Sanctions and their effects, part 1

Sanctions have been in fashion for centuries, and are being broken. The widow Barbe-Nicole Clicquot-Ponsardin, in reaction to Napoleon’s Russian campaign, was concerned with the embargo that the Russian Tsar had imposed on French products in 1812. The widow hired a Dutch ship, had it loaded with over 10,000 bottles of the 1811 vintage, and was delighted when it arrived in Königsberg on August 2, 1814 without damage. Two weeks later the next load followed – the Russian market had been conquered, despite the tsar’s sanctions.


Sanctions affect not only individuals, but also small and medium-sized businesses and industry. Often, one (perhaps false) suspicion is enough to ruin people or companies. Billion-dollar deals are falling through the cracks because specialist staff overlook them, and current sanctions can simply run dry.


Mere suspicion of terrorism is sufficient for the order to freeze an account

The Administrative Court of Frankfurt/Main (ruling of 25 October 2007, file no. 1 E 5718/06) considered it justified that the Federal Financial Supervisory Authority (BaFin) had blocked the account of the credit institution due to investigations by the Federal Public Prosecutor’s Office, Section 6a I No.1 and 2 of the German Banking Act (KWG). The Syrian account holder did not have to be on a “terror list” (of the EU Council), as this list was not exhaustive. Suspicion and investigation are enough.

One could have taken precautions here – but not even all consultants of oligarchs are able to do this. Where banking secrecy has “fallen”, banks have the business model of “transition” – i.e. a clean-up of the files: Account holders become noble trustees, including foundations and trusts.

But one can also ask oneself who informed the BaFin about alleged x-thousand endangered persons?


Membership in al-Qaida is enough for a terrorist conviction – mere support is not enough

A Syrian and two Palestinians wanted to collect around €4.3 million as life insurance sums, through planned fictitious accidental death in Egypt. The BGH (ruling of 14.08.2009, ref. 3 StR 552/08) decided that “integration” into the organisation would have been required for criminal membership.

The Federal Constitutional Court (BVerfG, decision of 7 December 2011, file no. 2 BvR 2500/09, 2 BvR 1857/10) also overturned this decision, as there was already no minimum amount of damage or Without pecuniary loss, at best attempted fraud would come into question – and this is also not yet the case if significant intermediate steps (fictitious accidental death, notification of claim, assertion of insurance benefits) are still outstanding. Fraud is not an “abstract threat”. Life insurance policies taken out in “bad faith” therefore remain unpunished.


Terrorist financing through life insurance

The British – who suffer from terrorism – are leaving the EU not because its regulation goes too far, but because it is still too lax, and German insurers in the common market are endangering the security of the British by unlawful omission. In addition, as an insurance intermediary, one should not complain to the legislator if the latter now calls on him after insurers have not fully taken care of legislation in a satisfactory manner. May he express his thanks there; for example for the additional work involved in checking legitimacy and preventing money laundering. If he doesn’t take this seriously either, everything can be made even worse.

The financing of terrorism is not only carried out in small amounts – perhaps via money transfer or Paypal – but also through veiled money grants. Apparently the insurers have neglected their obligations so far, because “German life insurers have frequently violated the old Money Laundering Act (GWG) for 18 years because they still failed to identify the beneficial owner in 2011, as required by Section 8 GwG since 25 October 1993 – despite all the terrorist attacks including 9/11. According to the BaFin annual report 2016, blatant deficiencies were also identified in 2016”.

So if further groups of persons – such as insurance brokers and real estate agents – are now obliged under the GWG, this is only logical as a reaction to the blatant shortcomings identified.

In annuity insurance, the contributor can pay a single premium and the policyholder can use the subsequent surrender value to finance a serious terrorist attack. This money laundering via the pension scheme would conceal the criminal flow of money – the fact that the tax office receives a notification after payment no longer prevents a terrorist attack. Even carelessness is sufficient for criminal liability (BGH, judgement of 11.09.2014, Az. 4 StR 312/14).

A lot of money can also be raised to finance terrorism through risk insurance, for example by means of fictitious damage. Any exception would be a gateway to bypass. The British could not rely on German insurers in the common market. After the brexite, they alone have more efficient ways to ensure their safety.


Financial terrorism of the subprime crisis was sanctioned, and remains without compensation

The EFTA Court (ruling of 28 January 2013, Case E-16/11) ruled that Great Britain (GB) and the Netherlands will not receive compensation from the Icelandic State for the indemnification (up to GBP 50,000 and EUR 100,000 respectively) of their citizens as customers of Icesave Bank (part of the Icelandic Landesbank) following its bankruptcy. The Icelandic deposit insurance only guaranteed up to 20 TEUR – and not even this money was completely available in real terms; the (Icelandic) state is not liable beside the deposit insurance – even if a chancellor verbally promises it to our savers. Prior to the EFTA Court ruling, GB had unsuccessfully requested an Icelandic State guarantee for British savers from Icelandic banks. The UK Treasury froze the assets of Icelandic companies in the UK: Iceland (Central Bank and Ministry of Finance) and the Landesbank then ended up on the British “rogue list” according to their anti-terrorist laws – in the best company alongside, for example, Al-Qaeda and the Taliban.

Anyone who asks banking associations in this country how much money the “inter-institutional deposit guarantee scheme” has, and how it is currently invested, will not receive an answer, or at best a phone call, because it is better to remain silent. Because security systems do not work in real times of crisis.

In Iceland, many bankers have been sentenced to prison following the subprime or financial crisis, while in other EU regions, for example, embezzlement and fraud by bank(s) have been ignored.


Manger’s error concerning his insurance cover for sanctions

Part of the business model of insurance companies is to collect the money first – in the past, agents would bring it by the company headquarters in suitcases. In the occupational pension scheme (bAV), for example, most entrepreneurs are not aware of the gap between the commitment to employees and the available financial resources for later financing. Many company managers feel the same way – they do not know how much of what they were promised “as protection in the employment contract” is actually available (as manager liability, D&O policy). Most managers hope that things will go well – they don’t know the insurance terms and conditions, and only find out in the event of a claim that it is not even intended that they could sue for benefit(s) from the insurer themselves. Seen in this light, they are carefree, because in the end, with (international) sanctions, the entire private assets, i.e. the bourgeois existence, is at stake.

Perhaps it has not yet been understood that since 2010 and 2012, respectively, it has no longer been possible to insure sub- and subsidiary companies in Syria and Iran. Numerous managers have allowed the payment of insurance premiums for such projects – without checking the numerous international prohibition lists. Agents and brokers usually don’t know them – maybe out of business interest? Managers who know e.g. the EU regulations 961/2010 and 267/2012 are at an advantage. Not only insurance contracts are therefore void, but also those with insurance agents and brokers – some unknowingly ignore the legal situation and then lose everything.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of (published on 11.06.2018)



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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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