On 1 March 2013, the Federal Counsel (Bundesrat), the second German parliamentary chamber, approved the amended Foreign Trade and Payments Act (Außenwirtschaftsgesetz – AWG). The amendment intends to streamline the Act in order to make it more practical and up-to-date. It also adapts and updates the wording to the EU's Dual-Use Regulation 428/2009. Companies should review carefully the new penalties and voluntary disclosure process.
Tighter and clearer penalties regulation
Substantial amendments relate to the imposition of penalties. The new rules provide for a clear distinction between regulatory and criminal offenses. For intentional breaches of certain export control provisions, company representatives might face criminal sanctions. In contrast, negligent conduct is now generally viewed as a regulatory offense which would only lead to fines. These amendments should be welcomed as they provide for more clarity for companies and managers in grey areas of law, in particular in relation to negligence. However, it should be noted that Germany will step up its punishment regime against willful breaches of export control law.
In the last minute of the parliamentary proceedings, an interesting new provision was included in the Export Control Act. Article 22 (4) AWG opens the opportunity for a voluntary disclosure of negligent breaches of export control law obligations. In contrast to other jurisdictions, German export control law did not enable companies to disclose infringements to the authorities in order to benefit from immunity from prosecution. Thus, in practice, companies could at best achieve a reduction of fines if they voluntarily reported export control law infringements to the enforcers. At worst, they would risk a wider investigation into their activities.
The new provision of Article 22 (4) AWG aims at encouraging companies to implement internal compliance programs as they may now apply for immunity. Thus, if during an internal review, a company discovers that an act amounting to a negligent breach was committed, it can avoid paying fines by reporting the incident to the competent authorities. In addition, in order to benefit from this provision, the company has to take "appropriate measures" to prevent any similar breaches from being committed in the future. There is no guidance yet on what "appropriate measures" require. The first cases dealt with by the authorities will be of particular interest in order to understand the regulators' approach.
It is to be noted, however, that Article 22 (4) AWG does not apply to all types of negligent infringements and does not cover at all situations where an intentional breach of export control provisions was committed. Finally, a company can no longer report a violation if the competent authority has initiated an investigation into the case.
Consequences for companies doing business in Germany
Consequently, a company which finds an infringement or potential infringement of export control should examine all available evidence to determine if the breach was intentional or negligent. Accordingly, companies should thoroughly assess, if necessary by seeking legal counsel, whether a potential export control law infringement qualifies for the voluntary disclosure framework in Germany, and how to put into place corrective actions capable of preventing the same offence from being committed again.
Indeed, if the company were to report an act that amounts to an intentional violation of the law, it would need to consider the issues and whether such a filing would facilitate the work of the prosecutor to instigate a criminal investigation. Therefore there is a risk that the effectiveness of the new voluntary disclosure framework may be jeopardized if companies refrain from reporting any incidents at all.
Moreover, companies are advised to consider whether the behavior at issue may, at the same time, breach export control laws of other countries, and whether these jurisdictions provide for a voluntary disclosure process. This would be particularly important in breaches of EU legislation as information may be exchanged among the different Member States which would in turn triggered investigations in other jurisdictions.
In addition, the export control and sanctions regulations of United States set forth detailed provisions regarding voluntary disclosures. The primary regulations are administered by the U.S. Departments of Commerce, State, and Treasury and all provide guidance to companies regarding voluntary disclosure and the mitigation afforded to companies making such filings. The U.S. Department of Justice also has acknowledged the benefits of accurate and complete voluntary disclosures related to export control and sanctions law violations and to date, has not elected to impose criminal penalties in such cases.