The Council and the European Parliament have reached a pivotal agreement, culminating in an EU law that introduces criminal offenses and penalties for violations of EU sanctions. This development is particularly crucial in light of the Russian war of aggression against Ukraine. In this article, we delve into this upcoming legislation.

This article was written by Herman Annink ([email protected]) and Sefa Gecikli ([email protected]), who are focused on financial economic crime, sanctions and international trade compliance within RSM Netherlands Business Consulting. 

 

Decoding the Upcoming Rules on Criminal Offenses for Sanction Violations

Restrictive measures have long been a crucial component of the EU's foreign and security policy toolbox. These measures can include asset freezes, travel bans, and import/export restrictions. However, enforcement of EU sanctions has been a responsibility of individual member states, leading to varied types and levels of penalties due to the differing national systems. Until now, member states were not obliged to criminalize violations of EU sanctions, often opting for administrative sanctions instead.

The Council and the European Parliament have recently concluded negotiations for a landmark EU law, introducing criminal offenses and penalties for violations of EU sanctions. This directive gains significant importance in the current context of the Russian war of aggression against Ukraine, signaling a major shift in the EU's approach to enforcing its sanctions.

This new law stipulates that member states must define certain actions as criminal offenses. This includes assisting individuals under EU restrictive measures to bypass travel bans, engaging in trade of sanctioned goods, conducting transactions with states or entities affected by EU restrictive measures, and providing financial services or performing financial activities that are prohibited or restricted. The directive also criminalizes actions such as covering up the ownership of funds or economic resources by a person, entity, or body sanctioned by the EU. Moreover, inciting, aiding, and abetting these offenses will now be punishable as a crime.

Understanding New Rules

Trade with War Material and Dissuasive Penalties

The directive goes further to state that trade with war material will constitute a criminal offense, not only when committed intentionally but also in cases of serious negligence. To ensure the effectiveness of these measures, member states are tasked with ensuring that violating EU sanctions is punishable by effective, proportionate, and dissuasive criminal penalties. Specifically, when a violation of a restrictive measure occurs intentionally, the maximum penalty must provide for a prison sentence. The directive requires that these crimes be punishable by a maximum penalty of at least one year of imprisonment or up to five years, depending on the offense, with the provision for member states to implement laws that foresee even higher sentences. In addition to imprisonment, fines may also be imposed on those who have violated EU restrictive measures.

Liability and Sanctions for Legal Persons

In a significant development, the directive also establishes that legal persons, such as companies, can be held liable for these offenses. This would apply when an offense has been committed for their benefit by a person in a leading position within the organization. Sanctions for legal persons who violate restrictive measures include disqualification from business activities and the withdrawal of permits and authorizations required for their economic activities.

Stricter Enforcement

Member states are now also required to step up their efforts to ensure respect for EU sanctions. This includes providing for a limitation period, allowing for proper law enforcement, and taking measures to freeze and confiscate the proceeds resulting from the violation of sanctions.

Next Steps

The provisional agreement will now be submitted to the member states’ representatives (Coreper) for endorsement. Following this, if approved, the text will then be formally adopted by both the Council and European Parliament, marking a significant step in the EU's commitment to a unified and effective sanctions regime.