Background

Directive (EU) 2024/1226 of the European Parliament and of the Council of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/1673 (the "Directive") is the last step of the complex process during which the European Union (the "EU") first had to add the violation of EU sanctions to the list of EU crimes with Decision 2022/2332 on 22 November 2022. This is the first time since the Treaty of Lisbon in 2007 that the EU has extended the list of EU crimes. Shortly after the adoption of Decision 2022/2332, the European Commission published its proposal of a directive aiming to improve a common and effective approach to enforce sanctions amongst Member States. The Directive will enter into force on 20 May 2024 and Member States have until 20 May 2025 to implement it into national law.

Key aspects

Scope

The Directive covers the violation of “restrictive measures” adopted under Articles 29 or 215 of the Treaty of the European Union. In other words, it covers what practitioners call “EU sanctions”, such as

• Country specific programs (e.g. EU sanctions against Russia, Belarus, Iran);
• Sanctions for violation of human rights; and
• Terrorism related sanctions.

Criminal offences

Offences

Article 3 of the Directive sets out the acts constituting a criminal office, which includes inter alia:

• making funds or economic resources available to designated persons, entities or bodies;
• failing to freeze these funds;
• providing prohibited or restricted financial services or any other prohibited or restricted services;
• enabling the entry of designated people into the territory of a Member State or their transit through the territory of a Member State;
• entering into transactions with third countries, which are prohibited or restricted by EU sanctions;
• trading, importing, exporting, selling, purchasing, transferring, transiting or transporting of restricted goods, as well as providing brokering services, technical assistance or other services relating to those goods;
• the circumvention of restrictive measures; and
• breaching or failing to fulfil conditions under authorisations granted by competent authorities.

Inciting, aiding and abetting, and attempting

Inciting and aiding and abetting any of the above listed acts is also an offence, as is an attempt to commit certain listed (Article 4 of the Directive).

Serious negligence

For trade sanctions, there is a further obligation on Member States to ensure that certain activities constituted a criminal offence if committed with serious negligence, at least where that conduct relates to items included in the Common Military List of the European Union or to dual use items listed in Annex I and IV to Regulation (EU) 2021/821.

Value threshold

The Directive allows Member States to include a provision under which otherwise suitable conduct may not be considered a criminal offence if the conduct involves funds or economic resources of a value of less than EUR 10 000. The same threshold applies to goods, services, transactions and activities.

Corporate liability

Companies breaching EU sanctions will be subject to a fine of at least 1% or up to 5% of the total worldwide company’s turnover in the business year preceding the fining decision or a fixed amount of EUR 8 000 000 or up to EUR 40 000 000. Member States may decide to set out higher penalties.

Companies can also be held liable in the following scenarios:

• if the listed offences have been committed for their benefit by any person who has a leading position within the company and is acting on behalf of it; or
• where the lack of supervision or control by a person in a leading position has made possible the commission of a listed offence by a person under its authority.

Personal liability

For natural persons, the penalties for violating EU sanctions are at least 1 year of imprisonment, which could be increased to 5 years for more serious offences. In addition, Member States can impose fines, withdrawal of permits, disqualification from the practice of business activities and/or bans from public office.

Aggravating factors

The Directive sets out various aggravating factors which Member States would need to take into account, which include:

• the offence was committed by using false or forged documents;
• the offender destroyed evidence;
• the offence generated or was expected to generate substantial financial benefits.

Mitigating factors and voluntary self-disclosure

Cooperation with competent authorities will be considered a mitigating factor. Specifically, it will be considered a mitigating circumstance if the offender provides competent authorities with information they would not otherwise have been able to obtain, either by helping them find evidence or identifying other offenders.

We note that the right not to incriminate oneself is safeguarded by the directive, with the recital (13) stating that none of the provisions "should be understood as imposing any obligations on natural persons that would prejudice the right not to incriminate oneself and to remain silent".

Takeaways

• This Directive illustrates how the EU is determined to increase efforts to curb violations and circumvention of EU sanctions more effectively.
• The Directive clarifies the need for Member States to increase the level of penalties for violations of EU sanctions measures which, in our view, is likely to increase the enforcement risk for breaches across the EU.
• It is more important than ever that companies are familiar with the constantly evolving EU sanctions regimes. Companies will need to continue exercising thorough due diligence and ensure robust responses where breaches have occurred.
• The Directive opens the way for voluntary disclosure mechanisms in all Member States by recognizing cooperation with competent authorities as a mitigating factor. Currently Member States have varying approaches to dealing with voluntary disclosures, making it difficult to navigate for companies operating in multiple EU jurisdictions.