Důsledná identifikace a řešení mezer v exportní compliance

Why is export compliance more important than ever in today's world?

For every Czech exporter, this system rests on two fundamental pillars. The first is the directly applicable Regulation (EU) 2021/821 of the European Parliament and of the Council, which defines which goods, software, and technologies are subject to control throughout the Union. The second is the Czech Act No. 594/2004 Coll., which implements this regulation, sets out specific procedures for obtaining licences and, most importantly, defines the precise penalties for its violation.

Many companies mistakenly believe that it is sufficient to follow only European regulations. However, this is a dangerous trap. While the EU regulation determines what is controlled, the Czech act specifies how a Czech company must proceed (e.g., applying for a permit from the Ministry of Industry and Trade) and what specific fines it faces in Czech crowns. Without knowledge of both levels of regulation, a company is operating virtually blind to the real risks.

Moreover, the rules are constantly changing. Sanctions packages, such as those adopted in response to the situation in Ukraine, can change the status of previously freely traded products overnight.

Our Prague-based lawyers at ARROWS monitor changes not only in European regulations but also in the Czech implementing act for our clients, ensuring that their international operations are built on a solid foundation.

Are your goods "dual-use"? The key question that decides everything

At the heart of export control is the concept of "dual-use items". These are products, software, and technologies that were primarily designed for civilian purposes but can be misused for military applications, including the development of weapons of mass destruction. These are not weapons or ammunition, but seemingly harmless, often high-tech products.

Examples are all around us: high-performance computers, drones, special materials like carbon fibre, advanced electronics (e.g., oscilloscopes), or software with strong encryption. Paradoxically, it is the innovative technology companies that are the engine of the economy that are most at risk, as they are often unaware of the military potential of their civilian products.

The European Union maintains a detailed and regularly updated list of these goods in the annex to Regulation 2021/821. Each item on the list is assigned a unique Export Control Classification Number (ECCN), which determines the level of control. This system is structured into ten technical categories (0–9) and five product groups (A–E), allowing for precise identification.

In addition to the list, there is also a "catch-all" clause. This states that even goods not on the list may be subject to a licensing requirement if the exporter suspects or has been informed that the end-use is related to weapons of mass destruction or is intended for a country subject to an arms embargo.

Correct classification of goods is the absolute foundation. If you underestimate it, your entire compliance system will collapse. You will apply for the wrong (or no) permit, fail to conduct proper partner screening, and your documentation will be flawed. Are you unsure if your products fall under the control regime? Misclassification is one of the most common and costly mistakes. The lawyers at ARROWS can provide you with a binding legal opinion that will give you certainty and protect you from risk.

Hidden risks and high stakes: What you face for neglecting your duties

Neglecting export compliance obligations is not just an administrative offence. It is a strategic failure that can lead to crippling fines, seizure of goods at the border, loss of export authorisations, reputational damage, and, in extreme cases, criminal prosecution of the company's management. The following table shows the most common risks and how to address them.

Key risks in export compliance and their solutions

Internal audit: Your strategic tool for bulletproof protection

The best defence against export control risks is a proactive approach. An internal audit is not just a bureaucratic exercise but a strategic process that builds an effective "immune system" against compliance threats within your company. The result of the audit is the implementation of an Internal Compliance Programme (ICP), which systematically manages all risks associated with exports.

Although an ICP is not mandatory under EU law for every single export, it is considered the absolute standard and is a practical prerequisite for obtaining more flexible global export authorisations. Most importantly, a functional and documented ICP serves as key evidence that the company has made every effort to prevent illegal conduct. This can be decisive in exonerating a legal entity from criminal liability under Czech law.

An effective internal audit, based on international best practices, should include the following steps:

• Step 1: Management commitment and resource allocation. The audit must start at the highest level. The company's management must declare in writing its commitment to compliance and clearly designate a person responsible for export compliance, providing them with sufficient authority and resources.

• Step 2: Rigorous classification of products and technologies. The process involves a systematic review of the entire product portfolio. This includes not only finished products but also software, technology, spare parts, and technical assistance provided. Each item must be assessed against the control lists.

