Directive Harmonising Minimum Standards for Violation of EU Sanctions Adopted and Published in Official Journal

We previously reported on the draft text of the Directive at the time when it was first announced as a legislative proposal of the European Commission – please see our previous briefing here.

The Directive sets out mandatory rules relating to criminal enforcement of sanctions violations, including maximum penalties which Member States must implement by 20 May 2025.

Key provisions of the Directive

The Directive establishes minimum rules concerning the definition of criminal offences and penalties for the violation of EU sanctions.

The Directive instructs Member States to ensure that, where it is intentional and in violation of sanctions, the following conduct constitutes a criminal offence:

• making funds or economic resources available to, or for the benefit of, a designated person;
• failing to freeze funds or economic resources belonging to, of owned, held or controlled by a designated person;
• enabling designated persons to enter into, or transit through, the territory of a Member State;
• entering into or continuing prohibited transactions with a sanctioned country;
• trading, importing, exporting, selling, purchasing, transferring, transiting or transporting sanctioned goods (as well as providing related brokering services, technical assistance or other services relating to such goods);
• providing prohibited services;
• circumventing sanctions;
• breaching or failing to fulfil conditions of authorisations granted by Member State authorities.

The Directive also mandates that conduct listed above (other than at points (c) and (e)) shall not constitute a criminal offence where it involves funds / economic resources, goods, services, transactions or activities of a value of less than EUR 10,000.

The Directive further provides that Member States must ensure that violations of trade sanctions (as listed in point (e) above) constitute a criminal offence “also if committed with serious negligence, at least where that conduct relates to items included in the Common Military List of the European Union or to dual-use items”. This highlights the importance of transactional due diligence, as companies will not be able to hide behind wilful ignorance to defend allegations of sanctions violations.

Finally, the Directive states that Member States shall take necessary measures to ensure that:

• inciting, aiding and abetting the commission of an offence referred to above; and
• attempting to commit an offence referred to above,

is also punishable as a criminal offence.

In terms of other provisions, the Directive sets out a list of aggravating and mitigating circumstances which Member States must take into account when assessing penalties for sanctions violations.

Interestingly, the Directive also instructs Member States to provide for a limitation period that enables the investigation, prosecution, trial and adjudication of offences for a sufficient period of time after the commission of those offences, in order for those offences to be tackled effectively. Such limitation period should be at least 5 years from the commission of the offence.

Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 20 May 2025.

What are the maximum penalties

The Directive distinguishes between penalties for natural persons (individuals) and penalties for legal persons (companies).

In relation to offences committed for the benefit of companies (in circumstances where the offences are committed by any person who has a leading position within the company), the Directive requires Member States to ensure the maximum level of fines that can be imposed on companies is not less than:

• up to 5% of total worldwide turnover; or
• up to €40 million.

Importantly, Member States shall ensure that companies can be held liable where the lack of supervision or control by a person having a leading position within the company has made the commission of the offence possible.

In relation to offences committed by individuals, the mandatory maximum penalties are imprisonment for up to 5 years (depending on the offence – with the harshest penalties reserved for offences relating to Common Military List items and dual-use items). Furthermore, Member States must ensure that individuals may also be subject to accessory criminal or non-criminal penalties, including:

• fines (proportionate to the gravity of the conduct);
• withdrawal of permits and authorisations;
• disqualification from holding a leading position within a company;
• temporary bans on running for public office; and
• in certain circumstances, publication of all or part of the judicial decision (which may include the personal data of the convicted persons).

Commentary

The Directive certainly seeks to address the main obstacle to sanctions enforcement across the EU: lack of uniform application of penalties relating to sanctions violations (with some Member States not even treating sanctions violations as criminal offences). The hope is that the Directive (once implemented at local level) will provide a basis for effective deterrence to individuals and businesses engaging in sanctions violations.

Nonetheless, criminal offences and high maximum penalties set out in local law can only go so far if they are not paired up with robust enforcement actions by competent authorities. It is clear that many Member States currently lack the necessary resources to launch and conduct investigations into suspected violations. The Directive provides that the Commission may establish a network of experts and practitioners to share best practices and, where appropriate, provide assistance to Member State competent authorities in order to facilitate investigation of sanctions violations. Such assistance from the Commission would certainly help with Member States’ enforcement efforts.

Furthermore, as we have seen with the sanctions regimes of the US and the UK, one of the cornerstones of effective sanctions enforcement is a voluntary self-disclosure regime, whereby persons are granted leniency or reduction in penalties if they voluntarily report their offences to the competent authorities. In fact, voluntary self-disclosures are the main source of information to authorities in relation to instances of non-compliance with sanctions. Most EU Member States currently do not have voluntary disclosure regimes, which significantly reduces the incentives of self-reporting and which puts all the burden on competent authorities to seek out and independently investigate suspected instances of non-compliance.

In this regard, it is therefore very interesting to note that the Directive requires Member States to ensure that:

1. providing competent authorities with information or evidence they would not otherwise have been able to obtain; and
2. helping competent authorities identify, or bring to justice, other offenders,

is regarded as a mitigating circumstance in relation to assessing the relevant criminal offences. In essence, this provision of the Directive mandates the creation of effective voluntary disclosure regimes, which we would expect to have a very significant impact on increasing sanctions enforcement across the EU.