Sanctions are currently relevant as a foreign policy tool and as an institution of law. For Latvia, as a border state with Russia and Belarus, the monitoring and enforcement of restrictions imposed by the sanctions are particularly relevant.
Russia’s aggression against the sovereignty of the territory of Ukraine, which began in 2014 and significantly escalated at the beginning of this year, has made the legal framework of sanctions and the need for improvement of the rules of their application topical. Sanctions will not be effective if there are alternative routes of trade and supply of raw materials to the economic and civil restrictions imposed and cooperation partners who have not acceded to the joint application of sanctions. Only the comprehensive application of sanctions can become an effective means of achieving political objectives.
The AML platform is being used as an effective tool for managing sanction risks in those institutions for which the AML platform was mandatory (e.g., credit institutions, auditors, lawyers, and gambling organizations). The assessment of sanction risks has similarities with AML compliance checks. Transactions with countries that have not acceded to the EU and US sanctions represent a considerable risk of infringement of sanctions, so special care is required in verifying the compliance of these transactions. Despite these increased risks, the AML risk management platform set up by credit institutions can integrate the management of sanction infringement risks in a sufficiently effective way.
However, sanctions as a law institution in Latvia require content improvement and development. The main shortcomings may be the need for more guidelines on the legal provisions relating to sanctions and the tasks to be taken to prevent sanction infringements.
The laws governing sanctions do not point to what actions should be carried out by those who need to apply the rules of sanctions and assess the risks of infringement of sanctions. It has yet to be determined exactly what checks (and to what extent) should be carried out to gain certainty about the legality of the transaction. At the moment, each person must assess the scope and content of actions necessary to eliminate the risk of sanction violations. In more complex cases of transaction research, assessment of the risk of infringement of sanctions and identifying the true beneficiary may be associated with a voluminous set of research activities. The finding of the European Court of Justice in joined cases C‑37/20 and C‑601/20 – that disclosure of the identity of the true beneficiary of companies is disproportionate – will also not facilitate compliance with sanctions. It should be assessed whether regulatory enactments should determine the content of minimum actions to verify compliance of the transaction with the sanctions.
Regulation No. 833/2014 provides for the prohibition of “participating, knowingly and intentionally, in activities the object or effect of which is to circumvent the prohibitions referred to in the Regulation”. In this way, it is revealed that liability for violation of sanctions is provided only if the actions of the objective party are committed with direct intent, while also determining the form of guilt and characterizing the attitude of the offender of sanctions to the committed acts.
From the practical point of view, the application of sanctions requires careful preliminary research work before the conclusion of the transaction. Without doing the work, there is a probability of inadvertently violating the established limits.
According to Latvian law, criminal liability is foreseen for violations of sanctions. It would be worth opening a discussion about infringements involving insufficient verification activities, where the law could provide for “lighter” forms of criminal liability – administrative responsibility – which would allow for more effective detection of the breach and faster prosecution.
The range of natural and legal entities subject to sanctions and the content of civil restrictions imposed on Russia and Belarus is complex and, at the same time, general, only sometimes providing clarity on their application. It creates uncertainty about the possibility of conducting a transaction with residents of Russia or Belarus and counterparties of third countries. Awareness of the need to comply with sanctions as a legal tool may be considered an alternative means to military aggression and the use of force. The restrictions in laws to such a comprehensive extent as is currently established for Russia and Belarus also necessitate the adoption of procedural norms for the sanctions to be as effective as possible.
By Inese Hazenfusa, Partner, and Artis Klavins, Senior Associate, TGS Baltic