1. What are some notable forms of corruption specific to the Federal Republic of Germany?
Germany is considered a low-risk country for corruption. However, a recent spate of scandals may be tarnishing its image as a relatively corruption-free country. In the TRACE Matrix, which measures business bribery risk, Germany is ranked 9th out of 197 countries, reflecting a low level of interaction with the government for companies wishing to do business there, and good governance, enforcement of anti-bribery laws and civil society oversight by third parties, such as the media.
German companies recently making headlines for corruption scandals include Volkswagen, Siemens and Daimler. In particular, German companies have been accused of paying bribes to secure government contracts. Both Siemens and Daimler were investigated for allegedly engaging in widespread bribery of government officials to win business; in 2008, Siemens paid a record-breaking USD $800 million in fines and penalties to U.S. authorities, while in 2010, Daimler paid USD $185 million.
More recently, Volkswagen (VW) has been accused of evading regulatory standards. In September 2015, the U.S. Environmental Protection Agency issued a Notice of Violation of the Clean Air Act to VW, revealing that the largest automaker in the world may have been rigging its diesel vehicles to skirt emissions standards.
2. What are the corruption-associated risks for foreign businesses in Germany?
Corruption is not a significant business risk for foreign investors in Germany. However, corruption does exist, as evidenced by the recent cases involving auto companies, and Canadian companies doing business in the country should be prepared for risks, such as requests for political party donations or demands for bribes to obtain permits and licenses. Canadian companies that participate in public contracting may be exposed to corruption when bidding for projects.
Along with the U.S., the UK, and Switzerland, Germany is considered to be one of the top enforcers of anti-bribery laws. In addition to facing fines or imprisonment, offenders may effectively be banned from bidding on public procurement projects in Germany. Many German states have anti-corruption registers of individuals and companies that have been convicted of bribery and related crimes, and public procurement officials have the discretion to exclude anyone on those lists.
3. Are any foreign business sectors comparatively more vulnerable to corruption?
The automotive industry, the largest industrial sector in Germany, presents an increased risk of corruption compared to other sectors. With over 750,000 employees, the automotive sector holds a place of prominence in the German economy and culture. Critics say close ties to the industry and a desire to protect jobs have led politicians to allow automakers to operate with little oversight or accountability.
Construction is another key sector and area of corruption risk in Germany. With lucrative projects at stake, the sector is ripe for bid rigging, kickbacks and bribes. Construction companies are particularly vulnerable to bribe demands, as planning permissions and licenses are often required, and companies are eager to avoid costly delays and liquidated damages. MAN Group and Linde AG are two German companies that agreed to pay German authorities (Euro 150 million in 2009 and Euro 35 Million in 2011, respectively) to settle bribery charges.
Additionally, the pharmaceutical, medical device and healthcare sectors present moderately higher risks compared to other business sectors, due to a high level of government interaction. Germany is the third-largest market for medical devices worldwide, trailing only the United States and Japan. Many health services in Germany, including hospitals, are state-run, and their personnel are considered to be government employees. In 2005, Micrus, a U.S. company, agreed to pay USD $450,000 to U.S. authorities to settle bribery charges related to sales and payments to doctors at state-owned hospitals in Germany and other countries.
4. Generally speaking, how can foreign companies reduce their risks and exposure to corrupt business practices?
To reduce corruption risks, after setting the “tone at the top,” foreign companies should ensure that a culture of compliance also exists for employees and third parties on the ground. To this end, companies should provide training to local employees and agents, to bridge any cultural differences and ensure a proper understanding of corporate policy.
Additionally, Germany does not require the use of local agents by foreign companies, which means companies have broad discretion in selecting which third parties to engage. Companies may choose to work with TRACE Certified companies, which have completed a rigorous due diligence process based on international standards, including training and continuous daily screening against international sanctions and enforcement lists.
5. What anti-bribery compliance support is available in Germany?
Companies that are TRACE members doing business in Germany should review the Germany Country Bulletin and Gifts and Hospitality Guideline prepared by a local TRACE Partner Law Firm and available on the TRACE Resource Center. The Guideline helps companies understand local laws and regulations governing retention of commercial intermediaries in Germany and local monetary thresholds for providing anything of value to German government officials.
To vet potential third parties in Germany, companies may wish to search corporate records available on the Commercial Register. Germany has strict data-protection laws that limit the availability of public information on individuals, however, associations such as the German Federal Bar Official Register of Lawyers may provide information related to an individual’s professional activities.
Germany Trade & Invest, Germany’s foreign investment agency, publishes industry-specific guides to assist foreign investors and businesses interested in operating in the country. Additionally, companies may reference iXPOS – The German Business Portal, another service provided by the agency.