A court formulates extensive obligations of company managements in compliance

The Munich I District Court sentenced a former Financial Director of a large German company to pay damages of 15 million euros. Judges examined compliance obligations in detail under civil proceedings. According to the court’s opinion, the company management is required to ensure that a compliance management system systematically prevents any risks and ensured regular inspection and monitoring.

German judges have examined the obligations arising for members of company managements from the compliance code in detail for the first time. The Munich I District Court sentenced a former Financial Director of one of the DAX companies to pay damages of 15 million euros for breaching his organisational obligations. Bribery occurred abroad while the person in question held the post of the company’s Financial Director. The verdict suggests a new direction: “The court issued a clear statement on the legal foundation for the management’s and the supervisory board’s responsibility for compliance, and the requirements for effective and productive compliance management systems”, Christoph E. Hauschka, a PwC expert says.

Prevent violation of law by a compliance management system

The responsibility for compliance by its very nature is clearly regulated by law: the board of directors must strive to organise and monitor the company to ensure that all applicable legal regulations are observed. The imminent risks must be analysed precisely and the relevant preventive measures need to be taken. “Only once the compliance measures target specific risks can a member of the board of directors document that they have done everything they were required to do”, another PwC expert, Andreas Wermelt, says. However, the judges are of the opinion that it should not be allowed to develop this far. The Munich I District Court believes that a well-functioning compliance management system is capable of capturing any violations of law at the very beginning.

Every board of directors is required to point out problematic areas

Maintaining and regularly monitoring a compliance management system is a task for the entire board of directors. “Persons bearing the main responsibility must be clearly defined”, Wermelt says. Each member of the board of directors is also required to point out potential problematic areas within the system to the board of directors and should involve the supervisory board if their suggestions for improvement are not discussed adequately by the board of directors. An inadequate compliance management system or negligent monitoring represent a breach of the obligations of the board of directors potentially resulting in liability of individual members.

Compliance for individual threats

Besides a clear organisational structure and competences, a well-functioning compliance management system must include regular monitoring of its effectiveness by the board of directors. “If problematic areas and breaches are detected during this monitoring, the system must be modified appropriately or personal consequences must be drawn fromthese circumstances”, Wermelt says. In the case judged by the Munich I District Court, the former Financial Director was unable to provide a comprehensible explanation why he neglected the due care while establishing and monitoring the compliance management system. The court was of the opinion that it must have been obvious that the measures taken will not be sufficient for ensuring compliance with the relevant legal regulations and these measures therefore cannot ensure effectiveness of the entire compliance management process.

Judgement with far-reaching consequences

“Another interesting point in this case is that the criminal proceedings were terminated in advance”, Hauschka says. Sentencing under the regulations on criminal proceedings usually requires intent. “However, confirming responsibility as grounds for an obligation to pay damages under civil proceedings can be justified by a breach of obligation even by slight negligence. It is important to bear in mind that many company managements and supervisory boards will consider this judgement in the subsequent years”, Wermelt says. “The litigation before the Munich I District Court has shown that company managements or supervisory boards should not underestimate the risk of civil liability in the case of offences against compliance principles.”

Company managements should regularly consider the following questions:

  • Does the existing compliance management system cover all individual risks threatening the company?
  • Are the measures drawn from the compliance risks sufficient for preventing, thwarting or prosecuting potential violations of law?
  • Is the board of directors capable of meeting its supervisory responsibility to ensure that adjustments can be made as necessary?
Source: PwC

Cheating with subventions in the “Young Workshop”: the Company Executive sentenced

A former executive of the “Young Workshop” has been sentenced for fraud with subventions. He reported lower income to obtain higher subventions.

He was among the town’s people who would do anything for the social enterprise. For years, the sixty-two-year-old was the face of the “Young Workshop” - a non-profit limited liability company established as part of the Protestant Diaconate and offering education and qualification to young unemployed people in six workshops. He was successful, everyone praised him, and he received the “Augsburg Future Award 2011”.

Probation of 22 months

Luck is still on his side – he found out on Wednesday that he does not have to go to prison. The people’s court chaired by the judge Simone Früchtl sentenced him for fraud in submitting applications for subventions and unlawfully obtaining EUR 280,000 for the company to a probation of 22 months.

