Following a joint request from several EU national competent authorities (“NCAs”), the European Commission issued an opinion on asset freeze measures imposed on non-EU entities that are controlled by designated persons targeted by EU Council Regulation No 269/2014. The Regulation concerns restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (“the Regulation”). In its opinion, the Commission takes position on the interpretation of article 2 of the Regulation, which requires EU operators to freeze all funds and economic resources belonging to, owned, held or controlled by persons designated in Annex I to the Regulation. EU operators are also prohibited from making funds or economic resources available, directly or indirectly, to these designated persons. The guidance provided by the Commission is of particular relevance to credit and financial institutions that may be required to comply with EU asset freeze measures.
The NCAs asked the Commission a number of questions in connection with the interpretation of paragraph 63 of the EU Best Practices Guidance, which sets out the criteria to be taken into account when assessing whether a legal person or entity is controlled by another person or entity. The EU Best Practices are non-binding recommendations which aim to promote the uniform implementation of EU sanctions.
In its opinion, the Commission clarifies that if the designated person has control over an entity, the assets of the entity must be frozen. Such freeze may be lifted if the entity can show, pursuant to national procedural rules, that they are in fact not “controlled” by the designated person.
NCAs should publish their conclusions regarding the existence of such control and indicate which assets should or should not be frozen. They should share information among each other and also inform the Commission.
The Commission also provides clarity on questions with regard to financial transactions as well as the provision of services and working for an entity that is controlled by a designated person:
- Payments to such entity’s bank accounts are prohibited, unless authorized by the NCA pursuant to the derogations provided for in the Regulation or if it is reasonably determined that the funds will not be made available to the designated person.
- EU banks may credit frozen accounts if the incoming funds will also be frozen. Payments from frozen bank accounts of the entity are prohibited, unless authorized by the NCA pursuant to a derogation provided for in the Regulation. Payments from the entity’s non-frozen accounts are allowed.
- Providing services or working for such entity can be considered as making economic resources indirectly available to the designated person exerting control over the entity, if it enables the latter to obtain funds, goods, or services.
The Commission’s opinion is limited to the legal interpretation of article 2 of the Regulation. It clarifies that this provision aims at casting a broader net over non-designated entities which are controlled by designated persons. This will not alleviate the initial burden left on EU operators to determine if an entity is in fact controlled by a designated person. Especially smaller operators are sometimes not well equipped to tackle these complex obligations and are at risk of violating the Regulation.