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18 March 2022

Implementation of the sanctions on Russia – overview

When it comes to the operational implementation of the EU sanctions against Russia, various federal and Land authorities cooperate in line with their responsibilities and competences. The following information is intended to provide an overview of how the implementation works and which authorities are responsible.

In terms of understanding how EU sanctions work, it is important to know that EU sanctions become directly applicable law in Germany when the relevant EU legal instruments enter into force. This means, for example, that the obligation to freeze assets applies directly, without German public authorities having to issue any additional orders. Commercial banks, insurance companies and other economic operators are responsible in operational terms for complying with the requirements to freeze assets once the respective EU legal instrument has entered into force; they report on this issue to the Deutsche Bundesbank, in particular with regard to the assets they have frozen.

1. Clarification of terms: what exactly does “freezing of assets” mean? When can seizures be carried out?

It is set out in the EU sanctions regulations that the “funds” and “economic resources ” of listed persons will be frozen. According to the EU provisions, “freezing of economic resources” means preventing the use of economic resources to obtain funds, goods or services in any way. The freezing of assets leads to what is known as a prohibition on disposal. A frozen object may no longer be sold, rented out or mortgaged, or used in any other way as a source of income. This ban is not only directed at the listed persons/entities, but also at all other persons, entities and public bodies that deal with the object. In addition, the listed persons and entities are subject to a “prohibition on provision”. This means that neither funds nor economic resources may be made available to the listed persons.

Examples: A yacht may be kept in a harbour, but it may no longer be chartered out. An individual subject to sanctions may continue to live in a flat that they own, but the property may not be sold or mortgaged. Notaries may not certify this type of transaction, and the land registry may not record a change of ownership.

This also means that assets belonging to sanctioned persons may not be seized or confiscated merely on the basis of EU sanctions regulations. The personal use of these assets continues to be legally permissible. However, using these assets as a source of income is forbidden.

Similarly, funds belonging to sanctioned persons in the form of securities accounts, bank accounts and company holdings are also not simply seized; they are (only) frozen. This means that listed persons are not permitted to access and dispose of these funds. If certain supervisory and decision-making powers are linked to company holdings, these may only be exercised if they do not result in any changes in shareholdings. Dividend payments to listed shareholders are in principle not possible, or may only be made to frozen accounts. This is a consequence of the prohibition on provision, which must always be complied with in addition to the freezing of assets.

However, assets may be seized as a preventive measure if there are concrete indications that sanctions could be being violated with these objects (breach of the freezing obligation, making assets available to a listed person). Judging whether violations are being committed lies at the discretion of the competent threat prevention authorities. Depending on the circumstances of the individual case, these could be the customs authorities, the local police or the local regulatory authorities.

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2. Overview of the responsibilities of different authorities for implementing EU sanctions

When it comes to the operational implementation of the sanctions, various federal and Land authorities cooperate in line with their competences and responsibilities. Regarding the various sanctions, a distinction must be made between the following areas:

  • As mentioned above, in the case of financial sanctions, commercial banks and insurance companies are directly responsible in operational terms for taking the necessary measures to comply with the obligation to freeze assets. In this context, they are obliged to report to the Bundesbank. The Bundesbank (Service Centre for Financial Sanctions) is responsible for releasing frozen funds within the scope of exemptions under sanctions law. This includes in particular withdrawing funds from frozen accounts.
  • The Federal Office for Economic Affairs and Export Control is responsible if prohibitions or authorisation requirements relate to the delivery of goods or the provision of non-financial services in connection with goods (for example, dual-use goods). It is also responsible for authorising exemptions with regard to frozen economic resources.
  • The customs administration monitors the implementation of EU sanctions in the areas of imports and exports in particular and takes suitable operational measures, if necessary in close coordination with the Federal Office for Economic Affairs and Export Control, if questions arise regarding the registration of certain goods under sanctions law, for example.
  • Under German law, the authorities that are tasked with threat prevention or criminal prosecution are responsible for seizures and other actions to secure frozen assets. Seizures or confiscations are only permissible under German law if there is a risk of a sanction violation, for example if there is a risk that frozen assets (e.g. a car or yacht) may be disposed of, because these assets are being offered for sale or rent. As mentioned above, it must be borne in mind that frozen assets cannot usually be seized or confiscated, because in general their personal use continues to be permissible (for example: a person who is on the sanctions list may continue to drive their own car, but they may not use it as a taxi).
  • Violations of EU sanctions provisions are prosecuted by the competent law enforcement authorities within the scope of domestic provisions on criminal penalties and administrative fines.

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3. Interministerial task force

The German government is currently setting up a task force to enforce the sanctions. The Federal Ministry for Economic Affairs and Climate Action (BMWK) and the Federal Ministry of Finance (BMF) are jointly responsible for the task force, with the support of various other government bodies for specific areas.

The task force is being set up to ensure effective enforcement of the sanctions packages as a whole. The sanctions packages cover a wide range of areas (including export restrictions, financial and capital market restrictions, and the listing of individuals and organisations) and are continually being developed further. It is necessary to draw on the expertise of various bodies for the individual sanctions areas. In addition to the BMWK, the BMF, the Federal Ministry of the Interior and the Bundesbank, the task force will also be supported by representatives of the Federal Ministry for Digital and Transport, the Federal Ministry of Justice and the Federal Foreign Office. Additional support will be provided by subordinate authorities (including the Federal Intelligence Service, the Federal Criminal Police Office, the Federal Office for the Protection of the Constitution, the Federal Financial Supervisory Authority, the Customs Criminological Office, the Financial Intelligence Unit, the main customs offices and the Federal Office for Economic Affairs and Export Control) and the Länder.

The question of which ministries are responsible for which specific areas must be coordinated within the task force. Naturally, this process will take place in close consultation with the Länder and the competent subordinate authorities.