Sanctions: Overview and monitoring
February 24: EU leaders agree on further sanctions against Russia
On February 24, 2022, the Council agreed on another package of individual and economic restrictive measures affecting the following sectors:
- Visa policy
February 25: EU imposes sanctions on Vladimir Putin and Sergei Lavrov
On February 25, 2022, the EU decided to freeze the assets of Russian President Vladimir Putin and his Foreign Minister Sergei Lavrov. In addition, the EU imposed restrictive measures against the members of the National Security Council of the Russian Federation and the other members of the Russian State Duma who had supported Russia’s recognition of the self-proclaimed “republics” of Donetsk and Luhansk.
February 28: EU adopts new measures in response to Russian invasion
On February 28, the EU adopted new measures, including:
- a ban on transactions with the Russian central banks
- 500 million aid package to finance equipment and supplies to the Ukrainian armed forces.
- a ban on overflight of EU airspace and access to EU airports for Russian airlines
- new sanctions against another 26 people and a facility
March 2: EU excludes certain Russian banks from SWIFT system
- EU excludes certain Russian banks from SWIFT (and similar) systems
(among others VTB and VEB)
- EU imposes sanctions on broadcasting activities of state-owned media RT/Russia Today and Sputnik
- Overview at BMWI on all sanctions and embargo regulations:
BMWK – Questions and Answers on Russia Sanctions (bmwi.de)
(question 3 there)
- All regulations are available at:
– EUR-Lex (europa.eu)
- EU excludes certain Russian banks from SWIFT (and similar) systems
Sanctions Compliance: Legal Consequences of a Sanctions Violation by Companies
- Criminal law and misdemeanors: (natural persons)
- Intentional violations of Union sanction and embargo regulations: criminal offense; pursuant to sec. 18 para. 1 AWG imprisonment from three months to five years.
Negligent violations of sanction and embargo regulations of the Union: administrative offense; pursuant to sec. 19 para. 1 No. 1, para. 6 AWG Fine up to EUR 500,000.
- Violation of supervisory duty § 130 para. 1 OWiG – Natural persons: Owner of the business (management, board of directors)
- In case of criminal offense in the company (intentional violation § 18 para. 1 AWG): Fine pursuant to § 130 para. 3 sentence 1 OWiG up to EUR 1 million.
- In the event of a misdemeanor in the company: The fine for the breach of the duty of supervision is calculated on the basis of the maximum fine for the infringement (Section 130 (3) sentence 3 OWiG), i.e. up to EUR 500,000 (see above on Section 19 AWG).
- Association fine § 30 para. 1 OWiG (the company as a legal entity)
- In case of intentional criminal act: fine of up to EUR 10 million (§ 30 para.2 S. 1 No. 1 OWiG).
- In case of a misdemeanor: maximum fine according to § 30 par. 2 sentence 2 OWiG according to the maximum fine threatened for the administrative offense, i.e. up to EUR 500,000 (see above on Section 19 AWG).
Your contact person:
Russian counter sanctions
Russian draft law on the introduction of forced administrations in companies
In addition to import and export bans that have already been adopted, as well as capital controls and a possible halt to gas exports, the draft law “On External Administration for the Management of the Organization” in particular is causing great uncertainty among Russian companies with foreign participation. The law is still in the drafting stage and is meanwhile going through various committees and agencies. The Russian Central Bank has already approved it.
The aim of the draft law is to prevent the outflow of capital from Russia associated with the cessation of business. To this end, state administrations are to be able to be appointed by court order for a period of up to six months, which are to be given far-reaching powers to manage the business of the companies concerned. In particular, they should be able to take measures to ensure the resumption or continuation of the Company’s activities. For this purpose, the draft provides for a spin-off or hive-down of the assets to a newly established company. Subsequently, the shares of the company are to be sold by auction and the shell remaining from the original company is to be liquidated.
The bill applies to companies whose full control or at least 25% of voting shares belong to a foreign natural or legal person affiliated with an “unfriendly” state and the book value of the company’s assets according to the financial statements as of the last balance sheet date exceeds 1 billion rubles or the company has an average of more than 100 employees.
