August 8, 2022
Russia-related sanctions are becoming more and more extensive. How can a company ensure that its business is not affected by sanctions? And how do judges look at compliance with those sanctions? This contribution gives you guidance on how to assess this.
Introduction
Sanctions against Russia have become part of contemporary society. You will find something sanction-related in the news almost every day. Since the start of the war in Ukraine, it has become relevant for many companies to assess whether products or services are affected by sanctions. With a multitude of sanctioning parties, the variety of individuals, companies, goods and services sanctioned and the volatile nature of sanctions, a knowledgeable legal counsel can make all the difference in advising the board of directors on the matter. Two recent court rulings provide guidance.
About sanctions
A sanction can be seen as a political or economic restrictive measure issued in principle by governments or international organisations to e.g. force a country or person to change its (political) course or behaviour.
The Dutch government criminalises the violation of international sanctions such as arms embargoes, travel restrictions and the supply of certain goods or services in a so-called sanctions regime1. Such sanctions regime states that it is prohibited to violate international sanctions.
Where can I find these sanctions?
In the Netherlands, the sanctions against Russia are laid down in the European Sanctions Regulation which has direct effect into Dutch law. For the latest developments, the central government2 and the European Union3 provide clarity on their websites about the applicable sanctions and which goods, services and persons are affected as well as their effectiveness. Furthermore, sanctions from the United Nations, the United States (US) and the United Kingdom (UK), among others, can also have a direct or indirect impact on business operations. Especially in case of international trade or providing services to international customers, such sanctions will have to be considered. An example of how sanctions imposed by the UK may apply is shown in the second ruling below.
Screening and sanctions lists
Every company must comply with and may not act in violation of the Sanctions Act 1977. Therefore, every company will have to screen its counterparties and customers, regardless of the sector in which it operates. Such screening should be done on the basis of currently existing sanctions lists. This can be done manually e.g. once when entering into an agreement with a counterparty, but there are also service providers that screen on an ongoing basis to avoid doing business with customers, suppliers or other stakeholders who end up on a sanctions list.
Circumvention of sanctions
It is also important to check that there is no participation in knowingly and intentionally engaging in activities that have the purpose or effect of circumventing the prohibitions of the European Sanctions Regulation. The European Commission recently said of this, “(…) it is prohibited for EU parent companies to use their Russian subsidiaries to circumvent the obligations that apply to the EU parent, for instance by delegating to them decisions which run counter to the sanctions, or by approving such decisions by the Russian subsidiary”.
Court rulings
There are two rulings that we would like to discuss very briefly as they can provide guidance or food for thought for compliance with sanctions.
ECLI:NL:RBAMS:2022:31414 – Russian LNG project
A Russian group company of Boskalis (hereinafter Boskalis) was working on the development of a liquid natural gas (LNG) terminal project in Russia. Due to sanctions imposed on Russia by the EU, Boskalis as contractor could no longer continue its work on the project, as Boskalis’ work was subject to those sanctions. The Dutch-based client: ”Saren” is of the opinion that the relevant sanctions do not apply here and claims that Boskalis should resume its work. Boskalis refuses to do so. For the fulfilment of Boskalis’ obligations under the agreement between Boskalis and Saren, a French bank has provided several bank guarantees. With Boskalis refusing to resume work, Saren claimed payment under the bank guarantees provided. Boskalis applied to the preliminary measures judge to stop payment of those bank guarantees by the French bank.
Those related activities of Boskalis included using and providing services related to vessels (e.g. dredgers) used for the LNG terminal project. Goods, technology and/or services for the Russian energy sector and for liquefying natural gas were also provided. The preliminary measures judge ruled that these activities were prohibited under the European Sanctions Regulation, applying a broad interpretation of the scope of the activities.
Interestingly, the European Sanctions Regulation applies to the Russian Boskalis company in two ways:
- under Article 12, the prohibition on circumvention of sanctions (see above); and
- because Boskalis’ sole director in Russia is a Dutch citizen, who, according to a European Commission FAQ, as an EU resident, is personally bound by the EU sanctions and can be held personally liable for acting in violation of those sanctions.
ECLI:NL:RBAMS:2022:23075 – UBO on non-EU sanctions list
A civil law notary has refused to cooperate in a transaction aimed at severing ties between a shipyard and its Russian ultimate beneficial owner (UBO). The notary argues it is wary of cooperating in transactions that potentially contribute to the evasion of measures and sanctions intended to be complied with by EU sanctions lists. The UBO is not on the EU sanctions list, but it is on the UK and Australian lists and there is a real possibility that the UBO will soon be placed on the EU sanctions list. The preliminary measures judge confirmed that the civil law notary was entitled to refuse to cooperate under the circumstances.
Conclusion
With many, different and ever-changing sanctions, it is important to keep a close eye on whether your business is affected. Every business must comply with the European Sanctions Regulation. Given the aforementioned case law, the scope of work covered by sanctions is interpreted broadly by judges. It is therefore important for a company to set up screening properly. If you have questions about sanctions, or if your company runs into sanctions, please contact Martijn van der Vliet, Paul van de Ven or one of our other specialists.
1 In the Netherlands this is the Sanctions Act 1977.
2 Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine
3 https://www.rijksoverheid.nl/onderwerpen/internationale-sancties
4 https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:RBAMS:2022:3141
5 https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:RBAMS:2022:2307