German companies are now required to monitor their supply chains more closely for human rights violations such as trafficking and forced labor.

Germany’s new Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, “LkSG”) applies to “companies that have their central administration, principal place of business, administrative headquarters, registered seat, or branch office in Germany and have 3,000 or more employees in Germany. Starting January 1, 2024, the number of employees will be reduced to 1,000. Employees that are posted abroad are included for domestic companies.”[1] The European law firm Advant Beiten that analyzed the act added that foreign companies with headquarters in Germany are also impacted by the law.

To comply with the law according to a recent Politico article, organizations have to perform risk analysis and create a process for complaints. These reports will be made available for the public. In addition, a new office was established to monitor the rules. The Federal Office of Economics and Export Control will perform auditing through “mandatory reports submitted and ‘risk-based inspections,’”[2]

“If companies violate the new rules, they could face fines of up to €8 million or up to 2 percent of annual global sales. In addition, companies can be excluded from public tenders.”

Rödl & Partner, a global law firm, breaks down the risk and what companies have to do to comply with the new German. In summary, the law firm cited that“LkSG” is an important new compliance task introducing high liability risks.”[3]

 

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[1] Depping et al. “The German Supply Chain Due Diligence Act and its implication for businesses in the People’s Republic of China,” Advant Beiten. June 28, 2021.

[2] Rinaldi, Gabriel, “New year, new rules for German businesses as Supply Chain Act comes into force,” Politico. December 30, 2022.

[3] Nave et al. “The new German Supply Chain Due Diligence Act (LkSG) – what needs to be done,”Rödl & Partner. January 11, 2023.