Enforcement of EU Sanctions – Soon New Powers for the European Public Prosecutor’s Office?
Enforcement of EU Sanctions – Soon New Powers for the European Public Prosecutor’s Office?
Recent developments in the European Union (EU) as well as political demands indicate that the criminal prosecution of sanctions violations in the EU will be further intensified and possibly even centralized:
In this Client Alert, we will cover:
Since the beginning of Russia’s war of aggression against Ukraine in February 2022, the EU has adopted nine Sanctions packages with restrictive measures against Russia. These comprise Sanctions against individuals, companies, and organizations, as well as economic and trade sanctions that are particularly intended to thwart the technical and financial preconditions for the continuation of Russia’s military aggression. The enforcement of the EU sanctions, including the criminal prosecution of Sanctions violations, falls within the responsibility of the competent authorities of the Member States, who take action based on their national administrative and criminal laws.
So far, the requirements of EU sanctions regulations concerning their enforcement by the Member States have been rather general in nature. Regulation (EU) No. 269/2014 (and the other EU Sanctions regulations) in particular requires the following of the Member States:
The divergences in the actual implementation of the EU Sanctions against Russia are revealed through a look at the scope of the frozen assets: According to information from the EU Justice Commissioner Didier Reynders at the end of October 2022, essentially only seven EU Member States were responsible for the freezing of assets of Russian origin in the amount of about €17 billion (on December 16, 2022: about €18.9 billion).
With respect to the enforcement of Sanctions violations, the picture is similar: As depicted in more detail in a comparative study from December 2021, there are considerable differences in the enforcement and criminal prosecution of EU Sanctions violations between the Member States, also resulting from the lack of harmonization of applicable laws at the EU level.
The EU has already introduced various measures for implementation at the Member State level intended to ensure a more uniform and effective enforcement of its Sanctions against Russia.
This in particular applies to the reporting of frozen funds and assets of sanctioned individuals and companies. In so far, the EU Sanctions against Russia (unlike numerous other sanction regimes) now stipulate the following:
The alignment also relates to the prosecution of Sanctions violations:
Here, a second driving force behind the changes besides striving toward maximum effectiveness of the EU Sanctions against Russia becomes apparent: The rebuilding of Ukraine should, after the end of the Russian war of aggression, also be financed from frozen assets of sanctioned Russian oligarchs and companies. In the case of violations of penalties, frozen assets can be seized and confiscated. Leading in the same direction is the Proposal for a Directive on asset recovery and confiscation of the European Commission, which, among other things, wants to simplify the deprivation of proceeds from violations against Sanctions.
The German Sanctions Enforcement Act I (Sanktionsdurchsetzungsgesetz I), effective since May 28, 2022, is designed to implement the requirements of EU Sanctions, in particular by granting the competent national authorities the necessary powers to deal with frozen funds and economic resources of sanctioned persons:
The German Sanctions Enforcement Act II (Sanktionsdurchsetzungsgesetz II), in force since December 28, 2022, contains further measures to increase the effectiveness of EU Sanctions enforcement in Germany. In particular, a central authority for the enforcement of Sanctions (Zentralstelle für Sanktionsdurchsetzung – ZfS) has been established based on the new law as of January 2, 2023, as directorate XI of the Federal General Customs Directorate to ensure the enforcement of Sanctions without prejudice to the responsibilities of BAFA and Bundesbank as defined by the Foreign Trade and Payments Act, and to cooperate with foreign authorities. Furthermore, the new law provides for specific powers of the central authority for the investigation and seizure of assets of sanctioned individuals and companies, introduces procedural rules for reporting obligations of sanctioned persons, and creates a corresponding register for assets. The new law also establishes a contact point for information on Sanctions violations; provides for far-reaching monitoring powers of the central authority in the case of suspicion of Sanctions violations, including the appointing of a special representative for companies; and introduces numerous changes to ensure the transparency of ownership structures and transactions (such as transferring real estate data into the transparency register; a reporting obligation of foreign associations regarding existing real estate in Germany; a prohibition on cash payment for real estate transactions; making ownership and control structure overviews utilizable for authorities; and the obligation to provide a detailed explanation for reporting a deemed beneficial owner under German anti-money laundering law, amongst others).
In view of the differences of Sanctions enforcement between the Member States, the Council has expressed concerns that despite the steps already taken, Member States would not enforce Sanctions against Russia in a sufficiently effective manner. Against this backdrop, the Council decided on November 28, 2022, to add violations of Sanctions to the list of “areas of crime” defined in Art. 83 para. 1 Treaty on the Functioning of the European Union (TFEU). These “EU crimes” are meant to include areas of particularly serious crime with a cross‑border dimension resulting from the nature or impact of such offenses or from a special need to combat them on a common basis. This had been preceded by a corresponding Proposal of the European Commission dated May 25, 2022. The Council decision could be the basis for further measures to align and tighten the prosecution of Sanctions violations:
In the very short time since the beginning of its operative work in June of 2021, the EPPO has shown itself to be an extremely powerful new investigating authority for cross-border cases of white-collar crime related to the EU. It can be expected that the EPPO, due to its institutional autonomy and its special expertise and legal competence, will be established Europe-wide as the leading investigating authority in the coming years. Companies that operate across borders in Europe should be familiar with the EPPO’s methods of working, in order to deal appropriately and anticipatorily with cases of suspicion that fall within the area of competence of the EPPO. Should the political demand for the competence of the EPPO for violations of Sanctions become reality, the EPPO would only increase in importance.
