Change Edition

EU eyes sanction power to target third-country firms, people
Sanctions

EU eyes sanction power to target third-country firms, people

3 min. 09.10.2022
The measures could apply to those who, for example, import banned Russian goods into the EU via a third country
The European Commission in Brussels
The European Commission in Brussels
Photo credit: Shutterstock

 The European Union will gain broad powers with its new Russia sanctions package that would allow it to target people inside and out of the bloc who help evade its restrictive measures. 

The package adopted by member states this past week includes powers to list “natural or legal persons, entities or bodies” who facilitate the circumvention of EU sanctions.

The introduction of an extra-territorial dimension to its sanctions toolkit - through restrictive measures that target people and entities outside the bloc’s jurisdiction that help Europeans evade its prohibitions - would indicate a major policy shift, according to people familiar with the scope of the regulation. 

The measures could apply to those who, for example, import banned Russian goods into the EU via a third country, obfuscating their true origin, or who export prohibited items to Moscow.

It could also potentially allow the bloc to sanction EU citizens who are helping others to dodge the restrictions, said the people who asked not to be identified because they aren't authorised to talk about the measure. 

Secondary sanctions

The EU has concluded that people and companies circumventing its sanctions are likely contributing to the destabilisation of Ukraine and as a result deemed it necessary to introduce measures to target them, according to the legislation adopted this week.

The EU has in the past been critical of the use of these so-called secondary sanctions - particularly by the US - as European companies have at times been caught up in the measures, as nations and firms can effectively be forced to choose which jurisdictions to trade with.

“After complaining for years about extra-territorial application of sanctions by the US, the EU is slowly moving in the same direction,” said Tomasz Włostowski, managing partner of EU Sanctions, a Brussels-based consultancy. “This brings the EU a few steps closer to enforcing EU sanctions on foreign companies directly.”

“Although the EU intends to punish foreign companies only when they help EU persons break EU sanctions on Russia, and not when foreign companies carry out such forbidden transactions themselves,” Włostowski noted.

The EU is unlikely to go as far as some US measures that essentially cut off those sanctioned from its financial system. Instead, sanctioned non-EU operators could see their assets in the EU frozen and individuals banned from traveling into the EU, as currently is the case for the bloc’s designations. 

Diplomatic pressure

People and companies based in the EU would likely struggle to do business with any sanctioned entity or individual, adding an element of deterrence to the measure.

The US has so far mostly refrained from applying secondary sanctions extensively in regards to restrictions targeting Russia, preferring to use diplomatic pressure instead, another person said. But the EU and its allies are aligned in believing that the enforcement of sanctions is key.

“We will be able to list individuals if they circumvent our sanctions,” European Commission President Ursula von der Leyen said. “If they buy goods in the European Union, bring them to third countries and then to Russia - this would be a circumvention of our sanctions, and those individuals could be listed.” 

In a separate move to beef up its powers, the commission is working on legislation that would allow sanctioned assets to be seized. Current rules see assets frozen making it costly to manage them and difficult to use or dispose. The legal ability to seize assets could open the door to sanctioned assets being used to contribute to Ukraine’s postwar reconstruction.

The commission’s goal is to boost EU nations’ powers to seize criminal assets, including those of sanctioned Russian individuals and entities, by extending the list of crimes such as money-laundering and corruption to include the violation of EU sanctions.

©2022 Bloomberg L.P.


The Luxembourg Times has a new mobile app, download here! Get the Luxembourg Times delivered to your inbox twice a day. Sign up for your free newsletters here.


More on this topic