In late 2021 and early 2022, there were again several interesting developments in the field of international trade law. Like several other European Union (“EU”) member states, the Dutch government missed the EU deadline for transposing the Whistleblower Act. The EU made public the feedback received on changes to the EU blocking statute, and the European Commission released a minor update to its list of dual-use items. The United States (“US”) reached a settlement with Airbnb over apparent violations of U.S. sanctions against Cuba. The Australian government made changes to its sanctions regime, and the United Nations Security Council passed a resolution to encourage humanitarian aid to Afghanistan despite sanctions against the Taliban. This, and more, in our newsletter.
- The Netherlands (Dutch Whistleblower Protection Act) – By 17 December 2021, all EU Member States must have implemented a framework for the protection of persons who report breaches of Union law in accordance with Directive (EU) 2019/1937. However, the Netherlands and various other Member States, such as Germany, Italy and Spain, missed the deadline to transpose this Directive into national law.
Directive (EU) 2019/1937 was drafted because the protection of whistleblowers in the EU is fragmented across both Member States and policy areas. Under this Directive, all entities in sectors vulnerable to money laundering or terrorist financing, and all other legal entities with at least 50 employees must establish internal reporting channels. Since under-reporting of breaches of EU law could seriously harm enforcement of Union law, the EU perceives protecting whistleblowers critical to protect the public interest and the functioning of the EU internal market. In the absence of common minimum standards for whistleblower protection at the Union level, companies may face distortions of competition and barriers to trade due to breaches of Union law, which leads to an uneven playing field in the EU, and individuals who wish to expose illegal activities must fear reprisals.
What are the implications of the missed deadline for Dutch businesses? The EU Directive has a direct effect on Member States for certain companies. Government organisations must therefore already comply with the amended rules as of December 17, 2021. Additionally, private companies must follow the new rules as soon as the Dutch Implementation Act takes effect. Lastly, private organisations with 50 – 249 employees have the possibility to make use of a two-year transition period for setting up a reporting and investigation point within the organisation.
The European Union
- EU (Feedback on possible amendment of Blocking Statute) – On 17 December 2021, the results of the public consultation on the review of Council Regulation (EC) No 2271/96 (the “EU Blocking Statute”) were published. Since its adoption in 1996, the EU Blocking Statute aims to protect EU individuals and operators – irrespective of their size and business sector – against the effects of extra-territorial application of legislation adopted by a third country. The EU Blocking Statute currently aims to achieve these objectives by i) nullifying the effect of any foreign court judgement based on third country’s laws listed in its Annex (e.g. the ‘Iran Sanctions Act of 1996); and ii) providing EU economic operators the possibility to claim damages in court caused by the extraterritorial application of the listed legislation of a third country.
From 9 September until 4 November 2021, EU and non-EU citizens and stakeholders (e.g. companies, NGO’s) could express their views on the current Blocking Statute and on possible amendments. The results of this consultation include the following:
- First, respondents indicated that the extra-territorial application of third-country sanctions is particularly significant for the financial, transport and international trade sectors. Mainly because US extra-territorial laws put them in the position of choosing between carrying out a transaction subject to non-EU restrictions or risk losing access to the non-EU financial market.
- Second, respondents recognise as main comparative advantage for third countries to impose extraterritorial sanctions on the EU: i) a country’s strong political position; ii) the importance of a currency (e.g. the US dollar); and iii) its predominant position on a market (e.g. China’s solid position in technology markets). Many respondents also indicate that they believe the current blocking statute is defeating its purpose, because i) EU entrepreneurs often face conflicting obligations; ii) vagueness (e.g. scope of Blocking Statute); and iii) lack of proper implementation in practice.
- Third, the most popular measures respondents recommend adding to the blocking statute are: i) engaging with third countries imposing extraterritorial sanctions; ii) supplying guidance and legal support to EU operators embroiled in legal proceedings; and iii) offering financial compensation to operators operating in sanctioned countries.
- About amendments of the Blocking Statute, respondents further indicated that these measures should be taken in accordance with public international law and should be taken at a Union level. Lastly, respondents shared mixed views on who the target should be of counteracting measures. They recommend measures to target specific operators and certain industries, to avoid unintended implications for all EU operators.
