Following a recent decision at the EU level to criminalize EU sanctions violations, further steps have been taken to harmonize the definition of criminal offense across the Member States in respect of such violations and add more clarity to the possible penalties.

On 28 November 2022, the European Council unanimously decided to add violations of EU sanctions to the list of “EU Crimes” as already recognized in Article 83(1) of the Treaty on the Functioning of the EU (TFEU). The Council Decision ((EU) 2022/2332) adds these violations to crimes already identified as “particularly serious crimes with a cross-border dimension” in Article 83(1) of the TFEU, which also includes terrorism, trafficking in human beings, sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organized crime.

Following the Council Decision, on 2 December 2022, the European Commission introduced a proposal for an EU Directive¹  that sets out minimum rules concerning the definition of criminal offences and penalties in respect of violating EU sanctions. Since this instrument would be in the form of a Directive, for it to have force of law, the Member States must implement it their national legal orders.

The choice for a Directive as a mechanism to introduce minimum rules demonstrates the EU’s desire to further harmonize the enforcement of EU sanctions, which is currently left almost entirely to national Member State law enforcement authorities. Currently, Member States have different definitions of what constitutes a violation of EU sanctions and which penalties should be applied. Such discrepancies can lead to divergent levels of enforcement of EU sanctions in the Member States, and consequently to an increased risk of circumvention. By criminalizing violations of EU sanctions at the EU level, the EU intends to dissuade sanctions violations and circumvention, as well as guarantee a similar degree of enforcement throughout the EU. This should make it easier to investigate, prosecute and punish sanctions’ violations in all Member States.

More clarity to the definition of sanctions violation and subsequent penalties

Under the proposed Directive Member States must qualify a violation of EU sanctions as a criminal offence in their domestic legislation if it was committed intentionally. The explanatory memorandum to the proposed Directive notes the other reasons to qualify the violation as a criminal offense if it was committed with serious negligence—but only by certain persons, such as legal, financial and trade services professionals.

Article 3 of the proposed Directive sets out the following specific actions that are regarded as constituting sanctions violations:

• Making funds or economic resources available to, or for the benefit of a designated person, entity, or body;
• Failing to freeze these funds without undue delay;
• Enabling the entry of designated people into the territory of a Member State or their transit through the Member State;
• Entering into transactions with third countries, bodies of a third country, or entities owned or controlled by a third state or bodies thereof that are prohibited or restricted by EU restrictive measures;
• Trading in goods or services whose import, export, sale, purchase, transfer, transit or transport is prohibited or restricted, as well as the provision of brokering services or other services relating to such goods;
• Providing financial activities which are prohibited or restricted, which includes the provision of financing and financial assistance, the provision of investment and investment services, the issuance of transferrable securities and money market instruments, the acceptance of deposits, provision of specialized financial message services, the dealing in bank notes, the provision of credit rating services, and the provision of crypto assets and wallets;
• Providing other services which are prohibited or restricted, such as legal advisory services, trust services, public relations services, accounting, auditing, bookkeeping and tax consulting services, business and management consulting, IT consulting, public relations services, broadcasting, architectural and engineering service;
• Circumventing EU restrictive measures (e.g., bypassing or attempting to bypass restrictive measures by concealing funds or concealing the fact that a person is the ultimate owner of funds, see Article 3 (2) (h) and 4 of the proposed Directive which provides examples of the manner in which natural or legal persons may be engaged in EU sanctions circumvention).

Under the proposed Directive, individuals could be held liable to a maximum penalty of at least five years’ imprisonment when their actions involve funds or economic resources which are equal to or exceed €100 000. For legal persons held liable for violating EU sanctions, the proposed Directive requires EU Member States to take the necessary measures to ensure the imposing of effective, proportionate, and dissuasive penalties. The proposed Directive includes as examples of sanctions, criminal and non-criminal fines, exclusion from access to public funding (including tender procedures), grants, and concessions, disqualification from the practice of business activities, withdrawal of permits and authorizations to pursue activities that resulted in committing the offence, being placed under judicial supervision, judicial winding up, and closure of establishments that have been used for committing the criminal offence.

Most importantly, legal persons could be held liable to penalties of no less than 5 percent of their total worldwide turnover in the preceding business year.

As a next step, the proposed Directive will be discussed in the European Parliament and the Council, through the ordinary co-legislative procedure. Under this procedure, both institutions will have the opportunity to propose amendments, and both will need to approve the proposed Directive before it enters into force. This process should be completed in 2023.

Dentons will continue to monitor and report as events unfold. Please feel free to reach out to your Dentons relationship partner if you have any questions or require assistance in sanctions compliance.

¹ The proposal can be consulted here.