Interpreting EU Sanctions: The Court of Justice enters the debate

Historically, the majority of sanctions cases before the EU Courts have been “de-listing” cases—actions by individuals or entities seeking to annul their designation on the EU Asset Freeze.¹ These cases have offered little guidance for economic operators trying to understand and comply with EU sanctions or for national authorities enforcing them as they often focus on the factual or legal bases for designation. Notable exceptions include the Rosneft judgment,² where the CJEU interpreted certain provisions of the 2014 sanctions against Russia,³ and Afrasiabi, on the meaning of ‘circumvention’.⁴

The lack of judicial authority on the precise scope of EU sanctions can be a challenge as these are typically drafted very broadly - often the product of a political compromise among 27 Member States - leaving considerable ambiguity around the edges. Coupled with limited information about enforcement decisions - taken at Member State level - EU operators have been largely reliant on general principles of interpretation and non-binding guidance of the European Commission and national authorities. Mindful of the legal and reputational consequences of non-compliance, companies typically err on the side of caution. However, where this causes them to renege on contractual commitments, this can give rise to disputes. 

In this context, it is a welcome development that EU sanctions cases are increasingly coming before the EU Courts, which are beginning to clarify the scope of certain provisions. Below, we summarise the main takeaways from six recent judgments.

Case C-109/23 Jemerak⁵: the “legal advisory services” ban 

The case arose from a dispute between, on the one hand, purchasers of an apartment in Berlin (Germany) owned by a Russian entity and, on the other, a German notary, concerning the latter’s refusal to authenticate and execute the contract of sale of that apartment, on the ground that authentication might infringe Article 5n(2) of Regulation No 833/2014, which prohibits the provision of “legal advisory services” to Russian entities (the Legal Services Ban).⁶ The German court (the Landgericht Berlin) used the preliminary ruling procedure to pose questions to the Court of Justice of the EU (CJEU) about the interpretation of this provision. 

• The distinction between legal services to clients and mandatory services in the general interest
  • The CJEU confirmed that the term “legal advisory services”, which was not defined in the regulation, should be interpreted by reference to its ordinary meaning in everyday language, having regard to the context of the provision and the goals of the rules of which it forms. 
  • Based on that, the CJEU distinguished between “legal advisory services” and tasks “which the public authorities or any other entity entrusted by the State with the exercise, under the supervision of those authorities, of a task in the public interest and which has, for that purpose, been given certain powers which are binding on citizens, may be required to perform”. The former is characterised by a relationship between a service provider and his or her ‘customers’ or ‘clients’, where the role of that service provider is to provide assistance and advice to their clients, in their interest. The latter are not considered legal advisory services and are therefore not prohibited by the Legal Services Ban.⁷
  • Specifically, the Legal Services Ban does not cover notarial services required by national law to authenticate and execute the sale of immovable property owned by a Russian entity.
• The Court may not agree with the Commission’s Guidance 
  • The CJEU noted that the European Commission has issued non-binding guidance in its FAQ, which explicitly stated that notarial services are covered by the Legal Services Ban.⁸ The FAQ even emphasised that “[t]he fact that seeking a certain service is mandated or even just recognised by the law does not mean that the provision of this service is somehow exempted from the prohibition set out by Art 5n(2).”⁹ 
  • However, the CJEU proceeded to reach the opposite conclusion, but did not consider the FAQ further. This reminds economic operators that the FAQ is non-binding and the CJEU remains the ultimate arbiter of EU law, who may adopt a contrary interpretation of (and thereby, likely invalidate) any FAQ position that comes before it. That said, without clear judicial positions on a wide range of sanctions issues, operators should exercise prudence before departing from Commission FAQ as it remains a relatively ‘safe’ position in respect of due diligence obligations. 
• The purpose and legislative context of the provision are relevant
  • Consistent with its approach to interpretation, the CJEU considered carefully the legislative context and purposes of the Legal Services Ban and EU sanctions generally. 
  • The CJEU considered the broader EU sanctions against Russia, noting that - while these involve a transaction ban in relation to certain State-owned Russian entities¹⁰ and an Asset Freeze on certain persons¹¹ - EU sanctions did not contain any general prohibition on transacting with Russian entities or transferring immovable property situated in the EU owned by Russian entities.¹² 
  • The CJEU also noted the Council’s submissions that it did not intend to impose a prohibition on Russian entities from disposing of their immovable property in the EU, but rather the objective underlying this provision was to make it more difficult for Russian entities to continue their commercial activities in the EU, and, thereby, to have an impact on the Russian economy.¹³ Notarial authentication of a contract for the sale of immovable property owned by a Russian entity cannot be regarded as contrary to that objective.

