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23 February 2024

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. Reports about frozen economic resources such as works of art, real estate, etc are handled by the Federal Office for Economic Affairs and Export Control. The EU regulations require all persons and entities to comply with the sanctions.

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

It is set out in EU sanctions regulations that the “funds” and “economic resources” of listed persons are to 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. 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. “Prohibitions on provision” must be observed by everyone in the EU.

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 in the form of securities accounts, bank accounts and company holdings are frozen as a consequence of a listing but may not simply be seized. 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 Central Office for Sanctions Enforcement (Zentralstelle für Sanktionsdurchsetzung), located at the Central Customs Authority, is the federal authority responsible for systematically investigating frozen assets and in some cases seizing them in the context of threat prevention. To this end, it cooperates closely with other national and international authorities.
  • The Federal Office for Economic Affairs and Export Control is responsible if prohibitions or authorisation requirements relate to the delivery of goods or to 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, exports, and the transit and movement of goods, in particular. In some cases, operational measures are carried out in close cooperation with the Federal Office for Economic Affairs and Export Control, for example if questions arise in connection with the registration of certain goods under sanctions law.
  • 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 used 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. Central Office for Sanctions Enforcement (Zentralstelle für Sanktionsdurchsetzung, ZfS)

The Central Office for Sanctions Enforcement was established with the entry into force of the Sanctions Enforcement Act II (Sanktionsdurchsetzungsgesetz II), which resulted from the work of the joint task force of the Federal Ministry for Economic Affairs and Climate Action and the Federal Ministry of Finance to enforce sanctions. It has been in operation as Directorate XI of the Central Customs Authority, under the umbrella of the German customs administration, since 1 January 2023 and is due to be integrated into the Federal Financial Crime Agency (FFCA), once this is up and running, on 1 June 2025. This move aims to generate synergies between sanctions enforcement and the fight against money laundering and to further improve cooperation between the areas of law enforcement and analysis.

With its specific responsibilities and powers, the Central Office for Sanctions Enforcement is filling a gap in the implementation of financial sanctions. Its work is focused primarily on enforcing financial sanctions against persons and entities listed in EU legal acts, including administrative investigations into their frozen assets. These investigations involve standard investigative measures such as questioning persons, securing documents and objects and searching apartments or business premises. The work of the Central Office for Sanctions Enforcement does not affect the competencies of existing authorities at federal level in the area of sectoral sanctions (e.g. prohibitions on imports and exports).

As well as working together with other national and international entities and authorities, the Central Office for Sanctions Enforcement is also a contact point for anybody with a tip-off about a potential crime.

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4. Fighting sanctions evasion

The monitoring activities carried out by the competent authorities focus in particular on preventing and prosecuting illegal sanctions evasion, such as when goods from the EU reach Russia via third countries, despite being covered by sanctions. In some cases, goods are routed through several third countries before finally reaching Russia. Ever longer and more complex supply chains make it difficult for Western manufacturers and the responsible authorities to enforce sanctions. Furthermore, some goods are transported directly from the exporting country to Russia, but are resold multiple times en-route to conceal their origins.

EU special envoy David O’Sullivan, with the support of G7 partners and the governments of the member states, engages in dialogue with third countries on behalf of the EU to improve cooperation with them and to prevent the evasion of sanctions. With its 11th and 12th sanctions packages, the EU has also established legal instruments such as the “anti-circumvention tool” and the “no Russia clause” to fight sanctions evasion.

At the level of the G7, the Enforcement Coordination Mechanism (ECM) working group coordinates the fight against sanctions evasion among the G7 partners.