Strengthening the Biting Effect of EU Restrictive Measures Via Criminal Law – Some Critical Remarks

By Lorenzo Bernardini, University of Luxembourg

This blog post summarizes some insights that are detailed in a forthcoming contribution to issue 1/2024 of the European Criminal Law Review (EuCLR). The author would like to express his heartfelt gratitude to Dr. Iryna Bogdanova for her kind invitation to contribute to the CELIS Blog.

 1. EU restrictive measures and their interplay with criminal law in the EU legal framework

    1.1 General background

The shocking military incursion of Russia into Ukraine in 2022 will indelibly mark the annals of contemporary history as a watershed moment. Propelled by a necessity to terminate the violations inflicted upon Ukrainian civilians and to thwart Russia’s blatant attempts to erode Ukraine’s territorial integrity, sovereignty, and autonomy in violation of international law, the European Union (‘EU’) has responded with a strategic deployment of ‘restrictive measures’, more colloquially termed ‘(economic) sanctions’. Broadly, they include economic non-military penalties against states, entities, or individuals (the ‘targets’), as tools to achieve foreign policy and security objectives. Considering the scope of application of restrictive measures and their impact on the targets, they may be distinguished into two categories:

• sectorial sanctions, i.e., restrictive measures which aims at affecting specific sectors. Prominent examples may be (i) arms embargoes; (ii) import/export bans; (iii) restriction on access to financial markets and services and (iv) investment bans;
• individual sanctions, i.e., restrictive measures which aims at affecting specific individuals. Examples of those measures may be travel bans or asset freezes.

The EU holds a clear legal basis for the adoption of both kinds of restrictive measures. Article 215(2) TFEU provides for this possibility on the basis of the EU Common Foreign and Security Policy (‘CFSP’) to safeguard the Union’s principles, such as fostering global peace, democracy, the rule of law, and human rights as stipulated in Article 21 TEU.

In the wake of heightened geopolitical tensions and escalating conflicts, the EU has increasingly relied on restrictive measures as tools to enforce its foreign policy while considering that their employment must balance the desired impact on the target(s) with the potential financial repercussions on the EU itself and the regional and global economy.

    1.2 The path towards the criminalization of the breach of EU restrictive measures

Against this background, the EU’s stance against Russia’s unlawful actions towards Ukraine is not a reactionary measure to recent developments but the climax of an ongoing conflict – the Russian-Ukrainian war – that commenced in February 2014. The already strained EU-Russia relations, exacerbated by the Crimean crisis the same year, laid the groundwork for Council Regulation (EU) 269/2014. This regulation, serving as the bedrock for individual sanctions against certain individuals with strong ties to the Russian régime, enumerated measures like travel bans and asset freezes as potential actions should diplomatic resolutions falter. Annex I to that Regulation contained a listing of 21 individuals – i.e., those deemed responsible for actions posing a threat to the territorial integrity, sovereignty or independence of Ukraine (i.e., ‘designated persons’) – whose funds and economics resources ‘owned, held or controlled by’ were mandated to be frozen.

Furthermore, Council Regulation (EU) 833/2014 introduced a further suite of significant sectorial sanctions aimed at penalizing Russia for its actions against Ukraine’s sovereignty. These included prohibitions on transactions involving dual-use goods and technologies intended for military employment in Russia, ‘when directed to any natural or legal person, entity or body in Russia or for use in Russia’.

The illegal aggression against Ukraine in February 2022 revealed the imperative to strengthen these restrictive measures as part of a global strategy to coerce Russia into halting its unlawful military behaviours. Amendments to the aforementioned regulations have since expanded the scope and efficacy of the EU’s measures against Russia and its allies, with the list of designated persons and prohibited transactions growing exponentially. To glance the extent of this process, it is sufficient to notice that 1646 natural persons and 337 legal entities are now enclosed in the list of designated persons in Annex I of Council Regulation (EU) 269/2014, as of January 2024.

