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.
I am pretty sure Martin Hetzner lives in Germany.
This makes the jail option very unlikely.
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.