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New Rules to Harmonise Criminal Enforcement of EU Sanctions
On 12 March 2024, the European Parliament adopted a Directive to harmonise the enforcement of criminal offences and penalties for the violation of EU sanctions. Without taking away member states’ prerogative of sanction enforcement, the new rules aim to set consistent definitions of, and minimum penalties for, such violations. Providing financial services or legal advisory services in violation of sanctions will also constitute an offence. The Directive currently awaits Council approval before becoming law.
Harmonised definitions
Following the adoption of the Directive, member states are required to ensure that intentional violation of EU sanctions constitutes a criminal offence. As an example, the following would be caught under the harmonised definition of violation:
- failure to freeze funds;
- providing, directly or indirectly, economic resources or funds to entities in violation of EU sanctions;
- failure to respect travel bans and arm embargoes;
- providing financial services or performing financial activities where the prohibition or restriction of the conduct constitutes an EU sanction; and
- doing business with state-owned entities of countries under EU sanction.
Member states are also required to criminalise violations of sanctions if they are committed with serious negligence. Serious negligence should be interpreted in accordance with national law and case law of the Court of Justice of the European Union. Inciting, aiding, and abetting violations of EU sanctions also constitutes criminal activity.
Some exceptions include criminal conduct involving economic resources, goods, transactions or activities of a value less than EUR10,000, and legal professionals reporting obligations that conflict with legal privilege and humanitarian assistance.
Penalties
In order to avoid forum shopping, whereby parties seek judgment in jurisdictions with weaker penalties, the Directive aims to harmonise penalties imposed by European courts. Additionally, it calls for stronger punishments and sets dissuasive penalties by criminalising the violation and circumvention of EU sanctions.
For natural persons, the offences are punishable by a maximum term of imprisonment of at least one to five years, depending on the sanction violation. For legal persons, the penalty imposed is a criminal or non-criminal fine, in most cases, at least 5% of the entity’s worldwide turnover or an amount corresponding to EUR40 million. The term ‘legal person’ encompasses all legal entities which have such status under applicable law (this will be clarified when the states enact the legislation), except for states or public bodies exercising state authority and for public international organisations.
While courts retain their discretion in imposing penalties, they are invited by the Directive to consider certain aggravating and mitigating factors.
Additional points addressed by the Directive
Member states are also required under the Directive to ensure that necessary measures are in place to provide for limitation periods of at least five years that enable the investigation, prosecution, trial, and adjudication of sanction violations.
The Directive also sets out harmonised rules on jurisdiction, protection of whistle-blowers, investigative tools, national, EU and international coordination, and increased transparency and monitoring.
Conclusion
The European Parliament's approval of new rules is stated to harmonise the enforcement of EU sanctions. It marks a further step towards the EU’s endeavour to uphold its foreign policy objectives. These rules are still awaiting approval by the Council, following which it will enter into force 20 days after its publication in the Official Journal of the EU. Member states will have a year to enact the rules from publication.
The rules will impact companies established in the EU and EU nationals wherever they are resident.
After the vote, rapporteur Sophie in ’t Veld (Renew, the Netherlands) said: “The Russian invasion benefits from crooks breaking the law in Europe. They must be caught, and forum shopping must stop. We need this legislation because diverging national approaches have created weaknesses and loopholes, and it will allow for frozen assets to be confiscated. Parliament took an ambitious, harmonising approach to the law, and even though we could not close all the loopholes we wanted to, it is an improvement on the current situation and shows our strong support to Ukraine.”