In the evolving landscape of international business, German companies operating in the United States face unique legal challenges, particularly when drawn into U.S. congressional investigations. Though seemingly distant, these investigations can have far-reaching implications due to the German “principle of legality.” That principle mandates that German prosecutors initiate a criminal investigation upon suspicion of a criminal offense, even through allegations made abroad. This blogpost addresses the complexities of congressional investigations, cites a recent congressional investigation with German implications, and explains the role of congressional investigations to decisions by German prosecutors.
Congress has a Broad Mandate to Investigate
It is well established that Congress has broad power to investigate any issue on which it can legislate. This means that congressional investigations must generally examine whether current laws are effective, or if new laws need to be enacted.
Congress has few rules or restrictions on how it conducts investigations. The U.S. Constitution allows Congress to delegate legislative and investigatory powers to committees in both the House of Representatives and the Senate defining each committee’s jurisdiction (e.g., Judiciary, Banking, Foreign Relations, or Homeland Security). Chairs of congressional committees are given the power to subpoena documents and testimony in furtherance of investigative activities. Once documents or information are obtained, there are no restrictions or rules governing its release. A committee chair may choose to release information and findings with little to no vetting regarding accuracy, proprietary nature, or consideration of impact on businesses or individuals.
Congressional investigations are often highly political and designed to attract media attention for the members of congress leading them. Congress exercises its investigatory powers in several forms. This can range from a public hearing with committee members questioning a panel of witnesses to a multi-year investigation with numerous subpoenas for documents and testimony resulting in a comprehensive report of damaging findings.
This variability in form and lack of rules can result in significant exposure for entities under investigation. For example, while a congressional committee may hold a hearing on a specific stated topic, there are no rules preventing committee members from questioning a witness about any subject they want. Consequently, witnesses in congressional hearings must be prepared to tackle a wide range of topics, and particularly topics likely to attract media interest. After all, there is (nearly) no bigger political stage.
While congressional investigations generally focus on U.S.-specific concerns, the increasingly global nature of companies and commerce can lead to negative implications in e.g., Germany.
When Congressional Investigations have German Implications
The Senate’s Permanent Subcommittee on Investigations, or commonly called “PSI” is the chief investigative subcommittee and has the responsibility of studying and investigating the efficiency and economy of operations relating to all branches of the government. It has a broad investigative jurisdiction. Supporting documents and testimony collected by PSI are often turned over to the Department of Justice to support criminal charges of PSI targets, including foreign companies operating in the United States.
One recent PSI investigation uncovered how sanctioned Russian oligarchs laundered money and evaded sanctions through the purchase of high-value art at auction houses and galleries in New York City. The multi-year investigation was based on millions of documents and numerous interviews, including of auction houses executives. PSI also subpoenaed bank records and wire transfers from seven financial institutions, including U.S. branches of foreign headquartered banks.
The resulting PSI report documented how funds were laundered across multiple international jurisdictions (from Moscow to Estonia to London) before arriving in the New York accounts of auction houses and dealers. An art adviser acted on behalf of the sanctioned oligarchs, adding another layer of secrecy for each purchase.
The PSI report also documented that all the purchased artwork linked to the sanctioned oligarchs was shipped from New York to Frankfurt and stored at a facility in Cologne. In a cinematic ending to its investigation, around the time PSI contacted the oligarch’s art advisor to question him, the account holding the art at the German storage facility was closed, and the millions of dollars in art held under the account was shipped to Moscow.
The PSI report received a great deal of media attention in the United States and London, but also in Germany given the art was stored in Germany by a German company.
It is not uncommon for congressional investigations to cover information beyond U.S. borders. Examples of congressional investigations that could implicate German companies include a number of potential scenarios in today’s global corporate networks: financial services (as in the PSI report); a company’s data that is hacked by cyber criminals; or any products produced in Germany and exported, notably automobiles and vehicle parts.
Congressional Investigation Findings May Have Criminal Implications in Germany
Findings from U.S. congressional investigations can have serious legal consequences in Germany, largely due to the "principle of legality." This principle requires German prosecutors to initiate a criminal investigation if they have any suspicion that a criminal offense has been committed. Initiating such an investigation must be based on factual allegations, but there are no geographic boundaries on where these allegations may be learned. As such, allegations may be learned through investigations that occur outside of Germany, and certainly includes information made public through congressional investigations and resulting media coverage in the United States.
The threat of initiating criminal investigations in Germany is not limited to just prosecutors. In Germany, any individual who becomes aware of potential criminal activity may file a complaint based on that activity. Indeed, there is a growing trend of members of the general public filing criminal complaints against companies and naming individual company executives based on alleged criminal conduct. A growing number of these complaints are being filed by whistleblowers, but also individuals with no connection to the company alleged of wrongdoing. Also concerning, there are no considerations of double jeopardy between the United States and Germany. Facts that substantiate a criminal case in the United States may be used to prosecute in Germany.
Understanding and Preparing for Risk, Here and Abroad
For German companies, the stakes of congressional investigations can be high. They must be prepared to defend against claims made public in the United States, especially through high-profile congressional investigations and hearings that attract media attention. This necessitates a full understanding of any potential gaps in compliance or corporate decision-making that could lead to risks related to legal process.
German legal risks should be considered when corporate executives agree to testify at congressional hearings. Any preparation for such a hearing must include a comprehensive understanding of all potential legal implications and preparation for any questions that could lead to German criminal liability. The same level of caution applies when responding to congressional demands for documents, testimonies, or other information.
In today’s borderless business ecosystem, it is no longer enough to limit one’s defense to a country or state; an accidental admission in the United States can result in legal liability in Germany – bad news, after all, travels fast.
