Tatra Trucks does not have a permit for foreign trade in military material – why?

The Criminal Section of the Regional Court in Ostrava deals with the case of QUATRO R.I.S.K. Ltd. and its managing director Karel Kraus. At the heart of the case is a dispute over the definition of "military material", but perhaps more important is the question of why one of the largest Czech arms factories does not have a permit for foreign trade in military material.

The matter is very complicated at first glance, which is probably why no media outlet has reported on it yet. Tatra Trucks a.s. accused, and the prosecutor charged, a spare parts dealer of supplying spare parts for "military" Tatras to the United Arab Emirates without a foreign trade permit for military material. The defendant company argues, with the support of a hard-to-challenge expert, that the transaction was not military material and therefore did not fall within the special regulation on foreign trade in military material.

But also, and perhaps above all, that Tatra Trucks a.s. itself trades in such "military material" without authorisation, and to a much greater extent. If this is the case, it is not only a competitive struggle, but key questions should also be raised: why does Tatra Trucks a.s. not have such a permit, why is a large company tolerated for something for which a smaller one is penalised? In order for Tatra Trucks to have a permit for foreign trade in military material, the members of its statutory bodies would have to have a security clearance, or proof of a natural person's security clearance from the National Security Authority (NSA). Which they do not have, and it is important to ask why, and where the problem lies. Perhaps it is that the statutory bodies of Tatra Trucks themselves would never have obtained such a clearance from the NSA.

Therefore, everything is hidden behind an outwardly simple legal wrinkle. Formally, military material is traded by Tatra Trucks' subsidiary Tatra Export. Its managing directors, who are Tatra Trucks employees, have been cleared by the NSA. However, as it appears from their statements before the court, they do not actually manage anything, they do not actually deal with anything, but only formally sign what is prepared for them by people from Tatra Trucks, who in fact carry out the entire foreign trade in military material for them.

In his statement to the court, the defence lawyer of Quatro R.I.S.K., Judr. Radek Ondruš, said: "It must be emphasised that the system that was created at Tatra Trucks was created in an illegal manner in order to cover up specific illegal actions, i.e. It was designed to prevent the actual trader, which is Tatra Trucks, from trading in material that could potentially be military for the same reasons, although it does not fulfil the conditions set out in Act No. 38/1994 on Foreign Trade in Military Material. In fact, Tatra Trucks does not have a licence for foreign trade in military material. On its behalf, Tatra Exprort formally trades in this military material as a front company, which in reality has no employees and exists only as a formal empty shell.

Tatra Export has two managing directors who have no employment contract or any other form of agreement with the company, no management contract, simply no contractual relationship with the company, just nothing. They are low-ranking, effectively ordinary employees of Tatra Trucks, who do not even negotiate deals with military material in principle. In fact, the whole of Tatra Export is one room in the Tatra Trucks building, but it must exist because Tatra Export has security clearance even as a company. However, no one actually sits in this office, because the managing directors of Tatra Export carry out their work as employees of Tatra Trucks in their offices. However, this state of affairs is again apparently in breach of the law on the protection of classified information, since, as the Tatra Export executives have said, they are in fact connected to Tatra Trucks' internal computer network. However, the law precludes any form of sharing."

We requested a statement from a CSG spokesperson, but had not received one by the time of publication. We will add it if the company responds.

The suspected crime was formulated in 2016 by Tatra Trucks a.s., as in the case of QUATRO R.I.S.K., and it is about the alleged trade in "military material" without a permit and license, which the accused company was supposed to have committed in the years 2012–19. Everything was then reported to the prosecutor's office. The issues that the court has to deal with are: what is foreign trade in military material and to what extent is it more of a competitive struggle, or why does the state want to prosecute the defendant company for something that is apparently also committed by a company that has denounced its business competitor, as one of its employees stated before the court, as part of the "fight against the grey zone". And besides: on what basis does Tatra Trucks a.s., one of the largest arms manufacturers in the Czech Republic, actually export military material?

It's about a two-year suspended sentence and a fine of CZK 220,000

The story began in April 2016, when the District Prosecutor's Office in Nový Jičín received a report called "suspicion of possible commission of a crime". "Recently, our business partners and our employees have been encountering deliveries of spare parts that were exported from the Czech Republic apparently without export licenses, perhaps even by entities without foreign trade permits for military material. The most recent case we have learned about is the export of 500 pieces of valves (...) to the United Arab Emirates for the end user 'U.A.E. ArmedForces. The goods were exported by QUATRO R.I.S.K. s.r.o. (...)'.

