Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 37 EU sanctions: European Commission guidance on trusts measures On 8 April 2022, the EU added Article 5m to Regulation (EU) No 833/2014 (the "Regulation") as part of the 'fifth package' of EU sanctions against Russia. Article 5m prohibits the provision of management services1 and fiduciary services2 to trusts or similar legal arrangements with Russian connections, unless the settlor or beneficiary is a national of an EU member state or a natural person having a temporary or permanent residence permit in an EU Member state. We have considered the scope and evolution of Article 5m in our previous articles: EU sanctions: impact on the trust industry (; EU sanctions: application of trusts measures outside the private trusts sphere ( and EU sanctions: tweaking sanctions against trusts ( In this article, we look at guidance on Article 5m recently issued by the European Commission. Since March 2022, the Commission has published a number of guidance documents in the form of FAQs relating to EU sanctions against Russia3. However, it has taken 2.5 months for the Commission to publish FAQs relating to Article 5m: 1 The registration, provision of a registered office, business or administrative services as well as management services 2 Acting as, or arranging for another person to act as, a trustee, nominee shareholder, director, secretary or a similar position 3 conomy_euro/banking_and_finance/documents/faqssanctions-russia-trusts-services_en.pdf. While this guidance does not have binding effect4, it should provide some assistance to EU operators struggling to get to grips with Article 5m. We pick out below 5 points of interest: 1. Article 5m applies not only to trusts but to any "similar legal arrangement". This term is not defined in the Regulation but the Commission suggests comparing an arrangement's structure or function to that of a trust. The FAQs highlight two aspects, in particular, that may qualify an arrangement as "similar" to a trust: a fiduciary bond between parties; and a separation or disconnection of legal and beneficial ownership of assets. 2. The term "similar legal arrangement" is also used in Directive (EU) 2015/849 (as amended, "AMLD") to mean "a legal arrangement having a structure or functions similar to trusts". The Commission has published a consolidated list of trusts and "similar legal arrangements" notified by EU Member States pursuant to Article 31(10) of AMLD (the latest consolidated list, dated 27 April 2020, is available here5) and a report assessing whether EU Member States have duly identified all trusts and "similar legal arrangements" governed under their laws (available here). Rather than providing a list of "similar legal arrangements" for the purposes of Article 5m, the new FAQs suggest referring to AMLD 4 Pursuant to the EU Treaties, only the Court of Justice of the European Union can provide legally binding interpretations of Regulation 833/2014. 5 Interestingly, some Member States withdrew or amended their notifications of "similar legal arrangements" prior to this list being published