Practical and legal implications in Germany following the EU harmonization of enforcement and penalties for sanctions violations

On 24 April 2024, the EU adopted a new directive (Directive (EU) 2024/1226 of the European Parliament and of the Council) which establishes EU-wide rules for defining criminal offences and penalties related to the violation of EU sanctions (the "Directive"). Member States are required to implement the Directive into national law by 20 May 2025.

German law already has comparatively comprehensive criminal offences in place to punish violations of EU sanctions (see Sections 17-18 of the Foreign Trade and Payments Act – Außenwirtschaftsgesetz – "AWG"). In our experience, the intensity of sanctions enforcement in Germany is also comparatively high. Therefore, the need for implementation of the Directive in German law can be considered moderate overall. Nevertheless, some implementation effort is expected in Germany as well.

Irrespective of a possible tightening of the already comparatively strict German criminal law with regard to EU sanctions, it is to be expected that national authorities will become increasingly aware of EU sanctions issues in the course of implementation in Germany and other Member States. We expect that the pressure from investigating authorities to prosecute will continue to increase.

In detail:

It is clear that there is a need for implementation in German law with regard to the minimum requirements for the maximum level of fines that can be imposed on companies. So far, German law has only set turnover-related maximum limits for certain administrative offenses and the current fixed maximum limits of up to EUR 10 million or higher in case the profits from the misconduct exceed this limit (see Section 30 of the Act on Regulatory Offences – Gesetz über Ordnungswidrigkeiten – "OWiG") are significantly lower than required by the Directive for certain offences.

There are probably two ways in which Germany can meet the mentioned requirements: For one, Germany could introduce a special provision specifically for the infringements covered by the Directive, providing for a range of fines that meets the specified requirements ('small solution'). Alternatively, Germany could amend the general provision in Section 30 OWiG and thus increase the range of fines for all corporate offenses in a way that meets the requirements of the Directive ('major solution'). In view of the fact that European legislation has recently ordered the regulation of sanctions for companies in several cases that go beyond what was previously possible under Section 30 OWiG, such an approach could appear consistent. However, past experience suggests that the legislator will tend to avoid a 'major solution' and prefer to meet the requirements of European law by introducing special provisions that relate exclusively to the regulatory scope of the Directive.

There may also be changes in German law regarding criminal offenses for the purpose of sanctioning the acts referred to in the Directive. Even if it appears that the criminal provisions of German law already cover a wide range of EU sanctions, the legislator will have to carefully review the current German criminal law. This is also necessary in order to meet specific requirements, such as criminal liability for gross negligence. In this respect, a tightening of German criminal law seems possible, for example, as – contrary to Art. 3(3) in conjunction with Art. 3(1)(e) – under current German law gross negligent violations of export bans concerning dual use goods may only be considered as administrative offences under Section 19(4) and (5) AWG and not as criminal offenses.

The German legislator may also need to take action with regard to the requirement to criminalize the circumvention of specific EU sanctions (see Article 3(1)(h)).In this respect, the degree of effort required for implementation in Germany is uncertain. It is conceivable that some of the specified acts of circumvention are already covered by existing criminal provisions. In the past, the legislator has taken the position that, for example, the criminalization of the prohibition of making available in Section 18 (1) no. 1 lit. a) AWG already covers existing prohibitions of circumvention under EU directives due to its broad scope. For this reason and because of concerns as to whether such prohibitions of circumvention meet the constitutional requirements for the specificity of criminal law provisions, the legislator has deleted prohibitions of circumvention under previous law – e.g. in Section 34 (4) nos. 2 and 3 AWG (former version). Notwithstanding that, the question of implementation arises in particular with regard to Article 3(1)(h)(iii) and (iv), as under current German law the violation of a (future) reporting obligation under EU law generally only constitutes an administrative and just in one case a criminal offense. By contrast, the transfer of funds of a designated entity which are to be frozen to third parties in order to conceal these funds, as addressed in Article 3(1)(h)(i), may already be largely covered by Section 18 AWG. In this respect German law seems to be even stricter than the Directive, as it does not require an intention to conceal. Similar in result, Article 3(1)(h)(ii), the providing of misleading information in order to conceal that a designated entity is the beneficiary of funds which are to be frozen, – at least to a large extent – seems to be already covered by Section 18 AWG and the existing aiding and abetting principles.

The German legislator will have to examine whether the existing criminal provisions already adequately reflect the prohibitions on circumvention contained in Article 3(a)(h) or whether there is a need for transposition in this respect. Given the general concerns about anti-circumvention provisions in German criminal law, it is also conceivable that attempts could be made to circumvent the provisions of the Directive by defining specific acts of circumvention.

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