Client Alert 03 May. 2024

The EU Adopts the Directive on Definition of Criminal Offences and Penalties for Violations of EU Restrictive Measures

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On April 24, 2024, the European Union (“EU”) adopted the Directive 2024/1226 on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/1673 (“Directive”).

1. Entry into Force and Implementation of the Directive

The Directive was published in the Official Journal of the European Union on April 29, 2024. It enters into force on the 20th day following its publication., i.e., May 19, 2024.

The Directive requires Member States to establish minimum and similar rules concerning the definition of criminal offences and penalties for the violation of EU sanctions. It aims at ensuring a common approach to enforcement of EU sanctions, making it easier to investigate and prosecute sanctions violations in all EU Member States in the same way. By establishing the minimum rules concerning the definition of criminal offences and minimum level of penalties in all Member States, the Directive is expected to close existing loopholes and increase the deterrent effect of violating EU sanctions in the first place.

EU Member States will have 12 months to transpose the Directive into national law (i.e., by 20 May 2025). In the event that a Member State does not fulfill the obligation to transpose the Directive into national law, it can be referred to the European Commission under an infringement procedure under Articles 258-260 of the Treaty on the Functioning of the European Union (“TFEU”). Where a Member State does not comply with a reasoned opinion from the European Commission requesting a Member State to bring national law in compliance with EU law, the European Commission may initiate proceedings against a non-compliant Member State before the European Court of Justice. If a Member State does not comply with the ruling of the European Court of Justice, it can be referred for a second time to the European Court of Justice which may impose a lump sum and/or penalty payment.

2. Criminal Offenses

Member States will be required to consider as criminal offences the following conducts committed intentionally (or in some cases with serious negligence; see below for more detail) and in violation of a prohibition which constitutes an EU restrictive measure (“Offences”):

  • making funds or economic resources available directly or indirectly to, or for the benefit of, a designated person, entity or body.
  • failing to freeze funds or economic resources belonging to or owned, held or controlled by a designated person, entity or body.
  • enabling designated natural persons to enter into, or transit through, the territory of a Member State.
  • entering into or continuing transactions with a third State, bodies of a third State or entities or bodies directly or indirectly owned or controlled by a third State or by bodies of a third State, including the award or continued execution of public or concession contracts.
  • trading, importing, exporting, selling, purchasing, transferring, transiting or transporting restricted goods, as well as providing brokering services, technical assistance or other services relating to restricted goods.
  • providing financial services or performing financial activities in relation to restricted goods.
  • providing restricted services.
  • circumventing an EU restrictive measure by

- transferring to a third party funds or economic resources directly or indirectly owned, held or controlled by a designated person to conceal those funds;

- providing false or misleading information to conceal the fact that a designated person, entity or body is the ultimate owner or beneficiary of funds or economic resources which are to be frozen pursuant to an EU restrictive measure;

- failing by a designated person, or a representative of a designated entity, to comply with a reporting obligation concerning funds or economic resources held within the jurisdiction of a EU Member State; or

- failing to comply with an obligation to provide information on frozen funds or economic resources within the territory of a Member State owned, held or controlled by designated persons, entities or bodies which have not been frozen.

- breaching or failing to fulfill conditions under authorizations granted by competent authorities.

3. Penalties

Member States are required to impose effective, proportionate, and dissuasive penalties for sanctions violations. The Directive harmonizes penalties:

  • Natural persons: Penalties applicable to natural persons range from one to five years of imprisonment, depending on the gravity of the offence, as well as accessory criminal or non-criminal penalties such as:

- fines that are proportionate to the gravity of the conduct and to the individual, financial and other circumstances of the natural person concerned;

- withdrawal of permits and authorisations to pursue activities that resulted in the relevant criminal offence;

- disqualification from holding, within a legal person, a leading position of the same type used for committing the criminal offence;

- temporary bans on running for public office; and

- where there is a public interest, publication of all or part of the judicial decision that relates to the criminal offence committed and the penalties or measures imposed, which may include the personal data of convicted persons only in duly justified exceptional cases.