In January 2023, the public prosecutor filed an indictment against the said company and its managing director. Kraus and QUATRO R.I.S.K. were to sell spare parts for "military special vehicle TATRA T815 LIWA" to two companies based in Abu Dhabi, knowing that these spare parts were military material according to the relevant decree. This was to take place between 2012 and 2019, for a total amount of USD 1,854 million. The prosecutor proposed a two-year prison sentence with a three-year suspended sentence for the individual, and a fine of CZK 220,000 for the company.

The valves are not military material – is the criminal complaint purposeful?

Already in the text of the indictment, the following information was included: "...in relation to the export of 500 pieces of the control valve (Kraus) repeated that the valve had been manufactured since the 1950s by Autobrzdy Jablonec and had been used in all vehicles operated by the emergency brake. Its trade designation is 4436121590 for civilian use. At the same time even now there is a marking for military use with the ZVS acceptance and marked with swords, its commercial number is 4436121710. Since production was discontinued, QUATRO R.I.S.K. Ltd. purchased these control valves from SKARAB Příbor, which imported them from China', adding that, in the accused's opinion, they were not military material and he did not need a permit or licence, it never occurred to him that such a part would be subject to a special regime and he did not deal with it.

At the same time, he stated that the valve was not designed for military use and that the TATRA T815 LIWA, which outwardly appeared to be a military vehicle, did not in fact have any special military use, but was a civilian vehicle which was simply supplied to the army. This was also confirmed by one of the witnesses who worked at Tatra as head of service technology, who said that the vehicles were support vehicles (trucks and tankers) and not combat vehicles, and stated that the crossed swords mark had not been used on the valve since 1990. Up to this point, to the unbiased observer, this is a trivial dispute over a strict interpretation of what is and is not "military equipment" and it is actually astonishing that such a dispute can even occur. A brake valve supplied to the United Arab Emirates is objectively not even specifically designed for military equipment, but is not even specifically designed for Tatra vehicles, much less a particular Tatra T815 LIWA.

"This fact is, in the expert's opinion, completely unquestionable, because these are universal, standard parts used in vehicles that are not military equipment (...)," and not only this was argued by the defendants' lawyer Ondruš, who proposed acquittal, and who, among other things, said that: "If a forensic expert, who has been dealing with the issue of military vehicles for more than 40 years as a high-ranking military officer at the highest professional level and at the same time as a professor at the University of Defence, Faculty of Military Technology, Department of Combat and Special Vehicles, comes to the above conclusions, i.e. that the spare parts for the TATRA LIWA are not military material, then it is not fair to ask the defendant to consider such parts as military (...)" Whatever the court ultimately finds is not as significant as the information that Tatra apparently did not intend to highlight when it filed its criminal complaint against its competitor. In fact, it could be said that by denouncing the 2016 case, Tatra Trucks may have shot itself in its own foot.

Why does TATRA TRUCKS a.s. not have a permit for foreign trade in military material?

The project manager of Tatra Trucks a.s., and the head of the spare parts department of the same company stated in court as witnesses that TATRA TRUCKS a.s. sells military vehicles in the Czech Republic, and that the sales to foreign customers are handled by TATRA EXPORT s.r.o., which holds a permit for trade in military material. And defence counsel Ondruš in one of his points quotes a very significant passage: "...the police authority and the prosecutor's office punish the supply of spare parts, which they refer to as military material, in the case of the accused by criminal law, but they assessed the actions on a much larger scale carried out by the company TATRA TRUCKS a.s. as a mere misdemeanour," and described the prosecution as purposeful.

He recalled that the spare parts manufactured in China were declared by the Czech customs authorities as non-military, which was not dealt with by the law enforcement authorities, who only focused on their export on the basis of a criminal complaint filed by Tatra. The fact that these disputed spare parts were labelled as civilian non-military material when imported from China into the Czech Republic also has its logic. If they were military material, as the prosecutor claims, then their importer into our territory would have violated the embargo on military material that has formally existed in China since 1990 as a result of the Tiananmen Square massacre in 1989. So the prosecutor performed a minor miracle in court. An outwardly civilian component, imported from China and confirmed by a forensic expert as civilian, turns into military material when exported by another civilian company, as if by magic, on Czech territory.

