Upsurge in EU sanctions implementation highlights the growing importance of industry know-how

By: Anna Sayre, reporter 
Date: May 17, 2016

Since the early 1990s, EU sanction implementation has been on the rise and, as a result, has attracted growing attention from the international community.

This dramatic rise in sanctions implementation increases the likelihood of consequences to financial institutions and nonfinancial businesses. This also highlights the importance of knowing the intricacies of EU sanctions regimes as well as those regimes of other nations worldwide. With this ever growing and complicated system of international sanctions, it is important that businesses and financial institutions familiarize themselves with the EU sanctions regimes, how they are implemented and enforced, and who is liable for sanctions violations.

What are EU sanctions and why are they typically imposed?

EU sanctions, or “restrictive measures” are considered preventive, non-punitive, instruments that allow the EU to respond swiftly to political challenges and developments. These measures, just as any other sanction imposed by one country upon another, are generally viewed as a more cost effective and lower risk alternative to military force.

The EU is required to implement sanctions imposed by the United Nations Security Council (UNSC), but can also decide to impose its own sanctions in the absence of a UNSC mandate. This is referred to as the EU’s autonomous practice. The “Basic Principles on the Use of Restrictive Measures (Sanctions)”approved in June 2004 by the Political and Security Committee (PSC) states that the EU should impose sanctions in accordance with the UN, but also autonomously whenever ‘necessary’ to meet the objectives of the EU. The EU has decided on adoption of a number of sanctions regimes in the absence of pre-existing UNSC resolutions, thus developing a rich sanctions practice that has become more frequent and more sophisticated, especially in the last 20 years.

“Targeted” EU restrictions aim to preserve national welfare

Most EU restricted measures today are “targeted”. This simply means that they purport to channel harm toward specific public figures and entities, while maintaining the economic status quo of the country being sanctioned. Targeted sanctions are thus implemented in such a way that they only affect certain individuals, organizations, elites or economic sectors rather than the country’s entire economy. This notably excludes comprehensive trade embargoes (such as the US embargo of Cuba) owing to their indiscriminate effects.

EU targeted restrictive measures can be divided into four main categories: The first consists of arms embargoes, which refers to the prohibition to sell weapons and services to restricted individuals, groups, or states. The second category is travel bans, which mainly consist of restrictions or prohibitions of certain visas to certain individuals. The third category is that of economic measures, which refers to the restriction of imports/exports of goods and services that could be used by targeted actors to pursue a restricted objective. Lastly, financial measures are imposed generally to freeze the assets of certain restricted individuals or entities. An example of the last three categories can be seen in the most recent controversial sanctions against Russian, imposing travel bans and asset freeze over 21 individuals as well as a ban on import of goods from Crimea and Sevastopol.

For the current consolidated list of restrictive measures in force, click here.

How are restrictive measures “adopted” and enforced?

The EU is made up of 28 members states and seven different decision making bodies, most of which were established during the inception of the EU in 1958. This includes two legislative bodies called the Council of the European Union (the Council) and the European Parliament. Since that time, sanctions have become an increasingly important tool of the EU’s Common Security and Foreign Policy (CFSP). According to Articles 29 and 31 of the Treaty of the European Union (TEU), the Council must adopt CFSP decisions involving sanctions on a unanimous basis among Member States.

As the EU has no formal enforcement bodies of its own, individual member states have created their own enforcement regulators. Each member country will enact its own statutes to give effect to EU restrictive measures, and penalties vary according to country and severity of the offence. Though the European approach to punishing sanctions violators has in the past not been as vigorous as that of other countries, like the US, it is steadily becoming more aggressive. This can namely be seen through the recent actions taken by the UK.

As of March 2016, the UK has created the new Office of Financial Sanctions implementation (OFSI) (replacing the HM Treasury’s Asset Freezing Unit – for further information, click here), which is responsible for the implementation and administration of international financial sanctions in the UK. The Department for Business, Innovation & Skills (BIS) is responsible for trade sanctions. The current maximum penalties for breaching the embargo on financing or importing crude oil or petroleum originating from Iran is two years imprisonment and/or an unlimited monetary fine. A new UK Policing and Crime Bill has also recently been introduced in Parliament. This law would effectively, among other things, create a new monetary penalty regime for breaches of financial sanctions and increase maximum criminal penalties from two years to seven years.

It is worth noting that, on 23 June 2016, the UK will hold a referendum on whether or not it will remain in the EU. Depending on the outcome, this could have a great impact on the future of sanction enforcement within the EU.

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