Wider Europe Briefing: How Brussels Is Plugging Its Loopholes On Russian Sanctions

Brief #1: How The EU Plans To Crack Down On Sanctions Circumvention

What You Need To Know: One of the most frequently asked questions in Brussels right now when it comes to its ever-growing sanctions on Russia is whether they are efficient. The 10 rounds of restrictive measures imposed on the Kremlin since its full-scale invasion of Ukraine in February 2022 evidently hasn’t changed Moscow’s willingness to continue the war. In fact, the Russian economy contracted by just 2 percent last year and is even projected to grow a little in 2023, according to International Monetary Fund (IMF) predictions.

The Brussels officials I have spoken to have pointed out that one of the main reasons for the sanctions’ apparent lack of bite is that few countries outside the Group of Seven (G7) have actually bothered to impose any meaningful measures on Russia. Those same officials hope that, with some tweaks, the effects of the EU sanctions, notably the measures hitting oil and other raw materials, will be felt more keenly by Russia in the future.

The debate over the sanctions’ efficiency is focused on whether the measures are as watertight as they should be and if more can be done to dissuade third countries from circumventing them. Thus, it isn’t surprising there is also a push in the EU’s next sanctions package on Russia — due to be presented by the European Commission to the ambassadors of the 27 EU member states this week — to create an anticircumvention system, close loopholes, and step up enforcement.

Deep Background: According to EU officials familiar with the forthcoming sanctions package who are not authorized to speak on the record, there will be a greater emphasis on stopping third countries — and their companies — from circumventing the EU measures. A two-step approach is being mooted in which countries will first receive a warning. If the warning isn’t heeded, Brussels will impose sanctions on firms and individuals in these countries.

While the EU hasn’t shied away from targeting both Iranian military entities and Dubai-based shipping companies for aiding the Kremlin, this particular move would bring the EU closer to the “secondary sanctions” that the United States is already applying around the globe — essentially a framework designed to prevent or restrict third countries from trading with countries subject to U.S. sanctions.

While the new EU initiative is far from a done deal, it is telling that in the past few months David O’Sullivan, the EU’s envoy on sanctions implementation, has been busy visiting various countries, notably in Central Asia. One of his main talking points is that around 770 parts imported from the EU to other countries have been found in Russian military equipment and weapons used in its war against Ukraine.

Estonia, Latvia, Lithuania, and Poland have all pointed out that, in 2022, exports of potential dual-use goods — items that can be used for both civilian and military purposes — to Kazakhstan, Kyrgyzstan, and Uzbekistan grew more than 62 percent, 83 percent, and 30 percent, respectively, compared to the previous year. Most of these items transit through the Baltic states or Poland from Western European countries such as Germany and the Netherlands.

Drilling Down:

  • Various EU officials told me that the risk of dual-use goods ending up in Russian hands is high, notably because the three Central Asian states are part of the Eurasian Economic Union together with Russia, meaning items cross borders with fewer checks.
  • It’s likely the EU will add more tech goods to its ever-growing list of sanctioned products, even though at first sight they might not appear to have any military uses. The thinking here is that microchips extracted from refrigerators, microwave ovens, and other kitchen appliances could be used in Russian military equipment.
  • Although most EU countries include end-user certificates in their export licenses, there is no established instrument to ensure goods make it to an authorized end-user when they leave EU territory. There could, therefore, be a move by Brussels to carry out more end-user checks, which would mean physical inspections at the product’s final destination and the requirement of shipment verification certificates from the importing country.
  • But there are also problems closer to home, such as the various loopholes in the current sanctions framework. Last year, 237 export authorizations for sanctioned dual-use goods to Russia were issued, worth nearly half a billion euros ($550 million). These were issued thanks to derogations in the current restrictive measures that allow certain trade with Moscow to continue.
  • These derogations can apply to goods that can be proven to be for humanitarian, medical, and pharmaceutical purposes. Current sanctions regulations also allow for the continued export to Russia of products such as consumer communication devices or for goods that ensure “cybersecurity and information security for natural and legal persons, entities, and bodies in Russia, except for its government and undertakings directly or indirectly controlled by that government.” It’s likely that talks around the next sanctions packages will focus on limiting or reducing these derogations.
  • There is also a problem with how the Brussels sanctions are communicated to authorities in the member states. Enforcing EU sanctions provisions is a matter for national authorities, not EU officials, so the overall overview of what is and isn’t allowed can be anything but uniform as member states often divide those tasks among various institutions — for instance, the Interior, Foreign, or Justice ministries.

Brief #2: Will The EU Finally Start Sanctioning Corrupt Officials?

What You Need To Know: After several years of debate, the EU has finally taken a decisive step to allow global corruption to be targeted with sanctions. On May 3, the European Commission presented a proposal to allow Brussels to enact restrictive measures against serious acts of corruption. This comes after a key speech last fall by European Commission President Ursula von der Leyen that called for the use of sanctions to fight corruption as part of EU foreign policy.

