Sanctioning of companies for corruption offences under new EU draft directive

The European Commission recently introduced a new package of anti-corruption measures, which it refers to as ‘milestone in the fight against corruption at national and EU-level'. The cornerstone of the legislative package is a proposal for a new EU anti-corruption directive.

The Commission’s action follows an outcry within the EU about allegations of corruption against the former EP Vice-President Eva Kaili and several other MEPs. It also recognises concerns evident from the 2022 Eurobarometer’s finding that 69% of EU citizens regard corruption as an important issue to be dealt with, believing high-level corruption is not pursued sufficiently by EU national authorities. The development follows recent Commission criticism of corruption and a comprehensive assessment of the current EU legal framework. The results presented in January 2023 recommended tackling corruption prevention by increasing harmonization and improving investigation and prosecution.

This blog summarises the proposals in light of the current legal framework. It also identifies its implications, which are explored in further detail and which discusses the implications for Austria, Belgium, France, Germany, Italy and the Netherlands and is available for download at the bottom of this blog post.

Current EU legislation and intended changes in new EU proposal 

To this date, the existing EU anti-corruption legislation is based on the 1997 Convention on the Fight against Corruption involving Officials and the 2003 Council Framework Decision on Combating Corruption in the Private Sector (supplemented by a few directives). This framework is limited in scope and shows a high level of fragmentation, resulting in a lack of harmonisation of current EU rules on the definitions of and penalties for offences. Ultimately, this leads to ineffective impositions of EU-wide sanctions.

The EU proposal for an expansive directive on combating corruption aims to overhaul the current existing legislative framework and tackle the issue by incorporating the wider availability of criminal penalties and fostering cross-border cooperation between national authorities. The provisions may be summarised as follows:

• Harmonisation. There are several aspects of the proposals that aim to achieve the objective of Art. 1 of the directive to achieve ‘minimum rules concerning the definition of criminal offences and sanctions’. These include:
• Harmonisation of definitions. For example, the term ‘public official’ will now include persons working in third countries, international organisations as well as national and international courts (Art. 2 of the EU proposal), and thus widening the scope of the current definition (and hence the remit of persons liable to sanctions).
• Harmonization of offences. The articles requires the introduction of criminal offences for bribery in the public sector (Art. 7) as well as the private sector (Art. 8), misappropriation (Art. 9), trading in influence (Art. 10) as well as the abuse of functions (Art. 11), obstruction of justice (Art. 12) and the enrichment from corruption offences (Art. 13).
• There are standardised penalty levels under Art. 15 – 19 to ensure sufficient repercussions for failing to comply with the new measures. There is a minimum level of a maximum penalty of 5% of the legal person’s worldwide turnover, which can have severe financial consequences for the addressees of the measure (Art. 17 No. 1 lit. a) and b) of the EU proposal). The specification of a minimum level of maximum penalty can be increased by member states which can also introduce compliance programs or voluntary self-disclosure as mitigating factors when determining sanctions for corporations.
• Preventative measures. EU member states are required to take action to tackle corruption through (inter alia) ‘awareness-raising campaigns, research, and education programmes’ (Art. 3 of the EU proposal.
• EU Network. There will be a EU network against corruption (announced in a communication accompanying the EU proposal and including relevant stakeholders, experts and representatives of civil society and relevant organisations). This network will map high-risk areas of corruption by 2024 to fight these risks more effectively.
• Specialised Bodies. Art. 4 – 6 of the EU proposal foresees the implementation of special bodies to tackle and prevent corruption, the required allocation of additional resources, as well as the provision of adequate training for officials. Compliance. There are requirements for clear monitoring and reporting for member states to support enforcement (e.g. the obligement of data collection and statistics in Art. 26).

Consequences on national law of EU member states and their corporate landscapes 

We now turn to explore on the consequences in specific EU member states; focusing on three important issues relevant across Austria, Belgium, France, Germany, Italy, and the Netherlands.

First, most of these member states have implemented sufficient criminal provisions to meet the proposal’s requirements (Art. 7 – 13, see above for details). However, Germany and the Netherlands would have to introduce additional offences to recognise the proposals. Specifically, the EU proposal requires criminalization of ‘trading in influence’ (Art. 12). That is, the grant of an advantage to a third party ‘in order for that person to exert […] influence with a view to obtaining an undue advantage from a public official’ (Art. 10 lit. a). Not only direct undue influence will be covered, but also indirect by facilitating undue influence using another person for this purpose. Such an offence is not yet part of German Law. It is expected that it will be introduced into Dutch Law by amending article 285a DPC on obstruction of justice. This provision focuses on physical force, threats or intimidation to induce false testimony. To comply with article 12 of the proposal, the Dutch provision will likely be extended to include offering or giving of an advantage as well.

Secondly, the EU’s proposal will require member states to take a tougher stance and implement more intensive collective action to strengthen corruption prevention. This will likely in increase enforcement action as EU member states take wider measures to identify and tackle corruption.

Finally, it is expected that all the countries explored in this blog and accompanying article will need to revise minimal maximum sentences which makes it important for businesses trading in the EU to be aware of the proposals to avoid facing significantly increased criminal repercussions. EU Member states will also be required to introduce mitigating factors that could be utilised by companies to reduce penalties. Most relevantly, when companies can demonstrate that they maintain an effective compliance management system they may receive a lower penalty. All analysed jurisdictions will need to revise existing provisions to safeguard that a working compliance program is taken into account as a mitigating circumstance when deciding upon sanctions. This will be particularly interesting from a French perspective: In the past obligations regarding the determination of sanctions have been regarded as interferences with the broad discretion of the court and therefore conflicting with a principle of constitutional value.

Outlook

Corporations will need to prepare for the proposals. Ensure a functioning compliance management system or there may be significant reputational and criminal consequences for failing to prevent internal bribery and corruption. We suggest monitoring developments closely as the European Parliament and European Council scrutinise the provisions. The upcoming European elections in May 2024 could also change the political balance of powers and thus priorities and nuances within the new legislation. Review our Risk and Compliance Blog and Business and Human Rights Blog to ensure you are aware of developments that we will monitor during the forthcoming months.

Expected increased sanctioning of companies for corruption offences under a new EU draft directive - The most important consequences in a nutshell - Freshfields

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