AWV Amendment 2025: Reporting requirements as a touchstone.
A fundamental reform of the Foreign Trade and Payments Ordinance came into force on 1 January 2025. It modernises the reporting requirements for cross-border capital movements and acquisitions of shareholdings. In future, companies will have to record payments, direct investments and receivables from foreign partners more precisely. For M&A transactions in the defence sector, this means that existing treasury processes, thresholds and reporting formats must be reviewed. The Deutsche Bundesbank has already announced that it will impose stricter sanctions for violations – a risk that should be taken into account at an early stage when planning transactions.
Investment control as a deal gatekeeper.
The sector-specific review pursuant to Sections 60–62 of the Foreign Trade and Payments Act (AWV) covers companies that develop or produce armaments or security-related technologies. Even if foreign investors – including those from EU and EFTA countries – hold as little as 10 per cent of the voting rights, notification to the Federal Ministry for Economic Affairs and Climate Protection (BMWK) is required. Since the 2020 reform of the AWG, a ‘prospective impairment’ of public security is sufficient grounds for intervention. This has significantly increased the depth of scrutiny. For buyers, this means that early approval procedures, realistic closing timelines and clearly defined MAC clauses are mandatory.
Export control: From armaments to high technology.
Export control is increasingly focusing on civilian high technologies with potential military applications – such as artificial intelligence, semiconductors, sensor technology and data analysis. In addition to listed military equipment, the catch-all provisions of the EU Dual-Use Regulation apply as soon as military end use cannot be ruled out. A purely list-based check is therefore no longer sufficient: due diligence must be expanded to include a purpose-related risk analysis that covers end use, business partners and target markets.
Sanctions law and tougher penalties.
With the implementation of EU Directive 2024/1226, Germany will tighten the penalties for violations of foreign trade law in 2025. Numerous administrative offences – such as reckless export bans or circumvention – will become criminal offences. At the same time, a new coordination office for sanctions enforcement will be set up at the Customs Criminal Investigation Office. The message is clear: enforcement is becoming a priority. Companies must review their internal compliance programmes (ICP), document approvals and record transaction data in an audit-proof manner.
Technological compliance tools.
Artificial intelligence is becoming the standard for screening and risk analysis. AI-supported systems check supply chains, end users and export lists in real time and reduce manual errors. At the same time, target companies must demonstrate that they use such systems in a secure manner that complies with data protection regulations.
The trend is clear: anyone structuring defence transactions must not only be familiar with foreign trade law, but also integrate it strategically into the deal architecture.
Takeaway: Three areas of action for legally compliant defence M&A
During due diligence
- Prioritise export and sanctions compliance. Export control, sanctions and confidentiality checks are at the core of legal due diligence. Early integration into the evaluation process is crucial.
- Use AI-supported tools. Automated screening of business partners, end-use analyses and KYC processes increase efficiency and reduce the risk of errors.
- Technical DD by cleared personnel. For security-relevant target companies, technical due diligence should only be carried out by security-cleared experts.
In contract drafting
- Hedge regulatory risks. Material adverse change clauses should explicitly address refusals of approval, changes to sanctions or loss of licences.
- Extend compliance guarantees. Adjust warranty periods for export and sanctions violations to statutory limitation periods – especially with regard to Directive (EU) 2024/1226.
- Multi-layered risk allocation. A combination of guarantees, indemnities, escrow mechanisms and W&I insurance enables a precise balance between buyer and seller interests.
Post-closing
- Modernise compliance systems. Internal compliance programmes should be supplemented by AI-supported monitoring systems after closing in order to continuously monitor approvals, renewals and export data.
Conclusion
Foreign trade law becomes a strategic factor
M&A transactions in the defence sector will be subject to new framework conditions in 2025. The combination of the amendment to the Foreign Trade and Payments Ordinance, stricter investment controls and expanded export controls makes foreign trade law a strategic success factor for every transaction.
Legal certainty can only be achieved where economic goals and regulatory requirements are consistently interlinked.
Summary of the key facts
- Early communication with authorities such as the BMWK and BAFA is essential to avoid delays.
- Technological compliance is becoming standard – AI-based analysis and screening tools accelerate review processes and strengthen governance structures.
- Precise contract architecture with specific guarantees, exemptions and clearly defined MAC clauses reduces liability risks and creates planning security.
