The EU maintains tailored sanctions regimes targeting over 40 different countries, territories or non-governmental organisations. 

The past year’s developments in the EU were driven primarily by the ongoing war in Ukraine. This includes stricter restrictions on financial trade, services, energy, technology and other sectors deemed critical to the Russian economy, as well as the further development of sanctions targeting Belarus.

Further, geopolitical situations or human rights concerns have prompted the EU to also implement additional sanctions regimes or expand the existing ones throughout the world.

The EU has devoted considerable attention to sanctions enforcement in the global context of COVID-19. As such, it has developed specific guidance in the context of sanctions as regards counter-terrorism, Iran, Nicaragua, Syria, Venezuela in August 2021. On 30 June 2022, the EU issued further guidance on the provision of humanitarian aid in compliance with EU sanctions, which also contains guidance on issues related to COVID-19.

Over the past 12 months, the EU has adopted multiple additional sanctions packages against Russia. These measures concern additional export restrictions, designations of Russian individuals and companies preventing the circumvention of existing restrictive rules. Moreover, the EU has set up and/or further developed its sanctions regimes as regards Belarus, Niger, Haiti, Sudan and Iran. The EU also renewed most of its existing sanctions regimes and made several designations under the EU Global Human Rights Sanctions Regime.

The sectors most impacted by EU sanctions regulations vary depending on the specific sanctions regime. However, some sectors tend to be more frequently targeted than others. The following sectors are at the moment targeted by the EU in its Russia Sanctions Regulation.

• Financial sector and services: restrictions on transactions with banks, insurance companies and investment institutions to limit their access to international capital and financial resources.
• Energy: restrictions on fossil fuels imports into the EU or limitations on technology needed for energy production. 
• Transport: sanctions are targeting airlines, shipping companies or logistics firms, as well as restrictions on access to the EU market or transit through the EU.
• Technology: restrictions on technology exports in order to limit access to advanced technologies needed for various industries and to impede economic development.
• Defence: sanctions may target specific military equipment or technology, limiting the ability to modernise military capabilities. In addition, the EU has a strict framework that controls the export of goods that have a potential military application (so-called dual use goods).

Sanctions are adopted at EU level. They are generally agreed by consensus within the Council of the EU, following proposals from the High Representative of the Union for Foreign Affairs and Security Policy. Discussions take place in the relevant Council working groups. Restrictive measures are specified in Common Foreign and Security Policy (CFSP) Council Decisions. If these decisions involve economic or financial measures, they must be implemented through a Council Regulation. The High Representative and the European Commission, primarily led by the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA), then present a joint proposal for a Regulation. This joint proposal is reviewed and discussed by the appropriate Council working groups before adoption. Both the CFSP Council Decision and the Council Regulation are adopted simultaneously to ensure they are effective at the same time. The primary responsibility for implementing and enforcing EU sanctions lies with the competent EU member states authorities, while the European Commission, as the guardian of the Treaties, oversees their proper implementation and enforcement across member states.

In the EU, the framework for reporting obligations concerning sanctions is designed to ensure adherence to and effective oversight of restrictions imposed on certain individuals, entities or countries. These obligations are set out in different sanctions frameworks and vary across different sanctions. 

These obligations are primarily directed at financial institutions, credit institutions, national central banks, insurance and reinsurance undertakings, central security depositories and other entities or individuals that might come into contact with sanctioned parties.

Who Must Report

Financial institutions such as banks, insurance/reinsurance companies and other providers of financial services are required to report specific dealings that may involve sanctioned parties, or are subject to periodic reporting requirements. Additionally, any company or individual that may possess assets or engage in transactions with sanctioned entities must comply with reporting requirements.

To Whom Reports Must Be Made

Reports must generally be made to the national competent authorities of each EU member state, which are typically the financial regulatory bodies or ministries of finance. Such national competent authorities will usually themselves report this information within the European Commission.

Reporting Circumstances

Entities must report the freezing of funds or economic resources belonging to sanctioned individuals or entities. Legal professionals must ensure their services to sanctioned parties are compliant with sanctions regimes and may need to report their activities, especially if they suspect a breach of sanctions. In specific sanctions regimes, such as the one targeting Russia, reporting must be done on management of reserves as well as assets of the Central Bank of Russia and the Russian National Wealth Fund. Credit institutions must also report deposits exceeding EUR100,000 being transferred out of the EU by Russian nationals or entities owned by Russian nationals or entities. 

Legal Framework

The EU regulations that outline specific reporting obligations is spread across diverse sanctions Regulations or may arise from member states’ national regulatory or prudential rules. Council Regulation (EU) No 833/2014 setting out sectoral sanctions vis-à-vis Russia equally contains specific reporting requirements. Such requirements are also envisaged under the sanctions regime on Belarus, Haiti and Iran.

