Financial Restrictive Measures

Article 2 of Regulation (EU) 269/2014 provides:

(1) All funds and economic resources belonging to, owned, held, disposed of or controlled by any natural person or natural or legal persons, entities or bodies associated with them, as listed in Annex I, shall be frozen.

(2) No funds or economic resources shall be made available to or benefit, directly or indirectly, the natural or legal persons, entities or bodies associated with them, as listed in Annex I.
 

The assets of the entities listed (Annex I to the Regulation), as well as those of the persons who own, hold, dispose of or control them, should therefore be frozen. These persons are not explicitly mentioned in the Regulation, but must be identified by the operators in its due diligence process.

As regards ownership, our understanding is that the relevant percentage is "more than 50%". This view is also clearly stated in the European Commission document EU Best Practices for the effective implementation of restrictive measures (doc. 8519/18) https://data.consilium.europa.eu/doc/document/ST-8519-2018-INIT/en/pdf. 

In the case of multiple co-owners were designated, their ownership percentages would be aggregated (e.g. if one sanctioned person owns a 30% stake and another owns 25%, that legal entity would be deemed to be owned by the sanctioned persons and its assets would need to be frozen).

See also the Questions and Answers section of the European Commission website (Question 8): Frequently asked questions on assets freezes following sanctions adopted in view of Russia’s military aggression against Ukraine and Belarus' involvement in it (europa.eu)

Other aspects (besides ownership) need to be ascertained, namely the controlling influence in the entity. For an explanation of what is considered to be controlling influence, see also point 63 of the EU Best Practices... document above. In relation to the implementation of Article 2 of Regulation (EU) No 269/2014, see also the European Commission document COMMISSION OPINION of 19.6.2020 on Article 2 of Council Regulation (EU) No 269/2014: Commission opinion of 19.6.2020 on Article 2 of Council Regulation (EU) No 269/2014 (europa.eu).

The Ministry of Foreign Affairs should be informed of the freezing (we suggest that you also inform the Bank of Slovenia), and the Bank of Slovenia should be informed if funds are to be credited to a frozen account. You can also refer to the guidelines issued by the Permanent Coordination Group on Restrictive Measures for help with the asset freezing process: https://www.gov.si/assets/ministrstva/MZZ/Dokumenti/multilaterala/mednarodno-pravo/Smernice-SKSOU_rev2020.docx.

Just because a person on the sanctions list (a sanctioned person) has less than 50 % share in the company XY, the assets of the company XY do not need to be frozen because the percentage does not exceed 50%. The entire chain of ownership is taken into account in determining the ultimate ownership. However, it is also necessary to verify whether the sanctioned person has a controlling influence in XY and, if so, the assets of XY should be frozen. In addition, it should be borne in mind that it is also prohibited to make funds and economic resources available to persons subject to restrictive measures. If the operator cannot obtain sufficient information to rule out with certainty the existence of a controlling influence of the sanctioned person in company XY or the possibility of sanctions evasion, it is recommended to reject the transaction.

Added: 7 April 2022: If the transaction results in a positive cash flow on the account, it must be treated as a deposit within the meaning of Article 1(k) of Regulation 833/2014, therefore the prohibition from Article 5b applies. Interest should be treated as "funds" and, as the imputation of interest constitutes a positive cash flow, therefore interest should not be credited to the account if the customer's deposit/balance exceeds EUR 100,000 (see also FAQ of the European Commission).

Added on 11 April 2022: EU sanctions do not apply extraterritorially. Third country subsidiaries of EU parent companies are incorporated under third country law, not under the law of a Member State, hence they are not bound by the measures. They are therefore not expected to comply with Article 5g of Regulation (EU) No 833/2014. In the case of a branch outside the EU that does not have legal personality, the sanctions would be apply.

Added 11 May 2022: The prohibition in Article 5b applies to all deposits included in the definition of deposit in Article 1(k) of Council Regulation (EU) 833/2014. The threshold of EUR 100,000 should be understood as the sum of all balances held by a person with a credit institution. Therefore, all credit balances relating to the same natural person are aggregated, including credit balances held this natural person helds as a sole proprietor. For the purpose of implementing the prohibition, the credit institution must keep a total of all credit balances and any additional amount on any credit balance which would cause the total to exceed the limit would constitute a breach of the prohibition.

