AWG amendment provides for tougher penalties for sanction violations

Due to the ongoing Russian war of aggression against Ukraine, the EU wants to make it easier to prosecute violations of EU sanctions. The corresponding Directive (EU) 2024/1226 came into force on May 19, 2024 and must be transposed into German law by May 20, 2025. The draft bill to amend the Foreign Trade and Payments Act and other legislation is currently before the Bundestag. The amendment to the Foreign Trade and Payments Act (AWG) provides for harsher penalties for sanction violations overall. In addition, the previous “waiting period” of two days after new sanctions come into force is to be abolished. Here is an overview of the most important planned changes:

Introduction of particularly serious cases in cases of concealment of sanction violations

Penal provisions are regulated in § 18 AWG. According to Section 18 (1) AWG, custodial sentences of between three months and five years are generally possible. According to the new Section 18 para. 6a AWG-E, in particularly serious cases of a violation of Section 18 para. 1 no. 1a, 4a AWG-E, a prison sentence of six months to ten years is possible.

A particularly serious case is assumed if certain actions are carried out in order to conceal a sanction violation. The following specific examples are given:

• False or incomplete information provided to a public body about the end use, the transport route, the consignee, the consignor, the origin, the buyer, the seller, the quantity, the value or the nature of the goods
• Use of third-country companies within the meaning of Section 138 (3) AO that are controlled by EU companies.

The second case, the use of companies in third countries for concealment, is particularly relevant in practice. These can be partnerships, corporations, associations of persons or estates that have their registered office or management in third countries. A decisive or dominant influence can result from a capital participation or voting rights. It can also be assumed if the third-country company or its management is financially or actually dependent on the EU company. A controlling or decisive influence on the corporate, financial or business affairs of a company is expressed in particular in the ability to make all significant management decisions, business policy decisions and other significant business decisions.

Reckless violations will also be punishable in future

Reckless, i.e. grossly negligent acts will also be punishable in future. This concerns the reckless commission of certain sanction prohibitions relating to dual-use goods, i.e. goods, software and technologies that can be used for both civilian and military purposes. This includes the goods listed in Annex I and Annex IV of Regulation (EU) 2021/821. A prison sentence of up to three years or a fine may be imposed . Reckless conduct in relation to the goods listed in the Common Military List of the European Union is already criminalized in Section 17 (5) AWG.

Higher fines for companies and business owners

According to Section 19 (7) and (8) AWG-E, a fine of up to EUR 40 million can be imposed on legal entities and associations of persons as well as owners of a business. Previously, the upper limit for fines was 10 million euros.

Administrative offenses become criminal offenses

In future, the provision of financial services or the performance of other financial activities, including the provision of financial resources or financial assistance, will also be punishable under Section 18 (1) no. 1 c) AWG-E.

The offense includes a number of actions that were previously prosecuted as administrative offenses under Section 82 AWV. For example

• the granting of loans to Russian companies in the energy sector,
• trading in securities that are subject to Art. 5 or Art. 5a of Regulation (EU) 833/2014,
• the listing of securities covered by Art. 5 (5) of Regulation (EU) 833/2014,
• the execution of transactions in connection with the management of reserves and assets of the Russian Central Bank.

Natural and legal persons, organizations and institutions in the EU are also obliged under Art. 6b of Regulation (EU) 833/2014 to provide information that facilitates the implementation of the Russia embargo to the competent authorities (so-called “public duty”). A breach of this obligation was also previously only covered as an administrative offense by Section 19 (5) no. 1 AWG. In the new Section 18(5a)(2) AWG, the reporting obligation for everyone is punishable to the extent of the mandatory requirements of the Sanctions Criminal Law Directive.

The two-day waiting period is abolished

According to the current legal situation, anyone who commits an act that constitutes an infringement by the end of the second working day after publication of the sanction and is unaware of the prohibition or authorization requirement at the time of the offence will not be punished.

As a result, companies currently have two days to prepare for new sanctions. This deadline is now no longer applicable. Companies must comply with new sanctions lists from the moment they are published.

This places high demands on companies, as they must now ensure compliance with any completely new sanction requirements as quickly as possible.

How companies should prepare for the AWG amendment

Previously, there was also a high risk of overlooking relevant extensions to the embargo requirements and therefore not taking them into account in time. Until now, companies have had two days to react. This waiting period is to be abolished. Companies should therefore ensure that they are immediately aware of newly introduced restrictive measures and can implement the changes immediately. Otherwise, the current draft law threatens even harsher consequences than before.

Companies with subsidiaries in embargoed countries such as Russia should also be particularly careful. If the subsidiary violates an EU sanction (which does not apply to it), this can be attributed to the European parent company. If the suspicion arises that the subsidiary is being used to circumvent or conceal sanctions, a particularly serious case can quickly be assumed under the provisions of the AWV amendment, for which prison sentences of up to ten years may be imposed.

End-use declarations from the recipient can help mitigate the risk for companies exporting goods to third countries.

A “No Russia” or “No Belarus” clause must be included in the contract for the export of certain goods.