New EU sanctions and criminalization of sanctions breaches
We refer to our previous sanctions updates which can be found here.
On 23rd June, EU issued its 11th sanctions package against Russia which includes the following:
The legislative text of the 11th sanctions package can be found here.
Various activities and products remain unsanctioned, but the compliance challenges for companies are significant. Any business transaction which has a Russian nexus entails sanctions risks even if the traded product in itself is not subject to sanctions. The lack of a prohibition may in that case only create an illusion of lawfulness. In addition, any trade with Russia entails reputational risks and companies run the risk of being black listed by customers and other stake holders.
On 9th June the EU Council announced a proposal for a Directive to ensure effective and homogeneous sanctions enforcement amongst Member States. The proposal includes the following:
The text of the proposal can be found here.
Clearly, EU as well as US and UK, focus on the enforcement of sanctions generally and combat of sanctions circumvention specifically. Notably, “circumvention” in a sanctions context means to knowingly and intentionally participate in activities the object or effect of which is to circumvent prohibitions.
The opaque sanctions environment gives rise to, in particular, the following sanctions risks of which companies should be aware:
Transactions with a listed entity
Considering the great number of sanctioned persons and entities, including Russian oligarchs having business interests all over the world, it is necessary for companies to have risk based procedures in place in order to ensure that the company is not involved in any transaction with a listed entity, or an entity owned or controlled by a listed entity.
Participation in a circumvention scheme
Russian companies make significant efforts to get hold of sanctioned products. Companies involved in the export of products subject to sanctions need to adopt risk based procedures in order to minimise the risk that those products are re-exported to Russia via third countries such as China, UAE or Turkey.
Breach of warranties in loan agreements
It is not uncommon for loan agreements to contain warranties to the effect that the borrower undertakes not have any direct or indirect association with “sanctioned counties”. Companies should ensure that not only its own operations but also the operations of any subsidiaries comply with any such warranty.