Cases T-797/22, T-798/22 and T-828/22 Ordre neerlandais des avocats du barreau de Bruxelles, Ordre des avocats á la cour de Paris and Couturier, and ACE¹⁴: scope of the Legal Services Ban 

The EU Courts may also shed light on the interpretation of EU sanctions in the context of direct actions brought by natural and legal persons challenging the sanctions themselves. Such cases are heard by the General Court of the EU (GCEU), which typically checks whether the applicants meet the strict rules on locus standi before engaging in the merits. Recently various Bar associations challenged the legality of the Legal Services Ban on the grounds that it breached the fundamental right guaranteeing access to legal advice in Article 47 of the EU Charter; constituted interference with the professional secrecy of lawyers; and constituted interference with the duty of independence of lawyers. The Grand Chamber of the GCEU decided to consider the merits, despite objections on admissibility. 

• The Legal Services Ban is consistent with the protection of professional secrecy or the right to a fair trial enshrined in Articles 7 and 47 of the EU Charter, and the principle of proportionality
  • The Legal Services Ban is compatible with these principles, because of the carve-out for judicial proceedings, because it does not extend to natural persons, and because it does not require a lawyer to share, without their client’s consent, information covered by the professional secrecy guarantee in Article 7 of the EU Charter. 
• The GCEU confirms a broad scope of the carve-out for legal services for contentious proceedings
  • The carve-outs in the Legal Services Ban contained in paragraphs (5) and (6) of Article 5(n) of Regulation No 833/2014 covering, respectively, the provision of services that ‘are strictly necessary for the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy’ and to the provision of services that ‘are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in a Member State, or for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State, provided that such provision of services is consistent with the objectives of [Regulation 833/2014 and Regulation 269/2014]’, must be interpreted in light of Article 47 of the EU Charter and the right to effective judicial protection.¹⁵
  • The relevant recital - which has no legally binding effect and cannot be relied upon to diverge from the legal text itself but can be an aid to interpretation - indicates that the ban does not cover legal advisory services provided in connection with judicial, administrative or arbitral proceedings.¹⁶
  • The carve-out also covers preliminary legal consultations intended only to assess the legal situation of the client in order to determine the likelihood or prospects of proceedings, or advice on how to institute or avoid judicial proceedings.¹⁷ 
  • Such proceedings include judicial, administrative, arbitral or mediation proceedings or services provided allowing such proceedings to be avoided by means of settlement.¹⁸
  • The Legal Services Ban does however apply to non-contentious matters, such as assisting a client with a commercial transaction, because such an activity does not have any link with proceedings and falls outside the scope of the relevant EU Charter rights. The fact that the subject matter of the consultation may give rise to litigation at a later stage does not mean that the lawyer acts for the purposes of defence of their client.¹⁹

Case C-351/22 Neves 77 Solutions²⁰: ‘brokering’ and the proportionality of automatic confiscation penalties

