The European Commission proposed on Wednesday the development of a Directive on criminal penalties for the violation of Union law on restrictive measures and for new measures to be introduced under their planned Directive on asset recovery and confiscation. Under the new proposals, new EU-wide rules would come into force that cover several aspects related not only to the sanctions implemented with respect to the Russian invasion of Ukraine, but also more generally to other sanctions regimes and to asset recovery more generally.
Four areas were covered in these proposals:
1. Making the violation of EU restrictive measures an EU crime
The purpose of this area is to harmonise and set common criteria across the EU that makes violating sanctions a crime. Under this proposal, the Commission suggests that actions such as: engaging in actions or activities that seek to directly or indirectly circumvent the restrictive measures, including concealing assets; failing to freeze funds; or engaging in trade covered by trade bans, would become a crime across the EU.
Why is this an issue? Well, despite the implementation of sanctions both now and for several years at the EU level, it is not a crime to breach those sanctions in all Member States. Indeed as Reuters highlights, it is a criminal offence in 12 EU countries, in 13 more it is either an administrative or a criminal offence, meaning that it could be treated as one or the other, and two EU member states only treat it as an administrative offence. This means that in several EU countries it may be possible to evade or assist a sanctioned person to evade sanctions and only receive a fine.
What to watch out for: as this proposal progresses will be the levels of criminal sanctions and the maximum and minimum fines imposed for these proposed crimes. Countries such as the UK for example, have penalties whereby persons or entities involved in breaching financial sanctions can face fines of up to 50% of the funds in question relating to the breach or GBP 1 million, whichever is higher, and a prison sentence of up to 7 years.
2. Extending the mandate of Asset Recovery Offices
The aim of this extended mandate will be to more swiftly trace and identify assets of individuals and entities subject to EU restrictive measures. These powers will also apply to criminal assets, including by urgently freezing property when there is a risk that assets could disappear. In other words, they want to change the mandate of the existing Asset Recovery Offices to give them an increased and obligatory role to ensure that assets related to sanctioned individuals are actually sanctioned and they also want to allow swifter freezing of potentially criminal assets.
Why is this an issue? On the one hand, the EU is worried that only a very small percentage of criminally acquired assets are frozen and so wants to speed up the process. On the other, it seems to be concerned that EU Member States are not properly investigating and making sure that resources are being dedicated to ensuring sanctions are being implemented effectively. Our investigations have indeed shown that is the case.
What to watch out for: the question of resources will be the main challenge, even if the mandate of Asset Recovery Offices are expanded – will they also receive the money and personnel needed to ensure that they can effectively investigate and monitor sanction implementation?
3. Expanding the possibilities to confiscate assets from a wider set of crimes
Related to the first proposal, this sets out that there should be a confiscation procedure for crimes that violation of EU restrictive measures, once the Commission proposal on extending the list of EU crimes is adopted.
Why is this an issue? As above, the question of penalties for breaching sanctions are currently disparate across the EU. This proposal seems to imply though that in addition to criminal penalties and fines for breaching sanctions rules, there may also be a role for confiscating assets subject to the sanctions.
What to look out for: The question again here will be how far will measures relating to confiscation go. In the US, for example, a non-sanctioned legal entity transacting with a sanctioned individual or company in breach of the terms of the sanctions can be added to the sanctions list. US authorities can also seek forfeiture of monies obtained through breaching sanction rules and can publishes the details of civil penalties and enforcement in relation to sanctions breaches.
4. Establishing Asset Management Offices in all EU Member States
The aim of this action is ‘to ensure that frozen property does not lose value, enabling the sale of frozen assets that could easily depreciate or are costly to maintain’. In other words, to ensure that authorities are taking control of frozen assets and not just imposing sanction without follow up.
Why is this an issue? Many countries in the EU – and elsewhere – struggle to manage assets subject to sanctions or frozen under legal proceedings. This can result in damage and loss in value of physical assets, companies being poorly managed, and real estate being neglected, amongst other things.
What to watch out for: Important again here will be resourcing for these Asset Management Offices, since managing frozen assets can be an expensive endeavour. Questions that will need to be clarified include whether physical assets can be or should be liquidated immediately on freezing and converted to monetary value, and whether these Offices will have a role in distributing any confiscated assets or fines, and then what guidelines as to victim compensation and social reuse will be in place.