Using modified numbers to take a bigger bite from the tempting cake offered by the state and the European Social Fund (ESF) was clearly simple. In order to obtain contribution for educating 65 disadvantaged young people, the “Young Workshop” had to report its income and expenditures from individual projects in applications and subsequently document these figures.

Inspection detected the fraud

The lower the income achieved by workshops such as nursery, tailoring and locksmithing, were, the higher the contributions were. The Company Executive reported very low income for a total of six projects during 2008 and 2009 and obtained by almost EUR 280,000 more than he should have based on these figures. The inspection carried out by the Bavarian Centre for Family and Social Affairs (ZBFS) detected the discrepancies and the 62-year-old Company Executive had to resign from his post at the end of May 2012. He did so with a “heavy heart”, as he stated before the Augsburg District Court.

After the proceedings behind closed doors attended by the defence attorney Andrea Moosrainer, the state prosecutor Christina Wilhelm, and the judges, the former Company Executive admitted remorsefully: “I did it exclusively in the interest of the young people and I truly regret this. It was a big mistake to believe that anything can be financed in this way.” Let’s add that the Federal Labour Office did not lose its grant funds.

Working for free in retirement

The “Young Workshop” in Augsburg was forced to return the unlawfully gained subventions and the “benefactor” is now employed in another subsidiary of the diaconate. He stated before the court that he wants to repay everything and plans to work for the diaconate for free once he retires.

Source: Augsburger Allgemeine

The Federal Court confirmed the judgement against a former Company Executive of Trienekens

Karlsruhe/Cologne (ddp). The Federal Court (BHG) inKarlsruhe confirmed the sentence of a former Company Executive of Trienekens for abetting embezzlement. Hardy Fuß, a former employee of the State Parliament for SPD will therefore serve a three-year sentence, similarly to the other accused, who is to serve two years and ten months, as the BHG announced on Friday. Both men have already served nine and eight months of their sentences, respectively owing to delays in the proceedings that took almost one and a half year.

Both former Company Executives of two subsidiary companies belonging to the Hellmut Trienekens waste disposal company were sentenced by the State Court in Cologne for abetting embezzlement in connection with the Cologne scandal involving waste management in May 2008. The court declared the fact that both accused transferred payments to the total amount of more than nine million German marks (approx. EUR 4.6 mil.) into the company’s “black box” according to instructions of Mr. Trienekens during the years from 1998 to 2001 confirmed.

Trienekens himself used this “black box” stored in a safekeeping box in Switzerland approximately from 1993 to finance the so-called handy expenses, which were not to pass through the accounting records. The payments were declared as payments of claims from other agencies.

Both former Company Executives requested a review of the judgement due to procedural and factual objections. However, the Federal Court has now rejected the review as unjustified.

The petition in connection with the Cologne scandal involving waste management also originally targeted Trienekens. However, as certain doubts of Trienekens’ capacity to appear before the court occurred, the proceedings against the remaining accused were separated in 2006 and kept as separate. In the meantime, Trienekens was finally sentenced for four cases of embezzlement to a two-year probation and a financial sanction equal to 720 daily rates by a judgement of the State Court in Cologne of 23 March this year.


Whistleblowing and compliance

Business Keeper AG developed a unique information system – the Business Keeper Monitoring System (BKMSÒ System) and made its lasting mark in the world of asset management, compliance and sustainability.

The aim is to use internal information systematically in order to detect any risks in the company and administration in a timely and effective manner.

The impact of breaches of laws and standards is not limited to the calculated financial and non-financial damage to the company; these also lead to legal consequences and damaged reputation. The internal processes involved in the investigation of these cases and various reorganisation measures consume considerable resources and have an equally important negative impact on the company culture and motivation of employees.

If the detection of economic crimes by the company or administration is accidental in most cases, the information available to the employees is the second most common reason for detecting illegitimate practices.

A system of informants with the knowledge of the internal situation may represent a major pillar for risk management.

Studies have confirmed that whistleblowing is the most effective detection method. Mere existence of the system and the related higher probability of detection has a preventative effect. Companies without an established informant system suffer on average financial losses twice as high compared to those capable of offering a safe communication channel.

We would like to support the economy and the society in upholding ethical standards without interfering with the structure and processes of our customers.

