[en] Restrictive measures are always complemented by an “anti-circumvention clause” which prohibits participation in activities the object or effect of which is to circumvent EU provisions. This clause plays a key role in ensuring the effectiveness of sanctions and, ultimately, the objectives of EU external action. This article intends to shed light on the obligations arising from the anti-circumvention clause, with a specific focus on financial restrictive measures against designated individuals (which essentially entail asset freeze measures against them). First, the scope of the anti-circumvention clause under EU law is defined. Second, the actors involved in uncovering and countering circumvention practices within the territory of the Union are presented, illustrating the central role of the Member States in coordinating national and supranational efforts to ensure compliance with EU restrictive measures, through constant dialogue and cooperation with financial operators and the European Commission. Third, one specific circumvention strategy is explored, namely circumvention through family members. More precisely, the article investigates whether there is a presumption of circumvention when family members are involved. To this end, it considers the case law of the ECJ on the legality of family members’ designations under EU sanctions. Throughout the analysis, the article emphasizes how the exceptional circumstances in relation to the war in Ukraine have progressively changed the design of EU restrictive measures as well as the commitment of the Union to tackle circumvention. In this context, the unprecedented emphasis on circumvention is complemented by the Union’s unprecedented desire to resort to criminal enforcement. Accordingly, the effectiveness of EU restrictive measures has become a call for effective criminal enforcement. The article, however, argues that this may not be the most appropriate choice.
Disciplines :
European & international law
Author, co-author :
FINELLI, Francesca ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Law (DL)
External co-authors :
no
Language :
English
Title :
Countering circumvention of restrictive measures: The EU response
Publication date :
June 2023
Journal title :
Common Market Law Review
ISSN :
0165-0750
eISSN :
1875-8320
Publisher :
Kluwer Law International, Alphen aan den Rijn, Netherlands
1. See e.g. Art. 9 Council Regulation (EU) 269/2014 of 17 March 2014 concerning restric-tive measures in respect of actions undermining or threatening the territorial integrity, sover-eignty, and independence of Ukraine, O.J. 2014, L 78/6.
2. EU restrictive measures, most commonly known as sanctions, are a cornerstone tool of the Common Foreign and Security Policy (CFSP), representing the most used and institution-alized instruments of the Union’s foreign policy (approximately 80% of CFSP decisions). See Wessel et al., “The future of EU Foreign, Security and Defence Policy: Assessing legal options for improvement”, 26 ELJ (2020), 371-390.
3. A phenomenon which is also known as “sanctions busting”. See Early, “Making sanc-tions work: Promoting compliance, punishing violations, and discouraging sanctions busting” in van Bergeijk, Research Handbook on Economic Sanctions (Edward Elgar Publishing, 2021).
4. In this way, designated individuals may claim to have relinquished their assets, but they retain influence or indirect control on them, avoiding the effect of any restriction.
5. Case C-72/11, Afrasiabi and others, EU:C:2011:874.
6. Ibid., para 60.
7. Ibid., para 62.
8. Ibid., para 60 (emphasis added).
9. Ibid., paras. 66-67.
10. See European Commission FAQs on “Asset freeze and prohibition to make funds and economic resources available” (emphasis added) (related provision: Council Regulation 269/2014), no. 26, available at (all websites last visited 8 March 2023).
11. The profitability of “sanctions busting” has become extremely tempting for EU natural and legal persons, due to the lucrative business relations they might have with Russia and Rus-sian targets at the moment of the adoption of sanctions.
12. Early, “Confronting the implementation and enforcement challenges involved in imposing economic sanctions” in Ronzitti (Ed.), Coercive Diplomacy, Sanctions and Interna-tional Law (Brill | Nijhoff, 2016), p. 60.
13. See Statement by President von der Leyen on further measures to react to Russia’s inva-sion of Ukraine on 26 Feb. 2022, available at .
14. See .
15. The Council adopts EU restrictive measures through a two-step procedure: first, by a decision taken at unanimity pursuant to Art. 29 TEU, and, second, by a regulation adopted by qualified majority pursuant to Art. 215 TFEU.
16. In this field, the Union cannot directly monitor, investigate, and punish non-compliance with EU restrictive measures vis-à-vis EU companies and citizens. The Union, more precisely the European Commission, can only monitor, indirectly, the transposition and application of EU provisions at the national level and, where necessary, it can initiate infringement proce-dures against Member States.
