How far may the Council go to Combat Sanctions Circumvention?
Recent CJEU Rulings on the Restrictive Measures against Russia
Celia Challet 1
The jurisprudential saga concerning Russian sanctions continues. On 11 September 2024, the General Court delivered several key judgments on a diverse range of asset freezes and accompanying provisions. Ruling on cases brought by listed individuals’ family members,2 the General Court annulled two listings on grounds of a Council error of assessment. In Tokareva3 and Ezubov v. Council, 4 it took issue with the Council’s approach to the notions of ‘association’ and ‘benefiting from leading businesspersons operating in Russia and their immediate family members’ under Council Decision 2014/145/CFSP.5 However, the General Court did uphold the asset freeze against the National Settlement Depository (‘NSD’), a key Russian financial institution considered to be financially supporting the Russian government.6 Even more importantly, the Grand Chamber’s rulings in Fridman7 and Timchenko v. Council8 confirmed the legality of the obligation for listed targets to report their funds or economic assets to the national competent authorities (‘NCA’s).
Due to the diversity and richness of their legal developments, each of these sets of judgments would deserve a separate analysis. This Long-Read will focus, instead, on a salient aspect that they share: their implications for an effective enforcement of EU asset freezes and the fight against sanctions circumvention. On the one hand, the General Court has confirmed the Council’s broad competence in the field of EU sanctions, allowing it to lawfully
1. Ph.D. candidate at Ghent University (Belgium) and Research coordinator for the MINOS network. She has published contributions on EU sanctions law and EU external relations law.
2. Judgments of the General Court of 11 September 2024 in Tokareva v. Council (T-744/22, EU:T:2024:608), Ezubov v. Council (T-741/22, EU:T:2024:605), and Mordashova v. Council (T-497/22, EU:T:2024:604).
3. Judgment of the General Court, Tokareva v.Council
4. Judgment of the General Court, Ezubov v. Council
5. Council Decision 2014/145/CFSP of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ 2014 L 78, p.16.
6. Judgment of the General Court of 11 September 2024, National Settlement Depository v. Council (T-494/22, EU:T:2024:607).
7. Judgment of the General Court of 11 September, Fridman and Others v. Council (T-635/22, EU:T:2024:620).
8. Judgment of the General Court of 11 September, Timchenko v. Council (T-644/22, EU:T:2024:621).
The most fundamental takeaway from the 11 September judgments is, undeniably, that the General Court upheld the reporting obligation for listed targets subject to asset freezes
impose a reporting obligation on listed targets. The judgments thus clearly contribute to enhancing sanctions effectiveness and anticircumvention (1). On the other hand, they have also confirmed the limits of the ‘risk of circumvention’ as a justification to broaden the scope of listing criteria (2).
1. When legal creativity wins: the Council’s broad competence in the fight against sanctions circumvention
The most fundamental takeaway from the 11 September judgments is, undeniably, that the General Court upheld the reporting obligation for listed targets subject to asset freezes. This obligation, introduced in July 2022, was part of an effort to enhance an effective uniform implementation of restrictive measures and avoid sanctions circumvention. Council Regulation 2022/1273 introduced a new provision in Regulation 269/2014: listed targets were obliged to report before 1 September 2022, or within 6 weeks from the date of their listing, funds or economic resources within the jurisdiction of a Member State which belonged to or were owned, held or controlled by them.9 The targets ought to report such funds and economic resources to the relevant Member State’s NCA, and cooperate with that authority to verify that information.10 In addition, failure to comply with that reporting obligation shall be considered as participating in the circumvention of the asset freezes.11 Given that a month before, in June 2022, the Council had also clarified that Member States must provide for appropriate measures of confiscation of the proceeds of infringements of Regulation 269/2014,12 the reporting obligation significantly changed the listed targets’ legal situation. Failure to adequately report their assets could now lead to a confiscation of (some of) these assets by the NCAs. However, to what extent did this new obligation, rather innovative in the area of restrictive measures, comply with EU law?
9. Council Regulation (EU) 2022/1273 of 21 July 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ 2022 L 194, p.1, Article 1(4).
10. See Regulation (EU) No 269/2014, Article 9(2).
11. Ibid., Article 9(3).
12. Council Regulation (EU) 2022/880 of 3 June 2022 amending Regulation (EU) No 269/2014, OJ 2022 L 153, p.75. This provision was introduced in Article 15(1) of Regulation (EU) No 269/2014.
It did not take long before these questions reached Luxembourg. Several Russian oligarchs, among which Mikhail Fridman and Gennady Timchenko, immediately filed an action for annulment before the General Court. They argued, in essence, that the reporting and cooperation obligation lacked a legal basis and exceeded the Council’s competence, that it was disproportionate and that it infringed the principle of legal certainty.
