Council proposes to overhaul and strengthen enforcement of EU sanctions - UPDATED
NB: This blog post was originally published on 20 December 2022 and updated on 22 January 2024.
As we previously reported (see here), recent months have been marked by an increased focus on enforcement of breaches of EU sanctions.
On 2 December 2022, the Commission issued a proposal for a directive on the definition of criminal offences and penalties for the violation of Union restrictive measures (the “Proposal”), which intends to completely overhaul the enforcement system as we know it (see also the press release and Q&A).
After adopting its general approach on 9 June 2023, the Council found a political compromise on 15 and 18 December 2023 (the “Compromise Directive”). The text of that compromise was recently published (here and here).
With enhanced cooperation at an EU level and fines possibly going beyond 5% of a company’s global turnover, the EU seems to be showing its teeth and companies may feel the bite.
From national enforcement of EU sanctions…
At present, enforcement of breaches of EU sanctions is primarily left to national competent authorities, and appropriate penalties have to be implemented on a national level. However, this has led to disparities in the level and types of penalties (e.g. administrative and/or criminal liability, penalties, liability of legal persons, etc.) and resulted in inconsistent enforcement throughout the EU.
In light thereof, the European Commission has been looking at ways to harmonise penalties for breaches of sanctions on an EU level, leading to the Council adopting its Decision (EU) 2022/2332 identifying the violation of EU sanctions as an area of crime that meets the criteria specified in Article 83(1) of the TFEU, which would enable the EU to set minimum rules for the definition of criminal offences and penalties.1
This has enabled the Commission to adopt the Proposal on 2 December 2022 and the Council to adopt its Compromise Directive on 15 and 18 December 2023. The Compromise Directive sets out the minimum rules which will need be transposed into national law, noting that the Member States may go further in their enforcement against breaches of EU sanctions.
… to enforcement at the EU level
If adopted, the Compromise Directive would require Member States to ensure that a broad range of intentional breaches of EU sanctions constitute a criminal offence, including breaches relating to (i) freezing funds and economic resources, (ii) making funds and economic resources available, (iii) the entry into, or transit through, the territory of a Member State, (iv) sectoral economic and financial measures (including financial and technical assistance), and (v) arms embargoes.
In addition, the Compromise Directive would require Member States to adopt a range of ancillary rules to ensure a level playing field throughout the EU:
- the maximum penalties for natural persons must include at least five years imprisonment, with the maximum penalty for e.g. breaches of an asset freeze in respect of funds exceeding EUR 100,000 (on the date when the offence was committed). Additional penalties may also apply, such as the withdrawal of permits and authorisations for instance;
- penalties must be imposed on legal persons when (i) persons having a leading position within that legal person have committed a breach of EU sanctions for the benefit of the legal person, where or (ii) there is a lack of supervision or control which has made such breaches possible, with penalties which include high criminal or non-criminal fines that should either be not less than 5 percent of the total worldwide turnover or, alternatively, not less than EUR 40 million. In both cases, Member States are granted some limited leeway on how to calculate the absolute amounts or the turnover (either based on the business year preceding the one in which the offence was committed, or preceding the fining decision);
- whistleblowing measures must be set in place, allowing courts to take into account as a mitigating circumstance that an offender provided the authority with information they would otherwise not have been able to obtain and which help identify or bring to justice other offenders or find evidence, and granting protection to whistle-blowers under the Whistle-blower Directive (EU) 2019/1937;
- inciting, aiding and abetting, as well as attempting breaches of EU sanctions must also be punishable as a criminal offence (although there are exceptions for attempted breaches of the prohibition on circumvention);
The Compromise Directive would also provide for minimum harmonisation of rules on aggravating circumstances (such as organised crimes, offences involving false or forged documents, offences committed by public officials, etc.), mitigating circumstances (in case of useful cooperation with the sanctioning authorities), confiscation of the proceeds of the breach, and rules on jurisdiction and limitation periods.
Member States may decide not to criminalise violations involving funds, economic resources, goods, services, transactions or activities of a value of less than EUR 10,000. However, this does not affect any obligations set out in Union restrictive measures.
The Compromise Directive would also strengthen collaboration on a European level, in particular with Eurojust, Europol and the EPPO, which may lead to more enhanced enforcement.
Of special note is that the Compromise Directive would require legal professionals to report violations of EU sanctions when providing legal, financial and trade services, though professional secrecy / privilege is preserved with regard to information obtained in the course of ascertaining a client’s legal position and in the course of representing clients before courts, administrations and arbitral proceedings. Exceptions apply, however, when the legal professional takes part in the violation of EU sanctions or knows that the client is seeking legal advice for the purposes of violating EU sanctions.
Nothing in the Compromise Directive should be understood as imposing any obligations on natural persons that would prejudice their rights not to incriminate themselves and to remain silent.
What now?
The Compromise Directive still needs to be formally voted on by the European Parliament and Council before it can be published in the Official Journal of the EU and become EU law. votes are expected to occur in the course of March-April 2024, with publication in the Official Journal in May 2024. Although we do not expect major changes in substance to happen in the process of the formal adoption, it is possible that there may yet be some tweaks to the final wording of the final Directive.
The Commission has stressed that the harmonisation of enforcement of EU sanctions enforcement is urgent, given the unprecedented scope of the sanctions regime against Russia and Belarus.
Once adopted, the Directive would enter into force 20 days after its publication in the Official Journal. EU Member States would then still need to transpose it into their national laws within 12 months.
If you would like to discuss any aspect of the new regime, please reach out to the contacts on this post, or to your usual Linklaters contact(s).
