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The EU’s new sanctions rules

Author: Syedur Rahman  13 March 2024
2 min read

Syed Rahman outlines the inclusion of crypto assets in the European Union’s newly-harmonised approach to sanctions.

The European Parliament has voted to approve a new set of sanctions rules to harmonise enforcement across its 27 member states.

The rules, which apply to crypto service providers among others, can involve the freezing of assets - including crypto - in an effort to crack down on sanctions violations.

The new rules were prompted by Russia's invasion of Ukraine and rising concerns that European Union (EU) financial sanctions on Russia were being violated. They reflect a recognition among EU members that differing member states’ approaches have created weaknesses and loopholes that could be exploited by those looking to breach sanctions.

The EU has made it clear that the new restrictive measures apply to a wide range of financial services, including providing crypto assets and wallets.

The new rules have been created to ensure there are consistent definitions for sanctions violations, including not freezing funds, a failure to respect travel bans or arms embargoes, transferring funds to persons subject to sanctions and doing business with state-owned entities of countries under sanction.

The legislation must now be given the go-ahead by the European Council.

We are now over two years on from Russia’s invasion of Ukraine. Whilst countries around the world have been quick to take action in implementing sanctions regulations, one cannot help but question why it is only now that we are seeing these reforms.

It has been widely stated that the blockchain and cryptocurrencies are a haven for criminals dealing with illicit funds. It should therefore come as no surprise that those who find themselves subject to sanctions are turning to crypto to move their funds. With the blockchain having far-reaching capabilities when it comes to moving vast assets instantly, this causes great concern for the agencies looking to enforce sanctions.

This is further exacerbated by the fact that enforcement takes place on a local level in the EU - meaning there is no single centralised body that enforces potential breaches. This raises the issue of interpretation of the regulations that are in place, as well as the ability and willingness to enforce them.

When comparing these new regulations against those in place for traditional financial systems such as banks and the like, one cannot help but note the lengths these financial institutions have had to go to in order to ensure they do not commit a breach. With the drastic penalties these entities potentially face for a breach, it is no wonder that most institutions have adopted a risk averse position.

Whilst the obvious upside to this is that it limits the likelihood of sanctions violations, a by-product of this is that many innocent individuals and entities have had assets and transactions frozen and blocked due to a misplaced belief in potential sanctions violations.

There has, however, been much criticism historically (and there still is) regarding the lack of anti-money laundering and sanctions adherence in relation to cryptocurrency. There does, of course, need to be measures put in place to ensure such breaches do not occur. But the extent to which this comes at the expense of innocent consumers is an issue which is yet to be fully addressed.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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