According to the draft, external administration can be ordered for companies in two different cases:
Termination of business activity in violation of the requirements of the legislation of the Russian Federation
This is affirmed if
- the management of the company and / or shareholders have left the territory of the Russian Federation after February 24, 2022, thus evading the exercise of their powers and leaving the company without management contrary to its interests
- they have committed acts or omissions which have led or may lead to a significant reduction in the value of the company’s assets and / or have led to the company no longer being able to meet its obligations
- they have ceased the activity of the company in violation of the legislation of the Russian Federation.
Taking actions that may lead to the liquidation or bankruptcy of the company
This is affirmed if
- it is declared that the company’s activity will be terminated without there being an obvious, economic reason for doing so
- contracts are terminated that are material for the company and
- more than one-third of the workforce will be laid off.
Intellectual property rights
The company should retain the exclusive rights to patents, utility models and trademarks, as well as the rights to use intellectual property, despite the external administration, if the owner is a foreign person associated with an “unfriendly” state (Article 3 item 9 and Article 6 of the Draft Law). This should apply even to rights granted under a license or concession agreement. In the event of early termination of these rights of use from February 24, 2022, they shall be restored. In this case, the bill provides for payment of a fee only from the date of expiration of the term of the external administration. Conversely, this means that during this period there should be no obligation to pay for the use of the intellectual property.
Moreover, by Decree No. 299 of March 6, 2022, the Russian government allows Russian companies and individuals to use inventions, utility models, and industrial designs owned by persons or companies of hostile countries without their consent or compensation.
This is supposed to be a temporary measure. Russia thereby wants to enable companies to continue using innovations from “unfriendly” countries.
The rationale is to offset the impact of gaps in the supply chain and shortages of goods and services caused by the new sanctions imposed by Western countries. The decision on affected products and product groups is made by the Russian government.
Companies should therefore now protect their IP where possible through secrecy and take appropriate technical measures.
Refusal or prevention of the appointment of an external administration – only possible by resuming the activity or selling the business shares
It is possible to file an application with the court for refusal of the external administration. For this, however, the applicants must together hold more than 50% of the voting shares. The request is successful only if convincing evidence of the intention to eliminate the circumstances that formed the basis of the request for the appointment of external management is presented.
Business activity must be resumed within 5 days or the shares of the company must be sold or transferred to trust administration to a natural or legal person who has no connection with “unfriendly” states.
Legal protection against the appointment of an external administrationAlthoughthe appointment of the external administration, which takes the form of a court decision, may be appealed to the court. However, this does not entail a suspension of enforcement.
Recommendations for action
There is discussion of a workaround in the form of a transfer of shares to a subsidiary based in a neutral country or to a trustee. However, it cannot be ruled out that this transfer could also be seen as circumventing the Russian sanctions.
It would also be possible to temporarily interrupt business activities and justify this with any supply bottlenecks that may actually exist. Within the scope of this possibility, what has been said before applies accordingly. It is possible that this behavior will qualify as “withdrawal from Russia” under the bill.
In view of the still unclear legal situation and the constantly changing situation, it is advisable to first explore the risk of appointing an external administration and not to leave the country in a hurry. This also applies in view of the fact that under Russian insolvency law, withdrawal from Russia may be punishable under certain circumstances. This also provides for subsidiary liability of the managing director vis-à-vis the creditors of the subsidiary in the event of provoked insolvency.
Your contact person:
Dr. Dr. Boris Schilmar
Cyber Security and Data Protection
The conflict between Russia and Ukraine has particular implications in terms of cybersecurity and the protection of personal data and trade secrets. Not only is Ukraine a major supplier of IT services to companies around the world, but the number of cyberattacks on companies inside and outside Ukraine has demonstrably increased sharply since the conflict began. As a result of cyberattacks or the war-related failure of Ukrainian service providers, existential risk potentials may arise for which Western companies must also prepare.
Companies should now first analyze the risks with regard to their own cybersecurity as well as business continuity. Particular attention should be paid to links with service providers in Russia, Ukraine and neighboring countries.
