The European Union has adopted a new directive aimed at establishing EU-wide rules for defining criminal offences and penalties related to violations of EU sanctions. This directive is expected to create a stricter regulatory environment and closer scrutiny as Member States integrate these requirements into their local laws.
On April 24, 2024, the Directive to harmonize enforcement and penalty standards for violating EU sanctions was adopted. Member States are required to implement the Directive into national law by May 20, 2025. Companies should anticipate a more rigorous regulatory environment concerning sanctions compliance and potential breaches.
As an EU directive, the framework adopted at the EU level must be transposed into the local laws of each Member State. Currently, there is a need for implementation across all Member States as existing regimes do not all align with the Directive’s provisions. This is particularly evident regarding the minimum requirements for the maximum level of fines that can be imposed on legal entities, which in some Member States are currently lower than the Directive requires. The Directive also establishes criminal liability for serious negligence in the commission of certain offences.
Standardisation of Offences and Enforcement
Currently, the national offences and enforcement rules in the Member States regulating violations of EU sanctions vary considerably. The Directive sets minimum rules for criminal conduct violating EU sanctions, including penalties for intentional violations and circumvention attempts, for both individuals and legal persons, with provisions for aggravating and mitigating circumstances. It covers a range of offences, including failure to freeze funds, failure to enforce travel bans, and conducting financial transactions and trading goods and related services in violation of sanctions. The Directive also addresses Member State jurisdiction over sanctions violations, enforcement cooperation between Member States, protection of reporting persons (under the EU Whistleblowing Directive), and data collection for enforcement purposes.
Sanctions Breaches as Specific Criminal Offences
The Directive outlines specific acts, such as providing funds or economic resources to designated entities or failing to freeze their assets, which Member States must ensure are prosecuted and punished as criminal offences when committed intentionally. The Directive also defines situations of circumvention, which are to be punished criminally by the Member States. Additionally, Member States must ensure that certain offences (for example, trading goods or providing technical assistance in violation of EU sanctions) are punishable when committed with serious negligence, particularly when the conduct relates to dual-use items.
Inciting, Aiding, Abetting, and Attempting
Inciting, aiding, and abetting the commission of an offence listed in the Directive must be punishable in every Member State. Attempts to commit certain offences must also be subject to criminal liability, such as making funds available or providing financial services in breach of EU sanctions.
Penalties for Individuals and Companies
Individuals Face a Range of Penalties
The Directive requires Member States to ensure that penalties for certain offences reach uniform maximum levels and include certain accessory penalties:
- Offences related to providing financial services, trading goods, or enabling designated persons’ entry into Member States must be subject to a maximum term of imprisonment of at least five years.
- Offences involving funds or economic resources valued at EUR 100,000 or more may lead to imprisonment from up to one year to five years, depending on the offence.
- Offences involving specific military items or dual-use items require a maximum term of imprisonment of at least five years.
- Accessory penalties for natural persons may include fines, disqualification from certain corporate activities, or temporary bans on running for public office.
Companies Face Different Penalty Risks and Fines
The Directive addresses the liability of legal persons, including companies, separately from the liability of individuals. Member States must ensure that legal persons can be held liable for offences referred to in the Directive if committed for the benefit of the legal person by someone in a leading position within the entity. Effective criminal or non-criminal sanctions must be imposed on the responsible legal persons.
Fines for legal persons must be proportionate to the gravity of the offence and the company’s financial circumstances. For certain offences, the Directive sets minimum requirements for maximum penalties that range from 1% to 5% of the total worldwide turnover of the legal person or specific monetary amounts from EUR 8 million to EUR 40 million, depending on the offence.
Alignment Across Investigations and Reporting
Freezing and Confiscation
Member State authorities are entitled to freeze and confiscate assets related to offences, ensuring that proceeds from criminal activities can be seized.
Jurisdiction and Limitation Periods
Mandatory rules on Member States’ jurisdiction over offences and limitation periods for investigation (generally five years, provided the penalty for the offence is up to five years) and prosecution ensure that authorities have adequate time to address offences effectively.
Investigative Tools and Reporting
The Directive mandates the availability of effective tools for investigation and requires reporting measures and whistleblower protection to encourage the reporting of violations.
Coordination and Cooperation
Law enforcement and authorities enforcing EU sanctions are required to cooperate, facilitating coordination and information sharing to enhance the effectiveness of enforcement efforts.
Implementation in Member States
EU directives are not directly applicable in Member States and must be implemented through national legal acts. The extent of transposition measures needed will depend on how closely existing national laws align with the Directive’s requirements.
Local teams in France, Germany, Poland, and Spain have examined the practical implications of the transposition in their countries and provide guides on what to expect as their legislative processes align with the Directive.
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