- EU (Potential new EU sanctions against Myanmar) – On 30 December 2021, High Representative Josep Borrell announced the EU’s readiness to impose further sanctions against Myanmar following recent attacks on civilians. On 24 December 2021, the military regime of Myanmar killed more than 35 civilians and humanitarian workers in eastern Kayah state. In that region, pro-democracy rebels are fighting the military following Myanmar´s coup. The coup began on 1 February 2021, when the military took control of the country following elections won by Ms. Suu Kyi´s NLD party. According to Borrell, the event of 24 December 2021 underlines the ‘urgent need’ to hold the military and security forces accountable for these human right abuses. The current restrictive measures in place against Myanmar, based on Council Regulation (EU) No 401/2013, are effective until (at least) 30 April 2022. These measures target any natural or legal person, entity or body responsible for the internal repression in Myanmar. The current EU Myanmar sanctions regime includes an arms embargo, restrictions on the export of dual-use items, an asset freeze and the prohibition to supply technical or financial aid related to military activities or related to equipment which may be used for internal repression.
- EU (EBA alerts on the detrimental impact of unwarranted de-risking) – On 5 January 2022, the European Banking Authority (“EBA”) published its Opinion and Report on the scale and impact of de-risking in the EU. In the Opinion, the EBA describes de-risking as decisions taken by financial institutions not to provide services to customers in certain risk categories. According to EBA, de-risking can be a legitimate risk management tool, but it can also be a sign of an ineffective anti-money laundering and countering the financing of terrorism (“AML/CFT”) policy, with at times severe consequences. The EBA’s findings suggest that de-risking has a detrimental impact on the achievement of EU’s objectives, in relation to fighting financial crime effectively and promoting financial inclusion. After all, maintaining the integrity of financial systems and combating economic crime is made more difficult when customers affected by risk-retention measures meet their financial needs through alternative payment channels in the EU or elsewhere. Regarding the latter, the opinion highlights that providing access to at least basic financial products and services is a prerequisite for participation in modern economic and social life. Unwarranted de-risking can cause the unwanted financial exclusion of legitimate customers.
The EBA provides the European Commission, the Parliament and the Council with several suggestions to counter the negative effects of de-risking. Among others, the EBA calls on the European Commission to clarify the interaction between AML/CFT requirements and the right to open and use a payment account in the Payment Accounts Directive. In addition, the EBA recommends that the EU institutions use the upcoming review of the Payment Services Directive to ensure greater convergence in the way payment institutions access credit institutions’ payment account services. This Opinion complements the EBA’s AML/CFT risk factors guidelines and the guidelines on risk-based supervision, both of which were revised and published in 2021.
- EU Releases Minor Updates to Dual Use Goods list – On 6 January 2022, Regulation 2022/1 of 20 October 2021 entered into force. This regulation contains several amendments to the list of dual-use items as found in Annex I and II of the EU Dual -Use Regulation 2021/821. These relatively minor changes include an expanded definition of superalloy, the addition of a wider range of biological isolation equipment to the list of dual-use items and a series of editorial changes and language error corrections.
While these appear to be minor changes, it does reflect the commitment of the Commission to frequently update the list of dual-use items based on developments of other international obligations and from the various industries which the Dual-Use Regulation covers. This is the first update since the release of the Dual-Use Recast in September 2021. The full list of changes can be found here.
The United Kingdom
- UK has issued a total of £200,000 in fines for unlicenced exports in 2021 – On 11 January 2022, the UK HM Revenue & Customs department (“HMRC”) published a summary of all penalties that were issued in 2021 for breaches of the Export Control Order 2008 law. These penalties were given to a total of ten UK businesses who had exported dual-use or military goods without the appropriate license, and consequently had to pay fines ranging between £1,000 and £35,000.
The Export Control Order law requires UK business to obtain a license for specific goods which are, for example, designed for military purposes or dual-use goods which can be used for both civil and military purposes. These penalties show the need for companies which conduct international trade to verify that the goods that they sell are not subject to restrictions from their government, such as a license requirement.
- UK/Turkey (The UK lifts its suspension on licensing military exports to Turkey) – On 13 December 2021, the UK Export Control Joint Unit (”ECJU”) announced the lifting of the suspension on licencing military exports to Turkey. The suspension was imposed in October 2019 in relation to items that may be used in military operations in Syria following Turkey’s military action in the country’s North-East. The reversal of the suspension means that all existing and new export and trade licence applications for Turkey will now be assessed against the Strategic Export Licensing Criteria on a case-by-case basis. As such, companies can apply for military exports again. These criteria include, amongst others, that the application must have respect for the UK’s international obligations and relevant commitments, in particular sanctions adopted by the UN Security Council, agreements on non-proliferation and other subjects. Another criterion is that the country of final destination must have respect for human rights and fundamental freedoms as well as respect for international humanitarian law. Furthermore, the authorities will not grant a licence if the authorities find there is a clear risk that the items would, overall, undermine peace and security.