Review and adaptation of existing safety precautions
If incident response and business continuity plans exist within the company, they should be reviewed to ensure they are up to date and, if necessary, adapted to known attack strategies of relevant hacker groups, such as ransomware attacks in particular. It is recommended to check the policies of concluded cyber insurances for sufficient coverage and existing liability limitations and to adjust them if necessary. It should be ensured that contacts – or even better, contracts – exist with IT security companies that can be quickly called upon in an emergency. Finally, companies should consider whether they are aware of all the necessary reporting channels to the authorities and whether the corresponding reports can be submitted on time.
Due to the current threat situation, it is even more important to keep the software used up to date in order to minimize the occurrence of security gaps.
Particularly in the case of mission-critical systems or systems on which data of a sensitive nature is processed, attention should be paid to the use of multi-factor authentication, the deletion of unused user accounts, proper network segmentation and adherence to a solid back-up concept.
In addition, the German Federal Office for Information Security (BSI) warns against the use of Kaspersky antivirus products. Due to the software’s far-reaching system permissions and the risk that Kaspersky could be forced to abuse it by the Russian government, the use of the software poses a serious security risk, he said.
Human risk factor
Cyber attacks often originate from virus-infected mail attachments, links or the disclosure of access data. Companies should raise their employees’ awareness of the current heightened threat level. Training courses on the recognition and correct handling of phishing mails and other social engineering strategies are particularly useful in this regard. Employees should be encouraged to report suspected threats immediately.
Securing GDPR compliance – avoiding liability risks
Cyberattacks and IT service provider failures almost inevitably lead to loss of access to, or even unauthorized access to, personal data. Such data protection incidents that may pose a risk to data subjects must be reported to the competent supervisory authority within 72 hours. If necessary, the persons concerned must be informed immediately. Failure to comply with these deadlines constitutes an independent fine under the GDPR. In addition, it is precisely the outflow of data that can expose existing weaknesses in data protection management systems to authorities and third parties. This often shows that no adequate deletion and/or authorization concepts have been maintained, no necessary data separation has taken place, and security mechanisms have turned out to be insufficient or no longer state of the art. In addition to fines, such disclosures may also lead to claims for damages by third parties or even to bankruptcy proceedings. Securing GDPR compliance at an early stage can effectively prevent these liability risks.
Source code backup
It must be checked whether access to all necessary source codes is ensured. If the source code of deployed software is exclusively in the possession of service providers in the affected areas, an attempt must be made to create a means of access in the event of an emergency. The conclusion of escrow agreements with escrow agents outside the affected areas is particularly suitable for this purpose.
Avoidance of further sanctions
In the current situation, companies should take care not to become the additional target of sanctions themselves. The provision of certain IT services to clients in the Donetsk and Luhansk regions may fall under the EU’s February 23, 2022 sanctions list as “technical assistance.” Last but not least, specialized consultants should always be consulted in the event of a ransomware attack. The payment of ransomware as a result of ransomware attacks may be considered terrorist financing under certain circumstances and may result in criminal penalties at the national and international level – especially for companies with business relationships in the United States.
Your contact person:
Customer and employee safety
In principle, it should not be made unnecessarily difficult for refugees from Ukraine to obtain a residence permit for Germany due to the extraordinary situation. For a short stay of up to 180 days in total, they do not even need a residence permit at all. If a stay beyond that or the taking up of gainful employment is desired, according to § 24 para. 1 AufenthG, a residence title for temporary protection can be applied for, with which unrestricted gainful employment is permitted.
Entry aspects in light of COVID-19.
Nationals entering Germany from Ukraine are currently subject to entry restrictions related to COVID-19, and are generally required to present proof of vaccination or proof of recovery from COVID-19 infection; alternatively, a negative PCR test performed no more than 72 hours prior to arrival in Germany or an antigen test performed no more than 48 hours prior to arrival in Germany may be presented. In practice, however, due to the special nature of the circumstances and the hasty crossing of the border in the context of the war, proof is often dispensed with at present. However, it is not possible to make a general assumption.
