On 25 June, the European Union implemented its 14th sanctions package targeting Russia, marking a significant shift in its strategy to undermine Russia’s economy through restrictive measures. This latest package includes unprecedented sanctions on Russian gas, alongside new sectoral restrictions and prohibitions on transactions and services. The primary aim is to tackle and prevent sanctions evasion, thereby strengthening compliance and enforcement efforts.
The package seeks to enhance private sector adherence, bolster enforcement by national authorities, and impede efforts to circumvent sanctions. These measures represent a substantial change for EU businesses operating internationally, introducing new responsibilities and compliance challenges.
A notable adjustment requires EU companies to exert “best efforts” to ensure their subsidiaries outside the EU do not undermine EU sanctions. Initially, there was a proposal to hold EU parent companies liable for breaches by their subsidiaries, which was modified following objections from Germany. Despite this adjustment, the new compliance obligations remain stringent, particularly for firms in sensitive sectors such as defence manufacturing.
To comply with EU sanctions laws, European businesses with foreign subsidiaries must establish robust compliance programmes at their headquarters, ensuring a thorough understanding of risks and exposures specific to each country of operation. This includes adopting or enhancing risk-based approaches tailored to each third country and implementing adequate domestic compliance policies.
The new anti-circumvention measures necessitate stronger due diligence mechanisms and contractual provisions to mitigate risks. Training and audits will be crucial to ensure employees across subsidiaries understand and comply with sanctions policies and procedures.
The EU has extensive experience in addressing circumvention issues, evidenced by past challenges like those related to the Maastricht Treaty and state aid regulations. The current sanctions regime faces similar complexities, with differing interpretations and enforcement practices across member states complicating enforcement. A significant challenge is the lack of consensus in defining circumvention, which varies among the EU, UK, US, and G-7, making regulatory enforcement challenging. Moreover, globalised trade further complicates distinguishing violations by EU and non-EU entities.
Kazakhstan serves as a critical example of a country balancing compliance with European sanctions while maintaining geopolitical ties, notably with Russia. Kazakhstan has committed to preventing its territory from being used to circumvent Western sanctions against Russia. Following visits from EU, US, and UK sanctions envoys in April 2023, Kazakhstan has implemented several domestic measures, including establishing a Permanent Working Group on Sanctions Compliance and enhancing export controls. Actions include deploying a real-time customs tracking system, creating an online business database, and monitoring high-priority goods movements. These efforts have substantially reduced exports of sensitive items to Russia, demonstrating Kazakhstan’s commitment to compliance.
The EU has outlined several strategies to mitigate sanctions evasion and ensure compliance. Acquis, a Brussels-based expert in compliance law, has been pivotal in advising businesses on effective strategies. It underscores the importance of ensuring anti-circumvention measures are both effective and proportionate. Identifying non-compliant partner countries and specific violators without damaging political relations is crucial. The EU aims to harmonise standards through persuasion rather than coercion, respecting other nations’ sovereignty. Key strategies include engaging in constructive dialogue with suspected circumventing entities and encouraging specific clauses in contracts and procurement processes. Support is provided to enhance monitoring capabilities and prevent the export of dual-use or high-tech products to Russia. Training customs officials and exporters is vital to combat circumvention practices. Strengthening international coordination, sharing best practices, enhancing organisational capacities, and relying on credible information sources from EU delegations and other entities are also essential.
Enhancing coordination among National Competent Authorities is crucial for implementing sanctions and preventing circumvention. This includes establishing key indicators and operational tools to monitor non-compliance and assess progress. Technical assistance recommendations include providing resources for sanctions compliance, improving database management, strengthening border controls, and monitoring trade and financial flows. Follow-up events focusing on regional cooperation, particularly in critical areas like the Caspian energy corridor and critical raw materials, are also vital. Support for administrative bodies and advocating necessary reforms for effective implementation are emphasised.
The EU’s approach to sanctions compliance is evolving, reflecting the need for businesses to adapt to new regulatory landscapes and robust compliance mechanisms. The 14th sanctions package underscores the importance of vigilance, strategic planning, and international cooperation in upholding EU sanctions and preventing circumvention. Acquis continues to play a pivotal role in guiding businesses through these complex compliance requirements, ensuring alignment with EU regulations and averting potential pitfalls.
