Recent Trends in EU Sanctions: New EU Court Judgments and Expanded Scope of Sanctions

The EU sanctions regime continues to evolve, as recent key judgments clarified certain interpretations and the latest sanctions packages highlight their increasing reach. In particular, the EU General Court’s recent rulings offer insights into the scope and application of EU sanctions, particularly on the rights of non-sanctioned entities and the provision of legal services. This article explores these key judgments and considers their implications, alongside an overview of the increasing extraterritoriality of EU sanctions.

On 11 September 2024, the General Court ruled on the appeal brought by the National Settlement Depository (NSD) challenging the Council’s decision of 3 June 2022 to add NSD to the sanctions list. The Court dismissed NSD’s arguments but offered insights on the right to property for NSD’s non-sanctioned clients and the notion of payment.

The Court explained that clients of a sanctioned bank may raise property rights violations in claims before national courts when requesting the release of frozen funds. National authorities must ensure compliance with the EU charter of fundamental rights. 

Consequently, the right to property limits the broad discretion enjoyed by the national competent authorities, which may benefit non-sanctioned individuals or entities seeking to unfreeze their assets held by sanctioned entities in further claims before the national courts.

The Court clarified that the notion of “payment” in the sense of Article 6 of Regulation (EU) No 269/2014 also includes securities and is not limited to cash.   

This clarification on the notion of “payment” positively impacts on the current practice in Belgium, as the General Administration of the Treasury (the competent authority for financial sanctions) has refused to apply said Article 6 to the transfer of securities, arguing that the notion of “payment” would only cover cash.

In Jeremak (C-109/23), the Court of Justice defined the scope of the prohibition on the provision of legal advisory services to the Russian government or to legal persons, entities or bodies established in Russia, under Article 5n(2) of Regulation (EU) No 833/2014. Article 5n(2) prevents lawyers from providing legal advisory services to Russians. This prohibition did not violate the right of defence in judicial or administrative courts.

The Court of Justice defined “legal advisory services” as “the pursuit of an activity of an economic nature, based on a relationship between a service provider and his or her client, the purpose of which is the provision of legal advice, and by which a provider delivers advice on questions of law to persons seeking that advice”. It further clarified that this definition excludes tasks performed in the public interest by public authorities or entities entrusted by the State to carry out such tasks.

On 2 October 2024, in a case brought by several EU Bars (Brussels, Paris, etc) against the prohibition on providing legal services to Russians, the Court upheld the prohibition and confirmed that providing legal advice to natural persons does not fall within its scope. This distinction is critical for legal professionals as a reminder that they can advise Russian individuals or residents, while their services to Russian entities may be restricted.

The Court clarified that the prohibition does not apply to legal advisory services “strictly necessary to ensure access to judicial, administrative or arbitral proceedings”.  The Court decided that the prohibition does not apply as soon as an external counsel is hired to defend or represent a client before the courts or to advise on initiating or avoiding proceedings. It further held that preliminary legal advice intended only to assess the legal situation, and to determine whether proceedings should be initiated or are probable or inevitable, is also permitted. 

In recent months, the EU has adopted additional sanctions packages, expanding the scope of restrictive measures. This trend is largely due to the EU’s determination to combat the circumvention of the EU sanctions. On 24 June 2024, the 14th package of EU sanctions reinforced existing anti-circumvention tools and due diligence obligations, especially for EU-based parent companies of international groups. For instance, EU parent companies will be required to make every effort to ensure that their subsidiaries in third countries do not engage in activities that would lead to outcomes that the sanctions seek to prevent.

The broadening of the scope of the EU sanctions leads to questions about their extraterritorial application. The EU has historically refrained from implementing sanctions extraterritorially, unlike the United States. However, the most recent EU sanctions packages signal a shift in this approach towards curbing sanctions evasion. As EU sanctions policy evolves, regulators are considering the merits of applying sanctions beyond EU borders to strengthen their effectiveness.

This recent shift is also illustrated by Regulation (EU) 2024/2642 of 8 October 2024 concerning restrictive measures in view of Russia’s destabilising activities; the Regulation introduced a new sanctions regime with its own distinct list of sanctioned persons and entities involved in Russian malicious hybrid activities against the EU, its member states and third countries. It imposes the freezing of their funds and prohibits the making available of funds to them. Unlike prior EU sanctions against Russia, these measures respond not only to the invasion of Ukraine but also toRussia’s broader destabilising actions worldwide.

These recent judgments of the EU courts and the enlarged scope of the EU sanctions highlight a clear trend towards a more robust and far-reaching EU sanctions regime; at the same time, the EU courts and legislature aim to balance the rights of non-sanctioned individuals and entities that suffer from the restrictive measures, and try to mitigate these negative consequences. 

By reminding non-sanctioned parties of their rights and clarifying the scope of permissible legal advice, the recent case law provides essential guidance for practitioners navigating the complexities of EU sanctions. Simultaneously, the EU’s evolving stance raises important questions about its future approach to extraterritoriality. As the EU continues to refine its sanctions policies, further judicial clarifications will be crucial for aligning practice with policy.