The EU has adopted a new directive which establishes EU-wide rules for defining criminal offences and penalties related to the violation of EU sanctions. A stricter regulatory environment and closer scrutiny is expected as Member States adopt these requirements into their local laws.
On 24 April 2024, the Directive1 to harmonize enforcement and penalty standards for violating EU sanctions throughout the EU was adopted. Member States are required to implement the Directive into national law by 20 May 2025. In general, companies should expect a stricter regulatory environment and more scrutiny with regard to sanctions compliance and possible breaches.
As an EU directive, the framework adopted at the EU level needs to be transposed, or adopted into, the local laws of each Member State. In a nutshell, there appears to be some need for implementation of the Directive in all Member States as the current regimes do not all align with the Directive's provisions. This is particularly evident in respect of the minimum requirements for the maximum level of fines that can be imposed on legal persons, which in certain Member States is currently considerably lower than the Directive requires, as well as the establishment of criminal liability for the seriously negligent commission of certain offences2.
Standardisation of offences and enforcement
Currently, the national offences and enforcement rules in the Member States that regulate violations of EU sanctions can differ considerably. The Directive establishes minimum rules for criminal conduct violating EU sanctions, including penalties for intentional violations and circumvention attempts, for both individuals and legal persons, with additional provisions in respect of aggravating and mitigating circumstances. It covers a range of offences, including: failure to freeze funds, failure to enforce travel bans, and conducting financial transactions and trading goods and related services in violation of sanctions. The Directive also addresses Member State jurisdiction over sanctions violations, enforcement cooperation between Member States, protection of reporting persons (under the EU Whistleblowing Directive), and data collection for enforcement purposes.
Sanctions breaches as specific criminal offences
The Directive outlines specific acts, such as providing funds or economic resources to designated entities or failing to freeze their assets, which Member States must ensure are prosecuted and punished as criminal offences when committed intentionally3. The Directive also defines situations of circumvention, which are themselves to be punished criminally by the Member States4. In addition, Member States shall ensure that certain offences (for example, trading goods or providing technical assistance in violation of EU sanctions) are punishable where committed with serious negligence, at least where the conduct relates to dual-use items5.
Inciting, aiding, abetting and attempting
Inciting, and aiding and abetting the commission of an offence listed in the Directive must be punishable in every Member State6. Attempts to commit certain of these offences must also be subject to criminal liability in Member States (e.g. making funds available or providing financial services in breach of EU sanctions)7.
Penalties for individuals and companies vary
Individuals face a range of penalties
The Directive requires Member States to ensure that the range of penalties available to punish certain offences is extended to reach certain uniform maximum levels and extends to certain accessory penalties8:
- Offences related to providing financial services, trading goods, or enabling designated persons' entry into Member States must be subject to a maximum term of imprisonment of at least five years.
- Offences involving funds or economic resources valued at EUR 100,000 or more may lead to imprisonment from up to one year to up to five years (depending on the offence).
- Offences involving specific military items or dual-use items requires a maximum term of imprisonment of at least five years.
Accessory penalties for natural persons may include fines, disqualification from certain corporate activities, or temporary bans on running for public office.
Interestingly, many of these penalties for individuals are only triggered where the value of the relevant frozen assets or goods or services is a minimum of EUR 100,000. Below that threshold, Member States have the discretion to legislate as they see fit.
Companies face different penalty risks and fines
The Directive also confronts the liability of legal persons9, including companies, separately from liability of individuals. Member States are required to ensure that legal persons can be held liable for the offences referred to in the Directive if committed for the benefit of the legal person by a person who has a leading position within the entity and has acted on the basis of a specific authority, such as a power of representation10.
Member States must also ensure that effective criminal or non-criminal sanctions can be imposed on the legal persons responsible11.
Fines for legal persons must be proportionate to the gravity of the offence and the company's financial circumstances. For certain offences, the Directive sets minimum requirements for the maximum level of penalties available that can range from 1% to 5% of the total worldwide turnover of the legal person (either in the business year preceding that in which the offence was committed, or in the business year preceding the decision to impose the fine) or specific monetary amounts from EUR 8 million up to EUR 40 million, depending on the offence12.
Alignment across investigations and reporting
Freezing and Confiscation
Member State authorities shall be entitled to freeze and confiscate assets related to offences, ensuring that proceeds from criminal activities can be seized13.
Jurisdiction and Limitation Periods
Mandatory rules on Member States' jurisdiction over offences and limitation periods for investigation (generally, five years, provided the penalty for the offence is up to five years) and prosecution means that authorities will have adequate time to address offences effectively14.
Investigative Tools and Reporting
The Directive further mandates the availability of effective tools for investigation and requires reporting measures and whistleblower protection to encourage the reporting of violations15.
Coordination and Cooperation
Law enforcement and authorities enforcing EU sanctions are required to cooperate, facilitating coordination and information sharing to enhancing the effectiveness of enforcement efforts16.
Implementation in Member States
EU directives are not directly applicable in the Member States. They must be implemented by legal acts in the Member States. The extent to which Member States will need to take transposition measures depends on the extent to which the national law currently in force meets the requirements of the Directive.
Our local teams in France, Germany, Poland and Spain have examined in detail the practical implications of the transposition in each of their countries and provide a guide for what to expect as their legislative processes complete the alignment:
1 Directive (EU) 2024/1226 of the European Parliament and of the Council of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/1673. (the "Directive")
2 Article 3(3) of the Directive.
3 Article 3(1) of the Directive.
4 Article 3(1)(h) of the Directive.
5 Article 3(3) of the Directive.
6 Article 4 (1) of the Directive.
7 Article 4 (2) of the Directive.
8 Article 5 of the Directive.
9 Articles 6 and 7 of the Directive.
10 Article 6(1) of the Directive.
11 Article 7 (1) of the Directive.
12 Article 7(2) of the Directive.
13 Article 10 of the Directive.
14 Articles 11 and 12 of the Directive.
15 Articles 13 and 14 of the Directive.
16 Articles 15 and 16 of the Directive.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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