BRUSSELS À JOUR – Rockin‘ Around the Christmas Tree
19 December 2024
The European Council has recently adopted the "directive on the definition of criminal offences and penalties for the violation of Union restrictive measures" (2024/1226). The directive is an example of the increasing Europeanisation of criminal law in the EU. It introduces minimum rules that will apply Union-wide to the criminal prosecution of violations of sanctions imposed by the EU and entered into force on 20 May 2024. Member State lawmakers now have twelve months to transpose it into national law.
A few weeks earlier, the "directive on the protection of the environment through criminal law" had already been adopted. In addition, the European Commission has proposed a "directive on combating corruption". At the heart of all three pieces of legislation is the effort to harmonise definitions of criminal offences and criminal penalties in Member States.
Strong European influence on company-related administrative fine law
Some time ago, German lawmakers failed in their attempt to comprehensively reform administrative fine rules applicable to companies. Instead, strong impetus is coming from EU lawmakers: the high density of administrative fine provisions in capital markets law is in large part also due to requirements laid down by the EU, such as the determination of fine amounts based on (consolidated) turnover.
In the wake of an ambiguous judgment of the CJEU, data protection lawyers are currently even debating over shortening the distance between the (potential) culpability of the individual and the liability of the company. Just such a proposal to amend Germany's Federal Data Protection Act (BDSG) was recently made by the Bundesrat, the upper house of the country's legislature: "An administrative fine may […] also be imposed without the finding of fault on the part of a company's representative and […] without the finding of a violation of any supervisory duty." The Federal Government rejected the proposal but observed at the same time "that the need for legislative action might arise in the future", which is possibly to be understood as the announcement of changes to company-related administrative fine law with a European character.
Harmonisation of criminal law must be "essential"
For genuine criminal law, Union lawmakers provide less strong impetus. Under the European treaties, the EU may establish minimum rules concerning only select offences in areas of particularly serious crime, including for example money laundering, corruption, computer crime and organised crime. Additionally, the EU may issue minimum rules on criminal law in areas that already are or that will be subject to harmonisation measures.
Germany's Federal Constitutional Court has adopted a narrow interpretation of these conditions under which the EU can act. In very fundamental terms, the Court sees criminal law as having an identity-defining function: "Through criminal law, a community of law establishes for itself a code of conduct anchored in its values […]." Therefore, the Court opines, criminal law ought not to be employed "as a technical instrument of law for the realisation of international cooperation". Hence EU rules on criminal law must be necessary in the specific case. That leaves no room for full harmonisation. In particular, the EU does not have the power to make rules on the general requirements regarding the definition of criminal liability, for instance relating to intent and guilt as well as the fundamentals of perpetration, participation and attempt.
Nevertheless, portions of criminal law in Member States are already European in character. Considerable Union influence can be seen especially in criminal law provisions under environmental and capital markets law. The EU has even on occasion set the tone in the so-called "core criminal law". To give but one example, several of the more than twenty changes made to the German statutes that define money-laundering offences are the result of requirements imposed by EU directives. This does not apply however to the particularly controversial amendment from 2021 that provides that every criminal offence can be deemed a predicate offence to money laundering – even though one might have expected otherwise. Every new piece of EU legislation relating to criminal law can therefore be followed with interest.
Expansion of the EU's criminal law competences
The adoption of the "directive on the definition of criminal offences and penalties for the violation of Union restrictive measures" was preceded by the first-ever expansion of the list of particularly serious criminal offences mentioned above. The EU reasoned that there was need for it to take action on violations of its restrictive measures because "there seem to be only a few [Member States] in which there are ongoing judicial proceedings" related to such violations. Additionally, the penalties were very heterogeneous, which undermined the enforcement of its sanctions, according to the EU. In particular, there was reason to fear that offenders might choose to conduct activities in breach of the EU's restrictive measures in such Member States that provide for less severe responses (known as forum shopping).
Boost to law enforcement and effective prosecution
In the directive, the EU specifies the conduct that, going forward, is to be treated by all Member States as a criminal offence where it is committed in violation of restrictive measures. "Restrictive measures" are defined as all types of EU sanctions, irrespective of whom they target. This means that the sanctions against Russia are covered, the same as those against Venezuela and Myanmar. The relevant conduct includes, inter alia, making funds or economic resources available, failing to comply with obligations to freeze same, trading goods, providing financial services, legal and tax advice and other services, as well as taking various measures to circumvent restrictive measures. As punishment for most of the defined offences, the directive prescribes a maximum term of imprisonment of at least five years. In all cases, Member States are to additionally provide for consequences for companies.
Germany counts among those Member States that respond to violations of EU sanctions either with criminal law penalties or with fines under administrative law. Put simply, violations committed negligently can be penalised as administrative offences, while wilful violations must be punished as criminal offences. Criminal offences are already punishable by terms of imprisonment lasting three months to five years, which satisfies these requirements of the directive. However, German lawmakers will have to consider that violations of EU sanctions committed with "serious negligence" must likewise constitute criminal offences – at least as far as dual-use items and EU military items are concerned. By contrast, for some of the circumvention conduct specified in the directive, legislators in Germany will be able to argue that criminal liability has been established already on the basis of the principles of criminal imputation and attempt.
The directive also calls on Member States to give a boost to law enforcement and effective prosecution, which is why there will be increased pressure throughout Europe to investigate both individuals and companies in the event of (alleged) violations of the EU's sanctions. In addition, investigations are going to be even more international in the future: the directive expressly calls for Member States to cooperate closely through and with Europol, Eurojust and the European Public Prosecutor's Office.
Risk of greater financial penalties for companies
For companies, this entails a risk of greater financial penalties: while the penalty currently is an administrative fine of up to 10 million euros, the directive requires a maximum of not less than 5% of the turnover for a year or 40 million euros for most of the violations of EU sanctions. Additionally, the directive explicitly underscores the significance of confiscating proceeds gained from offences when it comes to ensuring effective prosecution. To gauge future developments, it is also worth taking a look at rules that Member States are not obliged to implement. As responses to violations of EU sanctions attributable to companies, the directive proposes for example judicial supervision and judicial winding-up. Introducing these measures is (currently still) voluntary for Member States.
