With its FAQs on "Asset freeze and prohibition to make funds and economic resources available", the EU Commission has almost incidentally announced a far-reaching and practically highly relevant change to its previous interpretation of EU sanctions regulations. By aggregating minority shareholdings of sanctioned persons, prohibitions on on making available economic ressources may apply in future to a large number of previously non-sanctioned companies.
When interpreting the EU sanctions regulations, a question of particularly practical relevance was always in which cases the prohibition to provide economic ressources also affects persons or companies that are not listed themselves but are owned or controlled by a listed person (so-called "indirect provision prohibition"). In both cases, i.e. participation above 50% or control by a sanctioned person, neither funds nor economic resources may be made available to the non-sanctioned company. Thus, a non-sanctioned company can also feel the effects of the sanctions.
Generally, a listed person holds an ownership position in a third party in case of a majority shareholding, i.e. if the listed person holds more than 50% of the shares in the company (so-called "50% rule").
Additionally, the indirect provision prohibition applies in constellations in which a listed person controls a company by other means. Decisive criteria for the presumption of relevant control include the power to appoint or remove the majority of the members of the administrative, management or supervisory body, sole disposal over the majority of the voting rights of the shareholders or the right to use all or part of the assets of the legal person, association or entity.
Another case in which the application of the indirect provision prohibition is being discussed is that of a minority shareholding of several listed persons which only exceeds the 50% threshold when added together (totalised or aggregated shareholding). Here, minority shareholdings of sanctioned persons were generally not added together to date within the scope of application of the EU sanctions regulations (see, for example, the FAQs of the Bundesbank, question B6). In this respect, the EU sanctions were previously narrower than the corresponding US sanctions, where the competent authority (OFAC) also considered minority shareholdings of sanctioned persons on an aggregate basis.
With the latest FAQ of the EU Commission, this practice seems to have changed. Specifically, in response to the question of whether minority interests of sanctioned persons are to be aggregated: "One should take into account the aggregated ownership of the entity. For example, if one listed person owns 30% of the entity and another listed person owns 25% of the entity, the entity should be considered as owned by listed persons."
This departure from previous interpretive practice seems insignificant, but is in fact of enormous practical significance. Although the Bundesbank has apparently not yet adjusted its interpretative guidance, it can be assumed that the authorities will consider minority shareholdings aggregately in the future. For companies, this means another significant tightening of their existing compliance efforts. Whereas minority interests could previously be disregarded, in future they will have to examine whether the 50% threshold is exceeded overall. If this is the case, the indirect provision prohibition applies and the respective company may no longer be provided with any assets.
This new view taken by the EU Commission also applies to existing business relationships that have already been the subject of a sanctions screening. This means that this extended examination standard has to be applied to existing as well as new business relationships. For companies, therefore, the due diligence of their business partners will become even more demanding and costly.
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