On 16 July 2014 at a special meeting of the European Council the EU decided to extend its sanctions so as to target entities, i.e. natural persons or legal entities '... that are materially or financially supporting actions undermining or threatening Ukraine's sovereignty, territorial integrity and independence.'
At the EU Foreign Affairs Council meeting which took place on 22 July, it was agreed that the targeted measures agreed on 16 July should be accelerated and that a list of entities to be made subject to the enhanced criteria should be published at the latest by the end of July. The Council also decided to expand the restrictive measures with a view to targeting individuals or entities '... who actively provide material or financial support to or are benefiting from the Russian decision makers responsible for the annexation of Crimea or the destabilisation of Eastern-Ukraine.'
It is thought that the names to be added have already been decided upon and that their identities will be announced at any time in the next seven days.
There has been growing pressure for prominent businessmen and some major companies to be added to the list on the basis that this is a way of putting pressure on the Russian government. The extension of the criteria so as to include those who provide material or financial support to the Russian decision makers allows this to be done.
However, although sectoral sanctions including a ban on Russian capital markets and against all Russian banks that are more than 50% state owned are under consideration, they have not yet been decided upon.
Sanctions affect not just those who are placed on sanctions lists but those who have dealings with them and entities owned or controlled by them. While the specific effects of sanctions will depend on the provisions of the regulation which imposes them, the following are the main features:
1. Asset freeze and travel ban
A listed person or entity is subject to an asset freeze on all funds and economic resources which belong to, or are owned, held or controlled by that person or entity. This covers not just bank accounts and shares but also economic resources such as property. So, a person or entity on the list is not allowed to buy or sell assets in the EU.
The travel ban prevents a person from entering an EU country even if in transit, and that person will be placed on a visa blacklist.
There are various exceptions to the asset freeze, for instance for payments needed for humanitarian purposes.
2. Who must comply with the EU sanctions measures?
In broad terms, the sanctions must be complied with by 1) any person who is a national of an EU Member State or is 2) an entity incorporated under the law of a Member State and 3) any person or entity in respect of any business done in whole or in part in the EU.
3. Can the imposition of sanctions be challenged?
Yes. The regulations will normally provide that a person or entity added to the sanctions list must be notified of the grounds on which they have been placed on the list and must be given an opportunity to submit observations or evidence which must then be considered by the Council. If people are concerned that they might be added to the list, they should seek legal advice as soon as possible.
In addition to these general provisions within the sanctions regulations, there are provisions in the EU treaties under which decisions to impose sanctions may be challenged before EU Courts (the deadline for such challenge is normally 2 months from the publication of the decision).
4. Can a contract be terminated because one of the parties is placed on the sanctions list?
The contract may be able to be terminated on the grounds of 'frustration' or force majeure, but the latter will depend on the precise wording of the contract and the availability of any exceptions or derogations.
5. Can a counterparty enforce a payment by a sanctioned person under a contract?
A non-sanctioned counterparty should not receive funds from or provide funds to a sanctioned entity, unless it has specific authorisation.
Depending on the precise wording of the sanctions regulation, the competent authorities of each Member State may be able to authorise payments due under a contract or agreement, as long as it was concluded before the relevant person was placed on the list, and provided that the funds or economic resources are being used for a payment by a listed person and the payment does not benefit that person (this is designed to catch sanctions avoidance measures).
If it cannot obtain authorisation, the non-sanctioned counterparty may be able to terminate the contract.
6. What steps should EU businesses take if they have dealings with people or entities on the list?
Ensure that they are not dealing in any way with the funds or economic resources of a person or entity on the list, or benefiting such a person (unless they have obtained permission).
The penalties for breaching EU sanctions may vary, as they are imposed by the governments of each Member State. In the UK the penalties are, for an individual, imprisonment for a term not exceeding two years, or a fine, or both and for a company, a fine, and directors or officers of the company who consented, or connived, in the contravention may also be imprisoned or fined.
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.