Part III: #DefenseTech—Regulatory Requirements for Defense Start-ups (or "How to Stay Out of Jail") | Legal Ninja Snapshot

Defense technology companies in Germany operate in a highly regulated environment that requires careful navigation of various legal requirements. Key regulations include national or EU legislation on handling of defense-related goods and international treaties. The legal landscape is complex: Beyond defense-specific laws, start-ups must also comply with general public law requirements, including building permits and emission protection permits.

Besides regulatory requirements that need to be assessed on a case-by-case basis, defense start-ups should even at an early stage consider three areas: (i) foreign investment controls when it comes to investments by foreign investors; (ii) export control; and (iii) sanctions related questions.

In this three-part series, we'll examine each area in detail:

Part I: Navigating Investment Control Regulations for Defense Start-ups in Germany
Part II: Understanding Export Control Regulations for Defense Start-ups in Germany
Part III: Sanctions Compliance: A Guide for Defense Start-ups in Germany

Understanding and complying with these regulations is crucial to avoid severe penalties and ensure successful business operations.

Part III: Sanctions Compliance: A Guide for Defense Start-ups in Germany

Sanctions are a critical aspect of international trade regulations that defense start-ups in Germany must navigate carefully even at a very early stage. These measures are designed to maintain international peace and security by restricting business interactions with certain countries, entities, and individuals. Understanding and complying with sanctions is essential to avoid severe penalties and ensure lawful business operations.

Legal Framework

Sanctions in Germany are primarily governed by EU Regulations and United Nations Resolutions. The most relevant sanctions currently are those imposed against Russia, which aim to address the ongoing conflict in Ukraine. Key EU Regulations include Regulation 269/2014, which mandates asset freezes and prohibits dealings with listed individuals and organizations, and Regulation 833/2014, which targets specific sectors such as oil, gas, dual-use goods, financial services, and luxury goods.

Impact on Defense Start-Ups

Sanctions can significantly impact defense start-ups by restricting exports, imports, and the provision of related services. These restrictions may apply even if no general export control license is required, making it crucial for start-ups to integrate sanctions compliance into their business strategies from the outset. Violations of sanctions can lead to severe penalties, including substantial fines and imprisonment for responsible individuals.

Compliance Measures

To ensure compliance with sanctions, defense start-ups should implement robust compliance programs. This includes staying updated on the latest sanctions regulations, as they can change rapidly. Companies should conduct thorough screenings of business partners and customers to identify any connections to sanctioned entities. Training employees on sanctions compliance and maintaining detailed documentation of compliance measures are essential practices to mitigate risks.

Strategic Considerations

Defense start-ups must consider sanctions compliance as a fundamental aspect of their strategic planning. This involves early assessment of potential sanctions risks, coordination with legal advisors, and establishing clear internal policies to guide business decisions. Companies should also be aware of secondary sanctions, particularly those imposed by the U.S., which can affect business operations even without a direct nexus to the U.S.

Conclusion

Sanctions compliance is a vital component of the regulatory landscape for defense start-ups in Germany. By understanding and adhering to these requirements, companies can safeguard their operations and avoid severe penalties. Professional legal advice is recommended to navigate the complexities of sanctions regulations and ensure successful business operations.