The European Union has imposed sanctions on specific sectors of the Russian economy and entities that provide support to Russia’s defense capabilities. For instance, professional services are prohibited from being offered to legal entities established in Russia by the EU.
To further enforce its sanctions regime, the EU is working with third countries to ensure that loopholes are closed and that operators do not circumvent its prohibitions. The new special envoy of the EU has confirmed that efforts are underway to work with countries such as the United Arab Emirates, and more countries, including Turkey, are expected to follow.
Asset confiscation is a major focus of EU sanctions enforcement. EU regulations permit the confiscation of assets resulting from sanctions breaches, such as money used to help a sanctioned person evade financial restrictions. The proposed EU directive on asset recovery and confiscation aims to allow national authorities in the EU to identify, freeze, confiscate, and manage tainted assets. This means that if any assets are the product of sanctions breaches, such as money received to facilitate a sanctioned person’s evasion of financial restrictions, they could be confiscated under EU regulations. The confiscation of assets resulting from sanctions breaches is one of the main focal points for sanctions enforcement in the EU. Some countries proposed the establishment of a central agency in the EU Similar to the Office of Foreign Assets Control (OFAC) in the United States, but suggestions have yet to progress.
Under the 10th Package from the beginning of this year, the EU has added 87 more individuals and 34 entities to its sanctions list. This new list includes Alfa-Bank, Rosbank, Tinkoff Bank, the National Wealth Fund of the Russian Federation, and the Russian National Reinsurance Company, among others. Many of the designations target Russian companies involved in the military and defense sectors, such as those producing missiles, drones, aircraft, military vehicles, warships, control systems, and those providing supplies to the Russian Armed Forces.
In the coming months, it will be crucial for companies to assess their compliance with EU regulations, as the EU moves towards greater sanctions enforcement. This is especially important for financial services firms, as a transaction or a counterparty could ostensibly be captured by the EU regimes. The reputational impact of enforcement action can be significant, as it may affect third parties’ willingness to transact with these firms in the future.
On the basis of the above, it seems that the previous sanctions were only a pilot project of the EU, and that now Russia, Russian companies and Russian citizens will face significantly harsher sanctions with a narrowed possibility of circumventing the application of valid directives.