EU Financial Sanctions Regime in Relation to RussiaMay 2022
The invasion of Ukraine by Russia has been a human tragedy for the people of Ukraine. It has been shocking and unsettling to see war return to the European continent and brought further uncertainty for the global economy as we exit from the Covid-19 pandemic.
Global developments have brought to the fore the importance of identifying and addressing geopolitical risks for businesses, one of which is restrictive economic measures (“sanctions”) introduced by the EU and other significant trading countries (e.g. US) as an alternative to taking military action.
In the case of the invasion of Ukraine, both the EU and US (and other jurisdictions) have taken significant steps to impose financial sanctions against named individuals and entities connected to Russia.
Financial sanctions are legally binding measures that can be taken against individuals, entities or bodies (the subject), the objective of which is to bring about a change of policy and/or behaviour by the subject. Financial sanctions can emanate from the European Union (through EU Council Regulations and further implemented in Irish Law through statutory instruments) or the United Nations. In general, once a subject has been placed on one of these sanction lists, there is a legal obligation not to transfer funds or to make funds or economic resources available, directly or indirectly, to that subject.
In 2014, the EU originally introduced sanctions in response to Russia’s illegal annexation of Crimea (Council Regulation (EU) No. 833/2014
). The regulation has subsequently been amended as significant expansions were made to the sanctions regime since late February when Russia recognised the regions of Donetsk and Luhansk as independent republics and regular additions were made to the list of named Russian individuals and/entities.
While all natural and legal persons in Ireland are obliged to comply with sanctions under EU Regulations as soon as they are adopted, the Central Bank of Ireland (the “CBI”) is responsible for ensuring that regulated entities operating in the financial services sphere in Ireland also comply with financial sanctions.
The CBI also provides frequent financial sanctions updates
on its website and this month it communicated EU amendments to the Sanctions Lists on 21st April 2022, 19th April 2022, 13th April 2022 and 8th April 2022.
The CBI also provides guidance to regulated firms regarding international financial sanctions as follows:
- Firms are required to continuously monitor both the European Union Consolidated Financial Sanctions List and the Consolidated UN Security Council Sanctions List to ensure that financial services are not provided to a sanctioned subject.
- In the event that a transaction occurs in which there is a breach or suspected breach of sanctions, described as a “hit” by the CBI, a firm must immediately freeze the account(s) and/or stop the transaction(s) and report the "hit" to the CBI using a Sanctions Return Form, available on the CBI website. Before submitting the report to the CBI, firms should take reasonable steps to ensure that the subject identified is the same subject as that listed in the relevant sanctions list.
Due to the unprecedented speed of the issuance of sanctions since the start of the Ukrainian conflict, affected firms should ensure they are aware of the updated position to remain compliant with the continuous developments in this area. Review and/or assurance testing of existing sanctions screening processes is also highly recommended at this point in time.
For further information on international financial sanctions and updates to the EU restrictive measures (sanctions) and UN sanctions lists, see link below to the CBI website: International Financial Sanctions | Central Bank of Ireland