The European Commission recently issued three Opinions on the interpretation of specific provisions in different EU sanctions frameworks. They cover the notion “making available”, changes to the features of frozen funds as well as the release of frozen funds.
Opinion on the notion of “making available” under financial sanctions targeting Russia
The Commission issued an Opinion on Article 2(2) of Council Regulation (EU) No 269/2014 which sets out that EU operators are prohibited from making funds or economic resources available to or for the benefit of the persons listed in Annex I to this Regulation. The Commission clarifies that making payments in favor of third-country intermediaries for products originating from a non-designated entity that is controlled by a designated person can be considered (but may be rebutted on a case-by-case basis) as making funds indirectly available to the designated person. This is due to the following reasons:
- the third-country intermediaries have provided consideration to the non-designated (controlled) entity in exchange for the goods; and
- the non-designated entity is controlled by a designated person; hence it is presumed to channel to or use the funds and economic resources for the benefit of the latter.
Furthermore, the Commission held that once control by a designated person over a non-designated entity is determined, it can be presumed that the control also extends to the subsidiaries and the assets of the non-designated entity. Similarly, making payments to an EU subsidiary controlled by a non-designated entity that is controlled by a designated person amounts to making them available to the latter. In such scenario, the payments can be considered as made indirectly available to the designated person. However, the Commission notes that EU operators are not liable “if they did not know, and had no reasonable cause to suspect,” that their actions would violate EU sanctions.
The guidance also highlights some of the differences in approach between the EU and the United States, where regulations from the US Office of Foreign Assets Control are generally framed in terms of US persons dealing, directly or indirectly, with Specially Designated Nationals and blocked persons, their property, and their interests in property. The US approach may exclude some scenarios captured by the EU guidance, and vice versa.
Changes to the features of frozen funds under financial sanctions targeting Libya and Syria
The Commission issued an Opinion on changing the character of funds frozen pursuant to Council Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya, and the location of frozen funds pursuant to Council Regulation (EU) No 36/2012 concerning restrictive measures in view of the situation in Syria.
According to Article 1(b) of the Libya Regulation and Article 1(i) of the Syria Regulation, “freezing of funds” includes “preventing any change that would enable the funds to be used, including portfolio management.” In principle, changes to certain features of the funds are not precluded, provided that they do not affect the continuity of an asset freeze.
In relation to a change of character of a frozen account, the Commission found that such change would be incompatible with the Regulation if it enabled the funds to be used by anyone while the EU restrictive measures are in force, or if it had the object or effect of circumventing the asset freeze. In addition, the Commission suggested that restrictive measures are merely preventative, and not punitive nor confiscatory in nature. Therefore, they do not grant a right to dispose of those assets, nor a right to inflict on the owners’ either burdens or losses that are not inherent to the asset freeze.
Additionally, the Commission addressed uncertainties in relation to a change of location of a frozen account from the EU to the UK. While a UK parent and its EU branch were subject to the same freezing obligations until December 31, 2020 (the end of the Brexit transition period), EU operators must now take into account the possibility that EU and UK sanctions may diverge in a way that would enable the transferred funds to be used. If EU and UK restrictive measures diverge, and the EU branch does not take reasonable steps to prevent the change of the location, this may be considered as an indication that the branch in question participated, knowingly and intentionally, in an activity which in effect led to circumvent the asset freeze.
Release of frozen funds under financial sanctions targeting the Central African Republic
This Opinion was issued in relation to Council Regulation (EU) No 224/2014 setting out sanctions targeting the Central African Republic and addresses the question whether a guarantee stipulated under a contract concluded by a designated person, prior to its listing, can be enforced by a non-designated counterpart against the designated person’s frozen assets.
While Regulation 224/2014 imposes an asset freeze on those listed and prohibits EU operators from making funds or economic resources available to them, its Article 9 provides for the possibility of a derogation if a payment by a designated person is due under a contract or agreement that was concluded by, or under an obligation that arose for, the designated person before the date of its listing. In such cases, the national competent authority may authorise the release of certain frozen funds or economic resources.
The Commission clarifies that the execution of such payment does not require the designated person’s consent, and that the decision to enforce the guarantee can be enforced against the designated person. As such, the execution of a payment to satisfy the guarantee can be warranted as a result of a judicial, administrative or arbitral judgment, decision or award. However, in the Commission’s view, the national competent authority may also decide whether to grant the authorization in the absence of such a pronunciation.
Commission Opinions are a commonly used tool to help improve the uniform implementation of sanctions across the EU, which a recent Commission’s Communication set as an objective for the future (see our note on the Communication here). In fact, since Commissioner Mairead McGuiness took office last fall, there has been a clear increase in Commission guidance on sanctions topics.
For EU operators, such guidance is welcomed as it sheds some light on often obscure EU sanctions rules. Although the above Opinions are issued in the context of specific cases, they are also of relevance for other sanctions regimes which provide for the same or similar restrictions. Therefore, their practical relevance goes far beyond the sanctions regimes in the context of which they were issued.