Part II: #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 II: Understanding Export Control Regulations for Defense Start-ups in Germany

Export control regulations are a critical aspect of the legal framework governing defense start-ups in Germany. These regulations ensure that sensitive goods, technologies, and information do not fall into the wrong hands, thereby safeguarding national and international security. For defense start-ups, navigating these regulations is essential to avoid severe penalties and ensure compliance.

Legal Framework

The export control regime in Germany can be found in various regulations, including the EU Regulation 2021/821, which covers the export of dual-use items outside the European Economic Area (EEA) – goods, software, and technology that can be used for both civilian and military purposes. Additionally, the Act on War Weapons (Kriegswaffenkontrollgesetz) and the Export Control List outline specific requirements for war weapons and military equipment. The latter laws mandate that certain goods require export licenses before they can be shipped to non-German customers.

Dual-Use Goods and War Weapons

Dual-use goods are subject to stringent export controls due to their potential military applications. Regulation 2021/821 requires exporters to obtain licenses if the goods are listed in the Regulation's Annex or if there is knowledge of potential military use. War weapons, as defined by the Act on War Weapons, include nuclear, chemical, and biological weapons, as well as combat vehicles and ammunition. Export of these items, which are listed in the War Weapons List, or of goods listed in the Export Control list require a license.

Licensing Process

The Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, "BAFA") oversees the licensing process. Applications must include detailed information about the technical specifications and intended end-user of the goods. Licenses can be granted on a general or individual basis, but the process involves significant paperwork and scrutiny. High penalties, including potential jail sentences, can result from violations, emphasizing the importance of obtaining licenses prior to export.

Compliance Measures

To ensure compliance with export control regulations, defense start-ups should implement robust compliance measures. Depending inter alia on the stage of a Start-Up and the maturity of the products (i.e., development stage or commercial readiness) these measures can include appointing of an Export Control Officer, conducting of regular export control training, and screening of customers and intended end uses. Internal export control policies should be established to raise awareness and prevent violations. However, an assessment on a case-by-case basis can identify reasonable measures for each Start-Up. Additionally, it must be considered that inter-company exports to subsidiaries or offices outside Germany require licenses, even for software access from foreign locations or for data stored on foreign servers.

Strategic Considerations

Defense start-ups must integrate export control compliance into their strategic planning. This involves early assessment of potential export control requirements, coordination with legal and technical teams, and maintaining detailed documentation of compliance measures. Companies should also stay informed about changes in export control regulations and adapt their compliance programs accordingly.

Conclusion

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