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Violations of European Union embargo measures not only have an impact on a company’s reputation, but also have consequences under criminal law.
According to Art. 18 (1) No. 1 AWG (German Foreign Trade Act), intentional violations of bans on the sale, supply and provision of services under certain embargo regulations are punishable by law. The law provides for imprisonment of up to five years. Anyone breaching these regulations negligently is still committing an administrative offense. Fines of up to EUR 500,000 are possible. Violations of an arms embargo pursuant to Art. 17 AWG can even result in imprisonment of up to ten years.
Violations quickly bring companies to the investigating authorities’ attention
One well-known example is a criminal investigation against a medium-sized company which has since been discontinued. At one of the company’s sales outlets, a customer purchased electronic goods that are listed as luxury goods in the Russian embargo regulation. Such goods must not be sold, delivered, transferred or exported for use in Russia. The customer provided the responsible employee with an address in Turkey as the billing address and presented matching identification documents. These were presumably forged in order to facilitate the smooth conclusion of the purchase contract. The buyer then declared the goods for export to the customs office at the airport, which stopped the export due to a violation of the Russian embargo. As a result, a preliminary investigation was initiated against the seller’s management. The competent public prosecutor’s office was concerned that the seller had deliberately sold the electronic goods for use in Russia.
In another case, a German company sold and delivered goods to a Russian company that were not listed as such in the Russian embargo. However, these goods were intended to serve as replacement parts for a listed good. According to the Russia embargo regulation, it is not only prohibited to sell or supply listed goods, but also to provide direct or indirect technical assistance in connection with the goods to companies in Russia or for the goods’ use in Russia. Technical assistance also includes the supply of spare parts for the maintenance and repair of listed goods.
It is also noticeable that exports of goods sanctioned under the Russian embargo from the European Union to neighboring Russian states have increased since the start of the war in Ukraine. This relates in particular to the delivery of electronic devices containing, among others, important semiconductors. It is suspected that transactions are made in these countries in order to circumvent the bans under the Russia embargo regulation by supplying the devices from neighboring countries to Russia. However, Art. 12 of the Russia Embargo Regulation prohibits knowingly and intentionally participating in activities aimed at circumventing the Embargo Regulation. Accordingly, in 2022, the majority of investigations into violations of the Russia and Belarus embargoes concerned circumvention transactions.
However, violations of sanctions are not only relevant under criminal law with regard to the Russia embargo: this is evident from an investigation against a German company operating in the field of military communications technology. Press research had confirmed suspicions that the company had allegedly supplied satellite technology and products to the Myanmar military – in some cases via a Myanmar company. The activities are supposed to have continued after and contrary to the tightening of the Myanmar embargo regulation in 2018. In this context, the German company allegedly concluded, among others, a contract with the Myanmar military and a Myanmar company. The order confirmation was issued via a Singapore-based company and the goods were delivered to a company in Vietnam. From there, the contractual items were reportedly delivered to Myanmar. The Myanmar embargo regulation contains personal sanctions and restrictions in the areas of dual-use goods, surveillance technology and equipment for internal repression. It also contains a ban on circumvention. The responsible public prosecutor’s office is currently investigating the German company.
The German company reacted and had a law firm investigate and evaluate the company’s business. An internal company investigation as a result of a suspected violation of foreign trade law can be useful in order to counter further consequences under criminal law and the law of administrative offenses, for example under Art. 130 of the German Administrative Offenses Act (“OWiG”) or the responsible persons’ criminal liability for failing to act. An adequate company-internal compliance management system also requires that possible violations of legal provisions are investigated by the responsible persons.
If a preliminary investigation for violations of foreign trade law is imminent or has already been initiated, it is advisable to seek advice on both criminal law and foreign trade law.