As the independent public prosecutor of the EU, the EPPO is the court with jurisdiction for cases involving criminal investigations, prosecution, and judicial proceedings in relation to criminal offenses affecting the financial interests of the EU (Art. 86 para. 1 TFEU).
The EPPO has the power to investigate on account of the following offenses:
The EPPO has jurisdiction locally if these criminal offenses:
Twenty-two countries of the 27 EU Member States belong to the EPPO zone. Hungary, Poland, Sweden, Denmark, and Ireland have not transferred competencies to EPPO so far.
For criminal offenses that do not fall within the investigate powers of the EPPO, the national prosecution authorities remain responsible.
In Germany, the EPPO can also conduct investigations against legal entities and associations of individuals due to a regulatory offense, to the extent the regulatory offense is inseparably connected with a criminal offense against the EU budget, or insofar as the EPPO, due to its jurisdiction, is already conducting a preliminary investigation against an executive of the company in question.
Besides the EPPO, there are other institutions at the EU level that are responsible for combatting crime and with whom the EPPO works in close collaboration.
The central EPPO authority with its headquarters in Luxemburg is led by the European Chief Public Prosecutor Laura Kövesi (Rumania). Together with one public prosecutor from each of the 22 participating Member States, she forms the College of the EPPO. This College is responsible for strategy and the internal rules of the authority.
At the national level, the Delegated European Public Prosecutors are active in the 22 participating Member States, as well as in the Permanent Chambers. There, the European public prosecutors have regular discussions and make investigative decisions. In every Member State there are at least two Delegated European Public Prosecutors who, under the supervision of the central authority in Luxemburg and independent of their national authorities, investigate, prosecute, and press charges. Thereby, they continue to act while respecting their national criminal laws and criminal procedure laws. Different from their national colleagues, they investigate independent of any national authority to issue instructions. Rather, they are even entitled to a right to give instructions to the national authorities of the Member State. In Germany, the Delegated European Public Prosecutors have their office locations in Berlin, Frankfurt am Main, Hamburg, Cologne, and Munich.
Should the EPPO become aware of circumstances that could fall within its scope of jurisdiction, it examines the initial suspicion and the powers of investigation. Thereby, reports can come from both citizens as well as national authorities. If the EPPO instigates investigations, the national authorities must refrain from making their own investigations in the same case (right of evocation of the EPPO).
The operational investigative work takes place at the national level. The delegated European public prosecutors investigate on the basis of the national laws of the Member States, and they apply for judicial decisions before the national courts.
Should the EPPO press charges, then the trial and, if applicable, the sentencing take place before a national court. For appeals, the national legal process is available.
The method of working of the EPPO is digital. Its “case management system” allows it to take on huge amounts of data, process it, and evaluate it. The system is fed from different sources (e.g., information from private persons, as well as European and national authorities). The access to international networks and the unbureaucratic exchange between Delegated European public prosecutors across national borders enables the investigators to achieve a swift conduct of proceedings. In the case of cross-border matters, the duplicate work of two national public prosecutors working simultaneously can be avoided, and instead, investigative skills can be pooled. For example, by cooperating with other international and national prosecution authorities, it is possible for hundreds of warranted searches to take place in different countries at the same time.
The EPPO’s balance sheet so far demonstrates its clout:
The powers of the EPPO could, pursuant to Art. 86 para. 4 TFEU, be extended to include other cross-border criminal offenses. This would require a decision of the European Council to expand the prosecution powers to one or all of the “criminal areas” mentioned in Art. 83 para. 1 TFEU. Here, the current expansion of the list of EU criminal offenses to include violations of EU Sanction regulations would come into play. Since they are now part of the list in Art. 83 para. 1 TFEU, in a next step, the corresponding change to Art. 86 para. 1 TFEU could follow. The EPPO would then also be granted prosecution powers to that extent, which would have to be recognized by the Member States of the EPPO zone. Swift and uniform preliminary investigations could be the result. This would reduce the work burden of national public prosecutors who currently are entrusted with the processing of violations of Sanctions.
On the one hand, a company that conducts internal investigations based on indications that an internal corporate crime could have been committed should be aware that, in the case of suspicion of an EU criminal offense, not just national public prosecutors would investigate and, if applicable, undertake compulsory measures such as warranted searches of office premises. It can be expected that the EPPO would avail itself of its right of evocation and take the investigation upon itself if a matter falls within its responsibility. To be sure, domestic public prosecutors will continue to act and, in their investigations, cooperate with domestic prosecution authorities. However, the EPPO conducts the investigations within its own competence, almost independently. Should a company have indications of misconduct, then it should be clarified anticipatorily whether there are grounds for the responsibility of the EPPO. The conducting of internal investigations, and the decision as to whether there should be cooperation with prosecution authorities, must be adjusted to these new circumstances.
On the other hand, it remains to be seen whether the EPPO will also be given a mandate to prosecute sanctions violations. Irrespective of a possible expansion of the EPPO’s competence for sanctions violations, there are signs of more stringent and uniform prosecution throughout the Union in the area of sanctions enforcement. The European Commission’s draft directive on the definition of criminal offenses and sanctions in the event of violations of restrictive measures of the EU not only obliges the Member States to combat sanction violations in the future with the means of criminal law under threat of severe fines and imprisonment. According to the directive, Member State authorities, Europol, Eurojust, the European Commission, and the EPPO – where competent – are to cooperate and coordinate in the prosecution of sanctions violations.