On 2 December 2022, the European Commission proposed a new Directive aiming to unify the approach taken by its Member States to enforce European Union ("EU") sanctions and criminalize their violations (the "proposal").
This proposal aims to foster cross-border investigation and prosecution and improve the operational effectiveness of national enforcement chains. Moreover, it aims to set common minimum standards for penalties which are effective, dissuasive, and proportionate. The Member States will remain responsible for implementing and enforcing these penalties.
According to the proposal, Member States need to ensure that criminal liability will apply to violations of certain EU sanctions measures as defined in the proposal, including:
- Making funds or economic resources available or failing to freeze such resources belonging to a natural or legal person subject to restrictive measures;
- Engaging in financial activity or trade, which is prohibited or restricted; and
- Circumventing EU sanctions.
It provides that violations of sanctions may constitute a criminal offence when committed intentionally or with serious negligence. Instigating, aiding and abetting, and attempting to commit the criminal offenses will also be punishable. Furthermore, the proposal ensures the liability of legal persons (such as corporate entities) if offences have been committed for their benefit. As such, Member States will be required to ensure the accountability of legal persons for a lack of supervision and control making an offence possible, meaning that corporate entities will become criminally liable for such violations.
The proposal sets out requirements for penalties for individuals and legal persons. Individuals could be liable to a penalty of imprisonment of at least five years for the most serious offences, in addition to fines. Legal entities could be liable to penalties of no less than 5% of the total worldwide turnover in the business year preceding the fine for the most serious offences. Additional penalties include disqualification from business activities, being placed under judicial supervision, or judicial winding-up.
In addition to increased focus on enforcement of EU sanctions violations across Member States following the start of the Russian war against Ukraine, the proposal further underscores the EU's emphasis on EU sanctions compliance and its determination to engage in strict and more harmonized enforcement.
Market participants are advised to monitor these developments closely and review their internal processes, ensuring that their compliance framework captures all relevant sanctions measures, operates to identify red flags, and sets out adequate procedures to prevent sanctions risks and violations.
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