Indirect and direct effects of the LkSG in similar cases.
The mask scandal involving Fynn Kliemann dominates social media in Germany. What the Supply Chain Due Diligence Act has to do with this and what effects the regulations will have directly and indirectly, you can read in our article below.
Much has been written in recent months about mask deals and allegations of fraud in connection with the production and sale of Corona protective masks. In the past, politicians in particular have been targeted by the media.
Last week, on the other hand, Jan Böhmermann revealed a suspected fraud of origin of Corona protective masks in "ZDF Magazin Royale". The focus here was on musician, Youtuber and influencer Fynn Kliemann. While Fynn Kliemann is not necessarily a celebrity known throughout Germany, in any case the allegations that Böhmermann and his team brought to light are devastating. Kliemann is said to have pretended - together with business partners - to produce masks fairly in Europe with his company or as a partner in a company and to have resold them at the purchase price, while the masks actually came from Bangladesh and Vietnam and were resold for many times more. To disguise this, cartons are said to have been changed and relabeled. In addition, Kliemann is said to have donated damaged Corona protective masks to refugee camps without disclosing the defectiveness of the goods.
This is a detailed case that is receiving a lot of media attention. With this article, we would like to elaborate on the legal background, especially in connection with the Supply Chain Die Diligence Act (LkSG). One thing first - in the Kliemann case, the LkSG would not be applicable even after its entry into force, as the relevant thresholds for the number of employees in Germany is not reached. The law will apply from January 1, 2023 for companies with more than 3000 employees and from January 1, 2024 for companies with more than 1000 employees.
The LkSG stands for the protection of human rights and against exploitation and environmental damage. It obliges companies to check the entire supply chain of a product, with manufacturing countries such as Bangladesh or Vietnam being the focus of the legislator. The occupational health and safety standards to be observed include prohibitions on child labor, forced labor, slavery and discrimination, as well as compliance with local accident prevention regulations and the right to freedom of association.
The LkSG obliges companies to carry out regular risk analysis throughout the supply chain - both in their own business operations and with direct suppliers - and to establish a corresponding system for monitoring the supply chain. This also includes establishing an internal company responsibility for monitoring risk management, for example by appointing a human rights officer. In addition, companies must publish a policy statement on their human rights strategy. They will also be required to take preventive and remedial action and to establish a complaints procedure. The complaints procedure is intended to give people who are either directly affected by human rights violations in the supply chain or who learn of such violations the opportunity to draw attention to the abuses. This typically involves the company's own employees or those of suppliers. In order not to discourage them from reporting for fear of negative consequences, the law protects them from discrimination and punishment. Finally, compliance with the obligations must be documented and reported on annually. If these obligations are not complied with, companies face not only fines but also exclusion from the award of public contracts.
The LkSG thus actively obliges companies to track their supply chain.
In cases similar to the Kliemann case, the LkSG could at least have an indirect effect despite its lack of applicability - namely with regard to the selection of suppliers and the observance of human rights and environmental concerns in all areas of business. It is to be expected that shareholders, customers and the media will establish the due diligence requirements of the LkSG as a market standard even beyond its scope of application and thus indirectly hold companies accountable.
After the allegations against him became known, Kliemann tried to exculpate himself by claiming that he did not know anything about the masks being produced in Bangladesh and Vietnam and that he had relied on the information provided by business partners - he had also received relevant e-mails with information about the origin of the masks in CC, but had not read them.
Negligent ignorance is unlikely to satisfy the indirect due diligence obligations under the LkSG in any case, though.
Despite the lack of applicability of the law to the Kliemann case, it makes the following clear: In the future, companies will not be able to avoid examining supply chains for violations of human rights and environmental concerns and allowing themselves to be measured against their corresponding actions. Even without the concrete intervention options of the authorities responsible for enforcing the LkSG, companies must be prepared for corresponding pressure from outside - namely from the public. It is therefore advisable to address these issues not only in view of the legal interests involved, which are absolutely worthy of protection. This is even more true since several proposals for directives are currently in the legislative process at the EU level, which provide for parallel obligations for companies with 250 or more employees.