The EU has adopted the 15th and 16th sanctions package against Russia in quick succession – an increasingly complex set of rules that poses major challenges for companies. Sanctions expert Andreas Pollak from Petsche-Demmel Pollak Rechtsanwaelte Gmbh explains how companies can keep track of the situation, what penalties are threatened and why the security industry is particularly affected.
He also talks about other countries under sanctions, the role of drones and the impact on Austrian companies – also with regard to US sanctions and possible negotiations on an end to the war.
Mr. Pollak, the EU recently adopted the 15th and, shortly afterwards, the 16th package of sanctions against Russia – how do companies keep track of this?
It is true that the European Union is constantly imposing new sanctions in the wake of the conflict with Russia (-> current news from the Ukraine war), which are directly applicable to us in Austria. The 16th package of sanctions against Russia was recently adopted on February 24. It introduces innovations in the areas of energy, trade, transport, infrastructure and financial services and provides for new measures to prevent circumvention of the EU sanctions regime. The geographical scope has also been expanded: New measures have also been included in the sanctions provisions against Belarus. The new Sanctions Act 2024 has been in force in Austria since February 11.
In principle, companies should be aware of their sanction law risks and update them on an ongoing basis as part of a risk-based approach. Of course, it is difficult to maintain an overview. The European Union publishes the changes on its website along with comprehensive recommendations. If companies do not have the capacity to keep track of the necessary details – which is often the case – specialists can provide advice.
What are the legal consequences? And what other consequences can violations have for companies?
In principle, violations of the EU sanctions regime are punishable under the Sanctions Act 2024 and the Foreign Trade and Payments Act. Among other things, the law provides for administrative penalties of up to 150,000 euros or, in the case of serious and repeated violations, up to 5 million euros or a multiple of this value if the benefits are quantifiable. There is also the threat of legal penalties, such as in the Sanctions Act – here there is a minimum prison sentence of six months and a maximum sentence of up to five years. In addition, violations of sanctions law can trigger consequences under public procurement law in particular, because there are doubts about the reliability of the supplier.
Where and how exactly are Austrian companies in the security industry affected?
In principle, it is advisable for every company, regardless of its area of activity, to continuously monitor the sanctions provisions and implement internal measures. In any case, increased care must be taken in the security sector as part of the risk-based approach repeatedly emphasized by the Commission. There are numerous provisions designed to prevent the direct or indirect provision of militarily useful goods for Russian warfare. This means, for example, that business relationships with certain contractual partners are prohibited per se and that strict conditions must be observed when exporting numerous goods.
The recently enacted 16th sanctions package is particularly relevant for companies in the security industry, as it includes a ban on the direct import of Russian aluminum, additional export restrictions for industrial goods and an expansion of the list of dual-use goods.
Sanctions against Russia, Russian companies and individuals are one thing, but which other countries are covered by the issue?
There are numerous sanctions against other countries, such as Belarus, Iran, Iraq, Afghanistan and others. In addition, the sanctions lists may include companies and individuals who are not domiciled or resident in Russia. For example, 34 companies that are not based in Russia were sanctioned in the 16th package of Russia sanctions. These are companies that support Russia’s military-industrial complex or are themselves involved in circumventing sanctions.
What role does the topic of drones play here in particular? What is particularly sensitive about it?
Drones play a major role in modern warfare – the EU legislator has also recognized this. As part of the 12th sanctions package, the direct export of engines for drones to Russia was initially banned. Subsequently, in the 13th package of sanctions against Russia, further companies that supply Russia with drone components were sanctioned. Drones also play a key role in the 15th sanctions package, which was adopted in December 2024. Sanctions were also imposed on Chinese companies that supply Russia with drones and microelectronics.
The 16th sanctions package now extends the export restrictions for dual-use goods and thus regulates a further aspect of drone production and handling. Software in connection with numerically controlled machine tools (CNC machines), which are used to manufacture weapons, and video game controllers for controlling drones are now also affected. Manufacturers and suppliers of such goods are subject to export restrictions under the directly applicable sanctions standards, including in particular Regulation (EU) 833/2014.
In what way is Austria affected?
Austria is affected in the same way as all EU member states, as the EU sanction measures apply directly. The direct application of EU sanction standards is intended to ensure that a uniform situation is created in all Member States.
How do US authorities handle the issue – also with regard to Austrian companies?
The USA also imposes far-reaching sanctions against Russia and Russian companies. The central US authority in the context of sanctions law is OFAC – Office of Foreign Asset Control, which maintains a publicly accessible sanctions list publicly accessible sanctions list. The USA provides for numerous secondary sanctions. This means that, from the US perspective, these sanction standards also apply to non-US persons worldwide. The EU is fundamentally critical of such extraterritorial application. In some cases, compliance with foreign secondary sanctions is in turn prohibited within the European Union. However, this does not apply to the Russia sanctions. Austrian companies in the security industry therefore also have to deal with US sanctions in many cases in order to avoid penalties from US authorities and to maintain access to the American market.
If there are negotiations about an end to the war, what do you expect in terms of sanctions
The sanctions are intended to limit the military capabilities of the Russian Federation in many areas. I suspect that this objective will not immediately lapse even in the event of a ceasefire or even a peace agreement.
