Political and legislative upheaval in Germany

On Wednesday 24 November 2021, Aperio Intelligence hosted a webinar on the latest political and legislative developments in Germany, which are set to impose new obligations on companies operating in the country. The timing of the webinar proved very opportune, with the announcement of the composition of the next German government in the form of the so-called Traffic Light Coalition (Social Democrats, Greens and Liberals) coming immediately after the close of the session.

The webinar was chaired by Alexander Kottke, Head of Aperio Intelligence’s Western Europe practice. Three panellists distinguished in German affairs and business joined us to share their insights:

• Vendeline von Bredow: senior Germany correspondent for The Economist in Berlin
• Isabelle Kilian: Senior Associate at Clyde & Co Europe LLP, Düsseldorf office
• Eberhard Witthoff: Head of Department at Munich Re for the German and Asia-Pacific markets

Key takeaways

As most notably evidenced from the Dieselgate, Cum-Ex Wirecard scandals of recent years – which have resulted in various criminal prosecutions and fines running into the dozens of billion for financial crimes or environmental abuses globally – Germany is not a jurisdiction devoid of business risk. Responding to this turmoil, German politicians have sought to address glaring shortcomings in corporate controls through legislation, most notably in the form of the Supply Chain Act (signed into law in June 2021) and the Criminal Corporate Liability Act (on the new government’s agenda after failure to gain approval in the last legislative session).

A new horizon for German politics (Vendeline von Bredow)

• Christian Linder’s (Liberals) appointment as Finance Minister in the next government is has been welcomed by the German business community
• The Greens have negotiated well during the talks and have received important ministries, such as Annalena Baerbock becoming Foreign Minster
• The new faces are unlikely to implement a radical policy changes, rather gradual change
• There is also expected to be continuation in certain areas, such as the primacy being placed on environmental policy
• The German financial regulator, BaFin, which is considered to have taken a blinkered view in its scrutiny of Wirecard, is set to receive more comprehensive powers under its new leadership

The Supply Chain Act and Criminal Corporate Liability Act (Isabelle Kilian)

• The current legal instruments for penalising companies guilty of wrongdoing are considered inadequate, for which reason the Criminal Corporate Liability Act has been included on the government’s legislative agenda in order to promote stronger compliance systems
• This draft for this piece legislation foresaw significant fines for criminal acts committed by corporates, amounting to up 10% of global revenue
• Separately, the Supply Chain Act will come into effect in approximately one year, on 1 January 2023. There are comparable initiatives under way in the European Union institutions
• Companies which are registered in Germany with 3,000 or more employees (1,000 employees from 2024) are subject to the provisions of the Supply Chain Act, which aims to address human rights or environmental abuses in global supply chains
• Upgraded risk management systems and the public issue of policy statements, which expound on human rights risks, as well as the establishment of preventative measures, will be incumbent upon these companies
• Non-compliant companies may be excluded from public contracts or receive hefty fines (up to 2% of annual revenue), as may individuals (up to EUR 80,000) within these organisations

An industry perspective on the new obligations (Eberhard Witthoff)

• Companies in Germany are faced with ever-increasing regulations, a phenomenon which is set to be replicated on the European level, notably with respect to ESG
• The extra-territorial scope of the Supply Chain Act will test the robustness of compliance systems at corporates
• Insurance cover for managers’ liability (D&O cover) is expected to become more prevalent in the future as a consequence of the provisions of the Supply Chain Act, premised on the duty of effort
• The decisive factor in terms of successful risk management will be the demonstration of sufficient preventive measures with respect to abuses in existing or novel global supply chains, such as having conducted due diligence exercises
• It is advisable to begin implementing such measures now as part of a proactive and effective approach to risk management
• This includes mitigation of financial risk, geopolitical risk, disaster risk, cybercrime risk and reputational risk, among others