1. The Netherlands
/ Decision of the Amsterdam Disciplinary Tribunal on the role of the “independent lawyer-investigator”
Significant restrictions have been placed on the internal investigation practices of commercial law firms as a result of the ruling of the Disciplinary Tribunal of Amsterdam (the “Disciplinary Tribunal”) in a case taken against the practices of international law firm NautaDutilh. The ruling of the Disciplinary Tribunal prevents lawyers from combining their legal advisory role with that of “independent fact-finding” for the same client, as the two roles are now deemed “incompatible”. A fact-finding lawyer no longer qualifies as independent, according to the ruling, if the same firm also provides legal assistance to the same client.
The ruling of the Disciplinary Board concludes that the role of the “independent lawyer-investigator” is, in practice, “simply incompatible with the role of the biased lawyer” which will place the client’s interest as their priority. Though the ruling is not a complete ban on the lawyer-investigator figure, it will result in the tightening of standards for the professional group. Of note is the clear distinction introduced between reports for internal use and external use. A higher standard is now placed on due diligence obligations for reports which clients share with the judiciary than reports which are intended for internal use only.
The landmark decision is a result of proceedings instituted by the Dean of the Amsterdam Bar Association, Evert-Jan Henrichs, against lawyers at NautaDutilh commissioned by consultancy firm BakerTilly to investigate an illegal tax construction sold by the firm to a wallpaper wholesaler. In its ruling, the Disciplinary Tribunal established that NautaDutilh lacked a clear investigation protocol, did not respect the adversarial process, and did not mention all relevant facts in the report. According to the Disciplinary Tribunal, these elements of the report may give rise to “misunderstandings”.
The ruling was welcomed by Dean Henrichs, who praised the ruling as providing clarification on several points and the rules for lawyers acting within the investigator-advisory framework especially in concern with internal investigation practice for external use purposes.
/ Enforcement of Ultimate Beneficial Ownership (UBO) registration starts
The Dutch Minister of Finance, Sigrid Kaag, has announced last month that the Tax and Customs Administration (de Belastingdienst) will commence enforcing the new obligation of registering UBOs against companies which have not yet complied with the law. Organisations were urged to register their UBOs in the adequate register in the Netherlands by 27 March 2022 at the latest. However, some companies have been called out for contravening their obligations. UBO registers are mandatory under European law and exist in all Member States of the Union. Their purpose is to supplement policy steps taken in prevention of money laundering, tax evasion, sanctions evasion and terrorism financing.
Non-compliance with the law entails legal effects such as indictment by the Economic Enforcement Bureau (het Bureau Economische Handhaving). If, after receiving a warning from the Bureau, the UBOs are not correctly and fully registered register within 2 weeks, the company in question is found as violating the decision and can be subject to either an uncapped penalty payment or a fine of up to €22,500. The lawbreaking party, under the procedure, can object to punitive steps by the Economic Enforcement Bureau and can appeal afterwards if this objection is rejected by the relevant authorities.
/ Ministry of Foreign Affairs clarifies position of CAS islands vis-à-vis sanctions against Russia
On 2 June 2022, the Minister of Foreign Affairs, Wopke Hoekstra, has communicated his answers to queries raised on the application of the sanctions against Russia by Aruba, Curaçao and Sint Maarten. The questions came after the release of numerous reports investigating and tallying the presence of Russian-owned vessels and air crafts in the Dutch Caribbean countries. It appeared that the major luxury holiday resorts on the Dutch Caribbean have frequently been the destination of oligarchs and other wealthy individuals. The Minister has made the comment that the Government of the Netherlands holds no legal powers to inspect and examine whether the reports are truthful, and that such steps fall within the competence of the local administrations of the three constituent countries. The Minister has also confirmed that authorities in Curaçao have frozen Russian assets worth $43 million in total. Finally, the response confirmed that all countries in the Kingdom of the Netherlands are bound by the sanctions and ought to adopt them, while explaining that implementation and enforcement lay within the prerogative of local government and are not Kingdom matters.
2. The European Union
/ European Commission adopts proposal for new “maintenance and alignment” sanctions package
The European Commission has adopted a new sanctions package with the aim of strengthening the effectiveness of the preceding six sanctions packages issued to date. The announcement follows the commitment by G7 leaders to continue their support of Ukraine for “as long as it takes”. This seventh package clarifies and expands current EU sanctions provisions and includes new provisions, thereby strengthening the level of legal certainty provided to the enforcement operators of EU Member States.
The package includes an effective ban on the import of Russian-origin gold, Russia’s “most significant export after energy”, by introducing a new prohibition against the purchase, import, or transfer, directly or indirectly, of gold – including jewellery – originating and exported from Russia into the EU or any other third country. It also includes an important amendment to the transaction ban by way of a new exception for transactions with the state-owned entities listed in Annex XIX, when such transactions are necessary for oil, medical, agricultural and food products.