Since the proliferation of EU sanction regimes, especially against Russia and Belarus, the jurisprudence of the Court of Justice of the EU (CJEU) in sanctions matters becomes more and more dense. 

CJEU Rulings on Sanctions and Due Process

The Court continuously strengthens its position that individuals and entities listed under sanctions have their rights protected. In practical terms, EU sanctions must adhere to principles of due process, meaning that individuals and entities targeted by sanctions have the right to be informed of the reasons for their listing and have access to effective legal remedies. As an example, in the Case T-301/22 Fridman and Aven v Council, the two Russian businessmen successfully challenged their inclusion on the EU sanctions list. The CJEU found that the Council had not demonstrated a sufficient connection between the applicants and the destabilisation of Ukraine. The ruling highlighted the importance of a thorough and substantiated evidentiary basis for sanctions to meet the standards of due process.

EU Blocking Statute

In the EU, a blocking statute was first adopted by way of Council Regulation (EC) No 2271/96 in response to US sanctions against Iran, Cuba and Libya having extraterritorial effects. This Regulation was updated in August 2018 to shield EU individuals and entities aiming to do business in Iran from legal consequences in the USA resulting from US extraterritorial sanctions. 

In Case T-8/21, IFIC Holding AG v Commission, the EU General Court confirmed its position regarding the EU Blocking Statute protecting EU companies from complying with US sanctions on Iran. This specific case involved a German company, IFIC, which challenged the Commission's decision to allow a bank (Clearstream) to withhold their dividend payments due to US sanctions.

The General Court ruled in favour of the Commission, finding that:

• the Commission does not need to consider the interests of companies on the US sanctions list (like IFIC);
• the Commission does not have to explore less harmful options before granting permission to comply with US sanctions;
• companies on the US sanctions list do not have the right to be heard in the authorisation process; and
• the authorisation to comply with US sanctions only applies from the date it has been granted, not retroactively.

Claims for Damages

In its decision of February 2023, the CJEU rejected a claim by Oleksandr Klymenko, Ukraine’s former revenue minister. Mr Klymenko sought financial compensation because he was placed on the EU’s sanctions list. While the Court acknowledged the EU made mistakes, they were not serious enough to warrant financial payout. Though the Court found the EU’s actions in 2021 could be considered a reason for compensation, Mr Klymenko could not prove enough damage or a clear connection between the sanctions and his losses.

Circumvention

EU sanctions are binding within the EU’s jurisdiction. The EU refrains from adopting sanctions having extraterritorial application, however, prohibits “circumvention” of existing sanctions regimes. Circumvention has been generally defined as “activities in respect of which it appears, on the basis of objective factors, that, under cover of a formal appearance which enables them to avoid the constituent elements of an infringement of [...], none the less they have, as such or by reason of their possible link to other activities, the aim or result, direct or indirect, of frustrating the prohibition” (judgment of the CJEU, 21 December 2011, C-72/11, Afrasiabi, EU:C:2011:874, paragraphs 60 and 62).

In the fourteenth sanctions package targeting Russia, the EU’s wording of the prohibition on circumvention contained in Article 12 of Council Regulation (EU) No 833/2014 has been expanded, by adding the following wording in italics:

“It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions in this Regulation, including by participating in such activities without deliberately seeking that object or effect but being aware that the participation may have that object or effect and accepting that possibility.”

Arguably, this update should make EU persons additionally cautious. 

Relatedly, new Article 8a of Council Regulation (EU) No 833/2014 requires EU persons (both individuals and legal entities) to use best efforts to ensure that their third-country entities that they own or control do not “undermine” EU sectoral sanctions against Russia. 

The EU response to the war in Ukraine will likely dominate its sanctions agenda in the coming year. We can expect further tightening of existing sanctions and new packages targeting Russian economy, individuals and entities. 

The Council and Commission will continue prioritising sanction enforcement and focusing on anti-circumvention policies. This could involve tightening current loopholes, strengthening enforcement mechanisms at the level of the EU member states and co-operating with international allies.

Global developments or internal political shifts within the EU could lead to unforeseen sanctions targets or changes in the regimes.

Individuals or legal entities subject to EU sanctions have the right to contest their designation. The initial step normally involves submitting a request for de-listing to the Council of the EU and/or the European External Action Service. This request should be accompanied by supporting evidence that challenges the reasons for designation. The Council reviews the submission and makes a determination on whether to uphold or revoke the designation.

Another recourse, that might be explored in parallel to the application to the Council, is to bring the matter before the CJEU courts in Luxembourg. The General Court is the first instance where one can file a case, and decisions made there can be appealed at the Court of Justice. Legal challenges have often resulted in the annulment of sanctions, with the courts citing various grounds such as lack of sufficient evidence, breaches of due process, imprecise justifications, factual inaccuracies, or infringement of the rights of the defence.

