paul@paulfoleylaw.ie
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INTRO
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EU Sanctions Compliance

By
Paul Foley
The EU has over 40 different Sanctions (restrictive measures) regimes in place. Some are mandated by the United Nations, whereas others are adopted autonomously by the EU. Compliance therewith is a must.

Failure to comply with EU Sanctions (as implemented) can have serious consequences including:

  • Criminal convictions of the company and fines;
  • Revocation of an export licence/authorisation;
  • Breach of anti-money laundering and terrorist financing legislation;
  • Potential criminal convictions and imprisonment for individuals;
  • Loss of customers and contracts;
  • Inability to comply with or perform obligations under contracts;
  • Funds blocked or frozen;
  • Breach of one or more covenants in Company finance agreements with Lenders.

Towards Compliance

Paul Foley Law provides cost effective advice and drafting on:

  • compliance with the Control of Exports Act 2023;
  • compliance with the EU Sanctions regimes as implemented in Ireland;
  • the clauses required to be included in employment contracts and in contracts for services;
  • the clauses required to be included in all contracts including sales of goods and provision of services contracts;
  • Sanctions and Exports Controls policies;
  • considerations for directors and advice on
    (i) training regimes;
    (ii) screening;
    (iii) legal organisational requirements; and
    (iv) policies implementation in organisations;
  • Records and their retention requirements;
  • Reporting requirements;
  • Restricted party screening;
  • Whistleblowing and requirements to enable it.

EU Sanctions regimes

The EU has over 40 different Sanctions regimes (restrictive measures) in place. Some are mandated by the United Nations, whereas others are adopted autonomously by the EU. Sanctions can take many forms including:

  • Financial sanctions, which include asset freezes and restrictions on financial dealings with designated individuals and entities.
  • Trade sanctions which include restrictions on imports and exports and related services. 
  • Travel bans on designated individuals.
  • Arms embargos.
  • Human rights sanctions. These target state and non-state actors responsible for, involved in or associated with serious human rights violations and abuses.

While EU sanctions inherently have an effect in non-EU countries, the obligations they impose are binding on EU nationals or persons located in the EU or doing business here. However they can have even wider effect (see for example Article 13 of Regulation (EU) 833/2014 as consolidated).

Sanctions and Export Controls

Sanctions compliance necessitate compliance where applicable with the following regimes:

Export Controls including the EU Dual Use regime;

Military equipment regime (export outside the EU of military equipment);

Firearms regime (the export outside the EU of firearms);

Anti-Torture Regulation regime which regulates trade with third countries in goods that could be used for the purpose of capital punishment or for the purpose of torture or other cruel, inhuman or degrading treatment or punishment Regulation (EU) 2019/125 (Anti-Torture Regulation).

No re-export to the Russian Federation

New Article 12g of consolidated Regulation (EU) 833/2014 (concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine) (Regulation) is significant (although it reflects best practice that is already being undertaken).  

It obliges EU exporters to insert a "no re-export to Russia" clause in their export/sale/supply/transfer or similar contracts. This applies to specific types of sensitive goods, including goods related to aviation, jet fuel (Annexes XI, XX to the Regulation), firearms (Annex XXXV to the Regulation, as well as Annex I to Regulation (EU) No 258/2012) and common high priority items (Annex XL to the Regulation).

To ensure its effectiveness, the "no re-export to Russia” clause must contain adequate remedies to be activated in case of its breach. These remedies should be reasonably strong and aim to deter non-EU operators from any breaches.

Criminalising Sanctions breach

Sanctions are enforced by the member states. Definitions of what constitutes a sanctions breach and related penalties, differ between member states. This variation can lead to forum shopping: being the practice of seeking out the member states with the weakest enforcement.

The European Parliament on 12 March 2024, formally adopted a Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures. Upon adoption by the Council (expected shortly) and publication in the O.J. member states must implement the Directive by no later than 12 months after adoption by the Council.

The Directive adopts common definitions for what constitutes, Union restrictive measure, funds, economic resources, freezing of funds, and freezing of economic resources amongst others.

Member States obligations

member states will be required to ensure that the following conduct (amongst others) constitutes a criminal offence (where the prohibition or restriction of that conduct constitutes a Union restrictive measure) (selective extracts only): 

(a) making funds or economic resources available;

(b) failing to freeze funds or economic resources; 

(e) 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;

(f) providing financial services or performing financial activities;

(h) circumventing a Union restrictive measure by:

  • (i) 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, in order to conceal those funds or economic resources;
  • (ii) 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 a Union restrictive measure;
  • (iii) failing by a designated natural person, or by a representative of a designated entity or body, 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;
  • (iv) failing 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 (extracts only).

For advice and drafting on Sanctions Compliance, please use the Contact page or email the firm at paul@paulfoleylaw.ie

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