With the 11th package of sanctions of 23 June 2023 (OJ L 159I of 23.06.23), which has the effect of further tightening the embargo, the EU is placing a stronger focus on the future avoidance of circumvention of all existing EU sanctions against Russia. Parallel to the 11th EU sanctions package, the EU is currently harmonising and tightening criminal law for sanctions violations, which should also include certain circumventions.
All this, in turn, increases the pressure on (a) the internal compliance programs of affected companies in the EU; (b) the authorities and courts in the EU in monitoring and implementing the sanctions, and (c) persons with circumvention intentions who need to be even more adept at concealing or initiating their attempts to circumvent in order to be successful. The latter, as in a kind of cycle, will in turn have to lead to special caution and increased diligence on the part of companies and authorities for transactions in the sanctions environment.
Eleventh EU sanctions package – Amendments to Regulation (EU) No 833/2014 and Regulation (EU) No 269/2014
With the eleventh package of sanctions, as with all previous packages, Regulation (EU) No. 269/2014, which orders financial sanctions against certain persons, and Regulation (EU) No. 833/2014, which primarily sanctions certain goods and related transactions, have been extended.
The main changes to Regulation (EU) No. 833/2014 are as follows:
- Prohibitions on the transfer of intellectual property rights or trade secrets to goods affected by the embargo to companies in Russia
- Extension of the transit ban to goods listed in Annex VII (Art. 2a para. 1a)
- Prohibition of transit through Russia of goods listed in Annex XI (aerospace industry) and Annex XX (aviation turbine materials and fuel additives) (Art. 3c para. 1a)
- Extension of the ban on the access of ships to ports and locks in the EU (Art. 3eb para. 1, Art. 3ec para. 1)
- Inclusion of an obligation for importers to provide proof of the country of origin of iron and steel intermediate products (Art. 3g para. 1 d)
- Extension of the luxury goods embargo to the ban on the provision of technical assistance (Art. 3h para. 2)
- Extension of the ban on the carriage of Russian freight forwarders to the ban on the use of Russian trailers (Art. 3l para. 1a)
- Extension of the oil embargo to the supply of oil through the Druzhba Nord pipeline as well as exemptions for maintenance and repair measures in favour of the Kazakh operator (Art. 5q)
- Extension of the lists of goods for export bans on electronic products, industrial goods, steel products and passenger cars
- Summary of the import bans pursuant to Art. 3i and Art. 3j on a common import ban (Art. 3i)
- Removal of passenger cars and other motor vehicles falling within commodity number 8703 from Annex XVIII and inclusion of these vehicles in Annex XXIII (for the effects, see below luxury goods embargo Art. 3h)
- Inclusion of an old contract regulation for certain goods listed in Annex XXIII (Art. 3k para. 3, para. 3a, para. 3b)
- Inclusion of further exemptions in connection with goods listed in Annexes VII, XI and XX
The main changes to Regulation (EU) No. 269/2014 are as follows:
- Amendment to Annex I covering sanctioned persons, entities and bodies
- Editorial changes, e.g. with regard to circumvention, e.g. Art. 3 para. 1 lit. h) ii) “undermine the provisions in any other significant way”
- Creation of exemptions, e.g. for the withdrawal of investments from Russia
II. New information disclosure obligation with 11th package of sanctions
In addition, since 24 July, there has been an obligation for all economic operators to submit information to the EU authorities responsible for their place of business (in Germany to BAFA) in order to facilitate the implementation of Regulation (EU) No. 833/2014 (Art. 6b para. 1 Regulation 833/2014) within two weeks of receipt of such information. In Germany, a violation of this new “information disclosure obligation” is punishable by a fine of up to EUR 30,000 under Section 19 (5) No. 1, 4 AWG. A similar provision already exists in Art. 8 in Regulation (EU) No. 269/2014. Violations of the information disclosure obligation under the latter regulation could even be prosecuted as a criminal offence in the future.
