Update on the German Supply Chain Due Diligence Act: first enforcement activities by BAFA suggest active monitoring

The German Supply Chain Due Diligence Act (the “Act”) entered into force for in-scope companies with more than 3,000 employees on 1 January 2023 (read more here). The authority in charge of watching over companies’ implementation of and compliance with the Act, the “Bundesamt für Wirtschaft und Ausfuhrkontrolle” (“BAFA”), has taken first steps to review companies’ compliance with the Act.

BAFA’s monitoring and enforcement powers

According to sections 14 et seqq. of the Act,

• BAFA has the power to take action, ex officio, to monitor compliance with the Act’s obligations with regard to possible human rights and environment-related risks as well as violations of human rights-related or environment-related obligations.
• In addition, it will take action upon request if the person making the request has a substantiated claim that protected legal positions have been violated or such violation is imminent.
• To complete these tasks, the BAFA may make the appropriate and necessary orders, which may, in particular, include summoning people, ordering the in-scope company to submit a corrective action plan or requiring companies to take specific action.
• In addition, the BAFA has the authority to request access to the companies’ premises and to inspect the companies’ business documents, as well as to request information from the companies.
• Companies are obliged to tolerate these measures and to cooperate with the authorities.
• If companies don’t comply with the Act, they may face financial penalties and may be excluded from public procurement.

Expansion of the BAFA’s resources

When it comes to fulfilling these tasks, it’s important to know that BAFA is much better equipped by now in terms of personnel and expertise. Since 1 January 2023, the BAFA has 57 persons at its disposal to supervise companies’ compliance with the Act. By this summer, this number is intended to increase to 101. In total, the BAFA will have 8 departments working on the implementation of the Act and the supervision of the companies’ compliance with the Act.

BAFA’s information requests

In line with this capacity, BAFA has recently sent requests for information to companies of a variety of economic sectors, such as automotive, chemicals, construction, technology, and textiles, which, in BAFA’s view, fall under the Act’s scope (including German publicly listed companies and German subsidiaries of foreign groups). According to BAFA, the selection followed a risk-based approach – even though it appears as if, for now, the BAFA limited itself to drawing a sample from certain economic sectors and companies with a comparable risk exposure.

With the requests for information, the BAFA enquires what measures the companies have taken to establish the complaint procedure required under the Act (see sec. 8 of the Act) with respect to the companies’ own business area as well as their supply chains. The companies must further describe the internal responsibilities for risk management (e.g., human rights officer, committee etc.). BAFA points out that companies must answer the request within three weeks and indicates that it may resort to enforcement measures to ensure compliance with its request (e.g., penalty payment).

What’s to come?

The Act has shown first teeth. In-scope companies and those which prepare for the Act’s implementation next year should take note of these first actions and be ready to report on their activities. Based on this exercise, the BAFA will certainly expand its efforts and launch more enquiries about the Act’s implementation into practice. In view of the harsh sanctions provided for under the Act, it is only a matter of time before the first companies will get into the BAFA’s focus – and first investigative measures will be ordered and sanctions imposed. Accordingly, the Act will gain momentum not only for in-scope companies, but also for contracting partners in their supply chains, their investors and in M&A transactions.