The prohibition in Article 5b of Regulation 833/2014 only applies to new deposits, i.e. those received by the customer after 26 February 2022. Deposits that would in themselves be higher than EUR 100,000, or would represent an excess of an existing deposit over EUR 100,000, may not be accepted by the bank at all after 26 February 2022.

Existing deposits (prior to 26 February 2022), including those exceeding EUR 100,000, may be disposed of by the customer, i.e. they may also be converted into another currency. The transaction does not represent a positive cash flow as there is no increase in value in this case.

Article 1(k) defines a “deposit” as a credit balance which results from funds left in an account or from temporary situations deriving from normal banking transactions and which a credit institution is required to repay under the legal and contractual conditions applicable, including a fixed-term deposit and a savings deposit, but excluding a credit balance where: (i) its existence can only be proven by a financial instrument as defined in Article 4(1)(15) of Directive 2014/65/EU of the European Parliament and of the Council, unless it is a savings product which is evidenced by a certificate of deposit made out to a named person and which exists in a Member State on 2 July 2014, (ii) its principal is not repayable at par, (iii) its principal is only repayable at par under a particular guarantee or agreement provided by the credit institution or a third party.

The prohibition relates to the acceptance of new deposits in excess of EUR 100,000. This implicitly means that existing deposits (held with credit institutions on the day of the entry into force of Council Regulation (EU) 2022/328, i.e. 26 February 2022) can remain at credit institutions, and there is no need to reduce them. Accounts that already exceeded the limit of EUR 100,000 on the day of entry into force cannot accept additional funds. The Russian person may freely dispose of these funds (they may be withdrawn, held in the account, etc.).

1. New deposits: Credit institutions may not accept (new) deposits in excess of EUR 100,000.

2. Existing deposits: If a Russian legal or natural person held a deposit of more than EUR 100,000 on the day that the regulation entered into force (26 February 2022), the deposit may remain at the credit institution. This means that the Russian legal or natural person is entitled to freely dispose of the deposits (withdraw the funds, hold them in the account, etc.), but may not increase the balance of the account so that it exceeds EUR 100,000 (unless the competent authority of the Member State grants an authorisation within the framework of the permitted exemptions).

Updated 4. May 2022 in accordance with the changed opinion of the European Commission: Frequently asked questions on deposits acceptance concerning sanctions following Russia’s military aggression against Ukraine (europa.eu):

The prohibition in Article 5b of Regulation 833/2014 and that in Article 1u of Regulation 765/2006 only apply to Russian/Belarussian nationals or natural person residing in Russia/Belarus or any legal person, entity or body established in Russia/Belarus. Strictly speaking, it does not apply to entities owned by Russian/Belarussian nationals or natural persons residing in Russia/Belarus when the entities are registered in a country other than Russia/Belarus.

However, the provision should be read in conjunction with Article 12 of Council Regulation 833/2014 and Article 1m of Regulation 765/2006 which prohibit to participate knowingly and intentionally in activities the object or effect of which is to circumvent prohibitions in the Regulation. EU operators should therefore exert enhanced due diligence when the deposit is made to an account of an entity owned by a Russian/Belarussian national or a natural person residing in Russia. The EU operator must investigate the background of the transactions to to the extent that it is convinced that there is no circumvention of the prohibition.

The prohibition applies to the deposits of Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia. If the person is not the owner of the deposits but merely manages the account, the prohibition would not apply. However, EU institutions should ensure through their due diligence that the account is not used by the authorised person to conceal his identity and evade sanctions. In accordance with Article 12 of Regulation 2014/833, it is prohibited to knowingly and intentionally engage in activities which have the object or effect of circumventing the prohibitions of this Regulation. Whether there is a possible circumvention of sanctions should be assessed on a case-by-case bas

In accordance with Article 5b, banks in the EU are generally prohibited from accepting deposits of more than EUR 100,000 from Russian legal and natural persons. This is accompanied by a corresponding reporting obligation in connection with existing deposits above that amount (Article 5g). Credit institutions are accordingly required to submit a list of deposits in excess of EUR 100,000 by Russian nationals or natural persons residing in Russia, or by legal persons, entities or bodies established in Russia, to the competent national authority of the Member State in which they are established or to the European Commission by 27 May 2022. Updates on the amount of deposits of this type are to be provided every 12 months. The competent national authority in Slovenia for reporting in accordance with Article 5g of Regulation (EU) 833/2014 is Banka Slovenije.