All these claims were rejected by the General Court, starting with the alleged lack of legal basis with which it engaged extensively. Firstly, the Court dismissed the applicants’ claim that the Council had exceed its restrictive measures’ competence under Article 215 TFEU, thereby breaching its broader Common and Foreign Security Policy (‘CFSP’) competence.13 The applicants argued that since Decision 2014/145 does not include the reporting and cooperating obligations, they could not be considered as mere implementing measures.14 On the contrary, these obligations added up to the restrictive measures and went beyond the scope of Article 215(2) TFEU by imposing positive obligations on sanctions targets.15 This was especially beyond the scope of the Council’s competence that Article 8 of Regulation 269/2014 already contained reporting obligations.16 In response, the General Court recalled the specific rules applying to the CFSP and the ‘passerelle’ role of Article 215(2) TFEU. CFSP decisions laying down the objectives and object of restrictive measures are given effective and uniform implementation throughout the EU through regulations adopted on the basis of Article 215(2) TFEU.17 According to the Court, the reporting and cooperating obligations followed the exact same logic: they were introduced in Regulation 269/2014 in order to address ‘the increasing complexity of sanction evasion schemes, which hamper [the] implementation [of restrictive measures]’.18 As the Council pointed out, the number of listed targets under the Russia sanctions list is unprecedented, these asset freezes have been subject to circumvention and, at the time when these obligations were introduced, few Member States’ legislations provided for them.19 These obligations thus meant to ensure an effective application of the CFSP decision and the TFEU regulation, thereby complying with Article 215(2) TFEU.20 Finally, the General Court dismissed the alleged redundance of the reporting and cooperating obligations: Article 8 of Regulation 269/2014 imposes obligations on economic operators implementing the asset freezes, not on the targets.21
Secondly, the General Court rejected the applicants’ claim that the Council had infringed Article 40 TEU (i.e. the principle of non-encroachment of EU policies by the CFSP) and Article 83(1) TFEU. The applicants argued that since the execution of the CFSP rests with Member States, it was not the Council’s task to decide how restrictive measures must be implemented domestically.22 Nor was the Council competent, under Article 83 TFEU, to
13. See Articles 24(2) and 29 TEU.
14. Judgment of the General Court, Timchenko v. Council, para. 46.
15. Judgment of the General Court, Fridman v. Council, para. 44.
16. Judgment of the General Court, Timchenko v. Council, para. 48.
17. Ibid., paras 51-55.
18. Ibid., para. 57. The General Court referred to recital 5 of Council Regulation (EU) 2022/1273.
19. Ibid., para. 58.
20. Ibid., para. 60.
21. Ibid., para. 64.
22. Ibid., para. 49.
harmonise the applicable sanctions in case of a violation of restrictive measures: this can only be done through directives adopted under the ordinary legislative procedures.23 As evidence of this, the applicants referred to Directive 2014/42 on the confiscation of the proceeds of crime24 and Council Decision 2022/2332 which added the violation of EU sanctions to the list of EU crimes.25 In other words, to quote Fridman, ‘by adopting the contested provisions when it was aware that the circumvention of sanctions was a criminal offence in 25 of the 27 Member States, Council acted as a legislative authority in criminal matters’.26 The General Court dispensed easily with the claim based on Article 40 TEU: this provision does not regulate the allocation of competence between the EU and its Member States.27 With respect to Article 83 TFEU, it recalled that under Regulation 269/2014, non-compliance with the reporting obligation solely qualifies as participating to circumvention, and not as a criminal incrimination.28 In addition, Article 9 of Regulation preserves the Member States’ competence to decide whether the penalties are to be civil, administrative or criminal.29 The fact that 25 out of 27 Member States already criminalized the circumvention of sanctions would be an indicator of the Member States’ choice of penalties.30
Overall, therefore, the General Court did not only offer a compelling reasoning on the Council’s competence to adopt the reporting and cooperating obligations. By thoroughly refuting the alleged lack of competence (which it seldom does in the field of restrictive measures)31 and by insisting on the aim to avoid circumvention,
23. Ibid., para. 69.
By thoroughly refuting the alleged lack of competence and by insisting on the aim to avoid circumvention, the General Court firmly established the Council’s authority to adopt supporting measures
24. Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union, OJ 2014 L 127, p.39.
25. Council Decision (EU) 2022/2332 of 28 November 2022 on identifying the violation of Union restrictive measures an area of crime that meets the criteria specified in Article 83(1) of the Treaty on the Functioning of the European Union, OJ 2022 L 308, p. 18.
