Economic Sanctions – Steering into calmer waters?!

At the end of last year, the German government ensured that "sanctions" will remain a hot topic for 2025 by presenting the draft bill "to amend the Foreign Trade and Payments Act and other legal regulations". The draft bill aims to implement EU Directive 2024/1226 (the “Directive”) on the definition of criminal offences and penalties for the violation of Union restrictive measures (hereinafter referred to as the "Directive"), which entered into force in May 2024

EU Requirements      

At the forefront of the directive is the list of actions that EU Member States will have to transpose into national law as criminal offenses in the future (Article 3 para. 1 of the Directive). These include, in particular, transportation and insurance services if they are provided intentionally and in violation of the sanction regulations. Specifically designated acts of circumvention are also to be defined as a criminal offence by the Member States in the future.

In addition, the member states must ensure that the offenses thus defined are punishable “by effective, proportionate and dissuasive criminal penalties" (Article 5, 7 of the Directive). The Directive provides for a partially considerable tightening of existing penalties.

For natural persons, the penalty should not be less than one year's imprisonment if the offence involves funds or economic resources worth at least EUR 100,000 at the time it was committed (Article 5 of the Directive). The custodial sentences will be accompanied by criminal or non-criminal penalties or measures, such as fines and/or the withdrawal of authorizations and permits for activities. For legal entities, various measures are intended to encourage compliance with the penalty regulations, ranging from substantial fines to court-ordered dissolution.

In addition, the Member States shall introduce minimum standards regarding mitigating and aggravating circumstances (Articles 8 and 9 of the Directive), harmonize limitation periods (Article 11 of the Directive), define necessary investigative tools (Article 13 of the Directive) and guarantee protection for so-called whistleblowers (Article 14 of the Directive).

The member states must transpose the Directive into national law by May 20, 2025. In view of the upcoming elections in Germany, it is questionable whether Germany will meet the deadline.

Implementation in Germany

In Germany, the majority of the offences covered by the Directive are already standardized as criminal offences in the Foreign Trade and Payments Act ("AWG"). However, there is further need for implementation. In particular, Sections 18 and 19 of the AWG need to be amended in order to comply with the provisions of the Directive.

The proposed revision of the offences is largely in line with the scope mandated by the Directive. It does not go beyond the requirements of the Directive, nor does it include “novel” provisions that could not be considered in the Directive due to time constraints. For example, the draft bill does not include a penalty for failure to comply with the "no-Russia clause" required under the sanctions regime targeting Russia (Article 12g of Regulation (EU) No. 833/2014).

Of particular interest to the transport and insurance industry is the fact that the draft bill provides for custodial sentences of three months to five years for violations of import/export and transportation bans as well as insurance benefits provided in this context.

It is also worth noting that a breach of the obligation to report information on potential sanction violations to the competent authorities is now punishable by law, as is the negligent violation of certain sanction prohibitions relating to dual-use goods.

Outlook

The following articles in this series take a closer look at selected aspects of the Directive and the Draft Bill.