Failure to comply with the reporting obligations for foreign trade and payments in connection with M&A transactions may be treated as a summary offense and punished with heavy fines. Fortunately, it is possible to avoid this outcome.
With the initial focus on other issues – such as assets, existing contracts and commitments, or risks – and the growing importance of environmental, social, and corporate governance (ESG), it is not uncommon in the context of corporate and M&A transactions for the reporting obligations for foreign trade and payments to receive less attention. Commercial law firm MTR Legal Rechtsanwälte, which advises both domestic and international clients on corporate law and M&A transactions, warns against neglecting these obligations and stresses that they should be a regular feature of due diligence audits, if only to avoid fines.
The reporting obligations are regulated by the German Foreign Trade and Payments Ordinance (AWV) and concern, among other things, payments and capital movements. For instance, they cover reports on the size of shares or the number of voting rights above certain limits, as well as reports containing information on assets and liabilities. Deliberate or even negligent violations of the reporting obligations can be punished with fines of up to 30,000 euros per violation. It is management that is generally responsible for compliance with these obligations. That being the case, a violation that continues post-transaction will also affect the new management team. To avoid this, the reporting obligations ought to form an established part of a due diligence audit.
If the reporting obligations have been breached, there is the option of submitting a voluntary declaration. However, this can only lead to immunity from prosecution in instances of negligence. One of the advantages of a voluntary declaration is that the violation will no longer be prosecuted or pursued as a summary offense, though this is contingent on all necessary measures having been taken to prevent another such violation from occurring for the same reason.
Violations of reporting obligations may be uncovered during the due diligence process. This presents the buyers with the opportunity to avoid perpetuating a violation, whereas the sellers are then able to avoid prosecution by submitting a voluntary declaration. Any violations should also be factored into the purchase price and other aspects of the deal.
The legal experts at MTR Legal Rechtsanwälte stand ready to advise on all aspects of M&A transactions, including the associated risks.