Snapshot: economic and financial sanctions in European Union

Economic and financial sanctions

In what circumstances may a person become subject to asset freeze provisions in your jurisdiction? What dealings do asset freeze provisions generally restrict in your jurisdiction?

EU sanctions are instruments of foreign policy designed to uphold universal values such as the preservation of peace, the strengthening of international security, and the consolidation and promotion of democracy, international law and human rights. The freezing of funds and assets can be used to target those whose actions threaten these values, while avoiding negative impacts on civilians.

The freezing of economic resources prevents any use of economic resources to obtain funds, goods or services, including selling, hiring or mortgaging them. The freezing of funds prevents any moving, transfer, alteration, use of, access to or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or other change that would enable the use of the funds, including portfolio management.

Are there any general carve-outs or exemptions to the asset freeze provisions in your jurisdiction?

The competent national authorities may grant exemptions in accordance with the specific rules laid down in the EU regulations. Reasons for such exemptions include, in particular, the basic needs of the designated persons, including the payment of food, rent or mortgage, medicines and medical treatment, taxes, insurance premiums and public utility charges. In addition, consideration is to be given to defence rights in relation to expenditure in connection with the provision of legal services and the property rights of the designated person or entity, as well as humanitarian purposes such as the provision or facilitation of assistance, including medical care, food supplies or the transport of humanitarian workers and related assistance.

Do the competent sanctions authorities in your jurisdiction maintain a list of individuals and entities blocked under asset freeze restrictions?

The European Union provides for a Consolidated Financial Sanctions List. This list contains all persons, entities and bodies subject to financial sanctions under EU law. However, the list does not include those persons, organisations and institutions that are not subject to a comprehensive ban on making funds available, but to restrictions that are only limited to certain areas. In addition, the EU Sanctions Map offers the possibility to check personal restrictions. The EU Sanctions Map covers all persons, entities and bodies listed in the annexes to the embargo regulations and not only those subject to comprehensive bans on making funds available.

What other restrictions apply under the economic and financial sanctions regime in your jurisdiction?

In some cases, restrictions can apply to specific sectors, such as trade with dual-use or military goods. For example, in response to Russia's actions destabilising the situation in Ukraine, the European Union has imposed, inter alia, an arms embargo, trade restrictions on dual-use goods and energy equipment and restrictions on the access to the capital market. These sectoral sanctions are constituted by Council Regulation (EU) 833/2014. The European Commission has published consolidated FAQs regarding the Russia sanctions to assist with interpretation and uniform implementation by national authorities and parties concerned.

Are the competent sanctions authorities in your jurisdiction empowered to issue a licence to permit activities which would otherwise violate economic and financial sanctions? If so, what is the extent of their licensing powers and in what circumstances will they issue a licence?

The implementation of sanctions as well as the issuing of exemption licences are the responsibilities of the competent national authorities.

In Germany, for example, it is possible, contrary to the prohibitions in section 74 et seq. of the Foreign Trade and Payments Ordinance (AWV) (countries subject to arms embargo), to obtain a licence for the sale, export, transit or trading and brokering transactions according to sections 76 and 76a AWV. This is performed through an application to the competent authority (Federal Office for Economic Affairs and Export Control (BAFA)). Pursuant to section 76(2) AWV, it is possible, for example, to export non-lethal military goods to Belarus intended exclusively for humanitarian or protective purposes or for institution-building programmes or for crisis management operations of the European Union and the UN. A licence can also be granted for the sale of non-combat vehicles that have been manufactured or retrofitted with a bulletproof device and are intended solely for the protection of personnel of the European Union and its member states in Belarus, as well as protective clothing for UN and EU personnel and humanitarian workers.

In addition, the export or transit of goods exported or carried out by German authorities for the fulfilment of official duties and intended exclusively for the German authorities' own use or remaining in the German authorities' own custody can be authorised under section 76a AWV. Furthermore, a licence can be granted regarding the export of goods that serve in particular for the self-protection of diplomatic and consular missions.

German authorities have also – contrary to the EU commissions instructions – issued general licences for cases that would otherwise violate EU sanctions regulations, such as General Licence No. 42 for specific services in Russia.

Many EU member states have issued similar rules regarding licensing exceptions.

What is the application process for an exemption licence? What is the typical timeline for a licence to be granted?

The application process for an exemption licence is a matter of the EU member states’ national regulations. Although the member states strive for a more uniform approach, the process and timeline differ greatly from state to state.

For example, in Germany, applications for exemption licences must be submitted to the BAFA via the export online system ELAN-K2. In order to gain access to the system, a one-time registration is required.

When applying for exemption licences, such as for the export of goods to embargoed countries, national authorities usually require an end use certificate. Furthermore, technical data on the product and contractual documents must be submitted with the application.

The duration of the application process is always case-specific and depends on the type of goods, the country of destination and the end user or end use. Due to additional embargo regulations to be observed in addition to the general export regulations, more time must be planned for exports with an embargo reference than for those without an embargo reference. The processing time can therefore range from a few weeks to several months.

To what extent is it possible to engage with the competent sanctions authorities to discuss licence applications or queries on economic and financial sanctions compliance?

It is possible and advisable to contact the competent authorities of the EU member states at an early stage to discuss the requirements for a sanctions-related project. Particularly in the case of exports of military equipment and of dual-use goods, it is necessary to carry out the application procedure in close contact with the competent authorities by ensuring the greatest possible transparency, thereby guaranteeing that the export complies with both national and European export control law.

What reporting requirements apply to businesses who hold assets frozen under sanctions?

The EU financial sanctions regulations contain extensive obligations to cooperate and provide information. Depending on the specific regulation, they can oblige everyone to immediately provide information that facilitates the application of the financial sanctions ordinances such as information on frozen bank accounts and amounts, without undue delay, to the authorities of the EU member states and to cooperate with these authorities in verifying the information.

In addition, member states may establish their own administrative arrangements to supervise financial transactions regarding sanctions.

In Germany, for example, the Service Centre for Financial Sanctions of the Deutsche Bundesbank actively requests information on frozen bank accounts and amounts by sending email circulars to all credit institutions located in Germany when financial sanctions are imposed on new addressees or when names (including aliases) or other identifying characteristics of already sanctioned persons, entities or bodies are changed. In this regard, credit institutions are requested to report any frozen funds held with them to the Service Centre for Financial Sanctions of the Deutsche Bundesbank within one week. Credit institutions with no frozen funds are requested to submit a missing report. Institutions located in Germany are expected to answer the queries of the Service Centre Financial Sanctions of the Deutsche Bundesbank promptly (as a rule, a time window of one week is provided for this purpose) and accurately. In order to comply with financial sanctions and in particular with reporting obligations, the Deutsche Bundesbank has published the Leaflet on Compliance with Financial Sanctions.