In light of the political situation in Ukraine, the European Union has imposed sanctions on several individuals and entities. EU companies engaging with individuals and entities in Russia and Ukraine may well be affected. This is why EU companies should pay attention to these sanctions and any changes in these sanctions.
Sanctions regarding the situation in Ukraine
The European Union (EU) has – similar to the United States, Canada and others – implemented measures in the form of EU regulations to impose sanctions directed against certain individuals and entities responsible for the misappropriation of Ukrainian State funds and individuals responsible for human rights violations in Ukraine. The EU has also taken certain restrictive measures against those undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. The sanctions include freezing funds and other assets of those individuals and entities involved (sanctioned parties). “Freeze lists” have been attached to these regulations. These lists have subsequently been expanded several times. Some implications for companies that are seated in one or more EU member states (EU companies) are outlined below.
For EU companies, the effects of the sanctions consist, briefly put, of the following:
- EU companies (e.g., banks) are obliged to freeze the funds and economic resources that are held, owned or controlled by sanctioned parties
- EU companies are prohibited to make funds or economic resources, directly or indirectly, available to or for the benefit of sanctioned parties.
It is also prohibited for EU companies to participate in activities the object or effect of which is to circumvent these measures.
What these sanctions mean and how to respond
The definitions of “funds” and “economic resources” are interpreted broadly and may include anything of value. In practice, this generally means that EU companies may not execute any transactions with, or effectuate any payments to, sanctioned parties. Another difficulty is identifying whether a sanctioned party “owns” or “controls” a non-listed party, in which case an EU company may also be engaged in a prohibited activity. Although some EU guidance is available on this point, it is especially less definitive when a sanctioned party is said to be in control.
EU companies should not expose themselves to the risk of acting in breach of these EU regulations, which have been amended quickly in recent months and which can be amended quickly again. EU companies should therefore carefully review their business operations and transactions that could involve any sanctioned party and take appropriate measures to manage their risks.