What did the defence lawyer mean when he said that TATRA TRUCKS a.s. was engaged in the same activities on a much larger scale? He explains further. Tatra Trucks a.s. does not carry out foreign trade in military material and does not have the relevant permits. Since it owns the mentioned Tatra Export Ltd. However, the defence counsel found out that it has no employees and is de facto an empty shell in terms of personnel, while in the United Arab Emirates, according to the witness, two employees of Tatra Trucks a.s. have been working there for several years and repairing Tatra T815 LIWA vehicles, which Tatra Trucks in its criminal complaint against Quatro Risk refers to as military material.

However, in the light of the witness statements in the criminal case, there are substantial doubts as to whether the Tatra T815 LIWA is in fact a military vehicle and whether it is not just a civilian special repainted with military camouflage. If these vehicles were in fact military material, the foreign trade in them, as well as their servicing abroad, could not be carried out directly by Tatra Trucks, which is not authorised to do so. "The accused company QUATRO R.I.S.K. wonders how it is possible that the employees of Tatra Trucks a.s. provide such services despite the fact that the company does not have a permit or licence to carry out foreign trade in military material. Tatra Export does not have employees, so it is difficult for the company to provide truck repair services, and the permit granted to it probably serves as a cover for military material transactions," the defence lawyer writes in his statement. According to Act No 38/1994 Coll., the conduct of foreign trade in military material is also a written manifestation of will aimed at concluding contracts, which is what Tatra Trucks a.s. does through its sales department.

He goes on to ask a key question which, for some reason, has not yet been raised in the public arena. The provisions of Act No 38/1994 Coll. on foreign trade in military material are not purposeless. "In particular, emphasis is placed on verifying whether members of the statutory body of a legal entity and members of the supervisory board meet the prerequisites for the performance of sensitive activities under Act No. 412/2005 Coll. on the Protection of Classified Information and Security Clearance." This is assessed by the NSA. Tatra Export s.r.o. is 100% owned by Tatra Trucks a.s., but the persons in the statutory bodies are different. Is Tatra Trucks thus avoiding the obligation to review the security clearance of the members of its statutory bodies? The NSA did not assess them and "Yet these persons manage a company which is one of the largest arms companies in the Czech Republic with billions of turnover and which produces military material that is exported abroad" - on paper through the empty shell of Tatra Export, to which Tatra Trucks formally sells the exported goods. And, as the court was told, the enquiries from foreign customers go directly to Tatra Trucks, not to Tatra Export.

Only time and the development of the court proceedings will show what was the reason for the actions of Tatra Trucks a.s., whether the step of establishing Tatra Export Ltd. will remain without a reaction from the Ministry of Industry and Trade and the NSA. And what actually prevents Tatra Trucks a.s. and the persons in its statutory bodies from obtaining the clearance and permit.

The NSA also comes into play

It is a well-known fact that the NSA does not grant security clearance to executives of companies that are effectively controlled by their owners who do not have security clearance themselves. In other words, the NSA sees a security risk where executives do not have their own autonomy of will to make business decisions, and only formally act on the basis of instructions from the beneficial owners or the persons who effectively control them in the background. This is the practice of the NSA in the case of a number of arms companies. Why, in the case of the managing directors of Tatra Export, which is a textbook example of a formal shell company that does not outwardly carry out its activities without even a hint of its own practice, the NSA is proceeding completely contrary to its own practice is a mystery that is currently being examined by other courts.

We will continue to address this topic. "What is certain at present is that in the case of companies effectively controlled by persons associated with the Czechoslovak Group, the public authorities choose a completely different procedure than they apply in the case of other arms companies. The real reason for such protection may become apparent later. However, if the same yardstick were applied to all of them, then at least in this particular case the representatives of Tatra Export and Tatra Trucks would have a really difficult time," Ondruš told our magazine.

JUDr. Radek Ondruš is one of the prominent advocates with a strong name among the professional public in the arms industry. He has experience as a prosecutor. He has been practicing advocacy since 2005, specializing in administrative and foreign law, state supervision and surveillance. He teaches at Masaryk University in Brno and Palacký University in Olomouc.