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Who is liable for poor compliance?In BaFin’s April 2021 technical article, key points regarding liability in the event of a compliance violation were regulated. With S+P Compliance News you will receive the following BaFin interpretations:

#1 Does a board member have to fulfill all compliance duties himself?

#2 Who is the „legal representative“ and who is the „elected representative“?

#3 Liability in the event of a breach of obligations under capital market law

#4 When is someone an „other designee“ of the board?

#5 Who is liable if something goes wrong?

#6 Who is liable in the event of infringement by the employee in charge?

#7 Who is liable in the event of delegation fault?

#8 5-Step Check for the Discharge of the Management Board

 

Who is liable for poor compliance?

 

 #1 Who is liable for poor compliance? Does a board member have to fulfill all compliance duties himself?

The 5 Step Check gives you confidence in your discharge audit as a board member. If the board succeeds in exonerating itself in five steps, it does not have to pay a fine.

At Level 1, he must carefully select employees and supervisors.

Secondly, he is obliged to organise and distribute tasks properly. This also results in the obligation to provide for substitution plans in order to be able to absorb absences due to illness or holidays.

Thirdly, employees must be adequately instructed and informed about their tasks and duties.

Fourth: The management board must adequately supervise and control the employee – for example, through spot checks. Inexperienced or unreliable employees must be supervised more intensively than those who have already proven their reliability.

Finally, at level 5, there is an obligation to intervene against infringements.

 

#2 Who is the „legal representative“ and who is the „elected representative“?

The „legal representative“ of a company refers to the board of directors, whereas the „authorized representative“ is usually the employee in charge.

Section 9 of the German Administrative Offences Act (OWiG) regulates acting on behalf of another person.

(1) Does anyone

  1. as a representative body of a legal person or as a member of such a body, a law (…) shall also apply to the representative (…).

(2) Where the owner of an establishment or any other person authorised to do so

  1. appointed to manage all or part of the undertaking, or
  2. expressly commissioned to perform tasks on his own responsibility, (…) a law shall also apply to the commissioner (…).

 

#3 Liability in the event of a breach of compliance obligations under capital market law

The management board may delegate its duties under capital market law to a representative. In legal terms, this means that an authorized representative can perform the duties to be fulfilled in place of the actual addressee of the standard.

The law specifies constellations of representation that lead to a transfer of duties from the legal representative of the company to a representative. If the representative enters into the duties of the executive board, this is referred to as a transfer of norm addressee status. Thus, the employee in charge himself becomes the norm addressee, i.e. the addressee of the statutory provision.

 

#4 When is someone an „other designee“ of the board?

The „other appointee“ must be specifically appointed by the board and must have a clear understanding of the nature and scope of the task assigned to him or her.

The background to this is that the „other agent“ should not unintentionally „slip“ into the position of the owner of the business and inadvertently become the subject of liability in the event of breaches of the standard.

Like an operational manager, the „other appointee“ must also have autonomy of action when carrying out the assigned tasks. The management board may also distribute its duties among several employees.

 

#5 Who is liable if something goes wrong with compliance?

Section 9 (2) OWiG merely makes the substitutes additional addressees of the standard. This means that BaFin can continue to take action against the management board in the event of an infringement by the representative.

The management board remains solely responsible if it has not delegated its duties in accordance with the law.

 

#6 Who is liable in the event of a breach of compliance by the employee in charge?

However, the purpose of the assignment is precisely to relieve the legal representative of the proprietor. He cannot therefore be required to prevent every infringement by the representative.

If he takes the necessary supervisory measures in an appropriate manner, he is generally not at fault in the event of a violation by the representative. Therefore, there is no sanction against the management board.

 

#7 Who is liable in the event of delegation fault?

In the event of a delegation offence by the Management Board or an infringement by the substitute, BaFin may impose an association fine in accordance with section 30(4) OWiG.

The fine is then assessed against the company itself. In this case, prosecution of the management persons is then dispensed with.

 

 #8 5-Step Check for the Discharge of the Management Board

In accordance with § 130 OWiG, there is no liability if an infringement has been committed but the company could not have prevented it or made it more difficult through proper supervision.

Because no compliance organization, no matter how perfect, can prevent agents or other employees from ever violating applicable law. If a violation occurs, the company must demonstrate that it has taken the right measures and that the prohibited conduct of the agent is therefore not attributable to the management board.

 

Assuming that the management board cannot prove the 5-step compliance check. Is there still a possibility of mitigating the fine?

It is at the discretion of the prosecuting authorities to discontinue administrative offence proceedings. BaFin takes into account, for example, whether the company concerned has improved its compliance organisation since the last infringement.

And if internal processes have been changed in such a way that it will be significantly more difficult to commit comparable violations in the future. If, at its due discretion, the proceedings cannot be discontinued, BaFin may at least take into account progress made in establishing or improving the compliance organisation in order to reduce the fine.

However, the amount of the fine must be such as to constitute a deterrent to the undertaking which has acted unlawfully.

 

Is there a benefit to reporting the violation to BaFin yourself?

In the case of a voluntary disclosure, the fine can be reduced by up to 30 percent. This assumes that BaFin was not previously aware of the facts reported.

 

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