26. Judgment of the General Court, Fridman v. Council, para. 87.
27. Judgment of the General Court, Timchenko v. Council, para. 61.
28. Ibid., paras 76-77.
29. Ibid., para. 80.
30. Judgment of the General Court, Fridman v. Council, para. 92.
31. See, for instance, judgment of the Court of justice, 28 March 2017, Rosneft (C-72/15, EU:C:2017:236); General Court, judgment of 27 July 2022, RT France v. Council (T-125/22, EU:T:2022:483). On the topic of Article 40 TEU see also Marise Cremona, ‘Effective judicial review is of the essence of the rule of law: Challenging Common Foreign and Security Policy measures before the Court of Justice’, European Papers 2, 2017, p. 686; Panos Koutrakos, ‘Judicial Review in the EU’s Common Foreign and Security Policy’, International & Comparative Law Quarterly 67(1), 2018, p. 18.
the General Court firmly established the Council’s authority to adopt supporting measures. As combatting circumvention remains high on the EU’s sanctions agenda,32 this may well encourage the diversification of the EU’s toolbox to enhance the effectiveness of sanctions.
This is all the more so that in Timchenko and Fridman, the General Court also dismissed the claims alleging an infringement of the principles of proportionality and legal certainty. The applicants argued that reporting obligation created an irrebuttable presumption of circumvention in the event of an omission to report.33 Given the likelihood that national legislations attach criminal penalties, including confiscation, to the circumvention of restrictive measures, this would deprive restrictive measures of their precautionary and preventive nature. Combined with the rather short delay to report to multiple national authorities,34 the reporting obligation was thus allegedly disproportionate. The General Court’s response was clear: unvoluntary omission to report does not amount to circumvention, reporting does not automatically lead to confiscation and there was no evidence that the 41-day delay to report caused any difficulty for the applicants.35 As regards legal certainty, the General Court dismissed the applicants’ argument that the notions of ownership and control were complex, subject to divergent interpretations by NCAs, and likely to expose targets to sanctions for lack of declaration.36 It ruled that the notions of ownership and control are autonomous concepts of EU law that do not display ‘such ambiguity’ as to create legal uncertainty in the procedures before national authorities.37
The General Court’s response on proportionality and legal certainty invites discussion. One could argue that the Court underestimates the legal challenges and uncertainty posed by the national implementation of asset freezes, particularly regarding the notions of ownership and control. This was illustrated by the Council’s need to clarify the scope of the reporting obligation.38 However, in Fridman, Timchenko but also in NSD, 39 the Court appears to conclude that any potential legal uncertainty arises from how NCAs interpret restrictive measures. This, again, may be questionable. While it is not the CJEU’s role to remedy issues at national level, acknowledging the interpretative difficulties faced by NCAs and those applying sanctions, and dedicating more effort to clarify key concepts, would certainly help mitigate legal uncertainty. Despite the CJEU’s consistent approach to this principle, it is evident that legal uncertainty persists in the context of restrictive measures. It is worth questioning why the General Court established ownership and control as autonomous concepts without defining them more thoroughly. One may ponder whether the Court did not miss an opportunity to provide much-needed clarity on these concepts, which would have been beneficial to the legal community beyond the specific issue of asset freezes. In any event, the General Court’s approach on proportionality and legal certainty further confirmed the Council’s leeway to address circumvention.
32. See the 14th package of restrictive measures against Russia (Council Decision (CFSP) 2024/1738 of 24 June 2024, OJ 2024 L 1738, p.1).
33. Judgment of the General Court, Timchenko v. Council, para. 97
34. Ibid., para. 99.
35. Ibid., paras 103-105.
36. Ibid., paras 109-111.
37. Ibid., paras 117 and 123-124.
38. Ibid., para. 109.
39. Judgment of the General Court, National Settlement Depository v. Council, paras 129-130.
While it is not the CJEU’s role to remedy issues at national level, acknowledging the interpretative difficulties faced by NCAs, and dedicating more effort to clarifying key concepts, would certainly help mitigate legal uncertainty
2. When the anti-circumvention argument fails to convince the Court: interpreting the scope of listing criteria
Preventing circumvention justifies the reporting obligation for listed targets, but their listing must be lawful in the first place. In this respect, some of the 11 September rulings provided a sharp reminder that the objective of preventing sanctions circumvention does not (yet) justify an excessively broad interpretation of certain designation criteria. This is particularly true as regards the family members of leading Russian businesspersons. Their designations, often under the criterion of being ‘associated’ with their listed family member(s), had already led to a certain jurisprudential ‘history’. One may recall the Prigozhina and Mazepin cases, in which the General Court ruled that the sole family link does not suffice to list a person as ‘associated’: those persons must be ‘linked by common interests’.40 Subsequent (Russia) case law had embraced a flexible approach to the notion of ‘common interests’. The latter does not necessarily require a link through an economic activity, and it may encompass diverse situations ranging from being the chairperson of a listed person’s foundation41 to receiving alimony payments after a divorce with the listed target.42 However, the principle remained that family members of designated Russian businesspersons could not be listed on the sole basis of a circumvention risk. This led F. Finelli to argue, at the time, that the General Court had overlooked the risk of circumvention through family members and that it should have followed the ‘Syrian’ example by using a rebuttable presumption of association between certain leading businesspersons and their family members.43
40. General Court, judgment of 8 March 2023, Prigozhina v. Council (T-212/22, EU:T:2023:104); General Court, order of 1 March 2023, Mazepin v. Council (T-743/22 R); General Court, judgment of 20 March 2024, Mazepin v. Council (T-743/22, EU:T:2024:180).
