It is a scenario that many business owners would rather not contemplate — and yet one that can become reality in an instant: officials from the Financial Control of Undeclared Work unit (FKS), a specialist division of German Customs, arrive unannounced at a business premises and announce an inspection under the Act to Combat Undeclared Work (Schwarzarbeitsbekämpfungsgesetz, SchwarzArbG). The atmosphere shifts immediately. Employees become unsettled, day-to-day operations grind to a halt, and management suddenly finds itself confronted with demands for which it is wholly unprepared.
This situation is not merely uncomfortable — for many of those affected, it is simply overwhelming. Yet an inspection of this kind is not a finding of guilt. It is, however, a serious signal that demands professional attention.
Schlun & Elseven Rechtsanwälte supports businesses and business owners in exactly these situations. Whether as immediate legal guidance during the inspection itself, as ongoing support throughout the proceedings, or as determined representation in the event of administrative fine or criminal proceedings — our lawyers for white-collar criminal law and employment law have the experience and knowledge required to protect your interests effectively. Do not face this alone: with Schlun & Elseven at your side, you can approach a customs audit for undeclared work prepared and on a sound legal footing.
What Constitutes Undeclared Work Under German Law?
Before business owners can assess the actual risk a customs audit poses to them, it is worth examining the statutory definition. Under Section 1(2) of the SchwarzArbG, undeclared work occurs when a paid service or work assignment is performed without the employment relationship being properly registered and the applicable taxes or social security contributions being remitted. In practice, this can cover a range of situations:
- employers who fail to register employment relationships with the relevant social security bodies, or
- who fail to comply with their record-keeping obligations;
- employees who neglect their tax obligations;
- recipients of social welfare benefits who fail to declare a secondary income; or
- self-employed individuals who operate a trade or skilled craft without official registration.
Activities that do not constitute undeclared work include assistance within the family, neighborly support, occasional self-help, or informal favors between private individuals — even where a small payment is involved — provided these are not carried out on a regular, commercial, or profit-oriented basis (Section 1(4) SchwarzArbG).
Administrative Offense or Criminal Offense — A Critical Distinction
Undeclared work is not a single, uniform offense. Depending on which specific provision has been violated, the conduct may be pursued as an administrative or criminal offense, with significantly different consequences. It is important to note that in Germany, administrative offenses and criminal offenses operate under entirely separate legal frameworks: an administrative offense (Ordnungswidrigkeit) does not carry a criminal conviction, but can still result in substantial financial penalties and other serious consequences for a business.
For example, failing to register a trade or operating a skilled craft without entry in the Handwerksrolle, the official register of skilled trades required for regulated craft businesses in Germany, constitutes an administrative offense under Section 8(1)(1d) of the SchwarzArbG. Depending on the severity of the violation, a fine of up to €50,000 may be imposed. Retrospective tax demands, backdated social security contribution claims, and the loss of statutory accident insurance cover may also follow. Repeated violations can result in a prohibition on carrying out the relevant activity.
The legal situation is more serious when employers fail to remit their employees’ social security contributions or provide false or incomplete information to the social security bodies. In such cases, Section 266a of the German Criminal Code (Strafgesetzbuch, StGB) applies, and the conduct constitutes a criminal offense. The consequences may include a financial penalty or a custodial sentence of up to five years — and in particularly serious cases, up to ten years.
Customs Audit for Undeclared Work: What Documents Must Be Produced?
When a customs audit for undeclared work is imminent, business owners immediately face a pressing question: which documents am I legally required to produce — and where does my duty to cooperate end? Customs inspectors are entitled to examine a wide range of documents. These typically include:
- payroll records and working time documentation for all persons employed,
- social security records and registrations with the relevant bodies,
- contracts with subcontractors and evidence of their status as independent contractors,
- records of cash payments as well as incoming and outgoing invoices,
- identity documents or residence permits of foreign workers.
What appears to be a straightforward task often proves, in practice, to be a complex undertaking. Incomplete records, missing documentation, or simply the pressure of the moment can lead businesses to make an unfavorable impression — or, in the worst case, to disclose information that later works against them. There is a further complication: not everything that inspectors request is necessarily required to be handed over. Without legal advice, this boundary is virtually impossible to identify.
When Irregularities Come to Light During a Customs Audit
The situation becomes particularly sensitive when the audit actually uncovers discrepancies — for example, differences between the number of employees registered and those actually working on site, improperly remitted social security contributions, or indications of unregistered employment relationships.
As a person under investigation, you are not obliged to make any statement to the inspectors or to the police — the right to remain silent is a fundamental procedural right that you should exercise consistently. Ill-considered statements can easily be misunderstood and may cause significant harm to your position in subsequent proceedings. Only with legal support is it possible to develop a well-founded assessment of the situation and construct an effective defense strategy.
Schlun & Elseven: Your Legal Counsel for Customs Audits Under the SchwarzArbG
This is precisely where our firm’s work begins. We support clients not only once formal proceedings have already been initiated — but ideally from the moment an audit is announced or already underway.
Our experienced customs law lawyers advise you in detail on which cooperation obligations you actually have toward the customs authorities, which documents are required to be produced — and where your rights as a party under scrutiny end. We stand by you actively during the inspection, examine the lawfulness of the authorities’ measures, and raise objections where necessary. Should criminal proceedings follow from the audit, we represent you resolutely before the authorities and in court.
A customs audit for undeclared work is not an everyday occurrence. The complexity of the SchwarzArbG, the breadth of the potential consequences, and the pressure of an ongoing audit situation all make competent legal support indispensable. The earlier you secure legal counsel, the better positioned you will be to manage the situation effectively.
Practice Group: German Business Criminal Law
Practice Group:
German Business Criminal Law
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