Lawyers specializing in employment criminal law – defense against accusations of undeclared work

Criminal law risks for entrepreneurs and managing directors in investigations into undeclared work, including violations of the Act on Undeclared Work

Undeclared work is not a fringe phenomenon, but rather the subject of intensive official controls and criminal investigations. In connection with undeclared work, allegations frequently arise from violations of social security reporting obligations, failure to pay social security contributions or income tax, or circumvention of the minimum wage. The consequences can be significant – for companies, their managers, and also for employees.

The Act to Combat Undeclared Work and Illegal Employment (Undeclared Work Act – SchwarzArbG) forms the central regulatory framework. In addition, regulations from social security law, the Temporary Employment Act (AÜG), the Minimum Wage Act, and immigration law may play a role. Relevant criminal offenses are also contained in the Criminal Code and the Fiscal Code.

As a law firm specializing in white-collar crime, we defend clients nationwide in cases involving allegations of undeclared work. Our lawyers combine expertise in criminal law with in-depth understanding of labor, tax, and social security law.

Please contact us to arrange an appointment.

Undeclared work in companies – What does the Act to Combat Undeclared Work (SchwarzArbG) regulate?

The Act Against Undeclared Work (SchwarzArbG) aims to combat illegal employment and undeclared work, thereby preventing losses in taxes and social security contributions and ensuring fair competition. The Act contains specific control and sanction mechanisms, and the administrative offenses and criminal offenses it provides supplement criminal law provisions such as Section 266a of the German Criminal Code (StGB) (withholding and misappropriation of wages) and Section 370 of the German Fiscal Code (AO) (tax evasion).

According to Section 1 Paragraph 2 of the Act on Undeclared Work, undeclared work includes, among other things, anyone who provides or arranges for the provision of services or work and thereby

• as an employer, entrepreneur or self-employed person subject to compulsory insurance, fails to fulfill the resulting social security reporting, contribution or record-keeping obligations,
• as a taxpayer, fails to fulfill the resulting tax obligations, or
• as a recipient of social benefits, he failed to fulfill his notification obligations to the social benefits provider.

The construction industry, courier, express and parcel delivery sectors, the restaurant and hospitality industry, logistics, and care and security services are frequently affected by allegations of undeclared work. Increasingly, IT companies, consulting firms, and start-ups are also coming under scrutiny from the authorities – for example, regarding the use of freelancers or subcontractors.

When does undeclared work constitute a criminal offense?

The Act Against Undeclared Work (SchwarzArbG) itself contains both administrative offenses punishable by fines and criminal offenses. Section 9 of the SchwarzArbG provides for a fine or imprisonment of up to five years for anyone who, on a commercial basis or as a member of a gang that has conspired to repeatedly commit such offenses, issues fictitious and cover invoices through so-called service companies – this can also include certificates of employment, employment contracts, work records, or certificates of secondary employment. Sections 10 et seq. of the SchwarzArbG further contain criminal offenses in connection with the employment of foreigners, such as the employment of foreigners without a residence permit and under unfavorable working conditions (Section 10 SchwarzArbG) or the employment of foreigners without a residence permit who are victims of human trafficking (Section 10a SchwarzArbG).

Furthermore, the term "undeclared work" is also used informally to describe criminal offenses outside the scope of the German Act Against Undeclared Work (SchwarzArbG). For example, criminal offenses under Section 266a of the German Criminal Code (StGB) (withholding and misappropriating wages) or Section 370 of the German Fiscal Code (AO) (tax evasion) may apply if employees are employed without being registered for social security, social security contributions are not paid, or income tax is evaded. The crucial question is: Is there employment subject to social security contributions, and have the legally owed contributions or taxes not been paid, or not paid in full? The decisive factor is not the contractual designation of the employment relationship, but its actual structure. Key criteria include being subject to instructions, integration into the company's organizational structure, and the absence of entrepreneurial risk.

Anyone receiving state social benefits who fails to fully declare income from undeclared employment may also be liable to prosecution for fraud (§ 263 StGB).

The offenses under the Act Against Undeclared Work (SchwarzArbG) generally require intentional conduct – conditional intent is sufficient. The same applies to the offenses under Sections 266a and 263 of the German Criminal Code (StGB) and Section 370 of the German Fiscal Code (AO). However, negligent misjudgments can constitute administrative offenses (see, for example, Section 8 of the Act Against Undeclared Work or Section 378 of the German Fiscal Code (AO)).

