Business Without the Taint: How to Avoid Corruption

Corruption has always been associated with cross-border business activities. As a result, Germany developed and has at its disposal comprehensive and far-reaching legislation to fight corruption. This provides for a strong advantage in attracting foreign corporations to invest in Germany.

However, this legal regulatory scheme has only limited applicability for Germans engaged in activities in foreign countries. This article intends to explain the relevant legal requirements and practical ramifications thereof.

German criminal law distinguishes between bribery committed to induce an illegal act and payments made to achieve an undue advantage by inducing otherwise lawful acts. Both are forms of active corruption that are accompanied by passive corruptibility and acceptance of a benefit, which deal with the receiver of the payment.

There are separate legal requirements for private businesses and dealings with governmental officers resulting in a complex matrix for combatting corruption crimes with varying legal requirements and types of subpoenas.

German criminal statutory scheme relating to corruption is both efficient and tested over time.  Germany has been always at the top of the international fight against corruption.

According to the corruption perceptions index provided by "Transparency International,“ an international organization headquartered in Berlin, Germany ranks 14, after Singapore at 3, but notably before the United States at 19, Thailand at 84 and Afghanistan at 179.

The German anti-corruption law applies to German nationals as well as to foreigners acting in Germany. However, the rules are intended to protect German competition. They do not, however, apply outside of the European Union.

Before 1999 (extended 2002) Germany had no laws prohibiting Germans from engaging in corruption abroad.  Instead, it was left to the foreign countries, whether customary business practices should be banned by law and to what extend such laws should be enforced.

At that time, i.e. before 1999, bribes that were made abroad were duly booked in Germany as "expedient expenditures" and thus qualified as fully tax-deductible business expenses.

In 1999, however, Germany enacted into law its First Anti-Cross-Border Corruption Law. This law generally prohibits acts of corruption by Germans in foreign countries. However, the new legislation has five important exclusions that can be roughly described as follows:

1. It covers only active corruption (offering of a bribe), not the taking of a bribe (passive corruption)
2. It is restricted to payments for wrongful acts; the granting of benefits for legitimate and lawful acts are not covered, and
3. It covers bribes as inducement for future acts only, and not covers payments for acts taken in the past. Therefore, "thank you presents“ continue to be permitted.
4. It covers just bribes made to public officials and judges, not payment made to private individuals or companies
5. It requires specific impact or influence on competition so may not be applicable to trading activities.

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