Clean up your mess! German Federal Cartel Office publishes guidelines on self-cleaning

The new Competition Register is not without consequences for companies. The impact on business with the public sector is all too readily underestimated. A company’s entry in the Competition Register on grounds of a criminal or administrative offence leads to its mandatory or optional exclusion from public procurement procedures for at least three years. Does this just have to be accepted? No. The entry can be deleted prematurely through successful self-cleaning measures. 

On 25 November 2021, the German Federal Cartel Office [Bundeskartellamt - BKartA] published guidelines on the premature deletion of entries and practical advice on how to submit a corresponding application (currently only in German). Find out here which conditions are attached to possible self-cleaning measures. Further information on the Competition Register can also be found in our previous newsletters "The new Competition Register – what enterprises need to know" and "German Competition Register Starts Operation".

Serious consequences for companies after an entry

The Competition Register serves as a new tool in the fight against economic crime. With the Competition Register, public contracting authorities now have a database at their disposal, through which they can obtain information about candidates and bidders on any grounds for their exclusion under public procurement law in a simple, quick and uncomplicated manner (§§ 123, 124 German Act Against Restraints of Competition [Gesetz gegen Wettbewerbsbeschränkungen - GWB]). If a company is guilty of committing an offence relevant to the grounds for exclusion, the prosecuting authorities are obliged to notify the Federal Cartel Office as the registration authority. Such offences range from the formation of a criminal/terrorist organisation (§§ 129, 129a German Criminal Code [Strafgesetzbuch - StGB]) to (subsidy) fraud (§§ 263, 264 StGB) against EU-related budgets to possible violations of the ban on cartels (§ 1 GWB and/or Article 101 TFEU). 

Although entries are automatically deleted after a certain time, depending on the offence committed, the deletion deadlines range from three to as much as five years from the date on which the decision becomes final or absolute or the date on which the penalty notice is issued. Accordingly, register entries can have a serious impact on a company’s business.

Companies can, however, make a kind of "reparation" by undertaking self-cleaning measures (§§ 125, 123 (4) sentence 2 GWB). If the self-cleaning is successful, the entry is deleted prematurely. 

In its new guidelines, the Federal Cartel Office has provided detailed guidelines on the future treatment of such self-cleaning measures. 

What are the necessary requirements?

The self-cleaning procedure begins with a corresponding application to the Federal Cartel Office. The applicant must show credible evidence of "participation in public procurement procedures or the intention to do so". In this context, it must declare the turnover it has achieved nationwide with public contracts in the two years preceding the application. In addition, the application must contain all the information required to enable the Federal Cartel Office to ideally reach its decision on this basis alone. There is only a limited official investigation principle: the authority can refuse the deletion without conducting its own follow-up investigations if the application is inadequate.

The substantive requirements for self-clearance depend on the offence entered:

In case of a violation of § 266a StGB (withholding and embezzlement of remuneration) or § 370 of the German Fiscal Code [Abgabenordnung - AO] (tax evasion), the company must subsequently pay the outstanding amounts including interest as well as late-payment and penalty surcharges, or at least undertake to make a subsequent payment (cf. § 123 (4) sentence 2 GWB). 

The subsequent payment is to be proven to the registry authority by means of an appropriate proof of payment or confirmation from the competent body. In the case of a mere payment obligation, the reasons must be given as to why payment has not yet been made and proof submitted of the binding nature of the obligation, for example by way of an enforceable settlement.

For all other registration offences a three-step procedure is necessary (cf. § 125 GWB):

1. Damage compensation

Insofar as the offence has caused damage to parties, such damage must be compensated (an obligation to compensate also already suffices). 

In the case of "obvious damages", proof of compensation is usually unproblematic. “Obvious" damages are damages for which there is no serious legal or factual doubt that they have occurred. Their obviousness is definitely established if the obligation to compensate has already been legally established on the merits.

In the case of unclear or disputed damages, as is regularly the case in antitrust damage proceedings, for example, the applicant is at liberty to use civil law or civil procedural means to defend itself against what it considers to be unjustified claims. However, the applicant's submission that a compensation obligation does not exist under civil law or first needs to be clarified in civil proceedings will normally not be sufficient to cause the registry authority to waive the necessity of damage compensation for the self-cleaning. In these cases as well, the registry authority will carry out a case-by-case assessment of the need to compensate damages. In all events, the applicant will have to demonstrate that it will cooperate in clarifying the facts and that it will make any (subsequent) payment that may be necessary. The application must also contain a comprehensible and complete summary of the status of the dispute as regards all existing and potential damage claims. It remains to be seen how the Federal Cartel Office will individually position itself regarding the compensation of damages in the event of disputed or unclear damages.

2. Active cooperation in clarification of the matter

Furthermore, the company must actively cooperate in the clarification of the matter at hand. A willingness to cooperate with the investigating authorities and the contracting authority is given, for example, if the company has admitted its guilt during the investigation and thus contributed to an amicable conclusion of the proceedings. If the applicant has cooperated with the cartel authority in case of a cartel offence on the basis of the leniency programme, the Federal Cartel Office assumes the required duty to cooperate with self-cleaning measures. However, cooperation under the leniency programme is not a prerequisite for proving active cooperation.

The active cooperation is to be presented to the registry authority within the scope of the application.

3. Prevention

The third component of the self-cleaning measures is prevention. The company must take concrete technical, organisational and personnel measures to ensure that no further misconduct occurs in the future. 

Firstly, this includes technical and organisational compliance measures. If the company shows that it has analysed its misconduct and learns from its mistakes by correcting weaknesses in its technical or company-related organisation, the Federal Cartel Office will take this into account positively in its assessment. More information on this can be found in the following article. 

Secondly, depending on the individual case, there may also be a need for personnel measures. The Federal Cartel Office is to be notified of the persons involved in the misconduct and affected by the measure, including their position within the company and the extent of their involvement. If personnel measures are waived, the reason for the waiver must be explained.

Outlook

The guidelines and practical advice ultimately provide many practical tips and give greater legal certainty when assessing how a company can delete entries from the Competition Register as quickly as possible. However, the Federal Cartel Office emphasises in many places that a mere "ticking off" of a schematic catalogue of measures is not the purpose of the self-cleaning. Rather, the aim is to have the company seriously address its misconduct and take appropriate measures. 

Furthermore, the guidelines also shed light on the increasing importance of antitrust compliance in Germany. Due to the introduction of the new § 81d (1) sentence 1 Nos. 4 and 5 GWB, according to which preventive compliance measures can be taken into account in the assessment of fines in cartel proceedings with a mitigating effect on such fines, the Federal Cartel Office's practical advice is also of enormous practical relevance for companies outside the field of self-cleaning measures under public procurement law. 

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