Criminalization of bypassing the EU sanctions: what are the consequences for Ukraine

At the end of June, the Council of the EU approved the 14th sanctions package against the terrorist state of russia. At the same time, the Council of the EU also monitors the implementation of such sanctions and adopted the corresponding Directive, which introduced criminal liability for violation of sanctions. Denys Shkarovsky, lawyer, partner of VB Partners, told what the Directive provides for other countries and how it can affect Ukraine.

The beginning of a full-scale war with the russian federation in February 2022 gave a new push to the development of the sanctions policy not only of Ukraine, but also of the European Union. However, in the process of implementing sanctions, it became clear that russia has developed a number of schemes to avoid and circumvent sanctions, and the legislation of the member states of the European Union regulates the issue of responsibility for such actions in completely different ways. Therefore, in December 2022, the European Commission presented a draft Directive, the purpose of which was to harmonize criminal offenses and punishments for violations of restrictive measures in the EU.

Finally, in April 2024, the Council of the EU adopted a Directive that entered into force in May of this year and which provides minimum rules for EU member states regarding the criminalization of actions related to the violation of sanctions and the implementation of punishment for them.

What actions are considered crimes?

The Directive defines 4 categories of acts, the commission of which will lead to criminal liability.

The first category is a direct violation or failure to comply with certain sanction prohibitions and restrictions.

In particular, it includes:

1. provision of funds or economic resources directly or indirectly to a sanctioned person;
2. non-freezing of funds or economic resources of a sanctioned person;
3. enabling a sanctioned person to enter the territory of the EU or pass through transit;
4. provision of financial services or carrying out financial activities with a sanctioned person;
5. trade of sanctioned goods (military goods, dual-purpose goods);
6. providision of financial services or carrying out financial activities, if the prohibition or restriction of such behavior is an EU sanction.

The second category is circumvention of EU sanctions through:

1. concealment of funds or economic resources from freezing by transferring them to a third party or other disposition;
2. providing false information for the purpose of concealing the fact that the sanctioned person is the ultimate owner of funds or economic resources subject to freezing;
3. non-fulfillment by the sanctioned person the obligation to report to the competent administrative authorities about its funds or economic resources under the jurisdiction of the member state;
4. failure to fulfill the obligation to provide the competent administrative authorities with information on: a) frozen funds or economic resources, b) funds or economic resources on the territory of member states that have not been frozen.

The third category is a violation or non-fulfillment of the conditions of permits granted by the competent authorities to carry out activities subject to sanction restrictions.

The fourth category is incitigation, aiding and abetting the above.

Liability for the crime

First of all, it should be noted that both individuals and legal entities can be held liable.

Therefore, liability varies depending on the subject and the crime itself.

Liability of natural persons

Liability in the form of imprisonment for a period of 1 to 5 years or a fine may be applied to individuals (the amount of the fine is at the discretion of the EU member states).

Also additional penalties may apply, such as:

1. revocation of permits to carry out activities that led to the commission of a crime;
2. deprivation of the right to hold a managerial position in a legal entity of the same type that was used to commit the crime;
3. temporary ban on running for public office;
4. in the presence of public interest – publication of all or part of the court decision, which may include personal data of the convicted person (only in duly justified exceptional cases).

Liability of legal entities

Legal entities may be fined between 1% and 5% of the total global turnover for the previous financial year or in the amount of EUR 8 million / EUR 40 million (depending on the chosen calculation method).

Additional penalties may also apply, such as (but not limited to):

1. deprivation of the right to state benefits;
2. exclusion from access to state funding, including tender procedures, grants;
3. revocation of permits to carry out activities that led to the commission of a crime;
4. taking under judicial supervision;
5. judicial liquidation.

What are the consequences for Ukraine?

EU member states have 1 year to incorporate the provisions of this Directive into national legislation.

However, it is obvious that the provisions of the Directive will apply, in particular, to Ukraine.

It is worth noting that Ukraine already has two draft laws No. 5193 and No. 8384, which provide the introduction of criminal liability for violations and circumvention of sanctions. However, these draft laws are very general and framework and require significant revision.

At the same time, it is necessary that the Ukrainian legislation on criminal liability corresponds to the EU legislation. Thus, it is the harmonization of legislation that will allow in the future to apply mechanisms of international legal assistance with EU member states in the process of investigation and prosecution of the guilty.