17. Regulations imposing asset freeze measures directly bind EU legal entities, including financial operators, doing business in whole or in part in the EU. See General Secretariat of the Council (2018), “Guidelines on implementation and evaluation of restrictive measures (sanc-tions) in the framework of the EU Common Foreign and Security Policy”, Doc. 5664/18, para 88. See e.g. Art. 17 Council Regulation (EU) 269/2014.
18. European Commission FAQs on “circumvention and due diligence”, available at .
19. Through “know their customers” (KYC) policies.
20. See Joined Cases C-37 & 601/20, Luxembourg Business Registers, EU:C:2022:912. The ECJ ruled that a national provision whereby the information on the beneficial ownership of EU companies is accessible in all cases to the public is invalid. See Press Release, available at .
21. European Commission FAQs cited supra note 18, no. 1.
22. COM(2021)4223 final,p.4.
23. European Commission FAQs cited supra note 18, no. 1.
24. The persons and entities who/which are “listed” by the unanimous vote of the Council in Brussels and who/which explicitly appear under the column “Name” in the Annex of EU Council Decisions and Regulations setting up restrictive measures.
25. On the notions of “ownership” and “control” see General Secretariat of the Council, “EU Best Practices for the effective implementation of restrictive measures”, Doc. 10572/22, paras. 62-65.
26. The determining factor is whether the listed entity is able to and effectively asserts “a decisive influence” over the conduct of the other entities in question. See Commission Notice (2017), “Commission frequently asked questions on EU restrictive measures in Syria”, p. 8, available at .
27. COM(2020)4117 f inal, p. 3. See also EU Best Practices, cited supra note 25, para 41.
28. If the designated person is determined to have control over the non-listed entity, it can be presumed that the control extends to all assets nominally owned by the latter. Therefore, such assets must be frozen. Otherwise, designated persons could easily circumvent the asset freeze measures by continuing to have access to funds or economic resources through the non -designated third parties that they control. See ibid. This presumption of control can always be rebutted on a case-by-case basis.
29. See European Commission FAQs cited supra note 10, no. 4 (emphasis added).
30. In addition to the requirements imposed by Anti-Money Laundering and Countering the Financing of Terrorism (AML/CTF) legislation, such as reporting suspicious financial transactions to the competent supervisory bodies.
31. EU Best Practices cited supra note 25, para 41 (emphasis added).
32. See Art. 1(3) of Council Regulation (EU) 2022/1273 of 21 July 2022 amending Regu-lation (EU) 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, O.J. 2022, L 194/1.
33. See European Commission FAQs cited supra note 10, no. 30.
34. Ibid. More recently, with the adoption of the 10th package of EU sanctions, the Council also required EU operators to report information held on assets which have been subject to any move, transfer, alteration, use, access or dealing shortly before the listing. See Council Regu-lation (EU) 2023/426 of 25 February 2023.
35. Guastaferro, “Sincere cooperation and respect for national identities” in Schütze and Tridimas, Oxford Principles Of European Union Law: The European Union Legal Order: Vol-ume I (OUP, 2018), p. 355.
36. See list of NCAs . See also .
37. For instance, NCAs may help EU operators in interpreting the concepts of ownership and control.
38. See e.g. Art. 4 Council Regulation (EU) 269/2014. See also the Commission Guidance Note on the provision of humanitarian aid in compliance with EU restrictive measures (sanc-tions), available at .
39. The 2021 Report published by the Genocide Network clearly illustrates this fragmenta-tion; Genocide Network, “Prosecution of sanctions (restrictive measures) violations in national jurisdictions: A comparative analysis” (Dec. 2021), available at .
40. General Secretariat of the Council (2018), Guidelines cited supra note 17, p. 42.
41. More precisely, with the adoption of the “sixth package” of sanctions against Russia, O.J. 2022, L 153.
42. See Art. 15 Council Regulation (EU) 269/2014 (as amended by Council Regulation (EU) 2022/880 of 3 June 2022) and Art. 8 Council Regulation (EU) 833/2014 (as amended by Council Regulation (EU) 2022/879 of 3 June 2022) (emphasis added).
43. If they have not yet done so.
44. In the words of the European Commission, “the violation of those measures must not be allowed to pay off ”. Press Release, “The Commission proposes rules on freezing and con-fiscating assets of oligarchs violating restrictive measures and of criminals”(25 May 2022), available at . See also “State-ment by President von der Leyen on Russian accountability and the use of Russian frozen assets” (30 Nov. 2022), available at .
