knowledge 9 May 2024 |

Breach of EU sanctions to constitute an “EU crime” – EU Council gives green light to new draft Sanctions Offences Directive

As an update to our previous briefing on the European Commission proposal for a common sanctions enforcement directive, criminal liability for the violation of EU sanctions will soon be outside of Member State’s sole discretion as breach of EU sanctions is to become a crime across the Union.

Until now, Member States were responsible for enforcement of EU sanctions, which led to penalties for violations ranging from criminal prosecution to administrative sanctions, depending on the country. The European Commission proposed the present directive in December 2022 to limit sanctions circumvention and tighten enforcement.

In Ireland, criminal sanctions for breach of EU sanctions apply on a strict liability basis and the penalties have been set out in successive statutory instruments1. More information on the existing regime of criminal liability and enforcement in Ireland is available in our previous briefing.

On 12 April 2024, the European Council gave the final green light to harmonise criminal offences and penalties for violation of EU sanctions across the Union.  We set out below some of the key provisions and penalties.

Key Provisions of the Draft Directive on Sanctions Enforcement

The Draft Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/16732 (the “Directive”) provides for different categories of criminal offences and respective minimum penalties. It also sets out enhanced rules on freezing and confiscation of proceeds and assets subject to EU sanctions.

Article 3 sets out the violations that Member States must as a minimum define as criminal offences including:

  • making funds or economic resources available directly or indirectly to a designated person
  • trading sanctioned goods and running transactions with States or entities which are hit by EU restrictive measures
  • providing financial services or performing financial activities which are prohibited or restricted
  • failing to freeze funds or economic resources belonging to or owned, held, or controlled by a designated person, entity, or body in violation of an obligation that constitutes a Union restrictive measure
  • transferring funds to a third party or providing false information to conceal funds that should be frozen

Article 4 provides that inciting, aiding, and abetting the above offences will also be punishable as a crime.

The Directive requires Member States to ensure that “intentional” violation of sanctions is a criminal offence but also prescribes that certain conduct carried out with “serious negligence”3 should constitute a criminal offence. It will be interesting to see how this concept is interpreted in accordance with national law, having regard to the case law of the Court of Justice of the European Union.

Notably, Member States have discretion to provide exemptions from criminal sanction for violations of EU restrictive measures involving funds, economic resources, goods, services, transactions or activities of a value of less than €10 000.4

Penalties

The Directive aims to ensure that punishment for violating sanctions is dissuasive by ensuring that criminal offences apply in all Member States. The maximum prison sentence that may be imposed on individuals is five years.

The Directive provides that persons who have a leading position within a legal person (i.e. a company) can also be held criminally liable for offences within the Directive, if those offences have been committed for the benefit of the legal person.5

There is some discretion for Member States to set out the types of punitive measure that will apply (in addition to criminal fines). These may include:

  • exclusion from entitlement to public benefits or aid;
  • exclusion from access to public funding, including tender procedures, grants and concessions;
  • disqualification from the practice of business activities;
  • withdrawal of permits and authorisations to pursue activities which have resulted in the relevant criminal offence;
  • placing under judicial supervision
  • judicial winding-up;
  • closure of establishments used for committing the criminal offence;
  • where there is a public interest, publication of all or part of the judicial decision relating to the criminal offence committed and the penalties or measures imposed, without prejudice to rules on privacy and the protection of personal data.

In terms of financial penalties, the Directive sets out that the fine must be proportionate to the gravity of the conduct and to the individual, financial and other circumstances of the legal person concerned. Two levels of financial penalties are envisaged.

Firstly, for the less serious offence of circumventing an EU restriction requires that the maximum level of such fines is not less than €8 million or 1 % of the total worldwide turnover of the legal person (either in the financial year preceding the year of the offence or the year preceding the decision to impose the fine).

Secondly, where there is an intention to violate a number of measures such as making funds directly or indirectly available to benefit a designated person, entity or body or failing to freeze funds, a more significant minimum penalty of a fine of not less than €40 million or 5 % of the total worldwide turnover of the legal person will apply (either in the financial year preceding the offence, or in the financial year preceding the decision to impose the fine.)

Comment

Currently, each Member State is responsible for the enforcement of EU sanctions, and therefore penalties can range from criminal prosecution to administrative sanctions depending on the country. Criminal penalties are in place for 13 Member States by natural persons and 14 Member States for legal persons.6 The European Commission was concerned that inconsistencies between Member States undermined the objectives of EU sanctions and led to “forum shopping”, where illegal activities deliberately took place in jurisdictions with more lenient penalties.  The imposition of proportionate criminal offences and punishments across all Member States is hoped to improve the effectiveness of EU sanctions and will likely lead to a new era for EU sanctions enforcement.

Next Steps

The Directive will enter into force on the twentieth day following publication in the Official Journal. Member States will then have 12 months to implement its provisions. As the formal adoption of the Directive is impending, operators, in particular companies with multi-national operations should ensure they are up-to-date on the new penalties regime.

Also contributed to by Peter Brennan and Cara Conlon

  1. At the time of writing, SI No. 105 of 2024 is in effect, repealing the prior statutory instruments.
  2. Draft Directive of the European Parliament and of the Council on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/1673
  3. Article 3 (3) of the Directive
  4. Article 3 (2) of the Directive
  5. Article 6 of the Directive
  6. As of the last official publication of figures – European Commission Proposal of the Directive, December 2022

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.