Ministerial bill on implementation of Directive (EU) 2024/1226

On 19 May 2024, Directive (EU) 2024/1226 came into force, setting joint minimum standards in the EU Member States for prosecuting violations of EU sanctions. The Directive is intended to help harmonise the criminal law relating to sanctions and contains a list of criminal offences and details of penalties for violations.

The German government has until 20 May 2025 to implement the Directive into German law. A ministerial bill has now been put forward by the Ministry for Economic Affairs and Climate Protection which proposes amendments to a range of German statutes, including the Foreign Trade and Payments Act (Außenwirtschaftsgesetz), Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung), Customs Investigation Service Act (Zollfahndungsdienstgesetz) and Residence Act (Aufenthaltsgesetz).

A. Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance

The amendments mainly involve changes to sections 18 and 19 of the German Foreign Trade and Payments Act as well as section 82 of the German Foreign Trade and Payments Ordinance by creating new offences and upgrading regulatory offences to become criminal offences. The sentences for infringements and the maximum level for corporate fines have also been increased.

I. Criminal provisions

The ministerial bill supplements and extends the criminal provisions which up to now have been contained in section 18(1)(1) and (2) of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz, AWG).

The differentiation between infringements of absolute prohibitions (now section 18(1)(1) of the ministerial bill for the new Foreign Trade and Payments Act) and violations of duties to obtain authorisation (now section 18(1)(4) of the ministerial bill) has been retained. While up to now infringements of “prohibitions on other services” were also criminalised under section 18(1)(1)(b) of the Foreign Trade and Payments Act, a large number of specific prohibited services are now enumerated under (a) to (h). Various activities referred to up to now in paragraphs (1) to (9) and (12), (14) and (16) to (18) of section 82(9) of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, AWV) have been upgraded to criminal offences.

The new section 18(1)(2) of the ministerial bill for the Foreign Trade and Payments Act imposes penalties on infringements of obligations associated with transactions, the use of funds and prohibitions on disposing over frozen funds and economic resources (such prohibitions already exist at the moment).

The bill also contains a new paragraph (3) in subsection (1) of section 18 criminalising certain acts intended to circumvent sanctions, i.e. with the purpose or effect of concealing frozen funds or economic resources or providing false or misleading information.

Up to now, Article 18(5a) of the Foreign Trade and Payments Act imposed penalties on the failure to report or false reporting of information under Article 9(2)(a) of Regulation (EU) No 269/2014. According to the ministerial bill, the plan is to rewrite this criminal provision. Section 18(5a)(1) of the bill is now intended to criminalise all violations of the obligation of sanctioned persons to report funds or economic resources attributable to them under all sanctions regimes. A new section 18(5a)(2) of the ministerial bill for the Foreign Trade and Payments Act provides for criminal liability for all violations of obligations to report which apply to everyone. Although these are part of the standard wording of all sanctions ordinances, it has only been possible to punish them as regulatory offences under section 19(5)(1) of the Foreign Trade and Payments Act up to now.

The types and levels of penalties are to be adapted in some cases. For example, under section 18(6a) of the bill, particularly serious cases of prohibited or unauthorised trading, importing, exporting or other transactions involving goods can be punished by imprisonment of between six months and ten years. For example, a particularly serious case is said to apply if the perpetrator provides a public body with incorrect information about the end-use of goods in order to conceal a sanctions violation.

According to section 18(8a) of the bill, reckless violations of certain prohibitions regarding dual-use items, which have only been punishable as a regulatory offence up to now, could result in a prison sentence of up to three years or a fine.

At the moment, under section 18(11) of the Foreign Trade and Payments Act an exemption from prosecution applies if the act was committed by the end of the second working day after publication of the sanctions regulation in the Official Journal of the European Union and the perpetrator was not aware of the prohibition or requirement to obtain authorisation. According to the bill, criminal liability under section 18(11) of the Foreign Trade and Payments Act will only be waived in future if the act is carried out as humanitarian aid for a person in need.

Even reports regarding frozen funds made voluntarily and in full at a later point in time will no longer prevent criminal liability under section 18(5a) of the bill in line with section 18(13). An exemption is planned for people subject to professional confidentiality requirements, such as lawyers, notaries and tax advisors.

II. Provisions on fines

In addition, the provisions on regulatory fines under section 19 of the Foreign Trade and Payments Act are to be amended. Apart from editorial changes to reflect section 18 of the bill, above all the maximum levels for fines are to be drastically increased.

Section 18(7) and (8) of the bill implement the requirement of the Directive regarding maximum fines and now provide for fines of up to €40 million for criminal offences. The corporate fines that can potentially be imposed on companies for attributable violations of supervisory duties under sections 30 and 130 of the German Act on Regulatory Offences (Ordnungswidrigkeitengesetz, OWiG) will be up to €40 million. Up to now, the maximum fine was up to €10 million for criminal offences (section 30(2), first sentence, paragraph (1) of the German Act on Regulatory Offences) and €1 million for regulatory offences (section 30(2), second sentence and section 130(3) of the German Act on Regulatory Offences).

B. Amendments to the German Customs Investigation Service Act and German Residence Act

Further adjustments are required in the German Customs Investigation Service and German Residence Act. In the first Act, the Customs Criminal Investigation Office (Zollkriminalamt) is to be designated as the coordinating body responsible for enforcing sanctions, which will be responsible for cooperating with the competent bodies in other EU Member States and with the EU Commission, Europol, Eurojust and the European Public Prosecutor’s Office. Under section 90 of the Residence Act, allowing entry into or transit through German territory is to be punishable if the person concerned is subject to a legal ban on entry or transit.

C. Summary and outlook

All in all, the bill designed to implement Directive (EU) 2024/1226 is within the expected scope and is largely limited to the changes prescribed by the Directive. As was to be expected, the rules on criminal and regulatory fines are to be expanded and defined in more detail, while some regulatory offences are to be upgraded to criminal offences. Similarly, the new maximum amount of €40 million for monetary fines and regulatory penalties is also no surprise in this sense, even though it represents a significant increase over the previous maximum level. From a regulatory point of view, not anchoring this increase in the German Act on Regulatory Offences seems questionable.

Another point that is significant in practice is that violations of the duty to agree on “no-re-export clauses” for certain goods will still not be subject to prosecution.

As far as the continuing legislative procedure is concerned, a public consultation will be held before a government draft is prepared. Under the current ministerial bill, the Act is planned to come into force on 20 May 2025, coinciding with the end of the implementation period. In particular, the possibility of self-reporting pursuant to section 22(4) will no longer apply in future due to the reclassification of regulatory offences as criminal offences. In the light of the quadrupling of potential corporate fines, companies would be well advised to review their sanctions compliance processes quickly and thoroughly and to make any necessary adjustments.