Current developments in Sanctions and Export Controls has been saved
Current developments in Sanctions and Export Controls
December - January update
Sanctions and export controls pose a significant challenge for businesses that operate internationally or export, given the constantly changing regulatory landscape. With these regularly News updates Deloitte supports in navigating all complex trade regulations.
Jan 18th, 2022
The European Union passes new legislation extending the requirement of authorization for the export of COVID vaccines
The EU Commission has passed EU Regulation 2021/2071, which will enter into force on 1 January 2022, and last for 24 months, requiring exporters of COVID-19 vaccines and active substances required for the manufacturing of such vaccines, to obtain an export authorization. The EU has previously promoted the principle of solidarity by facilitating the export of vaccines to determined countries, or due to humanitarian reasons, in previous rules that were applicable until 30 June 2021. However, the new Regulation does not contemplate such exemptions from the requirement of an export authorization, which must be requested from the national authority.
Furthermore, the Regulation introduces in the Annex new TARIC codes exporters must use when filling out an export authorization. Each manufacturer has been assigned a different TARIC code.
Deloitte strives to support your business. If you are a vaccine or active substance manufacturer, we can advise you on the necessary steps to export outside the EU.
The EU Parliament recommends the EU Commission to introduce legislation on corporate due diligence and corporate accountability
The recommendations are in sound with several pieces of legislation already approved in some EU member States, such as Germany or France, which have introduced their own domestic rules on corporate due diligence. The EU already has a voluntary disclosure mechanism in place. However, the EU Parliament does not consider it sufficient to tackle human rights concerns in the supply chain.
The future EU rules may require companies to trace and disclose their suppliers and their commitment and respect for human rights. The scope of the rules will also include the financial services industry and the products they offer. This would oblige companies to disclose “that the products that they place […] are in conformity with the environmental and human rights criteria”. Furthermore, national legislators will have the power to carry out investigations, supervise, impose penalties and require entities to periodically audit their compliance with due diligence rules.
In relation to International Sanctions, under the new rules companies will be required to disclose their supply chain compliance with Sanctions laws and regulations. This will require the investment of sufficient resources into creating the necessary tools and processes to ensure compliance.
Deloitte can support your business in ensuring compliance under future rules on due diligence, both regarding human rights and International Sanctions.
CJEU rules on how to interpret the Blocking Regulation
On 21 December 2021, the Court of Justice of the European Union (CJEU) ruled on the case Bank Melli Iran (C-124/20). The validation of the termination of contracts concluded between Bank Melli Iran (BMI) and Telekom Deutschland GmbH were central to that case. BMI has been included in the list of persons that are sanctioned by the US in connection with Iran’s nuclear program. The Blocking Regulation prohibits EU businesses from complying with US sanctions. If an EU business does not comply with US sanctions, that business can face criminal penalties. In the judgement on the Bank Melli Iran case, the CJEU ruled the following:
- Even in the absence of a specific order or instruction of an administrative or judicial authority the EU Blocking Regulation applies;
- A contract concluded with a person on the SDN (specially designated national) list can be terminated without providing reasons for that termination. Nevertheless, in civil proceedings, where all the evidence available to the national court suggests prima facie that a person referred to in the Annex of Regulation No. 2271/96 complied with the laws in the Annex (US laws), that person must establish the requisite legal standard that his or her conduct did not seek to comply with those laws.
- The termination of a contract can be annulled, provided that that annulment does not entail disproportionate effects for that person. In the assessment of the proportionality, it is important to weigh the balance of the pursuit of the objectives of the EU Blocking Statute and the probability that the person concerned may be exposed to economic loss and the extent of that loss if the commercial relationships could not be terminated.
Export controls and Human Rights Initiative
Often dual-use technologies are misused and result in human rights abuses. Australia, Denmark, Norway and the US are committing to an ‘Export controls and Human Rights initiative’. On 10 December 2021, they issued a joint statement by which they will establish a voluntary, non-binding written code of conduct around which like-minded states could politically pledge to use export control tools to prevent the proliferation of software and other technologies used to enable serious human rights abuses, in the coming year. The initiative will – in addition to that – consist of the following:
- Bringing together policy makers, technical experts and export control and human rights practitioners to ensure that critical and emerging technologies work for democratic societies;
- Shaping the Initiative collaboratively with their partners and exploring how best to strengthen domestic legal frameworks; sharing information on threats and risks; sharing, developing and implementing best practices; and improving others’ capacity to do the same.
- Engaging in further coordination with other governments, as well as consulting with industry and academia.
They were joined in support by Canada, the Netherlands, the UK and France.