45. Art. 17 TEU.
46. Adopted pursuant to Art. 215 TFEU.
47. COM(2021)32 final, “The European economic and f inancial system: Fostering open-ness, strength and resilience”, p. 16, available at .
48. See FAQs consolidated version, available at .
49. Pursuant to Art. 258 TFEU. So far, the Commission has never launched an infringe-ment procedure against a Member State for the misapplication of restrictive measures. In its role as a guardian of the Treaties and monitoring the implementation of sanctions by Member States, the Commission insist it plays a cooperative role in the field. (Interview with Commis-sion Officials on 4 July 2022.)
50. Press Release, “Enforcing sanctions against listed Russian and Belarussian oligarchs: Commission’s ‘Freeze and Seize’ Task Force steps up work with international partners” (17 March 2022), available at . The Task Force also coordinates its work with the “Russian Elites, Proxies, and Oligarchs (REPO) Task Force” set up between the G7 countries, Australia, and the EU; see the Ministerial Joint Statement (17 March 2022), available at .
51. While this work is still ongoing, according to the latest update and compiled informa-tion, almost €30 billion of assets have been frozen within the Union so far, including assets such as yachts, helicopters, real estate, and artwork, worth almost €6.7 billion. Press Release (8 April 2022), available at .
52. The Task Force has been meeting on a regular basis to ensure better coordination of the enforcement of EU sanctions.
53. Poli, “Contingent and structural changes in the practice of EU restrictive measures after the conflict in Ukraine?”, Paper presented at the workshop “From cradle to grave: The policy cycle of EU restrictive measures” (24-26 Nov. 2022), Groningen, the Netherlands.
54. The “first package” of EU sanctions was adopted on 23 February 2022 in response to Russia recognizing the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine and its decision to send troops into the region, see .
55. Since then, the EU has adopted 10 packages of sanctions, progressively amending the restrictions in force. An overview is available at .
56. For more information see the official website, available at .
57. See what can be reported, available at .
58. See Council Regulation (EU) 2022/1273 of 21 July 2022 amending Regulation (EU) 269/2014 and amended Art. 9 of the Regulation.
59. See European Commission FAQs cited supra note 10, no. 31.
60. See General Secretariat of the Council (2018), Guidelines cited supra note 18, para 88. In this regard, the Union has also adopted the so-called “Blocking Statute” to protect EU opera-tors, whether individuals or companies, from the extraterritorial application of third-country laws. See Council Regulation (EC) 2271/96 of 22 Nov.1996.
61. See also the pending Case T-635/22, Fridman and others v. Council, challenging the validity of the new reporting obligation.
62. Press Release (25 May 2022) cited supra note 44.
63. COM(2022)247 final, Proposal for a Council Decision.
64. Art. 83(1) TFEU.
65. COM(2022)249 final, “Towards a Directive on criminal penalties for the violation of Union restrictive measures”.
66. Ibid., Annex, p. 2.
67. COM(2022)245 final, Proposal for a Directive of the European Parliament and of the Council on asset recovery and confiscation.
68. On 7 July 2022, the European Parliament gave its consent to the draft Council Decision on identifying the violation of EU sanctions as a new area of EU crime. See Doc. P9_TA (2022)0295.
69. See Council Decision (EU) 2022/2332 of 28 Nov. 2022 on identifying the violation of Union restrictive measures as an area of crime that meets the criteria specified in Art. 83(1) TFEU. See also Press Release at .
70. COM(2022)684 final. The European Commission presented the final proposal for a Directive containing minimum rules concerning the def inition of criminal offences and penal-ties for the violation of EU restrictive measures. This draft Directive will be discussed and adopted by the Council and the European Parliament, following the ordinary legislative procedure.
71. I.e. Spain and Slovakia.
72. COM(2022)245 final, Proposal for a Directive of the European Parliament and of the Council, Art. 5.
73. Ibid., Art. 21.
74. Ibid., Art. 28.
75. COM(2022)247 final, p. 12 (emphasis added).
76. In line with a more general trend, as presented by Scholten, “Mind the trend! Enforce-ment of EU law has been moving to ‘Brussels’”, 24 Journal of European Public Policy (2017), 1348. See also Scholten and Scholten, “From regulation to enforcement in the EU policy cycle: A new type of functional spillover?”, 55 JCMS (2017), 925.
