Commission proposes to overhaul the enforcement of breaches of EU sanctions
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 EU press release and Q&A).
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. The proposed 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
The Proposal requires 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, and (v) arms embargoes.
In addition, the Proposal 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 imprisonment, with the maximum penalty for e.g. breaches of an asset freeze in respect of funds exceeding EUR 100,000 being at least five years of imprisonment;
- 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 their benefit or (ii) there is a lack of supervision or control which has made such breaches possible, with penalties which include fines that should be not less than 5 percent of the total worldwide turnover;
- 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 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 Proposal also provides for minimum harmonisation of rules on aggravating circumstances, confiscation of the proceeds of the breach, and rules on jurisdiction and limitation periods.
The Proposal also provides for more 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 Proposal aims to also require legal professionals to report violations of EU sanctions, 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 may however apply).
What now?
The publication of the Commission’s Proposal only marks the beginning of the legislative process. The Proposal will now follow the ordinary legislative procedure, under which the European Parliament and Council will scrutinise the Proposal.
The average timeline from Commission proposal to formal adoption under the ordinary legislative procedure is 18 months. The Commission has, however, stressed that the harmonisation of enforcement of EU sanctions enforcement is urgent, given the unprecedented scope of the sanctions regime against Russia and Belarus.
On 5 December 2022, the Commission already launched a consultation on this initiative.
For more information on the Proposal, do not hesitate to reach out to any of the authors or to your usual Linklaters contact.
