Effective compliance structures for the observance of export control regulations are becoming even more pressing and a sine qua non, as a result of the tighter regulations regarding the criminal provisions stipulated in the new Foreign Trade and Payments Act which will enter into force on 1 September 2013. The German Federal Government has simplified and streamlined the Foreign Trade and Payments Act and has made the terminology used clearer. Particular emphasis was put on amending and partly also significantly tightening the provisions regarding criminal penalties and fines.
1. Allover penalties for deliberate violations
The amended Foreign Trade and Payments Act stipulates allover penalties for deliberate violations of prohibitions and authorization requirements of foreign trade law (§§ 17, 18 of the amended AWG). The message sent by the modernized legislation is clear: Anyone deliberately violating the Foreign Trade and Payments Act not only acts contrary to regulations; he/she also renders him/herself liable to prosecution. Serious punishable breaches include the deliberate unauthorized export of all civil goods which can be also misused for military purposes (so called dual-use goods) as well as their related intentional intermediary activities. According to the amended legislation, the violation of an EU embargo no longer depends on the announcement of the embargo in the Federal Bulletin. In fact, the publication in the Official Journal of the EU is now the only authoritative source. Companies can only be protected by ignorance of the law regarding EU embargo regulations for a grace period of 2 working days after the embargo’s publication in the Official Journal of the EU. Violations of arms embargoes, in particular, are severely sanctioned because they are basically qualified as crimes and can be punished by way of imprisonment terms ranging from two to ten years. Moreover, even the most reckless violation of arms embargos is already subject to punishment.
2. Possibilities of voluntary declaration (Selbstanzeige) in case of negligent breaches
On the one hand the legislation provides tougher criminal provisions for violations committed deliberately button the other hand the legislation refrains from criminalizing acts committed by negligence. Consequently, negligent breaches of restrictions or instructions set out in the Foreign Trade and Payments Act constitute in principle administrative offenses only and shall be sanctioned by way of administrative fines (§ 19 AWG amended version). This is intended to take into account the fact that given the very complex regulatory framework of foreign trade law, errors can occur in individual cases even if the company concerned has taken precautions and preventative measures and employees work conscientiously.
Although some breaches of foreign trade law which hitherto were subject to criminal penalties will now be sanctioned by way of administrative fines, companies still face the threat of having their reliability denied by the Federal Office of Economics and Export Control (BAFA) and as a result of this fail to obtain export licenses or so called negative certificates (Nullbescheid). Such sanctions can have serious or even existential economic consequences for companies.
What is interesting and extremely relevant for companies is the newly established possibility to voluntarily report (voluntary declaration) specific formal and procedural errors committed by negligence, such as violations of the obligation to register and to disclose (§ 22 sec. 4 of the amended AWG). If the violation is detected by means of self-monitoring and is reported to the relevant authorities and adequate measures are taken to prevent such violations from happening, sanctioning by way of administrative fines will be refrained from. A declaration is considered voluntary if the relevant authorities have not yet initiated any investigations regarding the breach. The companies affected are thus given the opportunity to detect and report errors committed unconsciously by means of self-monitoring and take adequate measures to prevent such errors from happening.
Individual aspects of the voluntary declaration to avoid administrative fines, a practice common under tax law, still require some clarification due to the somewhat fuzzy terminology used in the provisions. For example, one question that arises, among others, is how exactly the voluntary declaration will impact the assessment of the company’s reliability. Another question worth clarifying is whether despite the fact that a voluntary declaration was properly carried out, companies still can be sanctioned for breach of duty of supervision under the Administrative Offenses Act (§ 130 OWiG). Finally, the question regarding the validity of the possibility of voluntary declaration for breaches committed prior to the entering into force of the revised Foreign Trade and Payment Act remains unanswered. The authorities and/or court practices will concretize these aspects over time.
The described amendments to the provisions regarding criminal penalties and fines set out in the Federal Foreign Trade and Payments Act bring about new challenges for the foreign trade law compliance structure of a company. It should therefore be thoroughly checked and, if necessary, sustainably improved. Voluntary declarations will only constitute a viable possibility for the company to avert damage, if it has a well-functioning foreign trade compliance system in place – an opportunity that should not be missed.