77. Van Kreij, “Towards a comprehensive framework for understanding EU enforcement regimes”, 10 EJRR (2019), 445.
78. See .
79. See the European Commissioner for Justice, Didier Reynders, response (see ) to a parliamentary question (see ).
80. Art. 5(3) and (4) TEU, and Protocol No. 2 on the application of the principles of sub-sidiarity and proportionality.
81. E.g. the transfer of ownership of funds and assets before designation to wives, daugh-ters, or sons.
82. See reported examples, available at ; ; .
83. See Case C-402/05 P, Kadi and Al Barakaat International Foundation v. Council and Commission, EU:C:2008:461, para 340.
84. E.g. on 24 Feb. 2022, several Russian oligarchs attended a meeting at the Kremlin with Vladimir Putin to discuss the impact of the course of action in the wake of Western sanctions. See the statements of reasons for the designation of Andrey Igorevich Melnichenko, Dmitry Alexandrovich Pumpyansky, Dmitry Arkadievich Mazepin, Mikhail Eduardovich Oseevsky, Sergey Alexandrovich Kulikov etc. in Council Regulation (EU) 269/2014.
85. See European Commission FAQs cited supra note 10, no. 5.
86. See EU Best Practices cited supra note 25, p. 23. For further details on “control”, see C(2020)4117 final and C(2021)4223 final.
87. European Commission FAQs cited supra note 10, no. 5.
88. COM(2022)684 final.
89. Ibid., Art. 3(2)(h)(i) (emphasis added).
90. Since Kadi II, Case C-584/10 P, Commission and others v. Kadi, EU:C:2013:518, para 119.
91. Ibid.
92. Filpo, “Evidence standards in the judicial review of restrictive measures”, 20 ERA Forum (2020), 615-635.
93. See Case C-605/13 P, Anbouba v. Council, EU:C:2015:248, para 46.
95. Case C-376/10 P, Tay Za v. Council, EU:C:2012:138.
96. Ibid., paras. 64 and 71.
97. Case T-181/08, Tay Za, EU:T:2010:209. The GC presumed that leading business fig-ures in Myanmar as well as their family members are associated with the regime, see paras. 66-67. See for a more detailed analysis on the rights of defence in the Tay Za case, Pantaleo, “Case C-376/10 P, Pye Phyo Tay Za v. Council, Judgment of the European Court of Justice (Grand Chamber) of 13 March 2012”, 49 CML Rev. (2012), 1769-1785.
98. Case C-376/10 P, Tay Za, para 70.
99. Case T-202/12, Al Assad v. Council, EU:T:2014:113.
100. Particularly because of “the existence in that country of a tradition of the exercise of power by a family is a well-known fact which the Council was entitled to take into account”; ibid., para 96.
101. Ibid., paras. 93 and 97.
102. Ibid., para 100.
103. See Council Decision (CFSP) 2015/1836 of 12 Oct. 2015 amending Decision 2013/255/CFSP and Council Regulation (EU) 2015/1828 of 12 Oct. 2015 amending Regulation (EU) 6/2012 concerning restrictive measures against Syria, O.J. 2015, L 266.
104. See Art. 15 Council Regulation (EU) 36/2012, as amended.
105. Recital 7 Council Decision (CFSP) 2015/1836 (emphasis added).
106. E.g. against several cousins of President Bashar al-Assad and members of the Makhlouf family. In the aftermath of the death of Mr Mohammed Makhlouf, the Council decided to list his widows and daughters. See Council Implementing Regulation (EU) 2022/237 of21 Feb. 2022.
107. See Case C-157/19 P, Makhlouf v. Council, EU:C:2020:777; Case C-158/19 P, Oth-man v. Council, EU:C:2020:778.
108. Case C-157/19 P, Makhlouf, para 98, and Case C-158/19 P, Othman, para 92. See also Art. 15 Council Regulation (EU) 36/2012 concerning restrictive measures against Syria, O.J. 2015, L 266.
109. See case law with regard to “leading businesspersons operating in Syria” and pre-sumption of support rebutted before the Court; e.g. Case T-186/19, Zubedi v. Council, EU:T:2 020:317, para 71; Case T-256/19, Assi v. Council, EU:T:2021:818, para 164; Case T-260/19, Al-Tarazi v. Council, EU:T:2021:187, para 147; Case T-258/19, Foz v. Council, EU:T:2021: 820, para 147.
110. Case T-296/20, Foz v. Council, EU:T:2022:298.
111. Ibid., para 176.
112. The brother, Mr Samer Foz, had failed to rebut the presumption of a link to the Syrian regime before the ECJ. See Case T-258/19, Foz.
