This is to inform you on the Law on Corporate Due Diligence in Supply Chains (the “Supply Chain Law”) which has recently entered into force in Germany.

I. GENERAL OVERVIEW

Please kindly note that the need of stricter requirements for multinational companies has intensified due to the awareness raised by mass media and the worldwide public opinion formed on the victims of human rights violations and environmental disasters, especially in underdeveloped countries.

In that regard, the Supply Chain Law was approved by the German parliament on 16 July 2021 within the scope of the German government’s effort on implementing United Nations’ Guiding Principles of Business and Human Rights which was published in 2016.

Before explaining what the Supply Chain Law means to you, we would like to underline that the German parliament is not the only institution which has favored this trend. Please be informed that bodies of the European Union are also working on a directive on human rights’ due diligence at full steam which may be approved and enter into force in the near future.

II. SCOPE AND PURPOSE

The Supply Chain Law aims at ensuring that companies under its scope fulfil their duty to respect human rights as well as environmental rights and have a good governance in order to operate supply chains in a responsible and sustainable way.

The Supply Chain Law defines the supply chain within the meaning of the Supply Chain Law and refers to all products and services of a company.

In this respect, the supply chain encompasses all the domestic and international steps that are required to manufacture the products and provide the services, starting with the extraction of the raw materials to the delivery of the final product to the end customer and comprises the actions and transactions of a company in its own field of activity, the actions of a direct supplier and the actions of an indirect supplier.

Accordingly, companies are obliged to show due diligence at every step of their supply chain in order to prevent human rights violations and to comply with certain environmental standards.

III. COMPANIES TO BE IMPACTED

In light of the above, please be informed that as of 1 January 2023, provisions of the Supply Chain Law shall be applied for all companies, which have their principal place of business or a branch office with a total number of at least 3,000 employees in Germany, as well as all direct and indirect suppliers of these companies.

Further, please note that as of 1 January 2024, provisions of the Supply Chain Law shall be applied for all companies having their principal place of business or a branch office with a total number of at least 1,000 employees in Germany, as well as all direct and indirect suppliers of these companies.

In that regard, Turkish companies which are already providing goods and services to German companies shall, in principle, also be obliged as if they were a German company, in order to maintain their commercial relations with their German business partners who are obliged

(i) to establish a risk management system,

(ii) to implement regular risk analyses,

(iii) to submit declaration of principles,

(iv) to anchor preventive as well as remedial measures in their own business area and towards direct suppliers,

(v) to establish complaint procedures,

(vi) to implement due diligence obligations with regard to the risks that may arise due to indirect suppliers and,

(vii) to regularly document and report their activities in German,

in order not to pollute the environment and violate human rights.

In addition, please be informed that within the meaning of the Supply Chain Law, a risk related to human rights or the environmental law shall be deemed to arise, if the factual circumstances create sufficient probability that violation of aforementioned obligations is imminent.

Please note that many issues remain unclear as it has not yet been clarified how the Supply Chain Law will be implemented in practice. However, the competent authority within the meaning of Supply Chain Law is the German Federal Office of Economics and Export Control which will implement the Supply Chain Law as well as secondary legislation to be enacted.

Having said that, in order to demonstrate the importance of the issue for German companies, please note that German companies may be subject to an administrative fine amounting from EUR 100,000.00 (one hundred thousand Euros) up to EUR 800,000.00 (eight hundred thousand Euros) in case of not fulfilling the preventive measures and/or complying with the aforementioned obligations arising from the Supply Chain Law. This administrative fine may amount up to 2% (two percent) of the average annual turnover of the relevant company in cases which the average annual turnover of the company amounts more than EUR 400,000,000.00 (four hundred million Euros). When calculating this amount, worldwide turnover of the last three years of all entities within the same group of companies shall be taken into consideration.

Should you have any inquiries, please do not hesitate to contact us.