Overview
On January 19, 2021, the European Commission (the Commission) presented a Communication setting out a strategy to stimulate the openness, strength, and resilience of the European Union's economic and financial system.
An important part of this Communication concerns EU sanctions, in particular:
- The implementation and enforcement of EU sanctions regimes.
- The EU's resilience to the effects of the extra-territorial application of unilateral sanctions and similar measures by third countries.
The stated aim of the proposed actions is to further enhance the EU's strategic influence by increasing its weight as a regulatory power and preserving the integrity and effective functioning of the EU Single Market.
The Communication is part of a broader set of actions to strengthen the EU's "open strategic autonomy," including a trade policy review, a joint Communication on strengthening the EU contribution to rules-based multilateralism, an updated industry strategy and digital strategies, and a new EU-US agenda for global change.
Strengthening the Implementation and Enforcement of EU Sanctions
EU sanctions are adopted by the Council of the EU by unanimity and implemented by the individual Member States, under Commission oversight. In its Communication, the Commission maintains that this implementation has not been as uniform across the EU as it ought to be. This could create distortions in the EU Single Market and uncertainty among operators, and undermine the efficacy of sanctions as well as the EU's ability to speak with one voice.
The Commission proposes several key actions to strengthen the implementation and enforcement of EU sanctions:
- In 2021 the Commission will develop a database, the Sanctions Information Exchange Repository, for the prompt reporting and exchange of information between EU Member States and the Commission on the implementation and enforcement of sanctions.
- In 2021, the Commission will work with EU Member States to establish a single contact point for enforcement and implementation issues which have cross-border dimensions. The aim is to help coordinate EU Member States' replies to requests for authorization from EU operators that are active in multiple EU Member States.
- The Commission will continue to further ensure that EU funds and economic resources are not used in violation of EU sanctions, in particular, by continuing to agree on legally binding provisions.
- The Commission will conduct an assessment of the effectiveness of EU sanctions, which it will coordinate with the High Representative to propose improvements to the effectiveness of EU sanctions regimes. The Commission will also conduct a review of practices that circumvent and undermine sanctions, including the use of cryptocurrencies and stablecoins, in order to present possible legislative proposals or implementation guidelines.
Further, the Commission will set up an expert group of representatives of EU Member States on sanctions and extra-territoriality together with representatives of the European External Action Service. The group's mandate will cover issues related to the technical implementation of EU sanctions and the Blocking Statute (see also below).
A New Tool for Anonymous Reporting of Sanctions Violations
In its Communication, the Commission announces that it will create a dedicated tool to facilitate anonymous reporting – including whistleblowing – in order to address the confidential nature of information on EU sanctions’ violations and potential implications for those who report illicit activities. Such a system will provide the necessary guarantees of confidentiality. In the first half of 2022, the Commission will present a roadmap for moving from detection of systematic non-compliance with EU sanctions to action before the Court of Justice of the EU.
Strengthening Existing Tools to Counter Extra-Territoriality and Considering New Ones
A crucial aspect of the Communication is the Commission's announcement to counter extra-territorial application of sanctions by third countries, which may affect EU operators. The EU considers that the extra-territorial application of sanctions against EU operators is contrary to international law. The Commission maintains that close coordination with allies and like-minded partners, to align sanctions regimes to the largest possible extent, would partly prevent the adoption of third-country sanctions that differ from those of the EU and that are also applied extraterritorially to EU operators.
The EU had already adopted the Blocking Statute in 1996, which has been the EU’s instrument to address the extra-territorial application of third countries' measures, in particular US secondary sanctions, on EU operators. The Commission now suggests that the Blocking Statute would need to be part of a more comprehensive EU policy against extra-territoriality to strengthen its impact. To this end, the Commission will put in place the following measures:
- Clearer procedures and rules to facilitate the recovery of defendants’ assets across the EU (Article 6 Blocking Statute).
- Strengthened national measures to block the recognition and enforcement of foreign decisions and judgments based on the listed extra-territorial measures (Article 4 Blocking Statute).
- Streamlined processing for authorization requests, including a review of the information requested (Article 5 Blocking Statute).
- Possible involvement in foreign proceedings to support EU companies and individuals.
The Commission will also explore ways to ensure the uninterrupted flow of essential financial services, including payments, with EU entities or persons targeted by the extra-territorial application of third-country unilateral sanctions. This could include improvements of the effectiveness of instruments such as INSTEX.
The Commission additionally maintains that the likelihood that a transaction results in the unlawful extra-territorial application of sanctions adopted by any third country to the EU target may be taken into consideration during FDI screenings under Regulation (EU) 2019/452.
Finally, the Commission suggests that the proliferation of extra-territorial sanctions requires a deeper debate on possible additional measures to increase deterrence. Therefore, it will launch a general reflection on policy options to modernize the EU's existing toolkit and to adopt further instruments to counter the effects of the extra-territorial application of third-country unilateral sanctions on EU individuals and entities. Such options could include a possible amendment of the Blocking Statute. In parallel, the Commission is conducting a review of its trade policy and will present a proposal to deter and counteract coercive actions by third countries.
What Happens Next?
The new strategy is clear proof that the Commission remains committed to further developing and strengthening the EU sanctions landscape, as well as its ability to lessen the extra-territorial impact of third-country sanctions. It appears that this will become even more important under the influence of the new commissioner, Mairead McGuinness, who seems to have taken great interest in this area since taking office last October.
The Communication expresses a policy choice to improve rather than to depart from the current EU tools. Faced with the EU institutional structure and the reality of the allocation of powers between the EU and the Member States, the Commission falls short of proposing the setting up of an EU agency mirroring the powers of the US Office of Foreign Assets Control (OFAC).
It remains to be seen to what extent the Commission's less ambitious plans will be supported by the EU Member States. New sanctions frameworks, as well as amendments to existing ones, are adopted by the Council of the EU by unanimity. In the past, this has often been the reason why it was difficult for the EU to speak with one voice and to adopt more wide-ranging restrictive measures. This could also impede the Commission’s goal to increase resilience against extra-territorial third-country sanctions that affect EU operators.
However, the Commission may find some comfort in the fact that many of its proposed actions do not seem to require new legislation, particularly regarding the immediate strengthening of the implementation and enforcement of EU sanctions. Therefore, strict unanimous support from every single EU Member State might not be necessary.
In the meantime, the European industry should closely monitor the EU implementation agenda and foresee enhanced compliance measures that it is likely to entail. Of particular practical relevance will be the tool for anonymous reporting of sanctions violations, which is likely to lead to increased enforcement action. In parallel, the industry will need to assess whether the solutions at hand are likely to neutralize the EU vulnerability to extraterritorial sanctions and bring legal certainty to transactions which could otherwise fall within their scope.
