The Council of the European Union recently published a revised version of the EU Best Practices for the effective implementation of restrictive measures. The guidance it contains provides some clarification of the many issues which arise in practice for both Member States and for persons and entities subject to sanctions or otherwise affected by their application. Significant uncertainties in the interpretation of EU sanctions do, however, remain. This briefing identifies the main amendments, which appear to envisage an increasing role for the private sector in the implementation of restrictive measures.
1. What is the guidance?
The EU has produced a number of different sources of guidance on EU financial sanctions (referred to as "restrictive measures"). In the absence of a comprehensive body of EU or UK case law on the interpretation and application of key concepts and aspects of restrictive measures, guidance issued by the EU institutions is particularly valuable to EU Member States as well as to persons operating in areas affected by restrictive measures. One such source is the recently revised EU Best Practices for the effective implementation of restrictive measures.
The guidance is developed by a Council working group, and is intended to harmonise the practices and approaches adopted by EU Member States in this area to avoid significant discrepancies developing. It is not limited to any specific regime or any particular type of restrictive measures, and applies across the board to restrictive measures whether they implement UN sanctions or whether they are "autonomous" EU sanctions. The guidance is intended to be a "living document", to be updated as and when best practices change. Until recently, the most recent revision was in April 2008, and the current amendments seek to reflect developments in the seven years since then. The guidance remains under review by a Working Party set up by the Council for this purpose – in particular, paragraphs 26-17, 34-35, 50-51, 53-54, 58, 82- 84, 96 and 101.
The EU Member States are not legally obliged to apply the guidelines, which are intended instead as (non- exhaustive) recommendations of varying force – whereas the guidance suggests that the EU Member States "should" adopt certain of the practices identified as "best practice", it also identifies other practices which the EU Member States "might" or "may" adopt depending on the circumstances and subject to national laws and procedures.
2. What are the main amendments?
1. Implementation and interpretation of asset freezing measures
- A shift in emphasis appears to have taken place in the provisions dealing with the role of "economic operators". Whereas the previous version of the guidance confirmed that restrictive measures would not create additional obligations on economic operators to "know their customers", revised paragraph 40 now advises that such obligations may arise in some instances – inserting a reference, for this purpose, to new advice provided on the assessment of ownership and control of a legal person (discussed below). A similar shift in emphasis is evident in the provisions dealing with mistaken identity – whereas the previous guidance suggested that persons or entities claiming to have had their assets wrongly frozen should contact the competent authority, revised paragraph 10 now directs them to contact the financial institution where the funds or economic resources were frozen as an alternative to contacting the competent authority. Taken together, these amendments suggest an interesting push towards private sector rather than competent authority responsibility.
- There is now specific guidance on how to assess ownership and control of a legal person or entity and how funds or economic resources could be indirectly made available to designated persons and entities through legal persons or entities owned or controlled by them. These new provisions mirror separate guidance to the same effect also produced by the Council of the EU, in the Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy (the "Guidelines") referred to in the first paragraph of the guidance (as amended in April 2013).
- Where an asset freeze applies to the funds and economic resources of a credit or financial institution, the guidance confirms that the "prior contracts" exemption permits funds to be released from accounts held at the institution by persons or entities who are not themselves targeted, provided that the account in question was opened before the asset freeze was imposed on the institution (at paragraph 74). The Guidelines referred to above contain a similar provision, which is stated to apply wherever a "prior contracts" clause exempts obligations arising from contracts entered into before the asset freeze was imposed. By contrast, the revised Best Practices now appear to suggest that the same position may apply even in the absence of an express prior contracts clause in the Regulation in question.
- In the case of asset freezes more generally the revised guidance also confirms that national laws may set out the procedures for dealing with funds which have been the subject of an attempted transfer in breach of sanctions (at paragraph 52).
- The revised guidance provides a more comprehensive explanation of applicable exemptions (at paragraphs 76-86), which the national competent authorities should consider when determining whether to grant an exemption (i.e. an application for a licence or authorisation permitted under the sanctions instrument in question).
- There is new guidance for this purpose on transfers of funds between EU credit and financial institutions and third country (non-EU) credit and financial institutions which relate to certain obligatory or emergency fees – these are charges for services rendered by the government of that third state in connection with over flights or emergency landings of aircrafts owned or operated by a person registered in the EU, or charges for services rendered for emergency entry into a port of that third state by ships owned or operated by a person registered in the EU. Member States should permit these if: (i) the payment is not directly or indirectly made to, or for the benefit of, a designated person or entity; and (ii) the payment respects any notification or authorisation obligations specified in applicable law. In addition, the guidance confirms that funds transferred from third country (non-EU) banks on behalf of a designated person or entity for the purpose of paying an EU national or entity for a service or good which was delivered before their designation may, in principle, be authorised subject to a case-by-case assessment of the transfer.
2. "No claims" and "no liability" clauses
- There is amended guidance on non-liability clauses commonly found in EU sanctions instruments, which provide safe harbours for inadvertent breaches of sanctions by persons or entities acting without negligence and in good faith (paragraph 37). There is now a reference to a 2011 judgment of the Court of Justice of the EU which confirms that there can be no strict liability where a non- liability clause exonerates from all liability of any kind (including criminal liability) persons who did not know, and had no reasonable cause to suspect, that their actions would infringe sanctions (Case C-72/11, Mohsen Afrasiabi and others).
- There is also new, albeit brief, guidance on the equally common "no-claims" clause, which excuses persons or entities from any liability vis-à-vis designated persons or entities for any damage caused by restrictive measures (paragraph 38). This provision cross-refers to the standard wording of no claims clauses provided in the Guidelines.
3. Information sharing
- The guidance confirms that national competent authorities should, subject to national law, be able to share information not just amongst themselves and the Commission but also with third states,i.e. non-EU Member States, where this is necessary for the purpose of assisting the recovery of misappropriated assets.
- The guidance now contains a reference to the need for the national competent authorities to notify each other and the Commission of any rejected authorisation requests concerning the provision of goods, in order to minimise the risk of distorting competition in the internal market – even where the sanctions instrument in question does not explicitly impose such a notification obligation.
4. The guidance now provides more detail on the extent of identifying details ("identifiers") required for designated persons or entities, in order to reduce the risk of sanctions being applied to the wrong persons (mistaken identity). Despite the risk of misapplication, particularly when there are few available identifiers, the guidance confirms that economic operators should be advised to treat the person or entity in question as designated unless it is clear that it is a case of mistaken identity (paragraphs 5, 9).
5. Finally, there is a new reference to the ability of persons or entities who have been designated under EU autonomous sanctions to bring annulment proceedings in the General Court of the EU, noting that where such legal challenges are successful the designation will nevertheless remain in force until the expiry of the period for bringing an appeal (two months and ten days after notification of the judgment). By contrast, persons or entities designated under UN sanctions are directed towards the focal point, their State of residence or, for persons designated under the Al-Qaida Sanctions List, the UN Office of the Ombudsman (paragraph 23).
In an area where firms are crying out for guidance and the case-law remains so sparse, every little helps. For this reason, the updated guidance is welcome and of interest, albeit that it has no binding force in Member States and imposes no compliance obligations on firms