41. General Court, judgment of 6 September 2023, Pumpyanskaya v. Council (T-272/22, EU:T:2023:491), paras 45-46.
42. General Court, judgment of 25 October 2023, QF v. Council (T-386/22, EU:T:2023:67), paras 57-68.
43. F. Finelli, ‘Countering circumvention of restrictive measures: The EU response’, Common Market Law Review 60(3), 2023, p. 759.
Preventing circumvention justifies the reporting obligation for listed targets, but this does not alter the fact that their listing must be lawful in the first place. The objective of preventing sanctions circumvention does not (yet) justify an excessively broad interpretation of certain designation criteria
As evidenced by the 11 September rulings, the General Court has not opted for that approach and it has firmly rejected the Council’s attempts for a broader reading of certain key concepts of the listing criteria. It did so, firstly, with respect to the notion of ‘association’. In Tokareva, the applicant had been designated on the grounds, inter alia, that she was associated with an individual who was himself designated as ‘associated’ with his father. In other words, she was considered to be ‘associated to an associated person’. However, the General Court ruled that this is not acceptable. While the criterion of association addresses the risk of circumvention by the primary targets through their associates,44 its scope cannot be extended to include an association with a person who is not listed under one of the listed criteria.45 The General Court rejected the Council’s attempt to justify this extension by the risk of circumvention and ‘the need to capture a plurality of persons falling within a global “network”’.46 Ruling otherwise would not take into account the wording of the listing criteria, nor the Tay Za requirement of a sufficient link between the listed individuals and the third country targeted by sanctions.47 By striking this balance between fighting circumvention and preserving the letter of the listing criteria, the General Court thus diffused the risk of an open-ended and nontargeted use of the criterion of ‘association’.
Secondly, the General Court interpreted the notion of ‘advantage’ under the criterion of ‘benefiting from leading businesspersons operating in Russia and their immediate family members’.48 It acknowledged that this criterion was introduced to address the risk of sanctions circumvention through family members,49 and that the notion of advantage includes ‘any advantage of any kind, which is not necessarily undue, but which must be quantitatively or qualitatively not negligible’.50 For instance, receiving financial assets from a family member can qualify as ‘advantage’ if the Council
44. Judgment of the General Court, Tokareva v. Council, para. 48.
45. Ibid., para. 49.
46. Ibid
47. Ibid., para. 50; Court of Justice, judgment of 13 March 2012, Tay Za v. Council (C-376/10 P, EU:C:2012:138).
48. Council Decision 2014/145/CFSP, Article 2(1)g.
49. Judgment of the General Court, Tokareva v. Council, para.141.
50. Ibid., para. 142.
proves that it benefitted from it.51 However, said the General Court, that is precisely the point: the Council has to prove that benefit. Notwithstanding the anti-circumvention objective attached to the notion of ‘advantage’, the Council cannot interpret it as the existence of ‘common interests’ like it does for the criterion of association.52 According to the General Court, this would deprive the criterion of ‘benefiting from leading businesspersons operating in Russia and their immediate family members’ from any effet utile. 53
The General Court’s message is therefore quite clear: tackling circumvention does not justify lowering the standard of proof when using listing criteria, and the criterion of ‘association’ cannot be used as an open-ended, by-default avenue if the Council lacks evidence. In the light of the latest Al-Assad ruling, in which the General Court stressed that the listing criterion targeting Al-Assad family members must be used on a case-by-case basis,54 it would thus seem that the anti-circumvention objective has had a moderate toll on the Court’s interpretation of listing criteria.
3. Concluding remarks
The goal of preventing (asset freezes) circumvention has steadily gained salience in EU sanctions provisions, and in the Council’s rhetoric in sanctions litigation. So far, the General Court has maintained a fairly balanced approach: while the Council may explore legal avenues to improve sanctions effectiveness, combatting circumvention does not allow the indiscriminate listing of individuals under a lower standard of proof. Whether the Court’s approach will shift in the future remains to be seen, but it is clear that this issue is now playing an important role in asset freeze cases.
51. Judgment of the General Court, Ezubov v. Council, paras 181-193.
52. Judgment of the General Court, Tokareva v. Council, para.143.
53. Ibid
54. General Court, judgment of 4 September 2024, Al-Assad v. Council (T-370/23, EU:T:2024:588).