It is important to note that the process is governed by strict deadlines and follows a detailed legal procedure. Moreover, legal representation of a sanctioned individual or entity, or the receipt of funds from frozen assets, may necessitate obtaining a licence from the national competent authority in the EU member state concerned. The complexity of these procedures and the legal nuances involved underscore the importance of the issue at hand.

The process of challenging an individual designation involves a legal examination of the reasons and evidence underpinning the initial listing decision. Should the Court determine that the listing was not substantiated by the necessary legal standards or was based on insufficient evidence, it has the authority to annul the listing. This annulment effectively invalidates the decision that placed the entity on the sanctions list.

The actual ability to claim damages for the harm caused by an unsubstantiated listing is complex and often depends on the specific legal framework governing the sanctions regime. In many cases, the possibility of claiming damages is limited or excluded, which means that financial compensation for losses such as frozen assets, lost business opportunities or reputational damage may not be readily available.

Upon successful de-listing, the entity would regain control over previously frozen assets, including access to bank accounts and property. This restoration of access to financial resources is a significant step towards normalising the entity’s operations. 

The timeline for obtaining de-listing from sanctions can vary significantly based on a multitude of factors, including the specific reasons for the sanctions, and the legal and procedural avenues available for contesting them.

Many cases average approximately one to two years from the initiation of legal proceedings to the final decision by the Court. This duration is not fixed and can extend beyond the average, particularly in cases that are more legally or factually complex. The intricacies of each case, including the nature of the sanctions, the evidence presented and the legal arguments made, can all influence the time required to reach a resolution.

Trade and export restrictions on services can be complex and are often subject to change due to geopolitical events, international agreements and national security concerns. Countries such as Russia, Belarus, Iran, Libya and Syria have been subject to various and long-standing sanctions and restrictions. It is important to note that the specifics of these restrictions can be detailed and may require a thorough review of the relevant legal instruments, which can include international sanctions, national laws and regulatory guidance.

Russia and Belarus

In response to the conflict in Ukraine, the EU imposed significant sanctions on Russia and Belarus. These sanctions often include restrictions on the provision of certain services.

The EU has imposed restrictions on services through several legal instruments, including Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, and Council Regulation (EC) No 765/2006 as regards Belarus. These Regulations have been amended multiple times to include various service sectors, such as:

• financial services;
• energy-related services;
• services related to military and dual-use goods;
• crypto-asset wallets;
• accounts or custody services;
• architectural and engineering services;
• IT consultancy and legal advisory services;
• advertising, market research and public opinion polling technical assistance;
• brokering or financial assistance (in relation to the maritime transport of Russian oil);
• intellectual property rights or trade secrets (related to goods and technology covered by other sanctions);
• software for the management of enterprises and software for industrial design and manufacture; and
• broad categories of goods that may contribute to Russia’s or Belarus’ industrial or military enhancements.

Iran

The EU has taken a firm stance on issues concerning Iran by implementing sanctions that are specifically targeted at the nation’s nuclear programme and the human rights concerns within its borders. These sanctions encompass a broad array of restrictions, particularly in the financial services sector, where there is a comprehensive ban on the provision of financial services, including insurance and reinsurance. The energy sector is also significantly affected, with explicit prohibitions on offering services that are connected to the exploration and production of oil and gas. The legal framework underpinning these sanctions is encapsulated in Council Regulation (EU) No 267/2012, which serves as the principal legal instrument governing the scope and application of the restrictive measures imposed by the EU on Iran.

Libya

The EU’s response to the situation in Libya has been to enforce sanctions through financial restrictions on transactions with certain Libyan entities and a prohibition on the provision of military-related services and equipment, as delineated in Council Regulation (EU) No 204/2011 and its subsequent update, Council Regulation (EU) No 2016/44. 

Trade and export restrictions are regulatory measures imposed by countries or international bodies to control the flow of goods to and from specific countries for various reasons, including political, security, economic or social concerns. The countries such as Russia, Belarus, Iran, Libya and Syria have been subject to various trade and export restrictions, often due to geopolitical tensions, human rights issues, or concerns about the proliferation of weapons of mass destruction.

In the wake of Russia’s involvement in Ukraine and Belarus’s support for these actions, a multitude of import and export restrictions and export control measures have been implemented. These sanctions encompass a broad range goods, targeting the following categories:

• dual-use goods;
• goods and technology which might contribute to military and technological enhancement;
• firearms, their parts and essential components and ammunition;
• certain equipment and pipes for the extraction of fossil fuels, including oil and gas;
• oil refining and liquefaction of natural gas goods;
• goods and technology suited for use in aviation or the space industry;
• maritime navigation goods and technology;
• luxury goods; and
• goods which could contribute in particular to the enhancement of state industrial capacities. 

The EU has codified controls on dual-use items in Regulation (EU) 2021/821.