In many ways, this proposal could be seen as a European version of the U.S. Global Magnitsky Act from 2016, which allowed Washington to impose sanctions on human rights violators all over the world, including those it deemed responsible for serious corruption.

The main question, though, is whether the framework will be fully embraced by all 27 EU member states. They all need to give the thumbs up and, given previous experience when it comes to Brussels, going after corruption in third countries has never been easy.

Deep Background: The EU currently has 41 sanctions regimes, most pertaining to geographic countries or regions — for instance, targeting officials and companies in Russia for undermining the territorial integrity of Ukraine or targeting Belarus after the authorities cracked down on the country’s opposition.

So far, only two of those sanctions regimes include the legal scope to sanction people for corruption offenses — Lebanon and the recently created framework for Moldova — although no one has yet been targeted.

Apart from geographic sanctions, there are also a few sectoral EU sanctions that are global in scope: for example, targeting people who have tried to carry out cyberattacks against the bloc, or the EU’s own Global Human Rights Sanctions regime.

The human rights sanctions regime was established in late 2020 and has slapped asset freezes and visa bans on 34 individuals and 15 entities from places such as China, Eritrea, Libya, North Korea, South Sudan, and Russia, in response to acts of genocide, crimes against humanity, slavery, extrajudicial killings, and arbitrary arrests — in short, similar to the Magnitsky Act. A key difference though: Unlike in the United States, corruption is not a sanctionable offense in the European version.

Drilling Down:

  • When the EU’s human rights sanctions regime was debated by the bloc’s foreign ministers in 2018-2019, there wasn’t a consensus on adding corruption as a sanctionable offense. (Notably, Hungary pushed against it.) When asked why it wouldn’t be better to just add corruption as a sanctionable offense to the already existing human rights framework, an EU official with insight into the matter noted that in talks with various EU member states there was “a clear preference for a standalone [sanctions] regime [rather than] amending the current human rights regime.”
  • One of the fears is that the human rights sanctions regime could be watered down if it were to be redrafted. In recent years, Budapest has threatened to block the rollover of existing sanctions or the adoption of new sanctions in order to further its own interests, notably the release of withheld EU funds.
  • And it isn’t just Hungary that is lukewarm toward anticorruption sanctions. Some other member states, notably in southern Europe, have also expressed reservations by pointing out how far the EU really can go in terms of interfering in what could be classified as domestic issues in third countries.
  • There are also concerns about obtaining enough credible evidence to impose sanctions. Brussels must go after people and companies via publicly available evidence. Corruption in distant countries can be an opaque business with few solid, available facts.
  • The European Commission is still hoping all the member states will eventually come on board for at least three main reasons. Firstly, it points out in the draft proposal that “conservative estimates suggest that corruption costs the EU economy at least 120 billion euros per year.” It will hammer home the idea that graft undermines the rule of law, democracy, and sustainable development worldwide but also closer to home.

Secondly, this is a foreign policy instrument, which means it’s unlikely any EU citizen will be targeted, even though that possibility hasn’t been completely excluded. All EU capitals will have a final say on who will be hit with visa restrictions and asset freeze, so it is difficult to imagine there will be a lot of people listed.

And finally, the definition of corruption is rather narrow and could be further narrowed by EU member states in upcoming talks. The European Commission proposal is to only go after people and companies in three categories: firstly, the “active briber,” defined as “the promise, offering, or giving to a public official, directly or indirectly, of an undue advantage…in order that the official act or refrain from acting in the exercise of his or her official duties; secondly, “passive bribery,” which essentially is acceptance by a public official of the above-mentioned “invites”; and lastly, “acts of embezzlement, misappropriation, or other diversion of property by a public official for his or her benefit.”

Looking Ahead

The defense chiefs of all 31 NATO members, as well as Sweden, will assemble in Brussels on May 10 for the last meeting of NATO’s highest military authority, the Military Committee, before the NATO summit in Vilnius in July. They will take a look at how to strengthen NATO’s defense posture, especially in the eastern part of the alliance, ahead of the summit and discuss how to further assist Ukraine, notably with more Western air-defense systems, tanks, and ammunition.

EU foreign ministers will meet in Stockholm on May 12-13 for an informal foreign affairs council. As always when it comes to informal gatherings, which are scheduled twice a year, no concrete decisions will be taken, but the ministers will spend more time discussing long-term relations with various international actors. Expect a lot of time to be devoted to China.

Before the meeting, EU foreign policy chief Josep Borrell will circulate his thoughts on an updated EU-China policy. The bloc doesn’t really have much of a coherent policy vis-a-vis Beijing, due largely to the various EU member states’ economic interests, so there will probably be some sort of compromise referring to China as a “rival” in some fields and as a “partner” in others.

Source: https://www.rferl.org/a/wider-europe- briefing-brussels-sanctions-loopholes/32401603.html

Copyright (c) 2023. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.


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