European Commission Outlines Tougher Rules On Freezing And Confiscating Oligarchs’ Assets

May 27, 2022
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Brussels has proposed new rules to make seizing assets easier and undermining Russia sanctions in the trading bloc a crime.

Brussels has proposed new rules to make seizing assets easier and undermining Russia sanctions in the trading bloc a crime.

In its latest response to the Russia-Ukraine conflict, the European Commission is further clamping down on the capability of Russian oligarchs to operate freely in the EU.

“We must ensure that persons or companies that bypass the EU restrictive measures are held to account,” said Didier Reynders, justice and consumer chief at the European Commission.

Such action is a criminal offence that should be sanctioned firmly throughout the EU, he continued.

“At present, divergent criminal definitions and sanctions as regards to the violation of the restrictive measures can still lead to impunity.

“We need to close the loopholes and provide judicial authorities with the right tools to prosecute violations of Union restrictive measures.”

In its latest package, the commission has proposed that violating the block's restrictive measures be made an EU crime.

This will allow the commission to set a common basic standard on criminal offences and penalties across the EU.

In turn, harmonised EU rules would make it easier to investigate, prosecute and punish violations of restrictive measures in all member states alike.

Accompanying the proposal, the commission is also setting out what a future directive on criminal sanctions could look like.

Once agreed by the EU’s co-legislators, potential criminal offences could include engaging in actions or activities that seek to directly or indirectly circumvent the restrictive measures.

Actions that meet these criteria would include: concealing assets; failing to freeze funds belonging to, held by or controlled by a designated person/entity; or engaging in trade with such an entity — for example, by importing or exporting goods covered by trade bans.

The commission is also putting forward a proposal for a new directive on asset recovery and confiscation. New rules will also apply to the violation of restrictive measures, allowing effective tracing, freezing, management and confiscation of proceeds derived from the violation of sanctions.

Once passed, the commission intends for this to deprive criminals of ill-gotten gains and limit their capacity to commit further crimes.

The EU’s asset recovery measures will be modernised by the new rules, by extending the mandate of Asset Recovery Offices to swiftly trace and identify assets of individuals and entities subject to EU restrictive measures.

These powers will also apply to criminal assets, urgently freezing property when there is a risk that assets could disappear.

In addition, the commission is proposing to expand the possibilities to confiscate assets from a wider set of crimes, once the commission's proposal on extending the list of EU crimes is adopted.

As part of this, the commission plans to establish Asset Management Offices in all EU member states.

This would help ensure that frozen property does not lose value, enabling the sale of frozen assets that could easily depreciate or are costly to maintain.

“EU sanctions must be respected and those trying to go around them punished,” said Vera Jerouva, the commission’s vice president for values and transparency. “The violation of EU sanctions is a serious crime and must come with serious consequences.”

EU-wide rules are needed to establish that, she continued. “As a Union, we stand up for our values and we must make those who keep Putin's war machine running pay the price.”

More sanctions, but not for oil and gas

The commission’s "freeze and seize" activities date back to mid-March, during the earlier phase of the Russia-Ukraine war, when a specific task force was formed for this purpose.

Known as the Russian Elites, Proxies, and Oligarchs (REPO) Task Force, it brought together the EU with the rest of the G7, the UK, the US and Australia to target the assets of Russian and Belarussian oligarchs.

However, still notably absent from the commission’s latest sanctions proposals is any mention of Russian oil and gas exports, which EU companies continue to purchase directly from Russian suppliers.

At the end of April, VIXIO reported on the commission’s President Ursula von der Leyen's strongest statements to date regarding EU companies that import gas from Russia.

Referring to a March decree issued by President Vladimir Putin, which called for EU companies to open accounts with Gazprombank, where euro or dollar payments for gas could be converted into roubles, von der Leyen appeared to say that this would violate EU sanctions.

“Our guidance here is very clear: If it is not foreseen in the contract, to pay in roubles is a breach of our sanctions,” she said.

“We have around about 97 percent of all contracts that explicitly stipulate payment in euros or dollars, so it’s very clear. And the request on the Russian side to pay in roubles is a unilateral decision, and not according to the contract.

“Companies with such contracts should not accede to the Russian demands. This would be a breach of the sanctions, so a high risk for the company.”

Even after von der Leyen’s statement, debate continued as to what exactly constitutes “paying in roubles”.

But ultimately, based on statements provided by several EU energy companies, paying in euros or dollars while knowing the payment will be converted to roubles has been deemed permissable.

Eni, for example, Italy’s largest energy importer, announced last week that it plans to open a rouble-denominated account at Gazprombank.

In a statement, Eni said the move was a precaution to ensure that its next payment for Russian gas, which was due several days later, goes through.

"The Company is going to temporarily open the two accounts" — one in euros and one in roubles — "without prejudice to its contractual rights, which still envisage payment in euros," Eni said.

Eni added that it has rejected a request by Russian supplier Gazprom Export to modify its existing long-term supply contract.

Last month, Poland's PGNiG and Bulgaria's Bulgargaz rejected similar requests, leading Gazprom to stop deliveries.

The ambiguity of the situation has not gone unnoticed among commodities observers, who have noted that the EU is now in a weakened position vis-a-vis the Kremlin.

Marco Giuli, for example, scientific advisor at the Istituto Affari Internazionali, has said that Russia now has all the leverage it needs to demand that future gas payments are made directly in roubles.

“The message that was sent is that Europe will try to adapt somehow, as it cannot risk losing access to Russian gas,” Giuli wrote on Twitter. “Will this suggest to Russian leaders that they have the upper hand and encourage them not to consider the payment fulfilled after a simple EUR deposit?”

Before the euros are converted to roubles, Giuli suggested that Russia could put buyers “between a rock and a hard place”, using the deposited sum as a bargaining chip.

“Perhaps nothing will happen, but we are trusting Putin here,” he said. “In fact, we are also trusting EU leverage, as the underlying assumption is that Russia's threat to cut off supply is a bluff. But if we think that, why are we adapting to the new scheme at all?

“Politically, how is this going to work within the EU?” he added. “Was the ‘sacrifice’ of Poland and Bulgaria entirely pointless? They should be fuming.”

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