Syed Rahman outlines the change made by the European Union - and its implications.
A change to the European Union’s (EU’s) sanctions regulations has lowered the threshold for securing convictions.
The European Council altered the EU’s Russia sanctions regulations on 24 June so that companies and people can be found guilty of circumventing sanctions without deliberately seeking to do so.
The change means that a successful prosecution could be achieved if it can be shown that a defendant knew that their actions could have led to a sanctions breach. It has the effect of enabling a prosecution where a defendant had reasonable grounds to suspect they were breaching sanctions but continued to do so. Without the change, a prosecution could only succeed if it could be proved that the defendant intended to commit a breach.
While the change will make it easier to bring enforcement actions for circumvention, it means that companies’ due diligence procedures take on even greater importance.
The change involves an EU amendment to Article 12 of its Russia sanctions regulations. This change prohibits people or companies from participating in an activity where the “object or effect” is to circumvent sanctions, even if that outcome is only a “possibility” and not deliberately sought.
The amendment comes two months after the European Council, which determines the EU’s political direction and priorities, approved a directive requiring all 27 EU countries to make violating and circumventing sanctions criminal offences within their domestic laws. Every EU Member State has until May next year to incorporate the new directive into their legal system. The directive also requires EU Member States to harmonise the penalties for such offences, with maximum sentences having been set.
Whether there will be more enforcement actions as a result of the Article 12 change is far from certain. The authorities’ continuing reliance on whistleblowers and self-reporting regarding sanctions breaches may be a bigger factor in the number of prosecutions than any “moving of the goalposts’’ when it comes to what constitutes circumvention.
But this has to be seen as a warning to companies that real or feigned ignorance regarding their failure to comply with their sanctions obligations will cut no ice with the authorities. It could be argued that any situation such as this - where the enforcement bar is lowered – needs to be viewed by companies as reason to raise their due diligence efforts.
