A new normal? How recent EU sanctions enforcement trends may affect Danish businesses in 2025
In December, new FAQ guidance was issued by the European Commission, including on the hot topics of sanctions circumvention and due diligence measures pertaining to EU sanctions against Russia, especially in relation to common high priority (CHP) items. These topics have long gained widespread attention from businesses and legal experts due to the extensive nature hereof. Our case study below seeks to address some essential points on these difficult matters.
Netherlands case study: Circumvention
In a verdict by the Rotterdam District Court dated 3 October 2024, a defendant was found guilty of sanctions evasion through a company in which he held a position as a board member and majority shareholder. The company itself was also subject to separate legal liability.
According to the verdict, his company delivered sanctioned aircraft parts to Russian end-users, falsely claiming they were destined for companies in Tajikistan, Serbia, and Turkey. The acts were found to constitute circumvention of EU sanctions and the defendant was convicted under sanctions laws (see the Dutch Sanctions Act 1977 and Council Regulation (EU) No 833/2014 of 31 July 2014 as amended, the latter referred to as "Russia Sanctions" below).
- The court found that the defendant was de facto responsible for operating a company supplying Russian end-users with aircraft parts for civil aviation use (over 460 prohibited items in total). He was also convicted of additional violations, including money laundering.
- Payments were processed through financial systems in non-EU countries which were not themselves targeted under sanctions, underscoring the importance of due diligence not just on direct business partners, but also on intermediaries such as financial institutions (as applicable).
- The defendant was sentenced to 32 months' imprisonment, as well as confiscation of cash and the forfeiture of all stock-in-trade and business bank accounts.
- The defendant was furthermore sentenced to pay a six-digit fine (EUR), and the company involved was later sentenced to pay a separate fine of approx. EUR 165,000.
Since then, additional judgments have been issued against separate defendants forming parts of the same case complex, both in the shape of a Dutch company and a separate individual that were also found guilty.
Germany case study: Blurred supply chains
In a recent German case, the Higher Regional Court of Stuttgart sentenced a defendant to seven years' imprisonment for allegedly exporting machinery to a Russian weapons manufacturer. The machinery was found capable of producing sniper rifles and other weapons. Some shipments were routed to Russia via non-EU countries with falsified customs data to disguise the intended destination.
Whereas this case involved exports of sanctioned goods to Russia, others relate to illegal imports into the EU of sanctioned goods from Russia:
The European Court of Justice has recently issued a judgment which could prove relevant to many EU-based importers of sanctioned goods (such as goods generating significant income for Russia) from non-sanctioned suppliers and geographies. In the case, the German Federal Court of Justice referred a question which was then answered in the European Court of Justice's judgment C-67/23 (dated 5 September 2024), concluding that EU competent authorities are not bound by binding origin information (BOIs) issued by third countries, for instance in a sanctions compliance context. In practice, this means that a Danish importer of products targeted by sanctions – even from a non-sanctioned supplier and non-sanctioned geography – cannot simply rely on a BOI stating that the origins of these goods are outside of (e.g.) Russia. Instead, the Danish importer should instead ensure an overall risk-based due diligence on relevant partners in the supply chain and not rely solely on BOIs from non-EU authorities.
Key takeaways for Danish businesses
These verdicts provide valuable insights into how sanctions are applied and enforced, especially since it is anticipated that Danish courts will consider decisions of other EU Member States to ensure that their interpretations of the Regulation align with EU standards.
Considering the still-increasing number of additional sanctions imposed against Russia, it is crucial for businesses to stay informed and ensure compliance with evolving regulations. This underscores the need for robust internal compliance programmes – so-called ICPs – and is a natural reminder to have in place relevant policies and procedures on, inter alia, risk-based due diligence pertaining to screening of business partners and intermediaries.
From a contractual standpoint, the EU introduced a 'No Russia clause' requirement in early 2024 which puts an active obligation on EU businesses in terms of their supplier contracts with parties in third countries. Having adopted and implemented such clauses, businesses could naturally assess whether these latest developments give rise to additional contractual measures or amendments, including safeguards against third-party circumvention.
Steps to ensure compliance in practice
Firstly, key persons in a given business – such as directors, management, and key personnel – are particularly 'exposed' in a sanctions context and are expected to stay up to date with relevant developments. As a result, it is recommended that Danish businesses involved in international trade have sanctions and trade compliance policies aimed at reasonably mitigating such risks, and generally ensuring that C-levels and management are continuously monitoring sanctions risks as needed.
Secondly, due diligence mechanisms should not be limited to direct business partners but should consist of risk-based assessments in line with aspects such as, but not limited to, the EU company's line of business, the character of goods, services or technologies sold (etc.), the geography of its customers, etc. Once again, a sanctions and trade compliance policy – often supplemented by a procedure document – serves exactly this purpose but can rarely serve as the only measure.
Businesses should also consider the reputational risks, such as negative media coverage, if they or their partners are scrutinised. Risks in this regard may be dealt with not only contractually, but especially by preventative measures through proper risk management.
Remember the best efforts obligation (Article 8a)
Considering the recent verdicts and FAQs, EU operators are reminded that apart from the prohibition against circumvention, EU sanctions also contain a recently added 'best efforts' obligations across regimes, e.g. the Russia Sanctions (Article 8a) and Belarus Sanctions (Article 8i). For more on these requirements imposed on EU operators, please see our newsletter.
Do you want to know more?
If you have questions about the scope of sanctions or need assistance with implementing compliance programmes or managing commercial contracts, please feel free to contact one of our specialists.