Group of persons covered
- Foreigners (and thus not only Ukrainian nationals, but also other third-country nationals) who have stayed in Ukraine on 24.02.2022, have already entered Germany or will enter by 23.05.2022;
- Ukrainian citizens or stateless persons and third-country nationals with a protection status in Ukraine are, as well as their family members;
- Third-country nationals who have resided in Ukraine with a permanent or non-temporary residence permit and who cannot safely and permanently return to their country of origin;
- Ukrainian citizens who had a residence or habitual abode in Ukraine on 24.02.2022, but who were temporarily absent from Ukraine on that date (e.g. due to vacation, a business trip, a family visit, etc.) and enter Germany by 23.05.2022;
- Ukrainian nationals who have already legally resided in the territory of the Federal Republic of Germany on 24.02.2022 without possessing the residence title required for long-term residence in the territory of the Federal Republic of Germany, for example because they have made use of the possibility of visa-free entry and residence (90 days within half a calendar year) for a visit.
Short term stay options
- Ukrainian citizens currently staying in Germany for a short stay (= up to 90 days within half a calendar year) do not have to travel back to Ukraine to go through a visa procedure
- Ukrainian citizens who are in possession of a valid biometric passport may enter Germany without a visa for a period of up to 90 days within half a calendar year, whereby no gainful employment is permitted during this stay
- Ukrainian citizens who entered Germany for a short stay without a visa can apply directly in the country for a temporary residence permit for a further period of 90 days, once the 90 days of the short stay have passed
- If Ukrainian citizens do not have a biometric passport, there is generally no possibility of visa-free entry. However, the respective Member State to which the entry is to be made may, pursuant to Art. 6 para. 5 lit. c SBC waive the existence of a visa for humanitarian reasons
Longer-term residence options
In the meantime, the EU has activated the rules for granting temporary protection derived from the so-called mass influx directive (2001/55/EC). This means that the above-mentioned group of persons does not have to go through the regular asylum procedure, as these persons receive immediate protection in Germany and are immediately granted a residence title in accordance with Section 24 (2). 1 Residence Act can apply. The filing of an asylum application to secure a right of residence or to claim social benefits is therefore generally not required for displaced persons from Ukraine.
The mass influx guideline provides, in the context of the application for a residence title pursuant to section 24 para. 1 AufenthG provides for the following rights for long-term residence in Germany:
- Residence permit
- Access to a suitable apartment
- the required social assistance services
- medical or other assistance
- Means of subsistence
- Access to education for minors
- Temporary protection and legal guardianship for unaccompanied minors
The residence permit according to § 24 para. 1 AufenthG can be applied for directly at the responsible foreigners authority in Germany. The competent foreigners authority is determined on the basis of the foreigner’s registration address. The first step is therefore the registration of residence in Germany or the registration / registration in a reception center. In this context, the applicants may be distributed among the Länder in Germany in order to ensure a fair distribution of costs and care, Section 24 para. 4 Residence Act
An appointment must usually be made in person to apply, as biometric data such as fingerprints will be taken. Some foreigners authorities (e.g. in Berlin) offer additional appointments exclusively for the application of residence titles for Ukrainian citizens. The residence permit is printed by the Bundesdruckerei in the format of an identity card and can be picked up at the Aliens’ Registration Office after it has been issued. Waiting times for an appointment are highly dependent on the appointment situation of the responsible immigration office. However, longer waiting times must be expected. In many places, however, a fictitious certificate is issued as soon as the application is filed, which immediately permits unrestricted gainful employment.
Unrestricted access to the labor market is granted by the competent foreigners authority without the consent of the Federal Employment Agency, § 24 para. 6 AufenthG, § 31 BeschV
“Remote work” for the foreign company from Germany is possible in principle from a residence law perspective, as the foreigner is granted unrestricted labor market access: However, social security and tax issues (such as health insurance, etc.) should be kept in mind.
