knowledge 16 February 2023 |

Sanctioned: Enforcing EU restrictive measures in Ireland

Regulation (EU) 269/2014 of 17 March 2014 (the “Regulation”) is one such pre-existing measure, which centres on freezing the assets of designated persons, entities and bodies and ensuring that funds and economic resources do not reach these designated entities directly or indirectly¹. The Regulation has been ‘given teeth’ by multiple recent additions and amendments. This briefing looks at the intent of the Regulation and how it is being enforced in Ireland.

The Regulation

The first iteration of the Regulation entered into force on 17 March 2014. Under Annex I, it designated a list of natural and legal persons, entities and bodies involved in the annexation of Crimea, all of whom were subject to asset freezes under Article 2 (“Designated Persons”). The Regulation also designated national competent authorities (“NCAs”) in each Member State to take charge of national enforcement and permit derogations from certain provisions.

In the wake of the Russian invasion in February 2022, the Regulation has been amended to expand its scope to persons, entities and bodies who pose a risk to the territorial integrity, sovereignty and independence of Ukraine more generally.

What are the key provisions?

Article 2 of the Regulation imposes a freeze on all funds and economic resources belonging to, owned, held or controlled by Designated Persons. It also prohibits the provision of funds and economic resources from within the European Union to Designated Persons. The Regulation has a wide applicability and persons and entities residing in, being from or conducting business through the European Union will most likely be caught within its scope. It is also directly applicable without the need for national transposition of measures. There are, however, limited derogations from Article 2, which allow NCAs to release funds for certain legitimate purposes.

Designated Persons are easy to identify by reference to Annex I of the Regulation. EU guidance on the Regulation makes clear that only the persons and entities listed in Annex I to the Regulation are directly targeted by sanctions. However, if a Designated Person is deemed to own or control a non-listed entity, it can be presumed that the control also extends to the assets of that entity, and that any funds or economic resources made available to that entity would reach or benefit the listed person. This presumption can be rebutted on a case-by-case basis by the entity concerned, if it can be demonstrated that some or all of its assets are outside the control of the Designated Person, and/or that funds or economic resources made available to it would in fact not reach or benefit the Designated Person. Questions of ownership and control are fact specific and so must be analysed on a case-by-case basis, which can prove extremely challenging.

The Regulation (at Article 8) also imposes an obligation on persons, entities and bodies to supply any and all information which would facilitate compliance with the Regulation to the NCA of their designated Member State and to cooperate with that NCA in verifying such information. This will apply to financial institutions in so far as they hold accounts in which assets have been frozen under the terms of Article 2 but equally applies to corporations and private individuals.

Further heft is given to the Regulation through Article 9, which prohibits knowing or intentional participation in activities, the object or effect of which is to circumvent the Article 2 restrictions. This imposes a high standard. EU guidance makes clear that alternate payment methods or company restructurings will not be tolerated where it can be shown that their intent is to supply funds and economic resources to a person subject to sanctions. However, a ‘good faith’ provision at Article 10 of the Regulation negates liability where persons, entities or bodies did not know or have reasonable cause to suspect that their actions would infringe measures of the Regulation.

Criminal Liability and Enforcement in Ireland

While the Regulation has direct effect across EU Member States, it falls to each Member State to implement the rules on a national level, including prescribing appropriate penalties. In Ireland, this has been effected by successive statutory instruments, allowing for changes in the European sanctions regime². At the time of writing, a person who contravenes key provisions of the Regulation shall be guilty of an offence. Such an offence may be tried summarily or on indictment and attracts a maximum penalty of a fine of up to €500,000, a term of imprisonment of up to 3 years or both. If the offence is committed by a body corporate, the director or other key officers of such a body may face the same penalties as if they had committed the offence personally, where there is evidence of consent, connivance or neglect on the part of that person as regards the offence.

The Irish implementing legislation also gives powers to competent authorities to issue directions to such persons as it sees fit for the purposes of the administration and enforcement of the Regulation and national measures. In Ireland, the national competent authorities are the Department of Foreign Affairs (“DFA”), the Department of Enterprise, Trade and Employment and the Central Bank of Ireland, (the “CBI”) with each entity responsible for a particular enforcement function. The CBI is responsible for financial sanctions, while the DFA is responsible for the ‘political aspect’ of sanctions, including all direct correspondence with the EU, UN and other states in respect of the implementation of sanctions in Ireland.

This distinction belies a strong intersection between the roles of each body. On a first reading of the Regulation, the CBI appears to be the most appropriate authority of the three Irish NCAs for financial sanctions enforcement with regard to the language of “funds and economic resources” in Article 2. The CBI also offers reporting facilities on its website. However, the DFA has assumed responsibility for the implementation of reporting obligations at Article 8 of the Regulation, by integrating the European Commission whistleblower tool onto its website. In this regard, Irish enforcement measures incentivise reporting by imposing harsh penalties for non-observance in the range outlined above. Protection for whistleblowers is a relatively new concept in the State but awareness of the benefits of reporting wrongdoing has increased in the wake of the Protected Disclosures Act 2014.

Finally, the Department of Enterprise, Trade and Employment is the competent authority for the implementation of trade sanctions in accordance with Ireland’s international commitments and obligations as a member of the EU. This involves regulating imports and exports to Russia and defined territories of Ukraine as well as monitoring quotas of particular products, technical assistance and brokering services under the terms of Regulation (EU) No. 833/2014.

At the date of publication, we are not aware of any public prosecutions or directions having been issued in the State under the terms of the implementing legislation.

How can we help?

Our team has advised several individuals and bodies corporate on their sanctions obligations to date. For specific advice, please reach out to Audrey Byrne, Stephen Fitzsimons or your regular McCann FitzGerald point of contact.

Also contributed to by Peter Brennan