Source: Business Keeper AG

Lethal occupational injury

A Company Executive sentenced for negligence resulting in death

[24.9.2013] Managers who do not take occupational safety seriously need to consider the consequences under the criminal law. The State Court in Osnabrück sentenced two Company Executives to a probation following a lethal occupational injury of an apprentice. Financial sanctions were imposed on another Company Executive and a Production Manager.


A lethal injury occurred in glassworks in Dersum in July 2010. A 19-year-old apprentice bent over a glass cutting machine while working and was caught by the machine.

The tragic occupational injury need not have happened at all if the appropriate safety measures had been in place.

The investigators focused on three Company Executives, the Production Manager, and the Maintenance Manager. The investigation was later extended to include an employee of the trade licensing supervision, who initially provided false information to the police and the professional association.


Judges of the State Court in Osnabrück found all five accused guilty. The criminal judges were of the opinion that the accused individuals are responsible or were aware of the manipulation with safety equipment.

Two of the three Company Executives were sentenced for manslaughter due to negligence to a probation of 6 months each. A financial sanction of EUR 100,000 was imposed on each of them.

The older of the Company Executives signed the apprenticeship agreement and therefore was responsible for the apprentices. The judges are convinced that the younger Company Executive had the safety equipment originally fitted on the glass cutting machine removed to increase the productivity of the equipment.

Probation, financial sanctions with a probation, financial sanctions and a fine

A fine of EUR 10,000 was imposed on the third Company Executive responsible for sales in the company due to an offence under Section 130 of the act on offences because he failed to meet his supervisory obligation as the company’s co-owner.

The Production Manager was sentenced for manslaughter due to negligence because he was responsible for assigning work to apprentices and was aware of the condition of the machine being in conflict with the safety regulations. The senate reserved the financial sanction.

The Maintenance Manager, who allegedly removed the safety equipment, was sentenced to a financial sanction of EUR 3,600.

The employee of the trade licensing supervision was sentenced foran attempt to obstruct the course of justice in prosecution of third persons to a financial sanction of EUR 9,000. His false statements before the police and the professional organisation were to obscure the situation in the company, which did not meet the requirements of the safety regulations.


The State Court in Stuttgart sentenced a Company Executive of BSB Captura GmbH to compensation for damage

The State Court in Stuttgart sentenced a Company Executive of BSB Captura GmbH to the payment of compensation for damage to the amount of EUR 8,215.97 in a judgment of 8.8.2013. The company at the time under liquidation was sentenced to the compensation for damage by an individual judgment due to delay.

Since when is a company a credit institution?

The court justified its decision against the Company Executive stating that the Company Executive violated the act on protection since his company offered banking transactions involving the receipt of third-party financial deposits, which are subject to a special licence under Section 1(1)(2)(2) of the act on banks (KWG), without holding the appropriate licence under Section 32(1) of KWG. The court was of the opinion that BSB Captura GmbH needs to be considered a credit institution subject to a special licence because the company carried out banking activities to an extent requiring appropriately approved business operation.

BSB Captura purchased numerous capital life insurance policies and contracts on construction savings worth millions, and claimed the purchase value of the capital insurance policies and the current construction saving amount from insurance companies and construction saving companies, while postponing the liability involving the payment of the purchase price to the insured individuals and savers. This means that the company accepted loans that can be considered money repayable to the public pursuant to Section 1(1)(2)(1) of KWG. The court found that the business model of BSB Captura constitutes a banking operation involving the receipt of monetary deposits from third parties, which is subject to a licence (with reference to the decision of the Administrative Court in Frankfurt a.M. BKR 2011, 427 Rn. 28, 34 et seq.).

By carrying out banking transactions without the appropriate BaFin licence, the Company Executive as a statutory body of BSB Captura violated in the opinion of the State Court in Stuttgart Section 32(1)(1) of KWG and at the same time committed a crime under Section 54(1)(1 or 2) of KWG in conjunction with Section 14(1)(1) of the Criminal Code.