To ensure the effectiveness of these measures, both Regulations empowered Member States to enact penalties for breaches of restrictive measures, emphasizing the need for such punishments to be ‘effective, proportionate, and dissuasive’. However, no reference to the nature of these penalties – be them of a civil, criminal or administrative nature – was provided by both pieces of legislation. As a result, EU Member State’s approaches on this issue have turned to be fragmented. Some provided for criminal penalties against sanctions’ violators, while others relied on administrative fines only or, alternatively, on twin-track systems (encompassing both administrative and criminal penalties, depending on the seriousness of the offence at stake).

The lack of a unified approach in enforcing EU restrictive measures led to inconsistencies and, by extension, diminished the effectiveness of the whole implementation framework. An Eurojust report, drafted in 2021, found that such a fragmentation undermined the CFSP’s objectives and fostered forum shopping tendencies, thereby enabling violators to exploit jurisdictions with less stringent penalties. This could be demonstrated by the low number of natural and legal persons held accountable for sanctions’ violation at the domestic level.

To close these legal loopholes, the European Commission launched a ‘three-step initiative’ aimed at (i) criminalizing the breach of economic sanctions at the EU level; (ii) harmonizing criminal definitions and penalties across Member States;  and (iii) proposing a directive on asset recovery and confiscation. To put it simpler:

• the first step of the initiative will render the violation of EU restrictive measures a ‘Euro-crime’, to be enclosed in the list laid down in Article 83(1) TFEU. The Council of the European Union eventually approved a Decision in this regard in November 2022, marking the first-ever expansion of the catalogue laid down in Article 83(1) TFEU. Since then, the violation of EU restrictive measures may be addressed by criminal law means only in the EU legal framework.
• the approval of such a Decision enabled the Commission, as a second step, to put forth a proposal for a Directive to harmonise criminal definitions and penalties for the breach of EU restrictive measures across the Member States. In the eyes of the Commission, this will enhance consistency among Member States in this realm, against the aforementioned fragmented legal framework.
• as a third step, the Commission proposed a Directive on asset recovery and confiscation. Once approved, rules on freezing and confiscation, asset tracing, identification and management – which apply to all EU crimes – will also extend to the violation of EU restrictive measures. This would be possible as those funds linked to breaches of restrictive measures – which now are considered to be a criminal offence – can be considered as ‘proceeds’ of such brand-new criminal offence, thus subject to freezing and confiscation orders.

2. Criminalising or Not Criminalising? That is the Question

    2.1 Criminal law must be necessary in the material case. But necessary for what,                          exactly?

While I cannot but agree with the purpose underpinning this criminalization process – i.e., make Russia and its allies pay for their crimes – it is worth recalling that applying criminal law entails adherence to several fundamental principles, intrinsic to this realm and deeply rooted in the Member States’ constitutional traditions, e.g., the principle of extrema ratio. This principle dictates that criminal law should be invoked solely as an extraordinary measure, that is, only after all other legal instruments (e.g., civil or administrative remedies) have been exhausted without success. In essence, criminal law should be applied only when it is deemed absolutely necessary.

But necessary for what, exactly? The defence of ‘legal interests’ (such as life, reputation, bodily and sexual integrity) or the deterrence of harmful conduct are traditionally cited rationales to justify the employment of criminal law.

In criminalizing the infringements of restrictive measures, however, the Commission seems to take a different approach – the violation of EU restrictive measures should be qualified as an area of crime ‘in order to ensure the effective implementation of the EU policy on restrictive measures’. It comes thus crystal clear that the EU legislator deems criminal law capable of rectifying the shortcomings of non-criminal systems characterized by suboptimal enforcement, such as that of sanctions’ implementation. This appears the very aim of the whole criminalization process (that, therefore, should have more correctly been developed under Article 83(2) TFEU, according to which the EU can harmonize Member State’s criminal laws when this ‘proves essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonisation measures’).

