The European Union (EU) actively uses restrictive measures, also known as sanctions, to bring about a change in activities or policies such as violations of international law or human rights, or policies that do not respect the rule of law or democratic principles. Sanctions imposed by the EU may target governments of countries or non-state entities and individuals (such as terrorist groups and terrorists). The effects of sanctions can be felt not only by the governments, entities, and individuals targeted by sanctions but also by other unrelated businesses across the globe, including investors, insurers, and importers/exporters.
WHO IS AFFECTED?
Currently, more than 30 countries are subject to EU sanctions, including North Korea, Iran, Syria, Belarus, etc. Most recently the EU adopted restrictive measures in view of the situation in Ukraine which target both Ukrainian and Russian nationals, including companies.
There is a wide range of restrictive measures that the EU can impose to achieve the desired outcome, including:
- financial restrictions (asset freeze, prohibition on financial transactions)
- specific or general trade restrictions (import/export bans)
- restrictions on admission (visa or travel bans)
- various diplomatic restrictions (expulsion of diplomats, suspension of different events or official visits)
The EU most commonly uses economic and financial restrictions, in particular requiring funds and economic resources owned and controlled by designated individuals and entities to be frozen, as well as prohibiting making funds and economic resources available to designated individuals and entities. EU legislation on sanctions is interpreted broadly. This, together with the standard anti-avoidance provision normally included, means that not only the designated individuals and entities, but also parties closely linked to those designated individuals and entities, are caught within the scope of a restrictive measure.
The EU can also impose restrictive measures targeting specific goods or sectors. For example, the EU has prohibited the import into the EU of crude oil and petroleum products from Syria and the export to Syria of key equipment and technology for the oil and gas industry. The ban also includes a prohibition on related technical and financial assistance. Similarly, the EU has prohibited the import into the EU of goods originating from Crimea and Sevastopol to strengthen the EU's non-recognition policy regarding Russia's annexation of those two regions. It is also prohibited to provide financial and insurance services related to the import of such goods.
With regard to sanctions against Russia, the EU has also actively used diplomatic measures. For example, the EU canceled the EU-Russia Summit in June 2014. The EU is currently considering suspending some of the bilateral cooperation programs between the EU and Russia that do not deal exclusively with cross-border cooperation and civil society. The EU is also using its power to influence the European Bank for Reconstruction and Development (Russia is one of the shareholders of the bank) and the European Investment Bank to suspend lending to Russia.
Very often the EU uses a combination of different restrictive measures. The lists of designated individuals and entities are constantly updated, and the EU can introduce additional measures with immediate effect as a given situation evolves. Although it can sometimes be a time-consuming process for EU member states to agree on sanctions, once agreement has been reached the implementation process is very speedy and sanctions can come into force the following day. Therefore businesses should allocate resources to monitor developments in order to minimize their exposure to breaching restrictive measures.
EU sanctions apply to all individuals and entities doing business in the EU, including non-EU nationals, and also to EU nationals and entities incorporated or constituted under the law of any EU member state when doing business outside the EU. The EU member states are responsible for implementing and enforcing sanctions and are required to introduce rules on penalties applicable to the infringement of sanctions which must be effective, proportionate, and dissuasive. In many countries it is a criminal offense to infringe restrictive measures.
The EU usually also includes certain defenses in its sanctions legislation. For example, EU sanctions against Ukrainian and Russian nationals provide an EU-wide defense where the breach was carried out in good faith as long as the individual or entity concerned was not negligent. In addition, no claims (for example, claims for indemnity or compensation) in connection with any contract or transaction, the performance of which has been affected by restrictive measures, can be satisfied if they are made by the designated individuals and entities or parties acting through or on behalf of such individuals and entities.
Based on the broad application and wide interpretation of EU sanction legislation and the potentially serious penalties for breach, it is in the best interest of companies to implement and carry out precautionary measures to minimize their risk. Every company should consider whether its business could be affected by EU sanctions and whether there are any additional protections available, such as bilateral investment treaties and World Trade Organization (WTO) agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.