_eu sanctions: extension of liability and uniform penalties
Directive (EU) 2024/1226 sets new standards for the criminal prosecution of sanctions violations - with clear requirements for implementation by the member states and significant consequences for companies. In addition to uniform criminal offenses and sanctions, the directive requires more stringent compliance measures.
The following text sheds light on the background to the directive, the status of implementation in Germany and the practical requirements that companies will face in the future
Background
Directive (EU) 2024/1226 harmonizes the definition of criminal offenses and penalties for violations of restrictive measures imposed by the Union in all EU member states. It strengthens the effectiveness of freezing, making available, and circumvention prohibitions, as well as entry and transit restrictions, and closes existing enforcement gaps in the internal market regulations. In response to Russia's war of aggression against Ukraine, the directive is intended to facilitate investigations and prosecutions of sanctions violations and prevent perpetrators from engaging in “forum shopping,” i.e., systematically exploiting parallel jurisdictions and jurisdictions to their advantage.
Key Provisions
The principal criminal offences defined in Article 3 of the Directive pertain to intentional violations of restrictive measures laid down in Union law, including, inter alia, the direct and indirect prohibition on making funds or economic resources available, obligations to freeze funds and economic resources, entry and transit bans, sectoral embargoes, and the prohibition on circumvention.
Articles 5 and 7 of the Directive set out the penalties that Member States may impose on both natural and legal persons for violations of Union restrictive measures. For natural persons, Member States may — depending on the nature and gravity of the offence — impose custodial sentences with a maximum term of at least one to five years, fines, and additional sanctions such as the withdrawal of licences, disqualification from holding managerial positions, or exclusion from public office. For legal persons — depending on the nature and gravity of the offence — infringements may be punishable by fines of up to 5 percent of the legal person’s total worldwide turnover or up to EUR 40 million. Additional sanctions may include, inter alia, exclusion from public funding or aid, prohibition from conducting business activities, revocation of licences and permits, or closure of establishments.
Under Article 6 of the Directive, a legal person is liable if a criminal offence was committed for its benefit by a person holding a managerial position within that legal entity, or if the offence was made possible due to lack of supervision or control by such managerial staff.
Implementation in Germany
The deadline for transposition of the Directive into national law expired on 30 May 2025. However, unlike other Member States, Germany did not transpose the Directive within the prescribed time limit. In autumn 2024, the then Federal Government merely presented a draft law amending the Foreign Trade and Payment Act (AWG) and other relevant legal provisions.
The draft introduces far-reaching amendments, in particular to Sections 18(1) and 19 of the AWG. Violations of financial sanctions or transaction prohibitions would, in future, be subject to harsher criminal penalties even in cases of slight negligence, not only in especially serious cases. A new criminal offence related to asset concealment is introduced to specifically target circumvention transactions. Reporting obligations will be expanded and will, in principle, apply “to everyone”, with exceptions only for holders of professional confidentiality obligations. Stricter due diligence requirements would also apply to trade in dual-use goods and sanctioned technologies, to effectively close existing loopholes. However, a humanitarian exemption ensures that urgently required assistance is not hindered.
In addition, the draft law proposes an amendment to the Foreign Trade and Payments Ordinance to more clearly define administrative offences in the context of sanctions violations and to impose graduated fines. A new criminal offence would be introduced in the Residence Act, penalising the facilitation of entry by listed persons. The Customs Investigation Service Act would be amended to establish a legal basis for closer cooperation between law enforcement and sanctions enforcement authorities. A coordination office is planned at the Customs Criminal Investigation Office to better coordinate investigations. The draft also proposes changes to competition law: the Federal Cartel Office would receive extended powers to more effectively support the European Commission in cross-border merger and abuse of dominance reviews.
However, it remains unclear whether the draft law will be adopted in its current form, and if so, when its adoption can be expected.
Relevance for Companies
Companies operating within the EU must henceforth expect that the following actions will be criminalised in all EU Member States:
- Failure to freeze funds and economic resources
- Making funds or other economic resources available
- Violations of entry and transit bans against listed persons
- Infringements of sectoral economic sanctions (e.g. embargoes, technical assistance)
- Violations of arms embargoes
- Circumvention of sanctions
- Failure to comply with reporting obligations towards competent authorities
To avoid criminal liability, companies must, as before, conduct risk assessments and regular sanctions due diligence. It is advisable to implement internal control and authorisation procedures for transactions involving third countries, as well as automated screening tools for embargo and sanctions lists. Training and awareness-raising for all staff involved in this area are of utmost importance for (sanctions) compliance.
Companies are expected to respond promptly to requests from competent authorities and to structure internal data in a manner that allows for timely access and disclosure.
If a company fails to embed such risk mitigation measures into its processes and thereby breaches its due diligence obligations, it incurs a significant risk of liability.
Contact:
We would be happy to advise you on the applicable provisions, which are not always easy to determine in individual cases.
Johanna Dobert, Lawyer, Associate
dobert@clayston.com