  • Legal persons: Legal persons can be held criminally liable when the offenses have been committed for the benefit of those legal persons by any person who has a leading position within the legal person concerned. Penalties applicable to legal persons consist in most of the cases of a fine of at least 5% of the legal person's total worldwide turnover or EUR 40 million. In addition, Member States can impose accessory criminal or non-criminal penalties such as:

- exclusion from entitlement to public benefits or aid;

- exclusion from access to public funding, including tender procedures, grants and concessions;

- disqualification from the practice of business activities;

- withdrawal of permits and authorisations to pursue activities which have resulted in the relevant criminal offence;

- placing under judicial supervision;

- judicial winding-up;

- closure of establishments used for committing the criminal offence; and

- where there is a public interest, publication of all or part of the judicial decision relating to the criminal offence committed and the penalties or measures imposed, without prejudice to rules on privacy and the protection of personal data.

Offence

Penalties for
natural persons

Penalties for
legal persons

Violation of asset freeze measures

Maximum prison sentence (>5 years, if it involves funds or economic resources of a value at least EUR 100,000)

+ Accessory criminal or non-criminal penalties

Fine of not less than:

5% of the total worldwide turnover of the legal person OR
an amount corresponding to EUR 40,000,000

+ Accessory criminal or non-criminal penalties

Violation of trade restrictions

Other restrictions (e.g., entering into continuing transactions with a third State or bodies owned or controlled by a third State, providing services, financial services or performing financial activities)

Failure to fulfill conditions under an authorization granted by a National Competent Authority

Circumvention by concealing funds/economic resources or owner/beneficiary

Violation of trade restrictions when the trade concerns items included in the Common Military List of the EU or in Annexes I and IV of Regulation 2021/821

Maximum prison sentence (>5 years, without a de minimis threshold)

+ Accessory criminal or non-criminal penalties

Circumvention by failing to comply with reporting obligations by (i) a designated person of funds or economic resources held within the jurisdiction of a EU Member State; or (ii) a person to provide information on funds and economic resources within the jurisdiction of a EU Member State which have not been frozen

Maximum prison sentence (>1 year, if it involves funds or economic resources of a value at least EUR 100,000)

+ Accessory criminal or non-criminal penalties

Fine of not less than:

1% of the total worldwide turnover of the legal person OR
an amount corresponding to EUR 80,000,000

+ Accessory criminal or non-criminal penalties

Violation of travel ban

Maximum prison sentence (< 3 years)

+ Accessory criminal or non-criminal penalties

N/A

Inciting, aiding, and abetting

Accessory criminal or non-criminal penalties

Maximum fine

+Accessory criminal or non-criminal penalties

Attempt to commit offence

Accessory criminal or non-criminal penalties

Maximum fine

+Accessory criminal or non-criminal penalties

  • · Intent standard: The Offences must be committed intentionally. Yet, the covered offences committed with serious negligence may lead to criminal liability, at least in instances involving trade with items in the Common Military List of the EU or to dual-use items listed in Annex I and IV to Regulation 2021/821.
  • Minimum threshold: Member States may establish a minimum EUR 10,000 threshold for Offences (a), (b) and (d) to (i) as mentioned above. However, Member States need to ensure that this minimum threshold may be met through a series of conduct that is linked and of the same kind, where that conduct is carried out by the same offender.
  • Aggravating and mitigating circumstances: The Directive provides for the following aggravating and mitigating circumstances:
Aggravating circumstances

Mitigating circumstances

The offence was committed in the framework of a criminal organisation as defined in Framework Decision 2008/841/JHA

The offender cooperates with the competent authorities helping to identify other offenders

The offence involved the use of false or forged documents

The offender cooperates with the competent authorities with information or evidence

The offence was committed in violation of the professional obligations of a service provider

The offence was committed by a public official performing public function

The offence generated or is expected to generate substantial financial benefits

The offender destroyed evidence, intimidated witnesses or complainants

The natural or legal person was previously convicted for committing a sanctions offence

  • Limitation periods: The Directive provides for minimum limitation periods of three to five years for (i) the prosecution and enforcement of sanctions violations punishable by a maximum prison sentence of at least five years and (ii) the enforcement of prison sentences of more than one year.
  • Freezing and confiscation: The Directive requires Member States to enable the freezing and confiscation of instrumentalities and proceeds from (i) the Offences, (ii) inciting, aiding, and abetting the commission of Offences, as well as (iii) attempting to commit certain Offences, as outlined above.

4. Rules on Jurisdiction and Cooperation between Competent Authorities

  • Rules on jurisdiction: Member States have jurisdiction over criminal offences were: (i) the criminal offence was committed in whole or in part within its territory; (ii) the criminal offence was committed on board a ship or an aircraft registered in the Member State concerned or flying its flag; or (iii) the offender is one of its nationals.

