Extraterritorial Application of EU Sanctions Targeting Russia?

On 22 November 2024, the European Commission (the “Commission”) issued new frequently asked questions (FAQs) regarding the interpretation of the “Best Efforts” obligation in Article 8a of Council Regulation (EU) No. 833/2014 (“Regulation 833/2014”). Introduced as part of the EU’s 14th package of sanctions against Russia in June 2024, Article 8a of Regulation 833/2014 requires all EU operators to “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 sanctions in Regulation 833/2014. The same obligations are included in Article 8i of Council Regulation (EC) No 765/2006, which sets out the EU sanctions against Belarus.

Importantly, the FAQs suggest that EU operators are required to ensure – on a best-efforts basis – compliance with EU trade/sectoral sanctions against Russia by all its non-EU subsidiaries, particularly those located outside of Russia. The FAQs appear to introduce an extra-territorial element to the relevant sanctions regimes by effectively requiring, for example, subsidiaries located in the United Arab Emirates (UAE) or Singapore that are owned or controlled by EU operators to comply with the relevant EU sanctions against Russia and Belarus. The FAQs represent a significant departure from the EU’s longstanding position on the non-extraterritoriality of EU sanctions, particularly in relation to foreign incorporated subsidiaries and appear to suggest that EU persons will now need to monitor the internal governance processes and procedures of non-EU subsidiaries not subject to EU law for compliance with applicable EU sanctions.

The scope of the obligation anticipated by the FAQs is apparently wide, but an EU operator’s “degree of effective control” over its non-EU subsidiaries will be a key factor in determining whether actions taken are consistent with “best efforts”. The FAQs suggest that non-EU subsidiaries trading restricted goods in Russia are within scope, as this may indicate that the EU operator has not “performed all actions necessary and feasible to prevent the undermining of EU sanctions” by the non-EU subsidiary (see FAQ 9). Similarly, an EU operator not blocking the use of intellectual property (IP) rights by non-EU subsidiaries supplying goods covered by EU export bans may also potentially place the EU operator in breach of Article 8a of Regulation 833/2014 (see FAQ 7).

We note that the FAQs signal the Commission’s expectations of EU operators with respect to compliance with the “Best Efforts” obligation but that they are not legally binding. While the FAQs offer an indication of how EU sanctions may be interpreted, competent Member State authorities and national courts may interpret EU sanctions differently than the Commission – although we anticipate many Member State regulators and authorities will follow the Commission’s guidance as set out in the FAQs.

It is important to note that the required actions must be considered on a case-by-case basis, the FAQs emphasise that EU operators should take “all actions that are suitable and necessary” to prevent non-EU subsidiaries undermining sanctions and that such actions must be “feasible” based on assessment of the EU operator’s nature, size and relevant factual circumstances.

Akin remain available to advise on the implementation of steps required to comply with the “Best Efforts” obligation, or any other UK, EU, Swiss or U.S. sanctions-related queries you may have.