Customs came to the business: when undeclared work becomes a criminal offence

Checking compliance with obligations under social security law is a matter for the authorities of the customs administration (§ 2 Abs. 1 SchwarzArbG; Abs. is the German abbreviation for the subsection of a provision). They check, among other things, whether reporting obligations have been met, whether social benefits are being drawn without entitlement, and whether minimum wage rules are being observed. Tax obligations fall to the regional tax authorities, and business registration and entry in the Handwerksrolle, the register of skilled crafts, to the competent regional authorities.

The powers are described in the statute. The customs authorities may enter business premises and land belonging to those subject to the inspection during business hours, whether announced or unannounced, and inspect documents and data there; private homes are expressly excluded from this (§ 4 Abs. 1 SchwarzArbG). When inspecting individuals, they may obtain information about employment relationships and check identity details (§ 3 SchwarzArbG).

That marks the boundary. An inspection is not yet a search. If the matter turns into a criminal investigation, the rules of the Strafprozessordnung, the German Code of Criminal Procedure, apply, and then this applies too: you do not have to comment on the accusation and you may consult a defence lawyer at any time, including before the interview (§ 136 Abs. 1 Satz 2 StPO). Statements made on the premises "to clear things up" become part of the file later on.

An employer who withholds from the collecting agency the employee's contributions to social security, including those to employment promotion, is punished with imprisonment of up to five years or a fine (§ 266a Abs. 1 StGB). It is likewise an offence for an employer to give the body responsible for collection incorrect or incomplete information about facts relevant under social security law, or in breach of duty to leave that body in ignorance of such facts, and thereby withhold contributions (§ 266a Abs. 2 StGB).

Two points are often overlooked here. First, withholding is enough; loss in the sense of a fraud does not have to be proved separately. Second, § 266a Abs. 5 StGB extends the circle of those under the duty: the person commissioning a homeworker, a home-based trader or a person treated as equivalent to them, as well as the intermediate contractor, rank equally with an employer.

In particularly serious cases the statute provides for imprisonment of six months to ten years (§ 266a Abs. 4 StGB). As standard examples the provision names, among other things, acting out of gross self-interest on a large scale, the use of counterfeit or falsified records, and acting as a member of a gang.

In the criminal law on social security contributions there is no voluntary disclosure corresponding to the one in tax law. The terms are easily mixed up, and that leads people astray.

§ 266a Abs. 6 StGB provides as follows: in the cases of subsections 1 and 2, the court may refrain from imposing a penalty if the employer, at the latest by the time the contributions fall due or without delay thereafter, informs the collecting agency in writing of the amount of the withheld contributions and sets out why timely payment is not possible although the employer has made serious efforts to make it. Where those conditions are met and the contributions are then paid subsequently within the reasonable period determined by the collecting agency, the offender is not punished to that extent.

The point in time is therefore tied to the due date, the notification must go to the collecting agency in writing, and it must contain both elements: the amount and the explanation. After an inspection by the customs authorities, that point in time has as a rule long since passed. A payment made afterwards is therefore not the same thing as an effective declaration under § 266a Abs. 6 StGB, even though it may carry weight in the proceedings.

Secure the documents relating to the period in question and change nothing about them. Establish in what capacity you are being written to: as a party to the inspection, as a witness or as an accused person. And keep apart the two sets of proceedings that can run in parallel: the contribution proceedings with the collecting agency and the criminal or regulatory fine proceedings. A statement that looks sensible in one of them can have consequences in the other.