• Step 3: In-depth due diligence of business partners and transactions. A robust process must be established for screening all parties involved – the customer, intermediary, carrier, and end-user. This screening must be conducted against current sanctions lists and be able to identify "red flags," such as unusual payment terms or unclear information about the end-use.

• Step 4: Systematic management of documentation and records. The audit must verify that all export transactions are properly documented and that these records are securely archived for at least five years, as required by law.

• Step 5: Training and awareness-raising. It is crucial to ensure that all employees involved in exports (sales, logistics, research and development) receive training, understand the risks, and know their role in the compliance chain.

Global playing field, global rules: International aspects and re-export

Modern supply chains are global, which adds another layer of complexity. The rules are not limited to direct exports from the Czech Republic. Special attention must be paid to two key areas: US regulations and re-export rules.

Many European companies are unaware that they may be subject to the US Export Administration Regulations (EAR). If your company re-exports goods of US origin or if your own product contains a certain percentage of US components or technology, you may be subject to US jurisdiction. A violation of the EAR can lead to harsh penalties, including being placed on US sanctions lists, which effectively means being cut off from the US market and technology.

In response to the international situation, the EU has also introduced a new, very strict obligation. Exporters from the EU must include a "no re-export to Russia" clause in their contracts with partners in third countries (excluding selected allied states) for certain sensitive goods. This contractually obliges your customer not to sell the goods on to Russia. The absence of this clause is in itself a violation of sanctions regulations.

Solving these cross-border challenges is our daily bread. Thanks to the ARROWS International network, built over ten years, and our partners, we have practical experience in solving problems with an international element, whether it involves US EAR regulations or negotiating contractual clauses with partners in Asia or the Middle East.

Risks in international trade and re-export

When an inspection comes knocking: Real consequences and penalties

Assuming that a mistake will never be discovered is a bet with extremely high stakes. A single failure can trigger an avalanche of legal consequences that will hit the company on three different levels.

First comes the financial penalty. Under the Czech Act No. 594/2004 Coll., fines can reach up to CZK 5,000,000 for administrative errors (e.g., poor record-keeping) and up to CZK 20,000,000 for serious violations, such as exporting without a licence. For many companies, such a fine can be ruinous.

But it may not end there. A serious violation of export rules can constitute a criminal offence. Under the Act on Corporate Criminal Liability (TOPOZ), the entire company can be prosecuted. The penalties here are drastic: a ban on activities for up to 20 years, a ban on participation in public procurement, forfeiture of assets, or even the dissolution of the entire legal entity. In addition, a court can order the publication of the judgment, which represents official and permanent reputational damage.

Finally, liability also falls on specific individuals. Executive directors and board members have a duty of due managerial care. If their negligence in compliance causes damage to the company (for example, in the form of a paid fine), they may be personally obliged to compensate for this damage from their private assets. A single incorrect export can thus lead not only to the demise of the company but also to the personal bankruptcy of a manager.

If you are already under inspection or facing sanctions, there is no time to hesitate. The ARROWS team has extensive experience representing clients before administrative authorities (Customs Administration, Ministry of Industry and Trade) and in court. 

Build certainty in global trade with support from ARROWS

Export compliance is undoubtedly a complex and demanding discipline. However, it is not an insurmountable obstacle. With a strategic approach and expert support, it can be managed and transformed from a threat into a competitive advantage. A company that has its processes in order is more trustworthy to international partners and more resilient to external shocks.

At ARROWS, we provide comprehensive legal services – from prevention to crisis management. Our services include drafting internal guidelines, preparing and reviewing international contracts, obtaining necessary licences and permits, providing expert training for employees and management, and, of course, representing clients in court and before administrative authorities.

Our experience is backed by long-term cooperation with an extensive portfolio of clients, which includes more than 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions. We pride ourselves on speed, high quality, and being more than just legal advisors to our clients. We are strategic partners. We can connect clients with each other if they have interesting investment or business opportunities. And we would be happy to hear your business idea as well.

Don't wait for a small administrative problem to become an existential threat. Contact us and arrange a no-obligation consultation. We will discuss your specific situation and propose steps to protect your business and ensure your peace of mind.