113. Case C-376/10 P, Tay Za, para 71.
114. Since 23 Feb. 2022, the Council has progressively broadened the designation criteria under the Russian sanctions regime and, today, 1473 individuals and 205 entities are subject to an asset freeze because their actions have undermined Ukraine’s territorial integrity, sover-eignty, and independence. See overview available at .
115. E.g. the Council has deemed it necessary to introduce a new (autonomous) listing cri-terion targeting circumvention activities. On 6 Oct. 2022, the Council expanded the designa-tion criteria to “natural or legal persons, entities or bodies facilitating infringements of the prohibition against circumvention”. See Art. 1 Council Regulation (EU) 2022/1905 of 6 Oct. 2022 amending Regulation (EU) 269/2014. Participating in circumvention activities has become, for the first time, an independent ground for designation under EU restrictive mea-sures - regardless of specific family ties.
116. E.g. the two daughters of President Putin, the sisters of the pro-Kremlin oligarch Alisher Usmanov, the wife and children of Dmitry Peskov, the wife and son of Dmitry Alexan-drovich Pumpyansky, the wife of Alexey Mordashov, the wife of the Russian industrialist Andrey Igorevich Melnichenko, the wife of the billionaire Gennady Timchenko, are currently on the list. See Recital 7, Council Implementing Regulation (EU) 2022/581 of 8 April 2022 implementing Regulation (EU) 269/2014.
117. When drafting the statements of reasons for their designations, the Council also inserted that both daughters are benefitting from the Russian Government and are involved in economic sectors providing a substantial source of revenue to it. See Council Implementing Regulation (EU) 2022/581 of 8 April 2022.
118. “… relying in particular on facts and information available to them alone”; see Case T-202/12, Al Assad, para 100.
119. See actions brought by Nikita Dmitrievich Mazepin (Case T-743/22), son of Dmitry Arkadievich Mazepin, by Gulbakhor Ismailova (Case T-234/22), sister of Alisher Usmanov, by Galina Evgenyevna Pumpyanskaya (Case T-272/22), and Alexander Dmitrievich Pumpyanskiy (Case T-291/22), respectively wife and son of Dmitry Alexandrovich Pumpyansky, by Elena Petrovna Timchenko (Case T-361/22), wife of the billionaire Gennady Timchenko, by Ale-ksandra Melnichenko (Case T-498/22), wife of Andrey Igorevich Melnichenko.
120. Case T-212/22, Prigozhina v. Council, EU:T:2023:104.
121. In Case T-723/20, Prigozhin v. Council, EU:T:2022:317, the GC recognized that the sources of evidence used by the EU Council were sound and reliable, and that there is specific, precise and consistent evidence demonstrating the links between Mr Prigozhin and the Wagner Group.
122. Opinion in Case C-376/10 P, Tay Za, EU:C:2011:786.
123. Case T-202/12, Al Assad, para 99 (emphasis added).
124. Case T-181/08, Tay Za, para 72 (emphasis added).
125. Case T-212/22, Prigozhina v. Council, EU:T:2023:104, para 105.
126. In Prigozhina, the GC held that the Council failed to establish such risk of circumven-tion because it could not prove current business ties between the Russian oligarch and his mother. See Gergondet, “Is family off limit in EU sanctions law? (Cases T-743/22 R Mazepin and T-212/22 Prigozhina)”, EU Law Live, available at .
127. COM(2022)684 final.
128. See Art. 48 EU Charter of Fundamental Rights and Directive (EU) 2016/343 of the European Parliament and of the Council of 9 March 2016 on the strengthening of certain aspects of the presumption of innocence and of the right to be present at the trial in criminal proceedings. See also Art. 6 ECHR, “Everyone charged with a criminal offence shall be pre-sumed innocent until proved guilty according to law” (emphasis added).
129. Recital 9, Council Decision (EU) 2022/2332 of 28 Nov. 2022. It is interesting to note that the scope of Art. 83(1) TFEU is limited to a “particularly serious crime with a cross-border dimension”, while Art. 83(2) TFEU provides a legal basis for functional criminalization when it is essential “to ensure the effective implementation of a Union policy in an area which has been subject to harmonization measures”. Yet, the criminalization of sanctions breaches “to ensure the effective implementation of the Union’s policy on restrictive measures” (emphasis added) seems to blur the distinction between the two legal bases.
