By Saskia Rietbroek, CSS
January 8, 2022
A conviction by a Danish court for violating EU sanctions against Syria has underscored the knowledge governments expect of companies of the end destination of their products.
In the case, it was reported that the defendants did not ship the product directly to the sanctioned country, Syria, but sold it to the Russian military via agents in Russia. The selling began about the same time the Russian intervention in Syria became public knowledge. The judgment said the company should have realized that the fuel was ending up in Syria and stopped the trades.
As a result, on December 14, 2021, a court in Odense, Denmark, found the seller of the product, Dan-Bunkering, its DK-based parent company Bunker Holding, and CEO guilty of EU sanctions breaches against Syria.
The Trades: from Russia to the Mediterranean to Syria
According to its website, Bunker Holding group specializes in the purchase, sale and supply of fuel and lube oil to ships.
The deals that violated the EU sanctions involved 172 tons of jet fuel shipped in 2015–2017 for use in Syria. Dan-Bunkering did not deliver the fuel directly to Syria. The buyers were Russian companies acting as agents for the Russian navy.
The deals were made by Dan-Bunkering’s office in Kaliningrad, Russia, and delivery took place in the “Eastern Mediterranean” – the summary document we reviewed did not specify where this was.
The court document says that “some of the trades had been reloading the fuel in the space [sic] sea through so-called ship-to-ship operations,” where the fuel was transferred while the ships were side by side at sea.
Ship-to-ship transfers have come under the spotlight as a potential sanctions evasion red flag since 2020, when US and UK sanctions authorities issued advisories directed at the maritime shipping industry.
Based on the trade documents, emails, unloading documents and AIS data, the court found that, after receiving the jet fuel from Dan-Bunkering, the Russian companies had passed on the jet fuel in the Syrian port of Port Banias. Afterward, the jet fuel had been used by the Russian air force for military operations in Syria.
The sanctions violated were laid down in Council Regulation No. 1323/2014, December 12, 2014. This regulation prevents, among other things, jet fuels and additives from being sold, supplied, transferred or exported, whether or not originating in the Union, to any person, entity or body in Syria, or for use in Syria.
As Denmark is a member state of the EU, Danish companies are bound by EU regulations.
In Denmark, an intentional violation of the Syria Regulation can be punished by a fine or imprisonment for up to four months, or in particularly aggravating circumstances up to four years’ imprisonment. Negligent violations can be punished by a fine or imprisonment for up to two years (the Danish Criminal Act article 110c).
Considerations Surrounding “Intentional” and “Negligent Violation”
In total, 33 deals between 2015–2017 were under scrutiny by the Danish court. The majority of the court found that, in all of them, Dan-Bunkering “must have realized that it was overwhelmingly likely that jet fuel would be used by Russian military in Syria.”
The deals were done by Russian employees of Dan-Bunkering at its branch office in Russia, where the Russian intervention in Syria may have been known.
The court ruled unanimously that eight deals in 2017 contributed to “negligent violations” of EU sanctions. The deals took place after a Danish regulator raised concerns in December 2016 and had approached Dan-Bunkering. The group started internal investigations.
The court said the company should have realized then that the fuel was ending up in Syria and that Dan-Bunkering, Dan Bunkering Holding, and the CEO of Dan-Bunkering Holding, who also is the chairman of the board of directors of Dan-Bunkering, should have stopped the trades. After receiving the letter from the Danish authority, the company completed an additional eight trades with its Russian business partners.
Other considerations were, before October 2015, the two Russian companies had not purchased jet fuel from Dan-Bunkering; the amount of jet fuel supplied; and Dan-Bunkering knew the two companies were general agents of the Russian navy and should have known the jet fuel could be used by the Russian air force.
Minority Opinion: Intentional Violation Came Much Later
The court’s minority found that, it was only in September 2016, when one Russian company was sanctioned by US authorities, that Dan-Bunkering committed an intentional violation of EU sanctions. The minority considered that, before this, Dan-Bunkering negligently violated the sanctions.
Annelise Lykke Schmidt, a sanctions attorney in Denmark, said: “The condition for a violation stated in the regulations (knew or had a reasonable reason to assume violation) has now been interpreted by a court in Denmark, giving us all some fairly solid ‘red flags’ to navigate by.”
Fines and Penalties
The CEO of Dan-Bunkering Holding has been sentenced to a four-month suspended prison term. Dan-Bunkering has been fined DKr30 million ($4.6M), and the proceeds of the deals in question were confiscated – DKr15 million ($2.2M). The parent company, Bunker Holding, was fined DKr4 million ($607k).
The deadline for the appeal has expired, but the company was reported to have said it did not intend to appeal the verdict.
The sentencing of the CEO of the holding company is viewed as particularly important. Commenting on the judgment, Ms Lykke Schmidt said, despite the decisions being made by the subsidiary’s CEO, it was the CEO of the holding company, Keld Demant, who was sentenced. This has to do “to a wide extent from his presence in the board of directors of the subsidiary without intervening.”
The judgment, she said, “provides some understanding of what is expected by parent companies when it comes to trade compliance,” which is viewed as similar to rules in EU competition law.