Whatever legal change happened says they can’t do business with Russians. I doubt there’s a get out clause saying “unless you got a year up front out of them” in that law.
OFAC(Office of Foreign Assets Control) sanctions are clear-cut and they can issue very large fines for non-compliance. These sanctions have been in place for a while now. It sounds like someone flagged this to their legal department, who then advised to go nuclear, given the threat of large fines.
As I linked elsewhere in this thread: German business people have already gone to jail over breaking sanctions, it is mostly up to interpretation of the (German) authorities whether or not what Hetzner does qualifies as breaking the sanctions. If I were an exec in this position I'd play it very, very safe.
Yes, you are right, but they also serve the US market.
LOCATION. We host our cloud instances in our own data centers in Nuremberg and Falkenstein (Germany) and in Helsinki (Finland). In Ashburn, Virginia and Hillsboro, Oregon (USA), we also provide AMD-based cloud servers and cloud features.
However it could also be "Just easier" or that Hetzner doesn't want to deal with Russians anyway.
Normally the way these financial sanctions go is that you are permitted to give service if it has already been paid for but you cannot take new service. Annual contracts are a normal thing but I don't see the option in Hetzner right now, so it could easily be an oversight.
It could easily be that they take monthly billing only (normally) and have no desire to introduce this to bypass the "russians cannot purchase services" style sanction.