Reporting obligation and sanctions: is Germany failing to ensure sanctions enforcement?


The amendments to the German Foreign Trade and Payments Act through the first Act on the More Effective Enforcement of Sanctions (Sanctions Enforcement Act I) have been in force since 28 May 2022 and are Germany's reaction to the war in Ukraine and the European sanctions imposed as a result. But do the new regulations, in particular Section 23a of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz - AWG), really contribute to more effective sanctions enforcement? 

1. Who is affected by the reporting obligation and what is covered by it?

The subject matter of Section 23a AWG is primarily an obligation to provide information on the part of foreigners and nationals who are affected by sanction measures. Sanctioned persons must report their economic resources and funds comprehensively to the Federal Office of Economics and Export Control and the Bundesbank. This affects both natural persons and companies.

2. Is there a conflict with the right to refuse to testify?

In German and European law, there is a principle of not having to incriminate oneself. It follows directly from the Basic Law of the Federal Republic of Germany and the EU Charter of Fundamental Rights and is a central aspect of the rule of law. No one can therefore be forced to actively participate in their punishment. 

Nevertheless, the reporting obligation forces sanctioned persons to disclose their assets on their own initiative and thus to provide the public prosecutors with information that they would have to determine themselves in the context of proceedings for possible sanction violations. So how is the admissibility of such a reporting obligation justified? 

The legal service of the EU Commission, which responded to a question from the German news format ZDFheute, sees the connecting factor for the problem of freedom from self-incrimination exclusively in the punishability of the violation of the obligation to report. There would be no obligation for the persons concerned to disclose their own violation of the reporting obligation. The reporting obligation itself is punishable by a fine of up to EUR 30,000 and imprisonment of up to one year or a fine. 

However, violations of the current EU sanction measures can also be punishable in principle, e.g. the concealment or alteration of the own assets of sanctioned persons. By making a report, the parties involved would provide the authorities with the necessary information for criminal prosecution in this regard. Through the obligation to report, sanctioned persons would thus have to provide assistance to the prosecution authorities, as it were, in possible proceedings against themselves. From this point of view, the EU Commission's view seems questionable.

Whether the current regulations violate the rule of law will ultimately be up to the courts to decide.

3. How does the implementation work in practice?

Despite the threat of penalties for failure to comply with the obligation to report, according to information from the Federal Ministry for Economic Affairs and Energy, no reports have been received to date, and this despite the fact that the regulation has been in place for several months. Despite the high penalties, those affected do not seem to see the need to file a complaint. The reasons for this can only be speculated. In any case, it is not possible to punish persons who are not known, and those who do not file a complaint remain unknown for the time being.

The German regulation - a model for success?

The German regulation is tried and tested with high penalties and can therefore not be described as toothless. Nevertheless, it does not lead to the desired success. With the new regulation, the German legislator is shifting tasks from the authorities to those affected, who certainly have no interest in sanctions. There are voices that claim that Germany already has a fundamental problem with money laundering prevention. Does Germany also have a problem with the effective enforcement of sanctions? 

The fact is that other countries, such as Italy, have frozen a large number of assets and values since the beginning of the sanctions and are implementing the sanctions much more efficiently. Sanctions always affect their own economies, which every country tries to protect. Does the pronounced Russian business of the German economy lead to a half-hearted implementation of economic sanctions?

It is questionable whether the obligation to report under Section 23a AWG will prove to be an effective tool in sanctions policy in the future, or whether the German legislator should rather provide the authorities with more powers of intervention and possibilities to enforce sanctions rather than putting those affected under the obligation to do so.

A first step in this direction could be the recent announcement by the Federal Minister of Finance, Christian Lindner. A new federal authority, the so-called Federal Financial Criminal Police Office, is to be created. There, the competences for fighting financial crime, which have been fragmented nationwide so far, are to be bundled. In future, this authority will also be the central office for the enforcement of sanctions. Only time will tell whether Germany will become a pioneer in the EU in terms of effective sanctions enforcement.

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