European Commission proposes common definitions and penalties for EU sanctions violations

Following the addition of the violation of EU sanctions (“restrictive measures”) to the “List of EU Crimes” (see our previous Legal Update), on December 2, 2022, the European Commission presented its proposal for a Directive providing for minimum rules concerning the definition of criminal offences and penalties for the violation of EU sanctions.¹ The proposal marks a major milestone in the harmonization of EU sanctions enforcement, as well as in the development of European criminal law more generally.

The European Commission’s stated objective is for the Directive to “make it easier to investigate, prosecute and punish violations of restrictive measures in all Member States”.

Currently, as with other forms of criminal law, the implementation and enforcement of EU sanctions is left up to the Member States, all 27 of which have different systems of criminal law and, accordingly, different definitions of EU sanctions-related offences and crimes, as well as different levels of penalties. Through the adoption of common definitions and harmonization of penalties, the European Commission hopes to “close existing legal loopholes and increase the deterrent effect of violating EU sanctions”.

Harmonized definitions of criminal offences that violate EU sanctions, including circumvention

The proposed Directive requires Member States to qualify the violation of EU sanctions as a criminal offence in their domestic legislation, if it is committed intentionally and if it meets one of the definitions as provided for in the Directive², i.e.:

• making funds or economic resources available to, or for the benefit of, a designated person, entity or body;
• failing to freeze such funds without undue delay;
• 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, bodies of a third country, or entities owned or controlled by a third state or bodies thereof, which are prohibited or restricted by EU restrictive measures;
• trading in goods or services whose import, export, sale, purchase, transfer, transit or transport is prohibited or restricted, as well as the provision of brokering services or other services relating to such goods;
• providing financial activities which are prohibited or restricted, which includes the provision of financing and financial assistance, the provision of investment and investment services, the issuance of transferrable securities and money market instruments, the acceptance of deposits, provision of specialized financial message services, the dealing in bank notes, the provision of credit rating services, and the provision of crypto assets and wallets; or
• providing other services which are prohibited or restricted, such as legal advisory services, trust services, public relations services, accounting, auditing, bookkeeping and tax consulting services, business and management consulting, IT consulting, public relations services, broadcasting, architectural and engineering services.³

Where the abovementioned crimes are committed with “serious negligence”, they shall equally constitute criminal offences.⁴ In this regard, the Explanatory Memorandum to the proposed Directive urges professionals in the “legal, financial and trade services” industries “to exercise due diligence to prevent any violation of EU sanctions.”⁵

In addition, the proposed Directive provides for five examples of manner in which natural or legal persons may be engaged in the circumvention of EU sanctions, and this the violation thereof:

• the concealment of funds or economic resources owned, held, or controlled by a designated person, entity or body, which should be frozen in accordance with EU sanctions, by the transfer of those funds, or economic resources to a third party;
• the concealment of the fact that a person, entity or body subject to restrictive measures is the ultimate owner or beneficiary of funds or economic resources, through the provision of false or incomplete information;
• the failure by a designated person, entity or body to comply with an obligation under EU sanctions to report funds or economic resources within the jurisdiction of a Member State, belonging to, owned, held, or controlled by them;
• the failure to comply with an obligation under EU sanctions to provide without undue delay information on funds or economic resources frozen or information held about funds and economic resources within the territory of the Member States, belonging to, owned, held or controlled by designated persons, entities or bodies and which have not been frozen, to the competent administrative authorities;
• the failure to cooperate with the competent administrative authorities in any verification of information upon their reasoned request.⁶

Moreover, the breach of, or failure to fulfil, the conditions imposed under authorizations granted by relevant (national) competent authorities constitutes a separate violation of EU sanctions. Finally, the incitement, and aiding and abetting of the commission of the aforementioned criminal offences is criminalized, as are attempts to commit such criminal offences.⁷

Harmonization of penalties

The proposed Directive distinguishes between penalties for natural persons and legal persons.

In respect of natural persons, the Directive foresees in the requirement for Member States to ensure / provide for maximum penalties that provide for imprisonment in respect of the most serious of the aforementioned criminal offences, in the event that the value of the funds or economic resources in question is at least EUR 100 000. This applies in essence to all criminal offences, with the exception of the reporting and information requirements, which are punishable by a maximum penalty of at least one year imprisonment. Currently, in 14 Member States, the maximum length of imprisonment is between 2 and 5 years, whereas in 8 Member States, maximum sentences between 8 and 12 years are possible.⁸

In respect of legal persons, the proposed Directive first of all requires Member States to ensure their liability for the aforementioned offences where they were committed for their benefit. In addition, Member States are required to ensure the liability of legal persons where they fail to exercise proper supervision or control by persons who hold (i) power of representation of the legal person, (ii) authority to take decisions on behalf of the legal person, or (iii) authority to exercise control within the legal person.⁹

With regard to the penalties for legal persons, the proposed Directive requires Member States to provide for criminal or non-criminal (i.e. administrative) fines, exclusion from entitlement to public benefits or aid, exclusion from access to public funding, including tender procedures, grants and concessions and may include other penalties, such as:

• disqualification from the practice of business activities;
• withdrawal of permits and authorisations to pursue activities which have resulted in committing the offence;
• placing under judicial supervision;
• judicial winding-up;
• closure of establishments, which have been used for committing the criminal offence. ¹⁰

The proposed Directive also contains provisions on aggravating and mitigating circumstances and the possibility of freezing and confiscation of property.¹¹

Procedural and Institutional Elements, including cooperation between the Member States, the Commission, Europol, Eurojust and the European Public Prosecutor’s Office

In order to enhance further cooperation between Member States, the proposed Directive requires Member States to take necessary measure to “establish appropriate mechanisms for coordination and cooperation at strategic and operational levels among all their competent administrative, law enforcement and judicial authorities”.¹² In practical terms, the Commission envisages this to encompass ensuring common priorities and an understanding of the relationship between criminal and administrative enforcement, exchange of information, consultations in specific investigations, the exchange of best practices and assistance to network of practitioners who work of the investigation and prosecution of EU sanctions.

Lastly, the proposed Directive requires the EU Member States, as well as institutions such as Europol, Eurojust, the European Public Prosecutor’s Office, and the Commission, within their respective competence, to cooperate with each other in the fight against violations of EU sanctions.¹³ Ultimately, this provision is likely to further harness the efforts to ensure further harmonized implementation and enforcement of EU sanctions throughout the EU. In particular, it is likely to lead to the creation of further inter-institutional dialogues and exchanges of information.

Next steps

The proposal for the Directive is subject to the ordinary co-legislative procedure, as part of which the European Parliament and the Council will have the opportunity to propose amendments. This process will likely be completed in the course of 2023. The proposed Directive will need to be approved by the Council and the European Parliament.