Typical case scenarios in practice:

• Complete non-registration of employees to social security
• so-called Partial black wage modelsPart of the payment is officially invoiced, part is paid in cash without deduction of taxes or contributions.
• bogus self-employmentIndividuals are formally listed as self-employed, although in reality they are in dependent employment.
• Fictitious part-time jobThe actual remuneration exceeds the limits for marginal employment.

How is undeclared work uncovered? – The course of an investigation.

Investigations are frequently initiated by the Financial Control Unit for Undeclared Work (FKS) of the Customs Service. This unit conducts unannounced inspections and audits, reviews personnel records, and interviews employees on-site. The FKS has access to interagency information systems and works closely with other agencies. Audits by the German Pension Insurance pursuant to Section 28p of the German Social Code, Book IV (SGB IV), or information from former employees can also trigger investigations.

The 2025 law on modernizing and digitizing the fight against undeclared work has significantly strengthened the powers of the authorities – particularly the Financial Control Unit (FKS). Cooperation between customs, tax offices, and other control bodies has been improved, and digital auditing and analysis tools have been expanded. The aim is to more effectively prosecute undeclared work, illegal employment, and social security fraud. For those affected, this means an increased risk of investigation.

The public prosecutor's office initiates an investigation upon initial suspicion. Typical measures include searches of business and private premises (Sections 102, 103 of the Code of Criminal Procedure), the seizure of digital accounting records, and the analysis of payroll statements and bank transactions. In complex cases, experts are consulted to calculate damages.

What are the penalties for undeclared work? – Penalties and ancillary consequences

The possible sanctions depend on the specific offense committed.

Prison sentences and fines: Sections 266a of the German Criminal Code (StGB) and 370 of the German Fiscal Code (AO) provide for prison sentences of up to five years or fines. In particularly serious cases, prison sentences of six months to ten years are possible. Factors considered include the amount of damage, the duration of the offense, and the manner in which it was committed. The penal provisions under Sections 9 et seq. of the German Act on Combating Undeclared Work (SchwarzArbG) each provide for different sentencing ranges. The maximum sentence is up to five years' imprisonment.

Collection: In addition to the actual penalty, expenses saved by the crime can be confiscated pursuant to Sections 73 et seq. of the German Criminal Code (StGB). Assets can be provisionally seized even during the preliminary investigation. For companies, investigations themselves can be a threat to their existence, especially if assets are frozen (Sections 111b et seq. of the German Code of Criminal Procedure (StPO)).

Side effects for managing directors: A criminal conviction can have consequences under company law; for example, a conviction under Section 266a of the German Criminal Code (StGB) can lead to the loss of one's position as an officer of the company. Furthermore, entries in the central business register and prohibitions on conducting business are possible.

Consequences for companies: For business owners, managing directors, and de facto decision-makers, the potential consequences are often far more than a fine. Investigations frequently involve searches, seizures, asset freezes, and lengthy demands for back social security contributions. In addition to imprisonment, they face entries in the central business register, exclusion from public contracts (Section 21 of the Act on Combating Undeclared Work), and professional disciplinary action. Simultaneously, payroll tax liability notices may be issued, and substantial back social security contributions may be demanded.

Defense against charges of undeclared work – Galen Lawyers

If you are facing an investigation for undeclared work, you should seek legal advice immediately. Careless statements can significantly weaken your defense.

The lawyers at Galen Rechtsanwälte advise and defend clients nationwide, drawing on many years of forensic experience in white-collar and labor criminal proceedings. Our approach:

• File review and analysis – We begin by reviewing the case file and analyzing the factual and legal basis of the alleged offense. This includes examining the classification of the employment relationships under social security law, the elements of intent, and the calculation of the amount of damages.
• Escort during searches – We will be at your side immediately during searches to protect your rights.
• Communication with authorities – In particular, we will handle contact with customs and the public prosecutor's office and develop a coherent defense strategy.
• Holistic view – In addition to the criminal proceedings, we are also considering possible tax and professional consequences, civil claims and reputational aspects, and involve colleagues from other disciplines if necessary.

We offer personal and individual consultations. Please feel free to contact us to schedule an appointment.