In accordance with Article 215 TFEU30 the EU may adopt restrictive measures so as to interrupt or reduce the economic and financial relations with a third Country. These measures are implemented by means of a Regulation, adopted by the Council, and are binding and directly applicable throughout the EU. The EU may also adopt other measures such as arms embargoes or restrictions on admission, which are implemented directly by the Member States that must act in conformity with CFSP31 Council Decisions.
The Regulations implementing restrictive measures and the CFSP Council Decisions are subject to judicial review by the Court of Justice and the General Court in Luxembourg.
We are witnessing a proliferation of cases brought before the ECJ in relation to the EU sanctions imposed on Russia.
Rosneft, one of Russia’s state-‐controlled oil companies, had brought a case before the High Court in the UK, maintaining that the sanctions imposed by the EU were invalid because they are in breach of the 1994 Partnership and co-‐ operation agreement still in force between the EU and Russia. The High Court decided, last February, to refer the matter to the ECJ for advice on how to ensure consistency and uniformity in the application of the provisions of the sanctions regime.
Rosneft is not alone in believing that these sanctions are unjust. Companies such as Gazprom and Neft OAO, and Banks such as VEB Bank32, Sberbank of Russia OAO, VTB Bank amongst others are seeking the annulment of the relevant provisions33.
All the cases have following pleas in common:
- infringement of the obligation to state reasons on which the contested provisions are based, thus violating the Companies’ rights to defend themselves;
- manifest error of assessment of the facts on which the contested provisions are based, since the Companies believe that there is no genuine factual or evidential basis to justify said provisions;
- infringement of the right to effective judicial protection;
- misuse of powers, given that the Companies believe that the Council, in adopting the sanctions, was pursuing aims other than those claimed;
- infringement of the principle of proportionality and fundamental rights, since the sanctions constitute, in the Companies’ opinion, a disproportionate interference with the Companies’ freedom to conduct business and the right to property;
- violation of the 1994 EU-‐Russia Agreement on Partnership and Cooperation.
Russian Companies affected by sanctions believe that the latter are not appropriate to achieve the declared objectives and furthermore impose burdens that significantly outweigh any possible benefit.
Furthermore, the banks claim that they don’t meet the criteria34 to be included in the sanction lists. Sberbank35, for example, has pointed out that the Russian Federation is not its main shareholder and does not manage the bank, thus excluding the bank from sanctions.
The most startling case of all is the one brought before the ECJ by Almaz-‐Antey. Almaz-‐Antey is a joint undertaking that brings together some Russian military enterprises. The company has been included in the list of sanctioned companies because it manufactures anti-‐aircraft defence systems, which the EU Council believes allegedly brought down the MH-‐17 flight over Ukrainian soil. The Company argues that its inclusion in the list of sanctioned companies is illegal because the investigation regarding the incident is not over and there is no evidence of its responsibility in the crash and therefore Almaz-‐Antey cannot be punished for something it did not do.
Recently the ECJ proposed to Gazprom Neft and DenizBank 36 to await the outcome of court decision in the Rosneft case so as to have a precedent in the interpretation of the provisions regarding the restrictive measures. Both companies have refused this proposal and requested that the court hearings proceed.
Attempts to continue trading activities
In the meantime, while some companies are trying to dispute the sanctions in court, other companies try to avoid the limitations imposed by the restrictive measures by using third country intermediaries.
The United States Government after having restricted trade with Russia, imposed a “presumption of denial” on licenses to export controlled goods and technology to Russia. An exporter must now request a license if he has knowledge or suspects that the products exported may be used by military end users or for military end uses in Russia.
Considering that the violation of said restrictions carries both civil and criminal penalties, regardless if the exporter had knowledge of the ultimate destination of the goods or not, the US Government decided to publish a “Guidance on Due Diligence to Prevent Unauthorized Transshipment/Reexport of Controlled Items to Russia”.
The Bureau of Industry and Security37 believes that export controls must be a shared responsibility between the government and the exporters. This Guide emphasizes, in fact, the importance of the exporter’s duty to inquire about the end use, end user and ultimate destination of the controlled and dual use goods.
The exporters should, in BIS’s opinion, look out for discrepancies in the purchases, such as a buyer ordering spare parts for an equipment that has never been purchased by that buyer.
In fact, even though liability is absolute, the penalties are imposed only in cases of gross negligence or in cases when companies fail to make good faith efforts at compliance.
It goes without saying that these kinds of circumstances are sometimes difficult to verify and therefore the exporters must be thorough in their due diligence. It is only thought proof that internal due diligence has been exercised that companies can hope to avoid sanction.
With reference to the export control regime and the control of dual-‐use goods38 the EU adopted the Council Regulation (EC) 428/2009 of 5 May 2009. Originally, these provisions were adopted with the primary intent of driving EU’s innovation and competiveness on the global market.
So the EU, like the US, has imposed strict rules on export control of dual-‐use goods, requesting an authorization or license for the export of these items. The exporters are also required to keep detailed registers or records of their exports detailing all the relevant information, even, where known, the end-‐use and end-‐user of the dual-‐use items