A Russian natural person whose residence permit expires or is revoked is no longer entitled to an exemption from the prohibition in Article 5b(2). Once the Russian citizen/resident concerned falls under the prohibition, his/her deposits/credits exceeding EUR 100,000 do not need to be reduced or frozen. However, in such a case, it is prohibited to accept new deposits which would increase the funds in excess of EUR 100,000.

For persons falling under the prohibition after the entry into force of Article 5b, deposits which exceed the limit of EUR 100,000 shall be reported as at the date on which the prohibition becomes applicable to them.

If the contract under which the EU exporter exported the goods to Russia/Belarus was concluded in accordance with the restrictive measures in force (the goods were not listed at the time the contract was concluded), then payment for such goods may be carried out even after the end of the transitional period provided for in the EU Regulation. The European Commission distinguishes the situation where a EU company imports goods from Russia/Belarus, in which case, on the basis of the rule that the payment is part of the execution of the contract, the payment must be considered as no longer permissible after the end of the transitional period (see Q 10).

Payment transactions with Russian banks are generally executed via the correspondent banking mechanism, i.e. via the correspondent accounts of Russian banks at European banks and vice versa. The exchange of financial messages by which banks (both Russian and European) order the transfer of funds from correspondent accounts (debiting Russian banks and crediting European banks or vice versa) is generally undertaken via the SWIFT network. When a bank is excluded from SWIFT, it is much harder for the excluded bank to access its correspondent accounts at other banks, and for other banks to access their correspondent accounts at the excluded bank.

In this case the direct prohibition relates to SWIFT, and not to the Russian banks excluded from the system. Therefore SWIFT (and all other providers of financial data exchange services in the EU) may not circumvent sanctions (see the amendment to Article 12 under Council Regulation (EU) 2022/328: “It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions in this Regulation including by acting as a substitute for natural or legal persons, entities or bodies referred to in Articles 5, 5a, 5b, 5e and 5f or by acting to their benefit by using the exceptions in Articles 5(6), 5a(2) 5b(2), 5e(2) or 5f(2)”).

No, communications of this type are not exempted from the prohibition. The use of SWIFT for margin call messages that are exchanged between Russian banks that are the target of this prohibition is also prohibited.

The third paragraph of Article 181 of the Payment Services, Electronic Money Issuance Services and Payment Systems Act (ZPlaSSIED) stipulates that consumers legally resident in the EU, including consumers without a permanent abode and asylum seekers and consumers for whom a resident permit has not been approved but whose deportation is impossible on legal or factual grounds, have the right to open and use a basic payment account at a bank. This right applies irrespective of the consumer’s permanent residence. An application to open a basic payment account may only be refused for a Russian entity that satisfies any of the three reasons explicitly stated in the ZPlaSSIED for refusal of an application (Article 181(7) of the ZPlaSSIED), or if opening the account would cause a breach of the ZPPDFT-1 (Article 181(6) of the ZPlaSSIED), or if the person is on the list of persons subject to financial restrictive measures. The opening of a basic payment account may not be refused simply because the person is a Russian national/resident.

The EBA opinion is still relevant with regard to the procedures for opening a basic payment account for asylum seekers. It emphasises a risk-based approach by financial institutions when providing financial products under such circumstances, where the flexibility afforded by the EU’s AML/CFT legislation can be exploited.

In accordance with Article 5f of Regulation (EU) 833/2014, it is prohibited to sell euro denominated transferable securities issued after 12 April 2022, or units in collective investment undertakings providing exposure to such securities, to Russian nationals or natural persons residing in Russia, or to legal persons, entities or bodies established in Russia.

In principle the area of application of Article 5i includes the sale, supply, transfer or export of euro banknotes to Russia or to any legal or natural person, entity or body in Russia. The basic purpose is to limit the import of euro banknotes into Russia (see also Recital 3 to Regulation (EU) 2022/345). However, attention should also be drawn to the prohibition of circumvention in accordance with Article 12 of Regulation (EU) 833/2014. Cash payments of euro holdings to customers may not be made for the purpose of circumventing the envisaged prohibition.