EU Parliament Introduces New Rules on Sanctions Violations

This week the EU Parliament adopted (click here) a new 59-page Directive (click here) on criminalising the violation and circumvention of EU sanctions. The legislation comes at a time when the EU and other western-aligned governments are struggling to ensure adherence to the plethora of new sanctions enacted against Russia following their invasion of Ukraine in 2022.

While EU sanctions are adopted at the EU level, their enforcement falls to individual member states. The new rules aims to effectively harmonise the enforcement of sanctions across the bloc.

The new rules define the following violations which must be transposed into local statute:

• Making funds or economic resources available directly or indirectly to, or for the benefit of, a designated person, entity or body in violation of a prohibition that constitutes an EU restrictive measure;
• Failing to freeze funds or economic resources belonging to or owned, held or controlled by a designated person, entity or body in violation of an obligation that constitutes an EU restrictive measure;
• Enabling designated natural persons to enter into, or transit through, the territory of a Member State, in violation of a prohibition that constitutes an EU restrictive measure;
• Entering into or continuing transactions with a third State, bodies of a third State or entities or bodies directly or indirectly owned or controlled by a third State or by bodies of a third State, including the award or continued execution of public or concession contracts, where the prohibition or restriction of that conduct constitutes an EU restrictive measure;
• Trading, importing, exporting, selling, purchasing, transferring, transiting or transporting goods, as well as providing brokering services, technical assistance or other services relating to those goods, where the prohibition or restriction of that conduct constitutes an EU restrictive measure;
• Providing financial services or performing financial activities, where the prohibition or restriction of that conduct constitutes an EU restrictive measure;
• Providing services other than those referred to in the point above, where the prohibition or restriction of that conduct constitutes an EU restrictive measure;
• Breaching or failing to fulfil conditions under authorisations granted by competent authorities to conduct activities, which in the absence of such an authorisation amount to a violation of a prohibition or restriction that constitutes an EU restrictive measure.

The new law also defines the circumvention of sanctions and ensures that this is a punishable offence:

• Using, transferring to a third party, or otherwise disposing of, funds or economic resources directly or indirectly owned, held, or controlled by a designated person, entity or body, which are to be frozen pursuant to an EU restrictive measure, in order to conceal those funds or economic resources;
• Providing false or misleading information to conceal the fact that a designated person, entity or body is the ultimate owner or beneficiary of funds or economic resources which are to be frozen pursuant to an EU restrictive measure;
• Failing by a designated natural person, or by a representative of a designated entity or body, to comply with an obligation that constitutes an EU restrictive measure to report to the competent administrative authorities funds or economic resources within the jurisdiction of a Member State, belonging to, owned, held, or controlled by them;
• Failing to comply with an obligation that constitutes an EU restrictive measures to provide the competent administrative authorities with information on frozen funds or economic resources or information held about funds or economic resources within the territory of the Member States, belonging to, owned, held or controlled by designated persons, entities or bodies and which have not been frozen, where such information was obtained in the performance of a professional duty.

The new Directive also makes exceeding a certain de minimis threshold criminal offences carrying maximum prison sentences of five years across all member states to deter so-called “forum shopping” where member states with the weakest enforcement regimes are actively sought out by offenders. Courts will also be empowered to set heavy fines although member states will be able to choose whether such fines are based on the worldwide annual turnover of the company or based on set maximum amounts.

 RegTrail Insights

The legislation must now be endorsed by the EU Council. After it enters into force following publication in the Official Journal, member states will be given one year to transpose the new rules into local law. Energy and commodity firms are advised to consider the potential impact of the new Directive on their internal sanctions governance frameworks, particularly those operating in jurisdictions with relatively lighter enforcement regimes.