Dawn raids in Germany in view of exports diverted to Russia

Early in the morning of 9 February 2023, German public prosecutors and customs authorities conducted a dawn raid as part of an ongoing investigation into suspected violation of European Union sanctions against Russia. They searched the premises of three German companies as well as the residence of three individual suspects to seize records, documents and IT equipment.

According to public statements of the public prosecutor's office, the subject of the investigations, which have been ongoing since January of this year, was the sale, export and delivery of US$15.5 m in IT and electrical sectors goods from the German company Smart Impex GmbH to the Turkish based Azu International Ltd Sti. These exports gave rise to the suspicion of circumventing EU sanctions against Russia which prohibit EU persons to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent the prohibitions.  After Smart Impex stopped exporting electronic components to its Russian business partners in view of EU Sanctions, it sold these goods to Turkey as a non-EU country that does not provide for comparable sanctions against Russia. Smart Impex’s components were later found in the remains of Russian missiles in Ukraine which suggests that the goods had been diverted to Russia via Turkey.

Bypassing sanctions as a breach of EU Regulations

This incident is only the latest in a series of investigations and dawn raids carried out by German authorities as well as by other Member States to enforce Russia sanctions. For instance, at the end of August 2022 German customs investigators searched seven companies and residential premises that were under the suspicion of breaching EU sanctions against Russia. Managers and employees of those companies have been alleged of having exported toxic substances and special laboratory supplies to Russia in more than 30 cases without the required export licences.

While unannounced inspections are a standard instrument in German criminal and administrative offences cases, the latest developments send a strong message of even tougher sanctions enforcements. Bypassing the sanctions by casting a blind eye on exports to Russia via third countries will not be tolerated, as Article 12 of EU Regulation 833/2014 (the sectoral sanctions regulation against Russia) clearly demonstrates that it is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions of the EU sanctions. Infringements of sanctions cannot only lead to dawn raids, but can also result in heavy fines, reputational damage and even imprisonment for responsible employees or managers. Therefore, a functioning export control system is crucial to prevent violations and to protect the integrity of a company.

End-use statements

An important tool for export control and sanctions compliance is an end-use statement containing declarations of the consignee or end-user on the end-use and destination of the goods. There are various scenarios in which an end-use statement is required to export a specific good to a specific country. From an export control and sanctions perspective, two scenarios should be distinguished:

• Any export outside the EU to a permitted country (unlike Russia, which is subject to a total ban of dual-use and military exports) of dual-use or military goods that are listed in one of the goods lists pursuant to national or EU export control regulations, cf. Art. 12(4) of the EU Dual-Use Regulation 2021/821: Even if the exporter receives documentation confirming the intended use by the consignee, companies should evaluate whether the profile of the customer raises doubts about the the information provided. In order to prove to the authorities that the company had taken appropriate measures to comply with EU Russia sanctions, companies should consider expressly referencing the ban on re-exports to Russia in the issuing process of the end-use statement.
• Even if a company intends to export goods that are not listed on any of the national or EU dual-use list, hence do not require an export license or an end-use declaration, such statement should be nonetheless requested if the goods are listed on any of the EU Russia sanctions goods lists and there is an enhanced risk and reason to suspect that the goods might be re-exported to Russia. Examples for such situations include an unusually high demand for an individual customer and geographic proximity or known diversion history  between a destination country and Russia, e.g. in case of Belarus. Even if the export control or customs authorities do not initially ask for such a document, it may later become helpful in documenting the steps taken to comply with sanctions against Russia.

German reform proposals

In view of the latest incidents in Germany, and as trade statistics indicate that EU-sanctioned goods find their way in significant quantities from the EU via certain third countries to Russia, the German government has announced its support for a tougher stance in the next EU sanction package concerning indirect exports to Russia. The German Federal Ministry for Economic Affairs and Climate Action published a proposal paper on effectively tackling sanction avoidance on 23th February 2023 which addresses ten possible measures to reduce such bypassing activities. The first measure aims at making companies more accountable by suggesting that exports to certain third countries will only be possible if transparent end-use statements are submitted as part of the export declaration. This shall apply to all sanctioned goods that are of importance to the Russian war machine. In addition, the paper proposes that deliberate violations of the obligation to submit truthful end-use statements should constitute a criminal offence throughout Europe in future. While this  proposal is currently only at discussion stage, companies should nonetheless pay greater attention to the reliability of end-use documents if there might be a risk of diversion of exports to Russia.

Preparing for dawn raids

As shown by the latest events, export control and sanctions are developing very fast, especially in case of sanctions against Russia. Therefore, companies are well advised to stay ahead of this development and adjust their export control system according the new requirements. Specifically concerning potential dawn raids, it should be emphasized that authorities usually take advantage of the element of surprise. Hence, it is of utmost importance that companies are prepared at all times. Only if relevant employees know how to handle such situations can the company maximize the likelihood that its legal rights are respected and minimize the possible reputational harm and negative effects on daily operations.

The five golden rules for company representatives present at a dawn raid are:

• Do not obstruct.
• Only exert influence verbally.
• Accompany and document the actions of the inspectors.
• Reserve rights over documents that may be subject to legal privilege or outside the scope of the warrant.
• Request sealing of documents that may be subject to legal privilege or outside the scope of the warrant.

In the follow-up of a dawn raid, discussions with the customs or public prosecution authorities on the amount of potential company fines may follow. In these cases it is of particular importance to demonstrate that the company has sound compliance measures in place that are bespoke to the respective German laws.

*Roman Jusen, a trainee in our Brussels office, helped with the preparation of this alert.