The prohibition on the import of gold does not apply to gold jewellery which is intended for the personal use of natural persons travelling to the European Union or to members of their immediate families travelling with them so long as the gold jewellery is owned by those individuals and not intended for sale. This exemption also applies to golden jewellery included in the luxury goods list in Annex XVIII of the Regulation (EU) no 833/2014.
The package further extends the current port access ban to locks with the objective of preventing the possible circumvention of sanctions through canals. An exception is provided in cases where the vessel requires access to locks to leave the EU. In addition, the scope of the prohibition on accepting deposits has been expanded to include deposits from legal persons, entities or bodies established in third countries and majority owned by Russian nationals or natural persons residing in Russia. Clarifications for existing measures is also provided in the fields of public procurement, aviation and justice.
The European Council has also strengthened its reporting requirements by placing the burden of declaring assets onto sanctioned individuals to facilitate the freezing of their assets in the EU. Listed persons are now required to actively disclose all their assets within the EU’s jurisdiction to the relevant national competent authority. Non-compliance with this requirement will be treated as a breach of EU sanctions law.
The package lists an additional 54 persons and 10 entities, including senior political and business individuals with close ties to the Kremlin. It also further expands the number of advanced technology items targeted in Annex VII of Regulation (EU) 833/2014 which have been banned from export to Russia. New items include manufacturing equipment and items used for law enforcement, such as helmets and batons, or chemicals used in riot control.
/ Gazprom claims force majeure over restriction of gas deliveries to Europe
Gazprom has released a statement in which it announced that it would not be able to guarantee gas supplies to European customers due to “extraordinary circumstances”. In a letter to customers dated 14 July 2022, it retroactively claimed force majeure from 14 June 2022 regarding its European commitments to deliver gas supplies through its Nord Stream pipeline. Force majeure, or an “act of God” clause, releases a party to a business contract from their legal obligations on account of extreme and unexpected circumstances. Gazprom’s declaration does not guarantee that it will stop deliveries, but rather, that it should not be held responsible if it fails to meet the terms of its contracts.
/ CJEU clarifies concept of related persons for customs persons
On 9 June 2022, the European Court of Justice (“ECJ”) issued its Judgment in the case C-599/20 (Baltic Master UAB). The decision provides additional clarity regarding the legal concept of related persons, which will assist customs authorities in determining the customs value of imported goods. At present, EU customs law provides an exhaustive list concerning the contextual factors in which legal persons are “related” and under which circumstances customs authorities can determine the existence of such a relationship.
Regarding the latter, according to the ECJ, the general rule provides that the customs value be determined primarily by way of a determination of the transaction value of the imported goods. For the transaction value to be disregarded, two conditions must be met:
- The buyer and seller are related; and
- The transaction value is not acceptable for the purposes of determining the customs value of the goods.
In its ruling, the ECJ also highlighted the importance of the distinction between de jure control and de facto control. De jure control, according to the ECJ, does not exist if no document would establish such a relationship. On the other hand, to establish the existence of de facto control, establishing a relationship of trust between the parties is insufficient. Customs authorities must demonstrate that there is exercise of legal or operational constraint by one party over another. This should be confirmed by the referring court after evidence is provided. If the referring court finds the parties to be related, customs authorities can use price comparable goods available in their national database, even if the goods are not exactly similar. The goods must, however, be ascribed to the same TARIC code, and have the same origin.
3. United Kingdom
/ UK’s Office of Financial Sanctions Implementation (OFSI) provides additional guidance in enforcement and monetary penalties for breaches of financial sanctions
The UK’s Office of Financial Sanctions Implementation (“OFSI”) has released additional guidance on its enforcement and monetary penalties for breaches of financial sanctions. New guidelines on the assessment processes of potential breaches apply to all incidents of a potential breach which took place on or after 15 June 2022. Potential breaches which occurred before 15 June 2022 will be assessed in line with previous OFSI guidance published in December 2020.
The new guidelines provide additional information regarding the OFSI’s considerations in assessing a potential breach of financial sanctions. The OFSI can respond to a potential breach of financial sanctions in several ways, however, a typical response will now include: the issuance of a warning; reference to the relevant professional body or regulator to improve compliance with financial sanctions; the publishing of information concerning a breach if the information is of public interest; imposition of a monetary penalty; referral to relevant law enforcement agencies to facilitate a criminal investigation and potential prosecution. The OFSI may undertake several of these actions in any order, in line with the UK Treasury’s competence to impose of monetary penalties.