Possible new EU and US sanctions if Russia invades Ukraine
On 6 December 2021, President Biden and President Putin discussed several issues on the US - Russia agenda. Biden addressed his concerns over the situation regarding Ukraine and said if the situation escalated, the US would respond with measures. The European Union had a summit on 16 December 2021 after which, the EU announced that if Russia shows further aggression against Ukraine, it is also ready to take additional measures. The measures may consist of a scaling up of already existing measures. Although not discussed specifically, diplomats have said the measures may consist of targeting Russian oligarchs, banning EU transactions with private Russian banks and cutting off Russian banks from the SWIFT network. This network is seen as a very important infrastructure for banks and other financial institutions as it is used to process transactions. However, the European Council encourages diplomatic efforts and supports the Normandy Format in achieving the full implementation of the Minsk Agreement, in which further steps have been taken to put an end to the crisis in Ukraine.
Comparison Table Export control items list Japan – EU
In 2018 Japan and the EU signed the EU – Japan Economic Partnership agreement. On 22 December 2021, the Ministerial Ordinance issued an export control list comparison table. In that statement Japan warns about differences in EU Regulations. Some of the new rules as described in EU Regulation No. 2021/821 are inconsistent with the requirements of the ministerial ordinances such as cargo.
Man arrested for supplying materials for chemical weapons to the Assad regime
The Assad regime has allegedly made use of chemical weapons to quell civil uprisings, leading to many civilian casualties during uprisings. The Organization for the Prohibition of Chemical Weapons (OPCW) claims that the regime is responsible for more than 300 attacks. However, Syria denies any use of chemical weapons. The OPCW says the Assad regime has still not fully declared its chemical weapon stock and is still not allowing any inspectors into the country. Recently, a French-Syrian man has been arrested in France for allegedly supplying materials for chemical weapons to the regime of Assad. He is also suspected of complicity in, amongst other, crimes against humanity and war crimes. As of 2016, the man and his company were blacklisted by the US for violating the arms embargo imposed on Assad.
The Netherlands can continue to supply military goods to Egypt
In 2020 the Minister granted several export licenses to a company for exporting military goods including radar and other equipment and services, to Egypt. The end user was the Egyptian Navy. Three organizations, PAX, Stop Wapenhandel and the ‘Nederlandse Juristen Comité voor de mensenrechten’ (NJCM), have sued the state of the Netherlands for this. They claim that the military goods are being used by the Egyptian regime to suppress human rights defenders, journalists, and political opponents. The Netherlands is bound by the international rules on arms trade. However, the claim has been rejected by the court as the organizations did not substantiate that the State of the Netherlands could not reasonable have come to the decision to grant the export licenses. In the decision the court also looked at similar situations of other EU countries.
New EU restrictive measures against the Wagner Group
On 13 December 2021, the European Council adopted restrictive measures against the Wagner Group. This Group is based in Russia and is a private military entity. The measures are aimed at the Group itself, eight individuals and three connected entities. The measures consist of an asset freeze and a travel ban. In addition, EU persons and entities are prohibited from making funds available to the listed persons and entities.
The Group is sanctioned because it violated international (human rights) laws by recruiting, training and sending private military operatives to conflict zones to fuel violence, loot natural resources and intimidate civilians. Individuals were sanctioned because of serious human rights abuses (torture, executions and killings) and for destabilizing activities in countries as Libya, Syria, Ukraine and the Central African Republic. With these new measures the EU aims to curtail the subversive activities of the Wagner Group.
Supreme court ruled on the case ING/Yin Yang c.s.
The Dutch Supreme Court has ruled in the case ING/Yin Yang. The central issue in this case was whether the bank was obliged to re-contract with Yin Yang c.s. after they terminated the contract, as Yin Yang c.s. took measures to mitigate the integrity risks for ING and could not open a banking account at another bank. The Dutch Supreme Court ruled this was not incomprehensible or insufficiently motivated that the Court of Appeal ruled that the bank was obligated to enter into a new contractual relationship with Yin Yang c.s..
For more information about the ruling in the case ING/Yin Yang c.s., click here to read the full blog.
Duty of care of banks and the termination of a bank account
New Battery Directive and implications for the automotive sector
The Commission proposed a new EU Battery Directive to replace the current one. However, its entry into force on 1 January 2022 has been delayed. The new Battery Directive will have implications for exports and importers of batteries and accumulators in the automotive industry.
For our full blog about the new Batter Directive, click here.
New Battery Directive and implications for the automotive sector
The EU Commission approves a Proposal to protect Member States from economic coercion from third countries
The upcoming legislation will enable the Union to respond to economic coercion by other countries when the latter pursue or threaten to apply measures affecting trade or investments of the Union. The Commission has put forward several measures that could be put into place to counter third country coercion. There will be a two-step response by the Union. In the first place, there will be an investigation into the coercive measures with the purpose of negotiating with the third country an amicable resolution. Should this fail, the second step would involve countermeasures in compliance with International Law. Among these could be designating natural or legal persons and applying measures to them. These measures will be contained in Annex I of the legislation, which will probably take the form of a Directive. However, the Commission has not yet published Annex I, thus the possible countermeasures remain unknown.
To read our full blog on this topic, click here.
Deloitte can provide your business with the necessary expertise in this matter. If your business is affected negatively by trade or investment measures taken by other countries, we can assess how to adapt your business and obtain support from public institutions.
New EU proposal to protect Member States from economic coercion from third countries