Harmonisation of EU criminal sanctions law: current developments and challenges for companies and their employees

Introduction

There are considerable inconsistencies regarding the prosecution of EU sanctions violations by the individual member states. While a violation of sanctions in some member states, such as Germany, can be punished as a criminal offence, it may only result in a fine or an administrative consequence in other member states. This discrepancy primarily results from the fact that the EU has no criminal law competence of its own, i.e. it cannot create uniform criminal offences in the member states for violations of EU sanctions itself.

According to Art. 83 of the Treaty on the Functioning of the European Union (TFEU), however, the EU can, under strict conditions and in case of particularly serious crimes, instruct the member states by means of directives to impose minimum requirements for the creation of criminal offences and penalties. Since violations of the EU rules on sanctions have not yet been classified as a “particularly serious crime” under Art. 83 of the TFEU, on 28 November 2022 the Council of the European Union (Council) decided to also include these violations in the list of “EU criminal offences” in order to establish a legal basis for uniform standards.

On 2 December 2022, the European Commission (EU Commission) put forward a proposal for a directive to harmonise criminal prosecution in cases of violations of EU sanctions. The Council followed on 9 June 2023 by defining its negotiating position on a proposal for a directive. However, the European Parliament (EU Parliament) has only issued commentary on a draft directive from the Committee on Civil Liberties, Justice and Home Affairs to date. As soon as the EU Parliament has positioned itself by presenting a final proposal, the road will be clear for final negotiations on the wording to be included in the new directive.

Proposal for a directive by the EU Commission

The EU Commission’s draft directive lays down, in particular, a uniform definition of punishable violations of EU sanctions, such as making available funds or economic resources to sanctioned persons, trading in sanctioned goods or providing prohibited services. The violations are intended to include certain acts of circumvention of EU sanctions, such as concealing funds in the possession of sanctioned persons. Uniform prohibitions of circumvention are aimed at helping to effectively counter the risk of what is known as “forum shopping” – i.e. criminals choosing the member state with the lowest risk of prosecution or the lowest penalty for their activities.

In addition, the proposal for a directive aims to encourage cross-border investigations, prosecution and improving national enforcement bodies to facilitate investigations, prosecution and sanctions. The proposal also determines minimum penalties for violations of sanctions. Thus, member states are, amongst other things, required to ensure that offences committed by natural persons can be punished with fines and imprisonment. In the case of imprisonment, the maximum penalty would be a term in prison between no less than one year (in case of certain circumvention offences) and five years (in other cases) if transactions with a minimum volume of € 100,000 are concerned. Violations of EU sanctions committed by legal persons are also to be punished. Here, the maximum penalty would be a fine between no less than 1 % (in case of certain circumvention offences) and 5 % (in other cases) of the aggregate worldwide turnover of the legal person.

As regards to the subjective elements of the offence, it should be noted that, according to the directive proposal, sanctions violations would be subject to punishment also if committed by gross negligence (grob fahrlässig), while under German foreign trade and payments law at least conditional intent (bedingter Vorsatz) was required up to now.

General approach of the Council

On the basis of the directive proposal of the EU Commission, the Council first of all specified in its general approach of 9 June 2023 that the minimum harmonising directive should apply only to serious violations. Accordingly, violations arising from transactions with a value of less than € 10,000 would be excluded from the scope of the directive.

Moreover, as regards to the assessment of fines for legal persons, the Council proposes an alternative concept for the member states: fines could either be calculated as a percentage amount of the aggregate worldwide turnover of the legal person concerned – the maximum amount should then be no less than 1% (for certain circumvention offences) and 5% (in other cases), respectively. According to the Council’s gen-eral approach, gross negligence is excluded and only an intentional violation of EU sanctions would qualify as a criminal offence.

Draft proposal of the EU Parliament

On 7 July 2023, the members of the Committee on Civil Liberties, Justice and Home Affairs also submitted a draft negotiating mandate.

The draft, in particular, expands the definition of ‘circumvention transactions’ and increases punishment for violations of EU sanctions. Maximum fines against natural persons are to amount to no less than EUR 10 million if an offence is based on a transaction with a value of EUR 100,000, while sanctions against legal persons are to amount to no less than 15% of the legal person’s aggregate worldwide turnover. In addition, the draft emphasises the role of the European Public Prosecutor’s Office (EPPO) in the prosecution of vio-lations of EU sanctions. In contrast to the wording proposed by the Council and the EU Commission, the EU Parliament’s draft provides that, in individual cases, ordinary negligence (einfache Fahrlässigkeit) may be sufficient to incur criminal liability.

Current legal framework in Germany and possible effects of transposition into national law

Violations of EU sanctions can have severe consequences for companies and their employees and result in penalties and fines. In Germany, national regulations governing legal consequences of violations of EU sanctions are provided for in section 17 onwards of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz – AWG). Violations of export, import, transit, sale, acquisition, provision, transfer, invest-ment or service prohibitions are examples of breaches subject to punishment. In addition, violations of li-censing requirements and of prohibitions of the disposal of frozen funds and economic resources are punishable.

A wide range of actions that violate EU sanctions are already punishable under German law de lege lata, so that the definitions of punishable actions proposed by the EU institutions are probably largely covered by German law already.

Nevertheless, it will be interesting to see how the provisions on the prohibition of circumvention will be transposed into national law, as such violations are currently not explicitly punishable under German law (although, depending on the individual case, they may already be covered by criminal attribution laws). It will be no less interesting to observe whether negligent violations of EU sanctions will result in criminal convictions in the future which would cause a paradigm shift in German foreign trade law resulting in a significant increase of the risks of criminal liability and fines for companies and their employees.

Outlook and challenges for companies and their employees

The provisions in the proposed EU directive are yet to be finalised. However, the current discussion about the planned harmonisation of EU criminal sanctions law already shows the growing importance of compliance measures to adequately account for sanctions-related risks. Sanctions list screenings, the review of own products in terms of compliance with sanctions regulations, the observance of prohibitions of provision and circumvention as well as the consideration of possible reporting obligations will therefore continue to be part of the standard repertoire of companies that fall within the scope of EU sanctions. In the context of the current efforts to harmonise criminal offences and penalties for EU sanctions violations, it will be more important than ever for companies to have an effective system in place to ensure compliance with sanctions regulations.

Companies should therefore closely examine their business activities with regard to their risk potential in relation to the EU sanctions regulations now and adapt their compliance management systems accordingly in order to best protect both individual employees and the company as a whole from the risks of fines and criminal penalties.