Any potential prosecution of a breach will use the civil law standard of proof. Therefore, the question of a party’s guilt will consider the question of guilt on the balance of probabilities, meaning that the offending act is more likely than not to have occurred, or the occurrence is more than 50% probable. This civil standard differs from the criminal standard, which requires an assurance of guilt beyond a reasonable doubt.
4. United States
/ US Government sanctions more than 100 Russia-related parties and coordinates prohibition of the import of Russian gold with G7 allies
The US Office of Foreign Assets Control (“OFAC”) has implemented additional sanctions against Russia in accordance with US commitments to continue its support for Ukraine. As a result of these commitments, OFAC has added almost 100 parties to its Specially Designated and Blocked Persons List, issued a determination which prohibits the import of certain Russian gold into the United States, and published five Russia-related general licences. Additionally, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued a final rule (“BIS Final Rule”) which added 36 new entities to the BIS Entity List, the majority of which related to Russia. It also issued a Joint Alert in conjunction with the Financial Crimes Enforcement Network, urging financial institutions to remain vigilant against attempts by entities to evade US export controls targeting Russia.
/ U.S. Court issues an opinion on the application of sanctions on cryptocurrency
A U.S. Court has approved for the first time the criminal prosecution, on the part of the Justice Department, of an individual allegedly evading U.S. sanctions using cryptocurrency. In the opinion of the Court, the magistrate explained that the defendant funnelled more than $10 million USD worth of bitcoin to an unnamed sanctioned country and was tracked through their IP address and bank details. The opinion of the U.S. Court has confirmed the guidance issued by OFAC in previous months, which has encouraged the view that cryptocurrencies are subject to the same regulation as dollars, at the time where more concerns are being voiced about the extent to which virtual currencies are used to launder money or enter into transactions with Cuba, Iran, Belarus, or Russia.
The Court reiterated that virtual wallet companies must stay wary as the guidance provided by OFAC ensures liability even where a non-U.S. citizen accessing the currency exchange causes a U.S. person to violate sanctions. Additionally, the decision and guidance it was founded upon call on all companies in the virtual currency community to implement routinely updated risk-based compliance programs, in order to protect users and shield themselves from potential liability for sanctions evasion.
5. Around the globe
/ China and Russia veto new UN sanctions on North Korea after ballistic missile test
On 26 May 2022, the United Nations Security Council failed to adopt a resolution expanding sanctions against North Korea based on China and Russia vetoing the text. The draft was proposed in condemnation of recent ballistic missile launches conducted by the Kim regime, and in response to Resolution 1718 which obliges the Security Council to act in the case North Korea conducts any more activities related to its missile program. The failure to strengthen economic sanctions against the country has raised questions about the effectiveness of sanctions imposed by the United Nations, as ten prior resolutions were adopted against Pyongyang to dissuade the administration from pursuing escalatory aims and have already, since 2006, nearly shut out North Korea from the entire international financial and commercial system.
/ Russia sanctions 384 Japanese lawmakers over Tokyo’s stance on Ukraine
In response to the Japanese government’s support of international sanctions, the Russian Foreign Ministry has banned 384 Japanese parliamentarians from entering its territory. The Ministry’s website listed the lawmakers and accused them of “adopting an unfriendly, anti-Russian position […] by expressing unfounded accusations against our country concerning the special military operations in Ukraine”. This announcement has spurred tensions between ‘Tokyo’ and ‘Moscow’, which began when Russia began its military aggression against Ukraine in February 2022. On 1 July 2022, Russia published a decree transferring Japan’s stake in the Sakhalin-2 oil and gas project on Sakhalin, an island in Russia’s far east, to a Russian operator. Until this decree, most of the Sakhalin-2 project’s liquid natural gas (LNG) output had been delivered to Japan.
/ G7 leaders issue Ukraine statement on support for Ukraine
At the G7 summit in Schloss Elmau, Germany, the G7 leaders released a statement reaffirming their solidarity with Ukraine and their commitment to support the Ukrainian government. The statement confirmed that the G7 leaders would continue to provide financial, humanitarian, military, and diplomatic support to Ukraine “for as long as it takes”. The leaders also affirmed their commitment to coordinated sanctions measures in response to Russia’s aggression. This included the promise to explore new ways to isolate Russia from participation in the global market and to crack down on evasion through measures to reduce Russia’s revenues from gold. The leaders also confirmed plans to increase the Russia’s costs for the continuing war on Ukraine by imposing targeted sanctions on individuals responsible for war crimes committed against Ukrainian civilians, those exercising illegitimate authority in Ukraine, and those standing behind Russia’s engagement in efforts to increase global food insecurity or otherwise illegitimately profit from the war. This sign of unity is a strong assurance of commitments to sanctions packages in response to Russian aggression in Ukraine.
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