The required documents for the application process depend on the respective foreigners authority in charge, additional / deviating documents may be requested at discretion. In principle, the following documents must be presented: Passport, passport photo, registration confirmation / registration certificate, possibly copy of the entry stamp for border crossing from Ukraine.
Recommendation for action
The German Federal Ministry of the Interior and Homeland Affairs (BMI) has launched the help portal Germany4Ukraine.de. Germany4Ukraine.de is an information service for refugees from Ukraine. This gives them a trustworthy, secure, digital contact point with the most important initial information after their arrival in Germany. The information and services of the portal are available in Ukrainian, Russian, English and German:
Further information is provided by the Federal Employment Agency:
Help for refugees from Ukraine Federal Employment Agency (arbeitsagentur.de)
Options for employment contracts
Ukrainians are often well-trained specialists and thus highly sought-after on the German labor market, especially for companies and industries with a shortage of skilled workers (e.g. in the IT sector). If companies in Germany would like to hire Ukrainian refugees, some special features of labor law must be taken into account, as this group of people are so-called non-EU foreigners.
Permanent and temporary employment relationships can be entered into with Ukrainians.
A fixed term may be based on a factual reason or may be calendar-based without a factual reason. Under the latter arrangement option, the employment contract can be limited to a maximum of two years. Up to this total duration of two years, a maximum of three extensions is permitted (Section 14 (2) sentence 1 Part-Time and Fixed-term Employment Act). In this respect, no special features apply compared to the temporary hiring of employees with German citizenship or EU foreigners.
An alternative is the fixed-term contract. Thus, in principle, it is possible to link the existence of a valid residence or work permit with the effectiveness of a fixed-term employment contract. Such a factual reason may be a reason for a fixed-term contract that lies in the person of the employee, see Section 14 (1). 1 No. 6 Part-Time and Fixed-term Employment Act. The prerequisite for this is that the work permit itself is also temporary. Furthermore, it must be noted that the employer must be able to make a prognosis when concluding the employment contract that the residence or work permit will also end at the specified time and will not be extended. It is not sufficient if it is uncertain for the contracting parties whether the work permit will end on the specified date or not. This legal question must be carefully examined in each individual case – both when the contract is concluded for the first time and, in particular, when it is renewed. Otherwise, the fixed-term contract may be invalid with the consequence that the employment relationship is deemed to have been concluded for an indefinite period (Section 16 sentence 1 Part-Time and Fixed-term Employment Act).
Significant for a company’s consideration of whether to hire Ukrainian refugees on a permanent or temporary basis is the question of how to disengage from an employment contract if it is permanent. If a work permit has expired or been revoked, this may constitute grounds for ordinary termination of the employment relationship with the non-EU foreigner. In such a case, there is usually a so-called person-related reason for termination, as the employee is permanently no longer able to perform the work owed by him. However, a termination in this context is only effective if the renewed granting of the work permit has been denied with legal effect or the employer could not have expected the granting of the work permit at the time of receipt of the termination notice and keeping the workplace open for the employee would mean a considerable operational impairment for the employer.
Regardless of the type of contract chosen (temporary or permanent), the existence of a valid residence permit allowing employment should be included in the employment contract as a condition precedent to its effectiveness. The employer should also always be aware that a lapse of the work permit means a legal ban on employment for the employer. In such a case, the employee may no longer be employed, but on the other hand, he is no longer entitled to his remuneration. However, the employment relationship does not end automatically and must be actively terminated by the employer. Against this background, when drafting the employment contract, it is advisable to stipulate an obligation for the employee to inform his employer immediately and without being asked of any changes in his residence status or work permit.
In addition, companies should keep in mind that when employing Ukrainian refugees, all other labor law requirements that apply when hiring employees must also be observed. In this context, particular mention should be made of the works council’s right of co-determination in hiring (Section 99 of the Works Constitution Act) and any collective bargaining provisions to which the company is subject, as well as the mandatory requirements of minimum wage provisions.
Finally, it is advisable to draft the employment contract in two languages (German and English or German and Ukrainian) in order to break down barriers to understanding on the part of Ukrainian employees and thus also prevent possible misunderstandings or even legal disputes.