Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 36 measures set out in Regulation 833/2014, and such countries can now obtain the benefit of derogations from some of these measures that are otherwise only available to EU Member States. For example, Articles 2 and 2a prohibit the sale, supply, transfer or export of certain goods and technology to Russia. However, authorisation for any such sale, supply, transfer or export can be sought where the goods or technology are intended for non-military use and the exclusive use of a non-military entity owned, or solely or jointly controlled by, a legal person, entity or body which is incorporated or constituted under the law of an EU Member State or of a partner country. Notably, some derogations are available to persons and entities from EU Member States only, such as the exception to the Article 5n prohibition referred to at point 3 above. Strengthening penalties for breaches of sanctions in the UK and EU The EU's 'sixth package' also clarified and strengthened the provisions on national penalties for breaches of EU sanctions against Russia1 and Belarus2 by requiring EU Member States to: (i) introduce and implement criminal penalties for breaches; and (ii) provide for appropriate measures of confiscation of the proceeds of such breaches. This complements the European Commission's recent proposals to: (i) introduce a Directive on Asset Recovery and Confiscation; and (ii) revise Article 83(1) of the Treaty on the Functioning of the European Union to add the violation of sanctions to the list of EU crimes. Note that these measures are directed at the confiscation of the proceeds of sanctions breaches, not the automatic confiscation of (frozen) assets of designated persons. Effective and dissuasive penalties have also been a focus in the UK following Russia's invasion of Ukraine – see our previous article on the Economic Crime (Transparency and Enforcement) Act 2022 (the 1 Both Regulation 833/2014 and Regulation (EU) No 269/2014, which imposes asset freezing measures on designated persons 2 Regulation (EC) No 765/2006, which includes export controls and asset freezing measures "ECA"). Chapter 1 of Part 3 of the ECA, which relates to monetary penalties imposed for breaches of financial sanctions, came into force yesterday, 15 June 2022. Of particular note, the previous position has been amended in the following ways: 1. Previously, in order for OFSI to impose a monetary penalty, it had to be satisfied on the balance of probabilities that a person or body knew or had reasonable cause to suspect that they had breached financial sanctions. The ECA removes this requirement, creating a 'strict civil liability'. It is important to note that the removal of this requirement applies only to breaches that occur on or after 15 June 2022.3 OFSI has recently updated its guidance to make clear that, even then, it will be a relevant factor in assessing the proportionality of OFSI's response to the breach. 2. OFSI now has the ability to publish details of breaches of financial sanctions where no monetary penalty has been imposed publicly. OFSI suggests one reason for doing so is when there are valuable compliance lessons for industry. If OFSI does decide to publish details of a breach, the relevant person will be given 28 working days in which to make any representations in relation to the finding of a breach and publication of the case summary and, if OFSI upholds its decision, the written case summary will be shared with the relevant person in advance of publication. There is no saving provision for this amendment in the legislation, although the guidance suggests it only applies to breaches that occur on or after 15 June 2022. Stephen Ashley, Sue Millar and Lucy Walsh 3 Regulation 3, The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 2 and Saving Provision) Regulations 2022