In addition, a Member State shall inform the Commission where it decides to extend its jurisdiction to one or more criminal offences committed outside its territory where: (i) the offender is a habitual resident in its territory; (ii) the offender is one of its officials who acts in his or her official duty; (iii) the offence is committed for the benefit of a legal person which is established in its territory; or (iv) the offence is committed for the benefit of a legal person in respect of any business done in whole or in part on its territory.

  • Coordination and cooperation: The Directive establishes multiple initiatives on cooperation:

- Between competent authorities of the same Member State: Member States can designate a unit or body for ensuring cooperation and coordination between law enforcement authorities and authorities in charge of implementing sanctions. The body should ensure understanding between criminal and administrative enforcement.

- Between competent authorities of different Member States: Where a criminal offence falls within the jurisdiction of more than one Member State, those Member States shall cooperate to determine which Member State is to conduct criminal proceedings. In addition, Member States shall exchange information on practical issues, including on patterns of circumvention, or structures to conceal beneficial ownership.

- Between Member States, Europol, Eurojust, the European Public Prosecutors Office and the Commission: Eurojust and Europol shall provide technical and operational assistance as needed by national competent authorities.

- Between Member States and the Commission: The Commission may establish a network of technical experts and practitioners to share best practices, and provide assistance to competent authorities to facilitate the investigation of offences related to violation of sanctions.

5. Key Take Aways

In the absence of harmonization at the EU level of national systems on criminal offences, enforcement and penalties differed largely. Specifically, in 12 Member States the violation of Union restrictive measures was solely a criminal offence. In 13 Member States, the violation of these measures could amount to an administrative or a criminal offence. In two Member States, the violation of Union restrictive measures could lead to administrative penalties only.

The criteria according to which the conduct fell under criminal or administrative category also differed in each EU Member State. Penalties were also different, e.g., maximum term imprisonment ranged between 2 years to 12 years. Furthermore, there was no unified approach as to which actions should amount to an offence of circumvention of the Union restrictive measures. These differences could invite forum shopping as well as circumvention, for example, where the potential offenders could choose between Member States that would impose a lesser penalty, or jurisdictions with a lower rate of enforcement.

The Directive comes at a moment when the EU is increasing the level of scrutiny over sanctions infringements. By way of illustration, there are over 40 recent examples of publicly known enforcement actions against circumvention practices. Quite often, these practices concern shipping of prohibited goods and technology originating in Russia or to Russia through third countries in Central Asia and the Middle East. The EU has also adopted a Whistle Blower initiative and Freeze and Seize Task Force to ensure efficient implementation of EU sanctions.

Notwithstanding the above, the Directive raises a number of legal and practical questions.

First, whether EU Member States will comply with the transposition deadline of 12 months.

Second, the criteria that an Offence has been committed in whole or in part within the EU territory, which will be subject to interpretation. Furthermore, it is unclear to the extent that certain persons connected with the conduct (e.g., inciter, aider, abettor), who will also be held criminally liable, will be subject to asset freezes (or will see their funds and economic resources confiscated).

Third, it remains to be seen how EU Member States will coordinate in case of cross-border sanctions infringement. In addition, the Directive provides little detail as to the role of European agencies such as Eurojust, Europol and European Public Prosecutor Office.

Fourth, the role of the Commission and the network of technical experts in the context of enforcement remains unclear as well as which assistance will be facilitated to the national authorities. It is important to remember that the area of freedom, security and justice is one of shared competences between the EU and Member States, as enshrined in the Treaties. In the area of substantive criminal law, EU competence is limited to establishing minimum rules concerning the definition of criminal offences and penalties in the areas of particularly serious crime with a cross-border dimension. See Article 83 TFEU.

Lastly, although the Directive leads to an increased level of harmonization, each Member State can still define additional offences and can impose different levels of penalties. This might still result in a patchwork of national legislations on enforcement of EU sanctions.

Sanctions infringements are considered as an EU crime under Article 83(1) TFEU. The Directive now requires all EU Member State to establish a common approach to the criminal offences and penalties. EU Member States will need to develop their national laws in parallel as they increase their enforcement practice. Curtis is closely monitoring any regulatory and enforcement developments in relation to sanctions. Curtis’ team of experts is committed to providing the best advice to its clients on how to navigate the complex regulatory environment.

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