This case concerned the provision of prohibited “brokering services” under Article 2(2)(a) of CFSP Decision 2014/512, on which Regulation 833/2014 is based (the Decision), and the proportionality of national penalties imposed following the infringement of EU sanctions. Neves 77 Solutions SRL, a company operating in Romania, had brokered a transaction between third country entities for 32 radio sets, 20 of which had been manufactured in Russia. The Romanian national competent authority, ANCEX, had classified the radio sets as military goods and informed Neves 77 that the brokering transaction came within the scope of the Decision. ANCEX imposed an infringement notice, a penalty and confiscated the proceeds of the transaction. This notice was appealed to the Bucharest Regional Court who referred to the CJEU asking whether the prohibition on brokering services applied despite the goods never having physically entered the territory of the EU, and whether the Decision permitted national measures confiscating the entire proceeds of a brokering transaction.

• The ban on ‘brokering services’ doesn’t require the goods to enter the EU
  • The CJEU confirmed that “brokering services” as referred to in the Decision and as defined in Regulation 833/2014 covers such services provided, directly or indirectly, to an operator in Russia, irrespective of the final destination of that equipment. The CJEU emphasised that this interpretation ensures the effectiveness of the prohibition and contributes to achieving the objectives of the sanctions.²¹
• Confiscation is proportional, where safeguards apply, due to public interest
  • The referring court had asked whether EU sanctions allowed the automatic confiscation of the entire proceeds of a prohibited brokering transaction, in light of the right to property enshrined in Article 17 of the EU Charter and of the principle of legal certainty and the principle that penalties must be defined by law.
  • The CJEU found that automatic confiscation was allowed since it corresponded to an objective of general interest; namely, dissuading economic operators from infringing sanctions. Additionally, the CJEU found that the measure is not disproportionate, subject to the existence of national procedural safeguards to allow for the measure to be challenged.²² 

Case C-67/23 S.Z.²³ : the impact of third country processing to the meaning of the terms “originate in” and “exported from” 

On 5 September 2023, the Court handed down a preliminary ruling shedding light on the impact of third country processing to the meaning of the terms “originate in” and “exported from” as used in Article 2(2)(a) of Regulation No 194/2008 concerning restrictive measures against Burma/Myanmar (the Myanmar Regulation). The case concerned a German company and its managing director that had been found to infringe the EU import ban on wood from Burma/Myanmar by importing teak wood from Taiwan, that had been processed in Taiwan from logs, but which originated in Myanmar. The parties appealed the ruling to the German Federal Court on the grounds that the import was not prohibited by the Myanmar Regulation because processing in Taiwan conferred Taiwanese origin to the product. The German Federal Court asked the CJEU to clarify the correct interpretation of the terms “originate in” and “exported from” when the goods are subject to processing operations in a third country, and the binding nature of certificates of origin issued by a third country.

• Notions of “originate in” and “exported from” when goods undergo processing in third countries 
  • Article 2.2(a) of the Myanmar Regulation prohibited the import of certain timber products that (i) originated in Burma/Myanmar; or (ii) had been exported from Burma/Myanmar. Similar import prohibitions exist in other EU sanctions regimes, such as in relation to Russia pursuant to Regulation 833/2014. One key difference, however, is that import bans of the latter explicitly prohibit direct or indirect imports,²⁴ whereas this language was not included in the Myanmar Regulation. 
  • The Court confirmed that the term "originate in" in the import prohibition includes goods of Burma/Myanmar origin that are imported indirectly through third countries, even if they have undergone processing there, as long as their origin remains unchanged.
  • Further, looking at the context of Article 2.2(a) in the Myanmar Regulation, which distinguished between goods “originating in” (Art. 2.2(a)(i)) and “exported from” (Art. 2.2(a)(ii)) Burma/Myanmar, the Court considered that a prohibition on the import of “originating” goods would be redundant if a prohibition on goods “exported from” were interpreted as meaning goods which were at some point present in Burma/Myanmar, even if exported from another third country.²⁵ 
  • It therefore confirmed that the prohibition on imports of goods “exported from”, pursuant to Article 2(2)(a)(ii) of the Myanmar Regulation, applies only to goods exported directly from Burma/Myanmar to the EU, rather than goods processed in a third country that may have originated in Burma/Myanmar. The latter would be covered by the prohibition set out in Article 2(2)(a)(i).
• Customs authorities are not bound by proof of origin documents produced in third countries 
  • The Court highlighted that the import ban in Article 2(2) of the Myanmar Regulation did not include a positive obligation to present evidence of the origin of the goods²⁶ and even if that was the case, customs authorities would have discretion on the type of documents they deem sufficient to establish the country of origin. 
  • It further confirmed that customs authorities are not bound by certificates of origin issued by a third country which state that the goods concerned originate in that country.²⁷ 
     

