EU Commission publishes opinion on ‘making funds available’ to sanctioned persons
The European Commission has published an opinion on the application of the financial measures laid down in Article 2(2) of Council Regulation (EU) No 269/20142 ‘concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine,’ having received two requests from national competent authorities (‘NCAs’) concerning the interpretation of the same legal provision.
Both requests relate to Article 2(2) of the Regulation, whereby EU operators are prohibited from making funds or economic resources available, directly or indirectly, to or for the benefit of the persons listed in Annex I to the Regulation, and to issues of ownership and control.
‘One designated person listed in Annex I to the Regulation is the Chairman of the Board of Directors of a non-designated, non-EU entity (‘Entity A’).
According to the NCA and based on the statute of Entity A, this management role makes the designated person responsible for organising the work of the board of Entity A and ensuring the successful fulfilment of tasks of the board by its members. In turn, Entity A owns a subsidiary company based in an EU Member State (‘the EU Subsidiary’).
The NCA submits the following questions:
‘1.1 Based on the information provided and information available from open-sources, can it be concluded that the designated person controls Entity A?
‘1.2. If yes, does the Regulation prohibit an EU operator from making payments to the EU Subsidiary controlled by Entity A for purchasing products originating from Entity A? Does the Regulation prohibit an EU bank from processing these payments?’
According to the NCA, a designated person listed in Annex I to the Regulation controls a non-designated, non-EU entity (‘Entity B’).
The goods produced by Entity B are sold by companies based in third-countries (‘the Third-Country Intermediaries’) to EU operators. The NCA submits the following questions:
‘2.1. Does the Regulation prohibit EU operators from making payments in favour of non-EU entities acting as Third-Country Intermediaries for products of Entity B controlled by the designated person?
2.2. Does the Regulation prohibit EU banks from processing payments from the national accounts of EU operators to the accounts of the mentioned non-EU entities, if these transactions are based on invoices issued for the products of Entity B controlled by the designated person?
2.3. If the products in question were purchased by an EU operator from an operator in another Member State that, in its own right, had acquired them from another non-EU entity, would this represent a breach of the Regulation by the purchasing operator? Similarly, would the processing of the underlying transactions by an EU bank represent a breach of the Regulation?’
Answering the generalities of the questions, the Commission said it took the view that:
‘(1) It is the competence of the NCA to determine, taking into account all the elements at its disposal and the specific circumstances of the case, whether a designated person has control over Entity A or Entity B. 12 Article 8 of Council Regulation (EU) No 269/2014 provides that“(…) natural and legal persons, entities and bodies shall: (a) supply immediately any information which would facilitate compliance with this Regulation, (…) to the competent authority of the Member State where they are resident or located, and shall transmit such information, directly or through the Member State, to the Commission.”
‘If control by the designated person over Entity A is established: (2) Making payments to the EU Subsidiary controlled by Entity A amounts to making them available to the latter; and to the extent Entity A is controlled by the designated person, the payments can be considered indirectly made available to or for the benefit of the designated person.
‘If control by the designated person over Entity B is established: (3) Making payments in favour of Third-Country Intermediaries for products originating from Entity B can be considered as making funds or economic resources indirectly available to the designated person.
In both cases:
(4) EU banks must apply the appropriate due diligence procedures to avoid that a payment made to Entity A or Entity B could result in the indirect making available of funds or economic resources to or for the benefit of the designated person. (5) All EU operators, including banks, are prohibited from making payments to any entity, irrespective of where it is based, if this would entail making funds or economic resources directly or indirectly available to or for the benefit of a designated person.’