The EU’s legal landscape is characterised by a nuanced approach when it comes to the interplay between sanctions compliance and contractual obligations. The courts are tasked with the delicate responsibility of ensuring that the enforcement of sanctions is consistent with the rule of law while also maintaining fairness within contractual engagements. It is equally important to recall that the governing law of a particular contractual relationship has a significant impact on this interplay with EU sanctions. 

EU sectoral sanctions programmes include standard non-liability clause dismissing any claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the sanctions regime in question. The EU’s sanctions regime vis-à-vis Russia specifically provides that no claims in connection with any contract or transaction that has been affected by EU sanctions shall be satisfied when made by any Russian person or entity, with the burden of evidence that the conduct is not prohibited by EU sanctions having shifted to the claimant.

EU Courts have approached the enforcement of judgments involving sanctions by prioritising the rule of law and ensuring adherence to EU regulations, including those pertaining to sanctions. This process involves a careful balancing act, considering legal principles, international obligations and the unique circumstances of each case presented. The Courts meticulously evaluate each case to ensure that the enforcement aligns with both the letter and spirit of the law while respecting the overarching framework of EU sanctions.

Any sanction proposals, including reviews aiming for repeal of measure or insertion of an exemption clause, are first drafted by the relevant Council working groups. These proposals are then referred to the Council for action. The key Council working group on EU sanctions is Working Party of Foreign Relations Counsellors (RELEX). The European External Action Service (EEAS) assists the High Representative of the Union for Foreign Affairs and Security Policy in fulfilling their mandate and has a key role in the preparation, maintenance and review of sanctions, as well as in the communication and outreach activities concerning them in close co-operation with EU member states, relevant EU delegations and the European Commission.

In the legislative process regarding sanctions, the EEAS deals with preparation, on behalf of the High Representative proposals for a decision, and jointly with the European Commission proposals for regulations which are subsequently reviewed and adopted by the Council. Regulations are directly applicable within the EU and are binding on individuals and entities, including economic operators. For its part, the European Commission presents proposals, jointly with the High Representative for regulations. 

DG FISMA prepares proposals for Regulations on sanctions for adoption by the Council of the European Union and represents the Commission in sanctions-related discussions with member states at the Council Working Party of Foreign Relations Counsellors.

DG FISMA is also in charge of monitoring, on behalf of the European Commission, the implementation and enforcement of EU sanctions across all member states. DG FISMA is increasingly supporting member states in their efforts to apply sanctions, by answering questions of interpretation raised by national competent authorities, as well as economic and humanitarian operators. 

Lastly, as noted above, competent authorities of member states are primarily responsible for the implementation of all sanctions within their respective national jurisdictions. They are in close co-operation with the EEAS, the relevant EU Delegations and the European Commission on the implementation of sanctions.

In the EU, asset freeze measures cover all funds and economic resources belonging to or owned by designated persons and entities as well as those held or controlled by such persons and entities. 

They are equally extended to entities owned or controlled by designated persons, as clarified in various guiding instruments, including the EU Best Practices for the effective implementation of restrictive measures, or the EU’s guidance on the implementation of restrictive measures vis-à-vis Russia. This ensures that sanctions are effectively enforced and that designated persons cannot easily circumvent the measures by operating through intermediaries or related entities.

According to the EU Best Practices for the effective implementation of restrictive measures, ownership is defined as a possession of more than 50% of the proprietary rights of an entity or having majority interest in it. If this criterion is satisfied, it is considered that the legal person or entity is owned by another person or entity.

To assess the control criterion, it is necessary to consider whether a person or entity:has the right or exercising the power to appoint or remove a majority of the members of the administrative, management or supervisory body of such legal person or entity; 

• has been appointed solely as a result of the exercise of one's voting rights a majority of the members of the administrative, management or supervisory bodies of a legal person or entity who have held office during the present and previous financial year; 
• is controlling alone, pursuant to an agreement with other shareholders in or members of a legal person or entity, a majority of shareholders’ or members’ voting rights in that legal person or entity;
• has the right to exercise a dominant influence over a legal person or entity, pursuant to an agreement entered into with that legal person or entity, or to a provision in its memorandum or articles of association, where the law governing that legal person or entity permits its being subject to such agreement or provision;
• has the power to exercise the right to exercise a dominant influence referred to the point above, without being the holder of that right;
• has the right to use all or part of the assets of a legal person or entity;
• manages the business of a legal person or entity on a unified basis, while publishing consolidated accounts; and
• shares jointly and severally the financial liabilities of a legal person or entity, or guarantees them.

If any of these criteria are satisfied, it is considered that the legal person or entity is controlled by another person or entity, unless the contrary can be established on a case-by-case basis. It is crucial to point out that these criteria are not exhaustive, however the fulfilment of one of them will lead to a presumption of control, which can be refuted on a case-by-case basis.