Increased complexity of proof in sanctions challenge cases
The EU has imposed blocking sanctions on numerous Russian individuals on the basisThis criterion is established in Articles 1(1)(e) and 2(1)(g) of Council Decision 2014/145/CFSP of 17 March 2014 and Article 3(1)(g) of Council Regulation (EU) No. 269/2014 of 17 March 2014 that they are either “leading businesspersons operating in Russia” or “businesspersons involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation.”Some Russian businesspersons, having been subject to EU sanctions, sold their assets and/or resigned from leading functions in the respective companies and then initiated a challenge to the EU sanctions imposed on them.
The Council of the EU stated in the Decision, inter alia, that
- in practice, certain leading businesspersons transferred shares or resigned from leading functions in order to hide their assets or to circumvent the EU restrictive measures while maintaining control over the resources available to them;
- it is appropriate to presume that modifications to the ownership structures concerning, or to the positions of, leading businesspersons following their initial listing do not affect their socio-economic situation as demonstrated at the time of initial listing; and
- furthermore, access to Russian public registers has become increasingly restricted, making it difficult to obtain evidence and reliable information on capital holdings, business activities or the professional and socio-economic situation of persons identified as leading businesspersons.
Therefore, by establishing the above presumption and shifting the burden of proof to the listed persons themselves, the Council of the EU has significantly made the proof process more complicated in cases involving challenges to EU sanctions by persons recognised as leading businesspersons. In order to challenge sanctions, it will now be necessary to prove not only that the businesspersons sold an asset and/or resigned from a leading function, but also that their position has changed to such an extent that they no longer meet the leading businessperson criterion.
As the Council of the EU explained, such change in a position could be, for example, that “the persons concerned can no longer be considered important and influential in light, in particular, of their professional status, the importance of their economic activities, the extent of their capital holdings,” etc. Furthermore, the Council of the EU will also take into account, whether the person concerned “has unambiguously condemned” Russia’s actions in Ukraine.
It is also worth noting that in the context of restrictions on access to Russian public registers the Council of the EU pointed out that “in cases where Russian legislation allows for the suppression or the concealment of information contained in national public registers or databases, or the entry of false or misleading information therein, it is appropriate for the last available information dating from before 24 February 2022 to be considered accurate unless more recent and reliable information is available.”
New ground for imposing blocking sanctions
In order to strengthen the combat against the circumvention of sanctions restrictions, whereby leading businesspersons formally sell their assets while retaining control over them, the Council of the EU has also added a new ground for imposing EU blocking sanctions.Natural or legal persons, entities or bodies that have, in the opinion of the EU, participated in or enabled transfers of ownership, control or economic benefit of the business interests of persons who are subject to EU blocking sanctions pursuant to the leading businessperson criterion, may now be subject to sanctions.
Exceptions are situations where the relevant transactions are expressly permittedBy Council Decisions 2014/145/CFSP and 2014/512/CFSP, as well as Council Regulations (EU) No. 269/2014 and No. 833/2014 under the derogations and exemptions provided for in the EU sanctions legislation.
As a reminder, EU blocking sanctions have the following consequences:
- EU PersonsThe EU sanctions are binding:
- within the EU territory;
- on EU citizens regardless of their location;
- on EU-registered legal entities and their branches and representative offices;
- on any persons within EU territory, regardless of their nationality; and
- on board any aircraft or vessel under the jurisdiction of a Member State
- EU Persons are prohibited from directly or indirectly making funds and economic resources available to or for the benefit of sanctioned persons.
The emergence of a new ground for the EU blocking sanctions and the associated risks should be taken into account when performing transactions on asset acquisition from listed leading businesspersons. If the EU regulator, having received information on such a transaction, considers that it was actually aimed at concealing the real beneficiary of the asset and circumventing the EU sanctions, the buyer of the asset will face the risk of being included in the EU sanctions list.
