The only German penal unit That I know of was the 999 leichte Afrika-division. The troops were made up of men who had been court-martialed for minor offences such as black market activities. The officers and nco's were all hand picked.
The division consisted of 2, possibly 3 motorised infantry regiments Afrika-schutzenregiments 961,962 and possibly 963, an artillery regiment and an engineer battalion, both numbered 999.
The disiciplinary soldiers wore no insignia, i.e. no breast and cap eagles, collar-patches or shoulder straps. they even wore plain belt-buckles.
The division served in Tunisia.
For those of us in yhe UK its quite ironic that a penal division was numbered 999!
Sources-"The Armies of Rommel" by George Forty, "The German Armies of 1939-1945(2) North Africa & Balkans" by nigel Thomas
Cheers
Fitz