German Supply Chain Act update: Federal Office for Economic Affairs and Export Control publishes information leaflet on reporting obligation and questionnaire

The Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle – the “BAFA”) has published a leaflet and the announced questionnaire on the reporting obligation under the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz ‒ the “Supply Chain Act”). We reported on this on 19 August 2022.

Overview

The information leaflet and questionnaire set forth the information that must be reported under the Supply Chain Act and the formal requirements for doing so. We have selected some of the important points and summarised them below:

In addition to the extensive catalogue of questions, the 38-page leaflet contains a preface, a preamble with instructions on how to complete the questionnaire and an extensive glossary. All in all, the leaflet does contain a few surprises.

Questionnaire

The questionnaire is divided into three sections:

• The first section requires a company subject to these obligations to enter its master data, such as the names of its authorised representatives, the number of its employees and a contact person.
• The second section contains what is called a “short-form” reporting obligation. In this section, the BAFA asks specific questions on the fulfilment of the due diligence obligations in the Supply Chain Act, including information on the monitoring of risk management, the risks identified and any breaches detected. The company is allowed to only submit a short-form report if it provides plausible reason as to why it has not identified any risks or found any violations.
• On the other hand, if a company has identified human rights or environmental risks or violations, it is obliged to complete the entire” questionnaire in the third section. In this case, the company must provide comprehensive answers to questions on how it handles the individual due diligence obligations imposed by the Supply Chain Act.

If the BAFA considers the answers to be implausible, it will regard this as an important criterion for launching a more intensive audit.

First impressions

The publication touches on fundamental topics that will need to be addressed in greater depth.

• Self-incrimination: The questionnaire is designed such that a company subject to these obligations must state if and how it has complied with the due diligence obligations imposed by the Supply Chain Act. It must therefore disclose in detail to the authority whether it has committed any administrative or criminal offences. This is ‒ to say the least ‒ highly remarkable since as a matter of principle companies are not required to incriminate themselves. As an example, once can take a look at the first question, which immediately illustrates the dilemma that companies will face :
• In Question A1.1, the BAFA asks whether the company subject to these obligations has defined responsibility for monitoring risk management during the reporting period. This refers to a statutory obligation (section 4(3), sentence 1 of the Supply Chain Act), which is subject to fines in the event of non-compliance (section 24(1), number 1 of the Supply Chain Act). By answering “no”, the company would disclose that it has not complied with its due diligence obligation. It is true that the preamble “instructs” companies as to their right to refuse to testify in the event of potentially self-incriminating statements.
  
  But even a right to “refuse to testify” does not help companies escape their dilemma. This is because the exercise of the right will obviously give the BAFA all the more reason to launch an investigation.

• Mandatory use? In light of the above, it will be necessary to clarify whether companies can be obliged to use this questionnaire and thereby in any event risk incriminating themselves. Even after studying the Supply Chain Act and its explanatory memorandum, it is not apparent to us on what basis the use of the Federal Office questionnaire should be mandatory. Pursuant to section 10(2) of the Supply Chain Act, a company is obliged to prepare an annual report on its fulfilment of the due diligence obligations and make the report publicly available. Section 12 of the Supply Chain Act requires the company to submit the report electronically via an access provided by the BAFA. From our perspective, there is a serious difference between the provision of an electronic interface and the imposition of specific requirements on the content of reporting.
• “Resolution of open questions” addressed en passant: Without any discernible deeper analysis in the document, the BAFA clarifies statutory ambiguities with one stroke of a pen. As an example, the direct supplier of a subsidiary belonging to the parent company’s own business operations will be treated as the direct supplier of the parent company. In any event, this can hardly be reconciled with the definition of a direct supplier in section 2(7) of the Supply Chain Act. It would have been at least desirable if the BAFA had explained its view somewhat more extensively rather than just in the glossary.

 

All in all, the publication of the BAFA raises numerous new questions and at least at first glance, seems to provide cold comfort to the companies within the scope of the Supply Chain Act. 

We will continue to keep you updated.