Effective sanctions compliance has become massively more important, particularly since the EU sanctions against Russia came into force in the course of the Ukraine crisis. There are far-reaching restrictions in various sectors and violations of sanctions can have severe consequences for companies and the natural persons involved. As the criminal law regulations – unlike the sanction measures themselves – are in the responsibility of the Member States, the handling of sanction violations in the EU has so far been very different. This is now set to change.
With the recently published Directive (EU) 2024/1226 on the definition of criminal offenses and penalties for the violation of Union restrictive measures ("EU Directive"), a catalog of sanction violations that must be defined as criminal offenses at national level is being introduced after a long period of advance notice. The EU Directive provides for very high minimum and maximum penalties for both natural persons and companies. The German legislator will also need to adapt the criminal offenses of the Foreign Trade and Payments Act and significantly increasing the range of fines within the one-year implementation period (deadline 20 May 2025). The EU Directive provides for a maximum fine for companies of up to EUR 40 million or 5% of annual global turnover. Currently, the maximum fine is (only) EUR 10 million.
We provide a brief overview below:
1. Specific provisions of the new EU Directive
The new Directive (EU) 2024/1226 primarily contains minimum rules regarding certain sanction violations that are to constitute a criminal offense, as well as the (minimum) penalty range to be applied.
The catalog of punishable (intentional) sanction violations (Art. 3 of the EU Directive) includes violations of the following restrictive measures of the EU:
- Provision prohibitions and freezing requirements (Art. 3 para. 1 lit. a and b)
- Entry and transit bans (Art. 3 para. 1 lit. c)
• Prohibition of entering into or continuing prohibited transactions with (companies in) third countries (Art. 3 para. 1 lit. d)
- Goods-related restrictions on import, export, sale, purchase, transfer, transit, transport or the provision of technical assistance (Art. 3 para. 1 lit. e)
- Prohibition of the provision of certain financial services (Art. 3 para. 1 lit. f)
- Service ban (Art. 3 para. 1 lit. g)
- Prohibitions on circumvention (Art. 3 para. 1 lit. h)
- Authorization conditions (Art. 3 para. 1 lit. i).
According to Art. 3 para. 2, the Member States can set a threshold of EUR 10,000, below which there is no criminal liability. According to Art. 3 para. 3, violations committed with gross negligence should also constitute a criminal offense, at least if military goods or dual-use goods are involved. Furthermore, according to Art. 4, the Member States should also adopt regulations on incitement, aiding and abetting and attempt.
With regard to the range of penalties, the relevant provisions for natural persons can be found in Art. 5 and for companies in Art. 7 of the EU Directive. In addition to criminal sanctions, there are also accompanying non-criminal sanctions:
- For natural persons, the maximum penalty for all of the above-mentioned offenses should be imprisonment (Art. 5 para. 2), but at least a fine (Art. 5 para. 5). To date, many of the violations (in particular those committed negligently) have only been considered administrative offenses under German law Additional provisions apply to violations of certain sanction measures. For example, violations of the prohibition of provision or circumvention are punishable by a maximum prison sentence of at least five years if the offense involves funds or economic resources (goods) worth at least EUR 100,000. In addition to fines, natural persons may also face the revocation of licenses, a ban on holding management positions or running for public office.
- The range of penalties and fines for companies will be significantly tightened. While companies in Germany can currently be fined a maximum of EUR 10 million for intentional violations of criminal offenses under sanctions law (Section 30 (2) no. 1 OWiG), in future fines of up to 5% of the company's total global turnover or EUR 40 million can be imposed for almost all violations. Apart from this, non-criminal measures such as exclusion from public grants, exclusion from public tenders, the withdrawal of permits and licenses and, as a last resort, the court-ordered dissolution or closure of facilities may be imposed.
The other provisions of the EU Directive also include circumstances that are taken into account to aggravate the penalty (such as acting within the framework of a criminal organization) or mitigate the penalty (such as cooperating with the authorities in the investigation), as well as other procedural provisions.
2. Outlook
The Member States now have one year to transpose the provisions of the EU Directive into national law. The German legislator will also have to take action and adapt some of the existing provisions on penalties and fines (in the AWG and AWV). Particularly with regard to the amount of corporate fines, it is of great significance whether they will be linked to the absolute sum of EUR 40 million or the global annual turnover.
In view of the far-reaching tightening of penalties that will apply throughout the EU in the future, effective sanctions compliance is becoming even more important (see also our article). Companies should not carelessly risk being fined enormous amounts or being subject to other measures and should therefore review the effectiveness of their internal processes for sanctions compliance.
We are experts in sanctions law and can advise you on all issues in this context. We are also happy to carry out training and audits on sanctions compliance for you at your company. Get in touch with us!
