As announced in our last Quarterly Sanctions Update, on April 12, 2024 the Council of the European Union adopted a directive criminalizing sanctions violation at the European Union (EU) level. In this post, we provide a summary of the key provisions of this directive, to be followed by a second post focusing on its potential implementation in EU Member States.
Background
In the European Union, even though sanctions are adopted by the Council of the European Union, their enforcement remains the responsibility of each EU Member State.
In the absence of a harmonized sanctions enforcement regime, there are differences among EU Member States, with some considering violations of EU sanctions to be criminal offences and others considering violations only apt for administrative penalties.
However, in light of the tightening of EU sanctions in the context of the war in Ukraine, this heterogeneity has been perceived as an obstacle to the proper implementation of these sanctions. In response, on December 13, 2023, the Council of the European Union and the European Parliament reached a political agreement to criminalize violation of EU sanctions at the EU level, to be implemented through the Directive on the Definition of Criminal Offences and Penalties for the Violation of Union Restrictive Measures (the “Directive”).
What is the Scope of the Directive?
The Directive establishes framework for defining criminal offences and sets thresholds for penalties for the violation of EU sanctions.
Criminal offences. The Directive provides that the following violations of EU sanctions should constitute a criminal offence:
- Making funds or economic resources available to a designated person
- Failing to freeze assets
- Violation of travel bans
- Entering into or continuing transactions with a third State or entities directly or indirectly owned or controlled by a third State or by bodies of a third State
- Trading, importing, exporting, selling, purchasing, transferring, transiting or transporting prohibited goods
- Providing prohibited or restricted economic and financial services
- Circumventing an EU sanction
- Breaching or failing to fulfil conditions under authorizations granted by competent authorities to conduct activities, which in the absence of such authorization amount to a violation of an EU sanction.
However, EU Member States may decide that violations of EU sanctions involving funds or economic resources, goods, services or more generally activities with a value of less than EUR 10,000 are not criminal offences.
Liability. The Directive also harmonizes the liability standard required for criminal offences.
Regarding natural persons, the violations listed above would constitute criminal offences if committed intentionally. Trading, importing, exporting, selling, purchasing, transferring, transiting or transporting prohibited goods, at least where such conduct relates to items on the EU Common Military List or dual use items, would also constitute a criminal offence if committed with serious negligence.
In the case of legal persons, the violations would constitute criminal offences if they were committed for the benefit of those legal persons by any person who has a leading position within the legal person concerned, acting either individually or as part of an organ of that legal person. Legal persons may also be held liable where the lack of supervision or control has made it possible for a person under their authority to commit an offence for their benefit.
Penalties. The Directive introduces minimum penalties for criminal offences related to violations of EU sanctions.
For natural persons, violations of EU sanctions would be punishable by a maximum penalty of at least 1 year of imprisonment, which could be increased to 5 years for the most serious offences.
For corporations, penalties could be of up to 5 % of total worldwide turnover or EUR 40 million.
These fines may also be accompanied by exclusion from entitlement to public benefits or aid; exclusion from access to public funds (e.g. tender procedures, grants and concessions); or disqualification from the practice of business activities.
The Directive provides for a list of aggravating circumstances, which includes the following where:
- the offence was committed within the framework of a criminal organization
- the offence involved the use by the offender of false or forged documents
- the offence was committed by a professional service provider in violation of the professional obligations of such professional service provider
- the offence was committed by a public official or by another person performing a public function
- the offence generated or was expected to generate substantial financial benefits, or avoided substantial expenses, directly or indirectly, to the extent that such benefits or expenses can be determined
- the offender destroyed evidence, or intimidated witnesses or complainants; or
- the offender had previously been convicted of the offences listed above.
Conversely, the Directive introduces mitigating circumstances where the offender provides the competent authorities with information, which they would not otherwise have been able to obtain, and which helps them to find evidence or to identify or bring to justice the other offenders.
Jurisdiction. The Directive sets that each Member State shall have jurisdiction over the criminal offences committed within its territory, on board of a ship or aircraft registered in that Member State or flying its flag, or by one of its nationals.
Member States may also extend their jurisdiction to criminal offences committed outside their territory if:
- the offender is habitually resident in their territory or is one of their officials
- the offence is committed for the benefit of a legal person which is established in their territory; or
- the offence is committed for the benefit of a legal person in respect of any business done in whole or in part on its territory.
In case of conflict of jurisdiction between EU Member States, the States shall cooperate to determine which Member State should conduct criminal proceedings or where appropriate, refer the matter to Eurojust.
Next Steps
EU Member States now have until May 20, 2025 to transpose its provisions into their national criminal law.
Our next post will focus on the possible ways of implementation and the challenges that EU Member States and/or EU companies may face whilst implementing this new EU legislation.
*Trainee Marie Soriano also contributed to this article.
