Directive (EU) 2024/1226: violation of EU restrictive measures and criminal consequences

by Alessandro Ruffini

While a new sanctions package against Russia (the fourteenth) is being discussed, the Directive (EU) 2024/1226 came into force. Published on 29 April 2024 in the Official Journal of the European Union (OJEU), it attributes criminal relevance to the violation and circumvention of EU restrictive measures.

The directive lays down minimum rules with regard to the definition of criminal offences and sanctions resulting from the violation of restrictive measures adopted by the European Union on the basis of Article 29 TEU and Article 215 TFEU and follows the Decision (EU) 2332/2022 of 28 November 2022, adopted by the Council of the European Union, by which the violation of restrictive measures was added to the list of ‘EU criminal offences’, pursuant to Article 83(1) TFEU.

There is no doubt that it represents a major step forward for the European Union in terms of effectiveness and efficiency in combating the violation and circumvention of its restrictive measures.

Moreover, this was indeed the ultimate aim that Parliament and the Council intended to pursue, namely ‘to ensure the effective application of Union restrictive measures’, with reference to which ‘it is necessary that Member States have effective, proportionate and dissuasive criminal and non-criminal penalties in place for the violation of those Union restrictive measures’ (recital No. 3 of the directive).

Here follows an analysis of  its content.

Relevant conduct

The Directive is very clear in stating which conduct  constitutes an offence under the national laws of the individual Member States.

Generally speaking, it refers to intentional conduct resulting in the violation of asset freezing measures, bans on the entry or transit of natural persons and restrictions on the conclusion of economic, financial and commercial transactions with third States, either directly or through intermediaries.

Specifically, in accordance with Article 3(1) of the Directive concerning the following conduct:

a) making funds or economic resources available in violation of a prohibition constituting a restrictive Union measure;

b) failure to freeze funds or economic resources in violation of an obligation constituting a restrictive Union measure;

c) permitting entry into or transit through the territory of a Member State in violation of a prohibition constituting a Union restrictive measure;

d) the conclusion or continuation of transactions with a third State, where the prohibition or restriction of such conduct constitutes a Union restrictive measure;

e) marketing, importing, exporting, selling, purchasing, transferring, allowing transit or transporting of goods, as well as providing brokering services, technical assistance or other services related to such goods, where the prohibition or restriction of such conduct constitutes a Union restrictive measure;

f) providing financial services or engaging in financial activities where the prohibition or restriction of such conduct constitutes a Union restrictive measure;

g) the provision of services other than those referred to in point (f), where the prohibition or restriction of such conduct constitutes a Union restrictive measure.

The conduct to be sanctioned also includes conduct that results in the circumvention of an EU restrictive measure, carried out in one of the following ways:

i) using, transferring to a third party or otherwise disposing of funds or economic resources owned, held or controlled directly or indirectly by a designated person, entity or body, frozen pursuant to a Union restrictive measure,  to conceal those funds or economic resources;

ii) providing false or misleading information with the purpose of concealing the fact that a designated person or entity is the beneficial owner or ultimate beneficiary of funds or economic resources frozen pursuant to a restrictive Union measure;

iii) failure by a natural person or a representative of a designated entity or body to comply with an obligation, constituting a Union restrictive measure, to report to the competent administrative authorities funds or economic resources belonging to them or owned, held or controlled by them in the jurisdiction of a Member State;

iv) failure to comply with an obligation constituting a Union restrictive measure to provide the competent administrative authorities with information on frozen funds or economic resources or information held on funds or economic resources in the territory of Member States belonging to designated persons, entities or bodies owned, held or controlled by them and which have not been frozen, where such information was obtained while carrying out  professional duties;

v) breach of or failure to comply with the conditions attached to authorisations granted by the competent authorities to carry out activities which, in the absence of such authorisation, would constitute a breach of a prohibition or restriction constituting a Union restrictive measure.

According to Article 4 of the Directive, Member States will also have to ensure the criminal relevance of inciting, aiding and abetting conduct connected with one of the offences referred to in Article 3.

Sanctions

As far as natural persons are concerned, Article 5 of the Directive provides for the maximum penalty of imprisonment, the limit of which may vary between one, three and five years, depending on the type of violation committed.

Accessory sanctions may be added to this main sanction, such as:

1. financial penalties;
2. withdrawal of permits and authorisations to engage in activities that led to the relevant offence;
3. disqualification from exercising, within a legal person, a leading position of the same kind as that held to commit the offence;
4. temporary bans on running for public office;
5. where there is a public interest, the publication of all or part of the decision relating to the offence committed and the sanctions or measures imposed, wherein, as the case may be, the personal data of convicted persons may be included.

As far as legal persons are concerned, the reference rules are Articles 6 and 7 of the Directive.

Article 6 of the Directive obliges Member States  also to provide for criminal liability of legal persons for violations of the restrictive measures set out in Articles 3 and 4, which have been committed

a) by senior persons with:

• the power to represent the legal person;
• the power to take decisions on behalf of the legal person;
• the power to exercise control within the legal entity.

b) by subordinates, if the offence has resulted from a lack of supervision or control by senior management.

Article 7(1) of the Directive, on the other hand, sets out the sanctions in the abstract applicable to the legal person, namely:

a) exclusion from entitlement to a public benefit or aid;

b) exclusion from access to public funding, including tender procedures, grants and concessions;

c) a ban on engaging in commercial activity;

d) the withdrawal of permits and authorisations to carry out the activities that led to the relevant offence;

e) subjection to judicial supervision;

f) judicial dissolution orders;

g) closure of the premises used to commit the offence;

h) where there is a public interest, publication of all or part of the judicial decision relating to the offence committed and the sanctions or measures imposed, subject to the rules on the protection of privacy and the protection of personal data.

Article 7(2) of the Directive also requires Member States to take measures to ensure that the maximum level of fines that may be imposed on legal persons is no less than 1% or 5% of the global turnover, depending on the type of infringement, rather than an amount corresponding to EUR 8,000,000.00 or EUR 40,000,000.00.

Further Provisions

The Directive contains a total of 22 provisions among which are:

a) Articles 8 and 9  provide for specific aggravating and mitigating circumstances;

b) Article 10 requires Member States, in accordance with the provisions of Directive 2014/42/EU, to provide for appropriate measures to enable the freezing and confiscation of (i)  constituting the means or the profit of the offences referred to in Articles 3 and 4 and (ii) funds or economic resources subject to restrictive measures;

(c) Article 14  places an obligation on Member States to take all measures necessary to ensure that Directive (EU) 2019/1937, on whistleblowing, is applicable to the reporting of violations of the Union’s restrictive measures set out in Articles 3 and 4, with regard to the protection of persons reporting such violations.

Member States will have 12 months from 20 May 2024 to transpose the content of Directive (EU) 2024/1226.

There is no doubt that it will have considerable impact within the various national legal systems and, with specific reference to the Italian system, within Legislative Decree 231/2001, with reference to  companies that obliged to take the new types of offences into  consideration in preparation of their Organisation, Management and Control Model.