Commission updates FAQs on EU sanctions compliance by non-EU entities: The "best efforts" obligation under the EU Regulation 833/2014
The "best efforts" obligation
The obligation aims to ensure that EU operators take necessary actions to prevent violations of the prohibitions under Regulation 833. It applies to EU operators and entities owned or controlled by EU operators but located outside the EU, including those in Russia.
Since 24 June 2024, Article 8a of Regulation 833 (which can be accessed here), has explicitly stated that:
"Natural and legal persons, entities and bodies shall undertake their best efforts to ensure that any legal person, entity or body established outsidethe Union that they own or control does not participate in activities that undermine the restrictive measures provided for in this Regulation." (emphasis added).
This reinforces the obligation of EU operators to take proactive steps to ensure compliance by their controlled entities outside the EU.
Key points
Responsibility of EU operators: EU operators must take appropriate steps such that their non-EU entities comply with Regulation 833, as relevant and consistent with the best efforts obligation. They must also take all reasonable steps to prevent activities which undermine EU sanctions.
Meaning of "best efforts": Operators are expected to take all suitable and necessary actions based on their size, nature, and specific factual circumstances. Such factual circumstances include the level of effective control over the entity located outside the EU and available compliance resources. The EU operator’s nature and size include among others its market sector, risk profile, turnover and number of staff.
However, it is acknowledged that situations may arise where local laws in third countries make it impossible for an EU operator to exercise control. In such cases, the "best efforts" obligation should take into account the specific challenges posed by the operator’s environment, such as the degree of control over the entity and any external factors beyond their influence.
The guidance focusses on cases where a loss of control over the non-EU entity is caused (or engineered) by the EU operator or where the EU operator contributed in the loss of control.
Suggested measures
- Implementing compliance programmes
- Providing sanctions training
- Establishing mandatory reporting systems
- Proactive management of risks
- Maintenance of awareness of their non-EU entities’ activities
- Public commitments to uphold EU sanctions
- Circulating newsletters and sanctions advisories
- Proactively address any known or suspected violations by controlled entities
- Reporting any sanctions violations to the EU operator that has ownership or control
To meet the "best efforts" obligations, businesses should assess risks, adopt appropriate measures, and report breaches.
Distinction between circumvention and undermining: Interestingly a distinction has emerged between circumvention on the one hand which is described as deliberately bypassing sanctions (eg, exploiting legal loopholes) and a newer concept of “undermining” sanctions on the other which are actions achieving outcomes that sanctions are meant to prevent (eg, restricted goods or services indirectly benefiting sanctioned economies).
Liability risks for EU operators: If an EU operator knows that a controlled entity violates sanctions and does not take any action, they could be held accountable. Failing to act on awareness of sanction breaches by controlled entities can result in liability. Operators may face penalties if their entities outside the EU produce or trade restricted goods benefiting sanctioned economies.
The FAQs on "best efforts" obligation are available here.