Ruth Benbow (Knowledge Manager, London) and Emma Pessotto (Trainee, Brussels) contributed to developing this publication.

_{1 The consolidated list of financial targets is available here: data.europa.eu
2 Judgment of 28 March 2017 in case C‑72/15, PJSC Rosneft Oil Company v Her Majesty's Treasury and Others - see here.
3 Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine - see here.
4 Judgment of 21 December 2011 in case C-72/11, Criminal proceedings against Mohsen Afrasiabi and Others - see here.
5 Judgment of 5 September 2024 in Case C-109/23 Jemerak, paragraph 38, available here. 
6 Article 5n (2)(b) of Regulation No 833/2014, available here.
7 Jemerak, paragraphs 38 - 45.
8 FAQ Guidance, Section G.8. Question 21, available here. Jemerak, paragraph 30.
9 Ibid. 
10 Article 5aa of Regulation No 833/2014.
11 Regulation 269/2014, available here.
12 Jemerak, paragraphs 46-49.
13 Jemerak, paragraphs 54-55. 
14 Judgment of 2 October 2024 in Case T-797/22 Ordre neerlandais des avocats du barreau de Bruxelles and Others, available here; Judgment of 2 October 2024 in Case T-798/22 Ordre des avocats á la cour de Paris and Couturier, available here; and Judgment of 2 October 2024 in Case T-828/22 ACE, available here.
15 Ordre neerlandais des avocats du barreau de Bruxelles and Others, paragraph 58.
16 Recital 19 of Regulation 2022/1904 states that ‘“Legal advisory services” covers: the provision of legal advice to customers in non-contentious matters, including commercial transactions, involving the application or interpretation of law; participation with or on behalf of clients in commercial transactions, negotiations and other dealings with third parties; and preparation, execution and verification of legal documents. “Legal advisory services” does not include any representation, advice, preparation of documents or verification of documents in the context of legal representation services, namely in matters or proceedings before administrative agencies, courts or other duly constituted official tribunals, or in arbitral or mediation proceedings.’
17 Ordre neerlandais des avocats du barreau de Bruxelles and Others, paragraph 56, 62 and 63.
18 Ordre neerlandais des avocats du barreau de Bruxelles and Others, paragraphs 54 and 62.
19 Ibid, paragraph 57.
20 Judgment of 10 September 2024 in Case C-351/22 Neves 77 Solutions, available here.
21 Ibid, paragraphs 65 - 69.
22 Ibid, paragraphs 93 - 101.
23 Judgment of 5 September 2024 in Case C-67/23 S.Z., available here.
24 See, for instance, Article 3g (1) (a) of Regulation 833/2014: “It shall be prohibited: (a) to import, directly or indirectly, iron and steel products as listed in Annex XVII into the Union if they: (i) originate in Russia; or (ii) have been exported from Russia”.
25 S.Z., paragraphs 71 - 73.
26 In contrast, a positive obligation to provide evidence of origin exist in relation to certain EU import bans under Russia sanctions, for example, such as in relation to the EU import ban on specified iron and steel goods originating in or exported from Russia, set out in Art. 3g(d) of Regulation 833/2014. 
27 S.Z., paragraphs 78 - 81}
 

Authored by our Global Sanctions, Export Controls and Customs Teams

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