EU adopts Directive criminalizing sanctions violations

On 29 April 2024, the EU published in the Official Journal a new Directive criminalizing sanctions violations, Directive (EU) 2024/1226. With Member States having the responsibility for sanctions enforcement, some have made violations into criminal offences, while others only administrative infractions. There is also significant deviation in the applicable penalties between Member States. The EU has adopted more than 40 sanctions regimes against third parties as part of its Common Foreign and Security Policy, most recently against Russia following its invasion of Ukraine. The European Commission finds that inconsistent enforcement of EU sanctions has undermined their efficacy. The Council of the EU and European Parliament view effective application of sanctions as requiring certain common minimum rules, and varying penalties can lead to forum shopping by would-be violators.

The Directive establishes EU-wide minimum rules related to enforcement, though Member States maintain their enforcement authority. Penalties for the violations will range from criminal prosecution to administrative penalties. With the Directive, the Council and the Parliament step towards standardizing sanctions enforcement across the EU. Below is a summary of the new Directive.

Offences

Criminalized violations

Where the conduct is intentional, violations of EU sanctions are to be criminal offenses in all Member States if the violation of EU sanctions is:

• making funds or economic resources available to or for the benefit of any designated person or entity;
• failing to freeze funds or economic resources belonging to or held by a designated person;
• enabling designated persons to enter or transit EU territory;
• transacting with a third state, bodies of a third state, or entities controlled by a third state;
• trading, transporting, etc. goods, as well as providing brokering services, technical assistance or other services relating to those goods,
• providing financial services or performing financial activities;
• providing other services; and
• breaching or failing to fulfil conditions under an authorization granted to conduct activities which, in the absence of the authorization, amount to a violation of EU sanctions.

Circumvention rules

The Directive addresses sanctions circumvention by enumerating and criminalizing four forms of circumvention. This will bring a greater degree of consistency to the issue between Member States. These four forms of circumvention will be criminal offences where the conduct is intentional:

• the increasingly widespread practice of using, transferring to a third party or otherwise disposing funds or economic resources owned, held, or controlled by a designated person or entity which are to be frozen, in order to conceal those funds or economic resources;
• providing false or misleading information to conceal that a designated person or entity is the ultimate owner or beneficiary of funds or economic resources which are to be frozen;
• failing by a designated natural person, or by a representative of a designated entity, to comply with an EU sanctions requirement to report funds or economic resources they own, hold, or control; and
• failing to comply with an EU sanctions requirement to provide information about frozen funds or economic resources, or information held about funds or economic resources in EU territory which are owned, held, or controlled by a designated person or entity which have not been frozen, where such information was obtained in the performance of a professional duty.

“Intentional” conduct standard

The violations above will all be criminal offences where the conduct is intentional. This is the minimum required for Member States, though they may choose to criminalize violations at a lower evidentiary threshold. 

In addition, trading, transporting, etc. goods, as well as providing brokering services, technical assistance or other services relating to those goods, where prohibited or restricted by EU sanctions, is made a criminal offence also if committed with serious negligence, at least where that conduct relates to items on the EU Common Military List or to dual-use items.

Inciting, aiding and abetting, and attempt

Member States shall ensure that inciting, and aiding and abetting the commission of the offences covered by the Directive are also punishable as criminal offences. In addition, attempting to commit the covered offences will generally be punishable as a criminal offence.

Less than EUR10,000 threshold

Member States can refrain from criminalizing the covered offences where involving funds, goods, services, activities, etc. of a value less than EUR10,000.

Exemptions

The Directive provides that it shall not impose an obligation on legal professionals to report information they receive from, or obtain on, a client in the course of ascertaining the client’s legal position or representing that client concerning judicial proceedings, including providing advice on instituting or avoiding such proceedings.

The Directive is also not to be understood as criminalizing humanitarian assistance provided in accordance with certain principles.

Penalties

Natural persons

The Directive establishes that Member States must set maximum penalties of at least certain terms of imprisonment, which vary depending on the seriousness of the offence. Such penalties range from at least one year to five years imprisonment.

Entities

Entities (legal persons) can be held liable for the covered offences when committed for the benefit of the entity by any person who has a leading position in the entity, based on a power to represent, take decisions, or exercise control within the entity.

Member States must ensure that entities are punishable by effective, proportionate, and dissuasive penalties which shall include fines and may include other measures, such as exclusion from public tenders, judicial supervision, or judicial winding-up. Generally, the amount of a fine is to be proportionate to the gravity of conduct and to the circumstances. The maximum level of fines for most offences is to be at least 5% of total worldwide turnover or EUR40 million, as determined by the Member States. Two less serious offences related to reporting carry a maximum penalty of at least 1% of total worldwide turnover or EUR8 million, as determined by the Member States.

Aggravating and mitigating circumstances

Member States shall ensure that both aggravating and mitigating circumstances can be regarded, in accordance with national law.

Implementation

Investigative tools

Member States must ensure that effective and proportionate investigative tools are available for investigating or prosecuting criminal offences covered by the Directive, such as those used in combatting organised crime or in other serious crime cases. Such tools could therefore include the interception of communications, covert surveillance, and the monitoring of bank accounts.

In addition, Member States must ensure the EU Whistleblowing Directive (Directive (EU) 2019/1937) on the protection of persons who report breaches of Union law is applicable to the reporting of violations covered by this new Directive.

Transposition

Member States must transpose the Directive into their national legal systems by 20 May 2025.