The EU continues to adopt a stricter approach to sanctions compliance, with a growing emphasis on control-based restrictions under Article 2 of Council Regulation (EU) No 269/2014. Recent guidance and enforcement practices have clarified that indirect links, such as ownership, influence, or association with designated persons or entities, may carry the same legal consequences as direct relationships.
Key Provisions of Article 2
Article 2 imposes two core obligations on EU persons and entities:
- Freezing of Funds and Economic Resources
"All funds and economic resources belonging to, owned, held or controlled by natural or legal persons, entities or bodies listed in Annex I shall be frozen."
- Prohibition on Making Funds or Resources Available
"No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities or bodies, or natural or legal persons, entities or bodies associated with them, as listed in Annex I."
These obligations extend to any entity controlled by a designated person, even if that entity is not explicitly listed in Annex I.
Commission Opinion of 19 June 2020 – Control Triggers Compliance Duties
In its official opinion dated 19 June 2020, the European Commission clarified that any entity controlled by a designated individual or entity must be treated as if it were designated itself. Control can arise in various ways, including:
- Majority ownership
- Decisive influence over decision-making (even without majority shares)
- Indirect control through relatives, proxies, or shell companies
- Strategic influence or involvement in governance
Where such control is established:
- Assets must be frozen, and
- No transactions or services may occur unless authorised by the relevant national competent authority.
EU Best Practices (2024): How to Assess "Control"
The EU Best Practices (2024) offer practical criteria for determining whether a designated person exercises control over another entity. Factors include:
- Direct or indirect ownership of more than 50% of shares or voting rights
- Authority to appoint or remove directors or key executives
- Ability to influence strategic or operational decisions
- Use of complex structures, transfers, or corporate changes to evade sanctions
- Indicators such as shared addresses, branding, or legal representation
Where such indicators are present, the entity may be deemed to be controlled and will be treated as subject to EU sanctions.
Why This Matters for Your Business
When engaging with entities indirectly linked to sanctioned individuals or entities, it is essential to:
- Conduct thorough ownership and control assessments
- Identify whether a designated person exercises actual or potential control
- Freeze any assets where control is confirmed and refrain from transacting without prior authorisation
- Document all due diligence efforts to demonstrate compliance in case of audits or regulatory inspections
National Reporting Obligations in Cyprus
If your compliance review reveals that an entity may be controlled by a designated person, even if not explicitly listed, it is crucial to report the matter to the Sanctions Implementation Unit (SIU) of the Ministry of Finance, the competent authority in Cyprus responsible for implementing EU restrictive measures. The SIU provides guidance and receives notifications concerning potential sanctions breaches or uncertainties. Legal and compliance professionals are strongly encouraged to engage with the SIU where there is any doubt as to the status of an entity under Article 2.
How Can Bybloserve Management Assist You?
At Bybloserve Management, we help clients navigate the evolving EU sanctions landscape with clarity and confidence. Our experienced team provides support with compliance reviews, UBO screening, risk assessments, and due diligence—ensuring your operations remain aligned with regulatory expectations. Whether you're managing cross-border transactions, engaging with third parties, or strengthening internal procedures, we offer tailored guidance and practical solutions to minimise risk and protect your businhess reputation.
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.
