27.01.2015Tit for Tat EU and Russian Sanctions – Consequences for German Exports
More and more voices are saying that the sanctions imposed between the European Union (EU) and Russia are not yielding the desired results nor are they economically sensible. Political relief and the lifting of sanctions are not yet in sight, however. The following article gives a short summary of the measures imposed by the EU and the Russian Federation as well as the legal consequences and also suggests recommended action.
1. EU Sanctions and Countermeasures by the Russian Federation
The Council of the European Union already reacted to the "Ukraine Crisis" on March 17, 2014. EU Regulation No. 269/2014, which was made broader by Regulation No. 961/2014 dated September 8, 2014, currently prohibits business transactions with explicitly named natural and legal persons, bodies and entities. Since June 31, 2014, it is now also prohibited to import, finance and insure goods which originate in Crimea or Sevastopol.
Regulation (EU) No. 833/2014 dated July 31, 2014, issued an arms embargo and trade restrictions for exporting so-called "dual-use goods", pursuant to which it is prohibited to export to Russia if the end user might be a military end-user or the goods might have a military end-use. It is also prohibited to export energy-related equipment and technologies for projects pertaining to deep water oil exploration and production, Arctic oil exploration and production or shale oil projects. In the financial sector the Regulation covers the acquisition of securities and money-market instruments from Russian credit institutes and affiliated companies with a maturity exceeding 90 days.
With Regulation No. 960/2014 dated September 8, 2014, the EU tightened sanctions and imposed a ban on nine named conglomerates for supplying "dual-use goods". The financial sanctions were furthermore extended to six companies in the area of military goods and the sale and transport of crude oil. The permitted maturity of securities and money-market instruments was shortened to 30 days.
Russia took countermeasures with respect to the sanctions imposed by the EU and imposed a ban on imports for certain agricultural products and food from the EU, USA, Canada, Australia and Norway. This initially applies for one year. Russian customs authorities have been granted a greater level of discretion to check the listed goods with respect to their origin.
2. Legal Consequences of an Infringement of the Sanctions
The above EU Regulations apply directly in Germany without transposition. If a company exports one of the "dual-use goods" defined in the Regulation without possessing the required export license from the Federal Office for Economic Affairs and Export Control (Bundesamts für Wirtschaft und Ausfuhrkontrolle – BAFA), it can have wide-ranging consequences depending on the national law. Deliberately infringing this stipulation is punished with a prison sentence of up to five years. Negligent infringements can result in fines of up to EURO 500,000.00 (§ 18 Subsection 1 No. 1, § 19 Subsections 1 and 6 Foreign Trade and Payments Act (Außenwirtschaftsgesetz — AWG)). Beyond such criminal-law consequences the companies must also expect the profits from the prohibited supply to Russia to be skimmed off.
As an exception criminal liability does not apply if the persons and/or companies involved did not know and did not have reasonable grounds to assume that their action infringed the sanctions. Otherwise reference is made to the extensive circumvention bans.
3. Recommended Action
Increased duties of care for German companies result from the regulations on sanctions. For personal sanctions we recommend always to check how far the sanctioned people have an interest and specific influence on the respective contractual partner.
It should be noted for the export restrictions that agreements concluded before August 1, 2014 (old agreements), are generally not covered by the sanctions. If, however, a license is to be obtained from BAFA for the goods to be exported pursuant to general foreign trade and payments law, a more rigorous examination and longer processing times must also be expected here.
It must be ascertained for the agreements concluded after August 1, 2014, whether the goods to be exported are listed "dual-use goods". It is prohibited to supply to Russia those goods which (might) have a military use. A preliminary inquiry should be made to BAFA if in doubt. If a military use of the respective dual-use goods is excluded, the general licensing requirement remains. A detailed description to be sent to BAFA must include who the end-user of the goods is and what the purpose of use is in the individual case.
The exporting company also has a duty to examine if non-listed dual-use goods require a license and make an application, if necessary, if indications exist or if there is even knowledge that the goods might have a (possible) military use.
If existing agreements cannot be satisfied, each individual case must be examined if the non fulfillment of contractual obligations (e.g. inability to deliver the goods) falls under "force majeure" based on the existing sanctions. While the sanctions and the associated export bans are generally classified as force majeure in the EU, they are not recognized in Russia. A claim to be released from contractual obligations cannot therefore be asserted if Russian law is applicable and/or if the Russian courts have jurisdiction, which raises the question whether claims for damages can be asserted against the European companies and/or whether the European companies can assert damages against the Russian contractual partner based on Russian countermeasures.
It is therefore recommended to review existing contractual relationships with respect to possible risks in connection with termination and rescission rights, liability restrictions and force majeure clauses in particular as well as to make future agreements "sanction-proof".
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