Understanding Article 8a ('Best Efforts') and its impact on EU operators
In light of the evolving regulatory landscape, the new guidance regarding Article 8a provides significant new guidance for EU operators with respect to entities they own or control, particularly those based outside the EU. The regulation ties operators’ liability to their efforts to ensure compliance with EU sanctions especially regarding Russia - and was issued through an FAQ dated 22 November 2024. This FAQ refers to Regulation 2024/1745, forming part of Regulation (EU) 833/2014, as amended (the "Russia Sanctions").
What does Article 8a require of EU operators?
The new guidelines are a crucial component in interpreting the scope of Article 8a, which contains a "best efforts" obligation for EU operators:
"Natural and legal persons, entities, and bodies shall undertake their best efforts to ensure that any legal person, entity or body established outside the Union that they own or control does not participate in activities that undermine the restrictive measures provided for in this Regulation."
As with Article 12 (regarding circumvention), Article 8a applies broadly across all restrictions contained in the Russia Sanctions. Consequently, it should be integrated into EU operators' existing sanctions policies, procedures, and compliance frameworks where applicable.
Article 8a particularly targets EU operators with subsidiaries or other connected entities outside the EU. For example, Danish parent companies with Russian subsidiaries may face liability under Article 8a for actions or omissions of those group companies, particularly where such behaviour could have been prevented by the Danish parent company. The new guidance aims to clarify these responsibilities.
Key considerations
The new guidelines are crucial in determining the framework that EU operators need to assess in terms of their compliance efforts:
Best efforts in sanctions compliance:
- Article 8a obligates EU operators to take all actions "suitable and necessary" to prevent their controlled entities from undermining EU sanctions. These actions may include implementing controls, policies and procedures tailored to the operator's nature, size, and circumstances. If an EU operator is merely aware of the activities of a non-EU entity it owns or controls and chooses to accept them, this could also amount to a breach of Article 8a. In such cases, the operator cannot be deemed to have undertaken all necessary and feasible actions to prevent the entity from undermining EU sanctions.
- The guidance acknowledges situations where external factors - such as restrictive laws in third countries like Russia - may limit an operator's ability to act (see "Impact of Third Country Laws" below).
Understanding “undermining” vs. “circumventing”:
- "Circumventing" refers to attempts to bypass sanctions through deceptive means (see Article 12 of the Russia Sanctions). By contrast, "undermining" (Article 8a) refers to actions that directly result in the effects the sanctions are intended to prevent - such as transferring restricted goods or services to sanctioned entities.
- In our view, "Undermining" appears to set a lower standard than "circumventing". This implies that the burden of proof regarding "undermining" may be less stringent than "circumvention", although Danish courts have yet to address this issue definitively. Consequently, relying solely on Article 12 for compliance may expose operators to risks under Article 8a.
Impact of third country laws:
- In cases where EU operators de facto cannot exert control over entities in countries such as Russia due to local laws (e.g., countersanctions), this may influence their liability under Article 8a.
- However, this exemption does not apply if the operator's own actions, such as poor risk management or decision-making, have led to or contributed to the loss of control.
Specific concerns regarding Russian subsidiaries:
- The obligations extend to all entities owned or controlled by EU operators, including entities that the EU operator owns or controls in Russia.
- The EU Commission does not explicitly state that owning or controlling an entity in Russia that produces and/or exports goods covered by an EU export ban automatically violates Article 8a. However, EU operators must act to prevent such activities, e.g. by blocking access to intellectual property rights or trade secrets used to produce sanctioned goods.
- The EU Commission also emphasises that even if the transfer of such intellectual property rights or trade secrets were transferred before the relevant sanctions took effect, operators may still be held accountable if these intellectual property rights or trade secrets are later used to undermine EU sanctions and blocking their use was feasible.
Obligations and liabilities:
- EU operators are not only required to avoid facilitating activities that breach EU sanctions but must also demonstrate that they have exercised appropriate due diligence. This includes awareness of the activities of entities they control, implementing compliance programmes, and taking steps to ensure their entities do not engage in prohibited transactions.
- If an operator knowingly accepts activities that undermine sanctions, they may be held liable under Article 8a and/or Article 12 of the Russia Sanctions.
Practical considerations for EU operators:
- Operators should integrate comprehensive risk assessment processes, compliance training, and monitoring systems to ensure they meet the "best efforts" standard.
- These actions help mitigate the risk of breaching sanctions while also demonstrating the operator's commitment to compliance.
Conclusion
The regulatory landscape surrounding EU sanctions is becoming increasingly complex, particularly in relation to Russia. EU operators must remain vigilant and proactive in managing compliance obligations. By understanding the principles of Article 8a and taking all feasible actions, operators can mitigate liability risks. While the new guidelines raise questions and leave room for interpretation, they offer a welcome framework for improving compliance practices.
Do you want to know more?
In case of specific questions regarding the scope of existing sanctions, including how to best implement appropriate and risk-based internal compliance programmes or externally (e.g. commercial contracts), you are welcome to reach out to one of our specialists.