The information obtained in this way by an authority in the EU under this new provision (Art. 6b para. 1 Regulation 833/2014) is to be forwarded to the EU Commission within one month (possibly anonymously) after a review. At present, we can only speculate about the practical implications of this new commitment. Companies would certainly do well to take this tightening very seriously and take it into account accordingly.
III. Upcoming changes to criminal law in the EU, prosecution and punishment in relation to EU sanctions law
One shortcoming in the implementation of EU sanctions so far – regardless of the Russian embargo, but illustrated by its experience – is that the EU member states are not sufficiently harmonised in the prosecution and sanctioning of violations of EU sanctions. Currently, for example, the same intentional violations of EU sanctions can be prosecuted and punished in some EU countries as a mere administrative offence and in others as a criminal offence and only with imprisonment. This lack of harmonisation is therefore detrimental to the enforcement and deterrence of sanctions violations. This unequal treatment also invites perpetrators and participants to so-called “forum shopping” by acting in the EU member state with the lowest risks.
To remedy this shortcoming, the EU Commission drafted an EU directive (COM (2022) 684 final) on 22 December 2022, which is currently in the ordinary EU legislative process. Previously, the German government had approved by law an extension of the EU’s competences in this area.
The most essential elements of the EU Commission’s proposal for a directive are:
- A list of violations of EU sanctions that constitute a criminal offence, such as::
- providing funds or economic resources to or for the benefit of a designated person, entity or body;
- refraining from freezing these funds;
- enabling the designated persons to enter or transit through the territory of a Member State;
- concluding transactions with third countries that are prohibited or restricted by EU restrictive measures;
- trade in goods or services the import, export, sale, purchase, transfer, transit or transport of which is prohibited or restricted;
- the provision of financial services that are prohibited or restricted; or
- the provision of other services that are prohibited or restricted, such as legal advice, fiduciary services and tax advice.
- The offence of circumventing an EU restrictive measure includes circumventing or attempting to circumvent restrictive measures by hiding funds or concealing the fact that a person is the actual owner of funds.
- Common basic standards of punishment: depending on the offence, the individual can be punished with a maximum sentence of at least five years in prison; companies may be subject to penalties of at least 5 percent of the total global turnover of the legal entity (company) in the financial year prior to the fine notice.
In Germany, the revision of the Foreign Trade and Payments Act (AWG) in 2013 removed the criminal offence of circumvention, which existed at the time, as there were constitutional concerns about the then boundlessly defined offence of circumvention in the AWG.
The EU Commission’s proposal for a directive clearly provides for the necessity of (re)recording such a criminal offence for certain circumventions in Germany and throughout the EU. Like any other penal provision in Germany, such a criminal offence for circumventions would have to comply with the constitutional requirement of certainty – this should be legally possible through appropriate wording and this could help to close current gaps in sanctioning and prosecution.
The EU Commission would also like to prosecute grossly negligent violations of sanctions as criminal offences in the future. In Germany, this would also not be possible under the previous AWG.
According to the proposed directive, breaches of information and reporting obligations are also to be prosecuted as criminal offences and if they involve funds or economic resources of more than € 100,000. If this limit is exceeded, prison sentences of not less than one year are to be imposed.
It remains to be seen whether the EU Commission’s proposal for an EU directive on the definition of criminal offences in the case of EU sanctions violations will come about as it is already available in draft today. In view of the indisputable gaps in EU criminal law with regard to EU sanctions and the further threat posed by Russia, I do not believe that the planned directive will fail or make any major changes to the draft. The EU is clearly serious about this issue and the more concentrated avoidance of circumvention. Against this background, it should therefore be absolutely clear that the compliance screw in sanctions law and export control is being tightened increasingly. Even a future 12th EU sanctions package against Russia is not a question of “if”, but only of “when”. For affected companies in Germany and the EU, it is therefore important to continue to hold the reins firmly in their hands when it comes to compliance.