Sanctions law on the horizon: The Sanctions Enforcement Act I

1. Background

In our recent Jusletter on the status of the EU sanctions packages, we already referred to the Sanctions Enforcement Act (SDG). As the name of the Act suggests, the core concern of the legislator is to enable effective enforcement of the law. The adoption of a more far-reaching Sanctions Enforcement Act II is also already being planned. We will inform you about this separately.

The SDG must be seen against the fundamental principle of implementation and enforcement of EU law by the member states, which is in line with Article 59 of the German Constitution. This principle must also be observed for regulations and decisions that apply directly to the entire EU from the day they come into force.

An accompanying measure to monitor the effective enforcement and application of the existing law has been created by the EU with an anonymous whistleblower system. This system can be accessed via the following link: https://eusanctions.integrityline.com/frontpage.

2. More Effective Enforcement of Sanctions Regulations – The Sanctions Enforcement Act

To close identified gaps in the legislation quickly and temporarily and to enable effective enforcement of existing sanctions, a draft SDG I is now available. The German Cabinet adopted this draft on 10 May 2022.

It aims to clarify competences, creates rights for investigative interventions and promotes cooperation between the competent authorities.

2.1. Asset identification

It extends the possibility of asset tracing and seizure of assets until the ownership position is clarified. Regional authorities are assigned responsibility for the application and enforcement of foreign trade law provisions, but federal authorities are also authorized for individual tasks under the Act. The draft considers an extension of the data transmission powers of authorities involved. Authorities involved in the enforcement of sanctions, such as the Customs Criminal Investigation Office, the Bundesbank and the Federal Office of Economics and Export Control (BAFA), will be given access to the transparency register and to account queries at the Federal Financial Supervisory Authority (BaFin) in accordance with section 26a of the draft, which provides for an amendment to the current Money Laundering Act.

Cooperation with the Central Financial Transaction Investigation Unit (FIU) in asset identification is considered in the draft, as is the legal basis for immediate measures by the FIU to prohibit transactions with possible sanction relevance as well as the operational analysis ex officio pursuant to section 40 of the draft.

The draft contains far-reaching intervention standards with the planned amendments to section 9 AWG, sections 9a to 9d are to be added to it. The measures to be taken after seizure will be discussed in more detail below. At the level of investigation, § 9a of the draft initially regulates:

– rights to information

– rights of interrogation

– the possibility to seize and confiscate documents and objects

– rights of entry

– rights of search

– inspection of land registers and public registers, a possibility of retrieving account information, as well as inspection of the flag register and the aircraft register.

2.2. Penal obligation to report

The draft law provides for various amendments to the Foreign Trade and Payments Act (AWG). Of central importance for economic operators is the penalty-based regulation of an obligation to notify under an amended Section 18 AWG with reference to a newly drafted Section 23a AWG if a notification is not made, not made correctly, not made in full, not made in the prescribed manner or not made in time.

According to Section 18 para 1 AWG in its existing version, the legal consequence of a violation is a prison sentence of three months to five years. The list of prohibited transactions listed there under No. 1 a) is supplemented in adaptation to the requirements of the EU; as a result, in addition to a ban on export, import, transit, transfer, sale, acquisition, supply, provision, transfer, service or investment, there are also bans on broadcasting, transmission, dissemination or other services. Ultimately, this is a clarification that these sectors belong to prohibited services.

The obligation to provide information under Article 23 AWG is to be extended to outsourcing companies and other subcontractors by amending Article 23 para5 AWG.

2.3. Extended duty of disclosure for logistics service providers

In case of knowledge of frozen funds or corresponding economic resources, the newly amended Section 23a AWG provides for a special duty of disclosure for logistics service providers. For the definition of a logistics service provider, the legislator has referred to §§ 453, 467 HGB. Overall, a broad interpretation of the term within the meaning of the law is recommendable. In case of delimitation difficulties, it is advisable for companies to clarify at an early stage whether they are logistics service providers within the meaning of the drafted Section 23 para 2 AWG.

This extended reporting obligation leads to additional organizational constitutes a burden for economic actors, especially in the logistics sector.

2.4. Utilization

For the utilization of an item seized during the enforcement of sanctions, the draft provides in a newly worded section 9c para 5 AWG and allows utilization of the item if

• 1. it is in danger of deterioration or other significant loss of value,
  2. its safekeeping, care or preservation would involve disproportionately high costs,
  3. due to its nature, it cannot be stored in such a way that further dangers to public safety or order are excluded,
  4. it cannot be handed over to a rightful claimant without the conditions of the seizure occurring again,
  5. the person entitled does not collect it within a sufficiently long period of time, although he or she has been notified of the deadline and informed that the object will be disposed of if it is not collected within the deadline.

To return to the luxury yachts mentioned in our previous article, this section is likely to cause particular concern to the owners.

3. 360° view on asset classes

The draft also provides for an amendment to the German Securities Trading Act (WHG), a newly worded § 14 a WHG gives the BaFin far-reaching powers to enforce sanctions.

The intervention options outlined entail amendments to various laws of particular relevance to economic actors, namely the Foreign Trade and Payments Act, the Money Laundering Act, the Banking Act, the Securities Trading Act and the Financial Services Supervision Act.

In view of the breadth of the investigation and enforcement measures enshrined in these laws, one can summarize by identifying the requirement that the legislator does not want to leave the various targeted asset classes any protection or opportunities for fluctuation.

4. Prospects

The draft law classifies the burden on the economy as low. Logistics companies which are affected by the extended duty to provide information may view this differently.

According to SDG II, it is already being considered to create a national register for assets of unclear origin and assets which are directly affected by sanction measures.

For EU citizens and economic actors, the far-reaching investigative powers are likely to have some presence alongside the envisaged reporting obligations. A complete unbundling of assets and decoupling of economic systems is not conceivable without a certain time factor.

As our previous article underlines, it is advisable to remain informed and vigilant to ensure the implementation of required compliance. The contact persons at Ahlers & Vogel Rechtsanwälte will be happy to assist in this regard.