Duty of Notification under the German Foreign Trade and Payments Act and the German Foreign Trade Act and Payments Regulation

In accordance with section 67 para. 1 of the German Foreign Trade and Payments Regulation (Außenwirtschaftsverordnung - "AWV"), notification of foreign payment transactions to the Deutsche Bundesbank (Central Bank of Germany) has been mandatory since September 2013. This is often disregarded or not known at all, particularly by young companies in the start-up phase, especially if, due to the company's field of business, sales are at first essentially made in Germany only. However, the duty of notification can already be triggered if, for instance, online advertising measures are assigned on search engines or social networks, as the companies concerned are usually not based in Germany. The violation of the duty of notification constitutes an administrative offence and can be sanctioned with a fine of up to EUR 30,000. Hence, at an early stage of business development, attention should be paid to corresponding foreign payment transactions and action should be taken accordingly.

This contribution is intended to provide an overview of the mandatory notification duty in foreign trade and the consequences of a violation as well as the possibilities for its remedy in the past in the form of a voluntary disclosure, or its avoidance for the future.

Duty of Notification

According to section 67 para. 1 AWV, German nationals must notify the Deutsche Bundesbank of payment transactions which they receive from foreigners or on their behalf from German nationals (incoming payments), or make to foreigners or on their behalf to German nationals (outgoing payments). According to section 2 para. 15 no. 2 AWG, German nationals within the meaning of this standard are also legal entities domiciled in Germany. Thus, compliance with the duty of notification should be part of a company's corporate housekeeping.

Section 67 AWV already defines exceptions to payment transactions that are not subject to the duty of notification. Accordingly, the following payment transactions are exempt from the duty of notification under section 67 para. 2 AWV:

• Payments not exceeding the amount of EUR 12,500 or the equivalent in another currency ("exemption limit");
• Payments for the import, export or shipment of goods;
• Payments which involve the granting, borrowing or repayment of credits, including the creation and repayment of balances, with an originally agreed maturity or period of notice of not more than twelve months.

Violation of the Duty of Notification

Anyone who intentionally or negligently fails to submit the notifications pursuant to section 67 para. 1 AWV, or fails to submit the information correctly, completely or on time, is acting in breach of regulations pursuant to section 19 para. 3 no. 1b of the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz – "AWG") in conjunction with section 81 para. 2 no. 19 AWV. The administrative offence can be sanctioned with a fine of up to EUR 30,000 (section 19 para. 6 AWG) although prosecution is at the discretion of the competent authority pursuant to section 47 para. 1 German Administrative Offences Act (Gesetz über Ordungswidrigkeiten – "OWiG"). It should be noted that not only the company subject to reporting can be prosecuted, but also the management and the employees responsible for reporting, if the appropriate conditions are met. Under certain circumstances, this may also apply to all former members of the management, provided that the notifications have also not been submitted during their employment. Rules on the statute of limitations set out in the OWiG are also likely to be of particular importance in this respect.

Voluntary Disclosure exempting from Sanctions

Section 22 para. 4 AWG provides for the possibility of a voluntary disclosure that exempts the company from sanctions. Accordingly, prosecution as an administrative offence is not required if the following conditions are cumulatively fulfilled:

• Negligent violation within the meaning of section 19 para. 3 no. 1b AWG;
• The violation must have been discovered by way of internal monitoring;
• The violation must have been reported to the competent authority;
• Appropriate measures must be taken to prevent a violation for the same reason;
• The authority must not yet have started an investigation into the violation.

Concusion

A violation of the duty of notification according to section 67 AWV can be sanctioned with substantial fines. It is thus all the more noteworthy that this duty of notification is often not known in practice or is only treated negligently. The voluntary declaration exempting the company from sanctions can therefore be an important instrument to counteract high fines. We will be pleased to advise and support you in the event of possible violations of the duty of notification and any consequences for the past and the future.

Benjamin Knorr / Robert Schmid