The State Court in Stuttgart considers supervisory measures insufficient

The State Court in Stuttgart did not accept the defence of the accused Company Executive according to which he obtained expert advice in advance. The State Court assessed the supervisory measures, i.e. the examination whether purchasing claims from insurance policies and contracts of construction savings may constitute banking transactions involving the acceptance of third-party monetary deposits subject to a compulsory licence, taken before commencing business activities insufficient. The court found especially unsatisfactory that an executive of a company carrying out banking transactions involving the acceptance of third-party monetary deposits does not seek information about potentially required licence prior to commencing these activities. Activities subject to a licence may only be commenced pursuant to Section 32 of KWG when the required licence is granted. Potential expiry of a time limit applicable to remedial measures is irrelevant in this case. As no licence has been provided, the State Court in Stuttgart believes that the Company Executive is required to bear the responsibility.

A reminder that the trustee of BSB Captura embezzled the money also failed to sway the State Court in Stuttgart from the conclusion that the Company Executive must bear the responsibility for the compensation for damage.

Besides the claimed primary damage, the court confirmed the plaintiff’s lost profit of EUR 501.15. The lost profit represents the average interest rate of 6% p.a. documented by the plaintiff by expired insurance policies.

The specialist attorney Dr. Sven Tintemann of Dr. Schulte and Partner Attorney’s Office, comments on the outcomes as follows:

“Sentencing of the Company Executive was to be expected. Anyone conducting business subject to a licence at their own discretion has to count with personal responsibility of the executive. Excuses will be futile in this case. Entities not holding a licence from the Federal Institution for Supervising Financial Services cannot avoid being held liable (BaFin). It is pleasing to see that the court confirmed the 6% of lost profit on the life insurance for the injured party. The court exceeded the typically awarded interest amount quite significantly.”

The judgment is not final because the accused Company Executive may exercise their right of appeal. Additional information will follow.

Source: Dr. Sven Tintemann

Fraud and embezzlement in BRK Mühldorf: a former Company Executive sentenced

A former regional manager of BRK Kreisverband Mühldorf was sentenced for fraud and embezzlement to 18 months of imprisonment. The man presented an extensive confession before the court.

The former Company Executive of BRK Mühldorf was sentenced to 18 months of imprisonment with a two-year probation for an insurance fraud, false accounting for travel expenses and an excessively high redundancy payment agreed in a contract of terminating employment with his assistant. informed that the proceedings against the assistant were terminated due to negligible fault.

BRK scandal not over yet

The BRK scandal surrounding the former Company Executive in Mühldorf is far from over. The second Deputy Chair of the BRK federal union has now had her say in an interview for the Mühldorfer Wochenblatt newspaper and she makes a clear statement about the sentence issued against the former executive. She claims that many employees of BRKMühldorf suffered under the authoritarian management style in the past. All parties involved are pleased that the proceedings are over but nobody wishes to comment the severity of the sentence. One of the injured parties allegedly described the judgment as a token punishment.

Moral price of actions

According to the second Deputy Chair of BRK Mühldorf, the judge should have pointed out in the justification of the judgment that assessment of a person’s actions cannot be subject to criminal proceedings. However, BRK employees would like to hear different evaluation. It is understandable that they see the matter differently.

Investigations into possible claims of BRK Kreisverband Mühldorf are currently underway and the company will try to employ all tools available.


District Court sentences a former Company Executive

The District Court in Gemünd for the first time agreed with a plaintiff who filed a petition against the bankrupt energy provider TelDaFax for compensation for damage. Two former executives of TelDaFax now have to compensate the man for the damage incurred.

This is the first time the District Court agreed with the plaintiff filing a petition against the bankrupt energy provider TelDaFax.

The proceedings were held in Gemünd due to the plaintiff’s place of residence. The court proceeded in accordance with the statement of the “Häger Rechtsanwälte” office inEuskirchen, which represents numerous other clients from the region with similar claims.


The executives of TelDaFax were sentenced to the payment of damages to the amount of EUR 419.97 plus the applicable interest to the plaintiff. They are also required to pay the cost of the proceedings.

The customer provided an advance payment to TelDaFax believing that the promised electricity will be supplied in future. However, it is the court’s opinion that the company was already nearing insolvency at the time the bill was issued. Both Company Executives thus committed a fraud according to the District Court. The judgment is available on the website of the attorney’s office representing the plaintiff.

Source: Kölner Stadtanzeiger