded as a mitigating factor (BGH, judgment delivered on May 9 2017, 1 StR 265/16, RS1243072). Although in this case the Court had to deal with a case of tax evasion, the Court’s remarks on compliance management systems can be applied to all kinds of offences, including breaches of competition law.
The situation in other Member States
In other Member States, this approach is already common practice: in addition to France and the UK, the Austrian Competition Authority has also recently announced that it is considering to formally take compliance systems into account when calculating fines – the Austrian Competition Court had done so in rare instances already.
These States not only teach us different approaches on how to calculate the fines but also demonstrate what an effective compliance management system looks like. While the Federal Cartel Office has remained silent on this matter, many European cartel authorities have already issued guidelines on the requirements the compliance management systems must need in order to even be considered effective. It can only be hoped that the more cases are brought before German courts, the more the courts and the Cartel Office will feel the need to provide much needed clarification on this matter.
At the moment, there are a few select German and European judgments and industry standards the companies can use in order to bring their compliance management systems up to speed. An analysis of these judgments and guidelines has shown that there are certain traits that effective compliance management systems share: preventive measures must be taken to make sure that no violations of law occur. If such a violation nevertheless occurs, there must be a system in place that ensures the mistake is discovered and disclosed. There must be guidelines on how to react to the mistake and how the offender may be sanctioned. Finally, the system should be constantly supervised and improved.
However, companies should always keep in mind that a compliance management system can only be effective if it is tailored to the company’s risk profile. We also can expect further guidance from the German Federal Cartel Office in the future: according to the Ninth Amendment of the Act Against Restraints of Competition (ARC), companies that infringe competition law are excluded from tender processes for a period of up to 5 years. Companies can shorten that period when they prove that they have successfully self-cleaned themselves within the meaning of the ARC. One element of the self-cleaning process is the implementation of concrete technical, organisational and personnel measures in order to prevent infringements in the future – in other words, the implementation or improvement of a compliance system. The German Federal Cartel Office will be the competent authority to approve a successful self-cleaning and thus will need to define standards for compliance programmes.
What does this mean for businesses?
Using compliance management systems as a mitigating factor has always been a hot topic of discussion in the field of competition law, not least because of the horrendously high fines imposed. Thus, it is highly likely that companies will now use this decision to defend themselves against the fines imposed. This will finally force not only the German Courts but also the Federal Cartel Office to deal with the question of whether and to what extent the implementation of management compliance systems should be taken into account as a mitigating factor.