In any case, this effectiveness-based view of criminal law may be problematic. Indeed, there is no unanimous definition of what constitute an effective sanctions’ enforcement system. The blurred concept of ‘effectiveness’ might imply, for instance, an evaluation of both the economic and commercial impact on the targets and the resulting behavioural change, according to some economic indicators. But also, it may be assessed on the basis of the amount of assets, money, or items frozen/confiscated, or on the number of individuals prosecuted or penalized for breaching or circumventing economic sanctions, independent of whether the measures triggered a behavioural change in the targets. The quandary of pinpointing an effective sanctions enforcement mechanism consequently obfuscates the feasibility of discerning the necessity for criminal law-based legislative interventions – which added value might criminal law afford to that system if it is challenging to identify the grounds for the latter to be efficient? In the absence of a clear justification for the indispensability of criminal law within a specific field, its application ought to be reconsidered.

    2.2 The ‘precarious’ nature of EU restrictive measures

Besides, it is noteworthy that restrictive measures serve as political tools that can be adjusted or lifted by the Council based on changing geopolitical landscapes. This flexibility poses a unique challenge when violations of such sanctions are tied to criminal law. Specifically, individuals could face investigation and prosecution for actions that, while initially illegal under a particular restrictive measure (e.g., breach of an import restriction), may become legal if those sanctions are subsequently lifted.

This scenario raises critical considerations regarding the legal proceedings against individuals for conduct that transitions from illicit to permissible due to the revocation of the measures in question. The crux of the matter lies in determining the fate of ongoing trials in such situations. Should the legal system set aside prosecutions if the behaviour, once prohibited, is no longer considered illegal due to the lifting of restrictive measures?

    2.3 Procedural issues – freezing and confiscating assets as the right strategy?

Finally, it is worth noting that freezing and confiscation orders (FCOs), in this context, may be pivotal criminal law tools in fostering the sanctions enforcement mechanism, with the potential reallocation of frozen and subsequently confiscated assets to the EU constituting a critical step towards supporting Ukraine’s post-war reconstruction.

However, the employment of such legal instruments invites scrutiny over their actual contribution to the concrete restrictive measures’ enforcement, especially when juxtaposed against potential infringements on the fundamental rights of individuals targeted by these measures. Reference may be made to the operational challenges inherent in criminal proceedings, including the high burden of proof standards required for convictions in complex financial crimes with transnational dimensions. Moreover, the financial and administrative burdens associated with criminal prosecutions, and the management of frozen/confiscated assets, depict the procedural and logistical complexities of utilizing FCOs effectively in this field.

Additionally, the heterogeneity in the legal architecture governing FCOs across Member States complicates their application and undermines mutual trust (and, in turn, mutual recognition mechanisms) within the Union’s judicial cooperation framework. The emphasis on stringent enforcement must be carefully balanced to prevent unintended encroachments on the rights of third parties inadvertently entangled with sanctioned entities, thereby ensuring that the pursuit of sanctions efficacy does not compromise fundamental legal principles.

3. The way forward

In conclusion, while criminal law could offer a significant deterrent effect in the enforcement of EU restrictive measures, the dynamic nature of international relations, the peculiar features of criminal law and the potential for sanctions to be lifted or adjusted would impose a reconsideration on the opportunity to criminalize sanctions’ violations. Arguably, non-criminal enforcement mechanisms (e.g., of administrative nature) might more adeptly accommodate these changes without the rigidities and complexities associated with criminal proceedings. After all, the insightful observations developed by Advocate General Mazák in 2007 retain their relevance: ‘What is the contribution of criminal penalties to the effectiveness of a law? Criminological debate continues as to which way and in which matters criminal penalties represent the best means of ensuring the effective enforcement of the law. It may be too simple to assume that criminal law is always the appropriate remedy for a lack of effectiveness’.