The United States
- US/Russia (Potential export controls on smartphones, aircraft and automobile parts) – On 21 December 2021, Reuters reported that the US is considering imposing “extraordinary” export control measures vis-a-vis Russia in case it would invade Ukraine. The measures that could be enacted are reportedly designed to disrupt the Russian economy, would the situation in Ukraine further aggravate. According to an anonymous official of the Biden administration, the contemplated export control measures would target Russia’s imports of smartphones, key aircraft, automobile parts, as well as imports from many other sectors. They could have a major impact on Russian consumers, industrial operations, and employment, the official said to Reuters. Tightening export controls is one of the measures that the US is considering in case the conflict between Russia and Ukraine will further escalate. As noted in our previous newsletter, US President Biden has also threatened to impose significant sanctions to deter Russia. This week, several rounds of negotiations will take place to find a peaceful solution to the rising tensions in the region. On 10 January, the US and Russia will be holding bilateral negotiations to discuss their concerns over Ukraine. On 12 January, discussions between Russia and NATO took place, which were followed by a – broader – round of negotiations including the US and certain EU member states the following day.
- US/Cuba (Airbnb settles with US Treasury Department over Cuba sanctions violations) – On 3 January 2022, the U.S. Treasury’s Office of Foreign Asset Control (“OFAC”) announced that it had reached a settlement with Airbnb Payments Inc. for USD 91,172.29 for apparent violations of the US sanctions regime against Cuba. From 2015 onwards, Airbnb offered services such as lodging and activities in Cuba. When Airbnb conducted a forensic review of its transactions involving Cuba as part of its compliance program, it found that it had provided services and made transactions in breach of the Cuban Assets Control Regulations. These violations include:
- failure to keep records of several transactions relating to services provided in Cuba in accordance with OFAC regulations;
- offering lodgings to guests who were traveling to Cuba for reasons which are not one of OFAC’s twelve authorised categories; and
- processing payments of 44 non-US persons who used Airbnb’s services in Cuba before OFAC granted Airbnb the specific license to do so.
In its calculation of the settlement amount, OFAC considered that Airbnb proactively started its forensic review and voluntarily reported its findings to OFAC. Furthermore, Airbnb proceeded to implement remedial measures and remained cooperative with OFAC. Even though Airbnb did undermine US foreign policy and that OFAC considers it a “large and sophisticated technology company”, the voluntary self-disclosure and cooperation of Airbnb resulted in a settlement amount well below the maximum civil monetary penalty allowed.
Around the Globe
- Australia (Sanctions regulation amended) – On 21 December 2021, the Australian Parliament enacted the “Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Act 2021”. The Australian Ministry for Foreign Affairs drafted this act as an amendment to its 2011 Autonomous Sanctions Regulations. Through this amendment, persons and entities can be placed on the list of sanctioned entities by the Minister for Foreign Affairs if they are involved in breaching certain specific human rights abuses: the right to life, the right not to be tortured and the right not to be subject to slavery. Beyond human rights violations, the amendment also allows persons and entities involved in the proliferation of weapons of mass destruction, the bringing about of a significant cyber incident or in serious corruption to be added to the sanctioned entities list. Those placed on this list may be subject to a travel ban and to financial sanctions.
This act is in line with several other initiatives throughout the world to adopt laws aimed at sanctioning specific individuals and entities, instead of entire countries, who are responsible for human rights abuses. Similar initiatives include the US Magnitsky act in 2016 and the EU Global Human Rights Sanctions Regime in 2020.
- Switzerland/Belarus (Further sanctions against Belarus) -On 22 December 2021, Switzerland added 17 people and eleven entities to its Belarus sanctions list. It concerns members of the Belarusian judiciary, high-ranking Belarusian officials and tour operators and hotels that contributed to the EU-Belarus border crisis. Among the entities added are Belavia Belarusian Airlines, State Production Association Belorusneft and Open Joint Stock Company Belshina. The EU previously sanctioned the same persons and entities, as part of a coordinated action with the US, the UK and Canada on 2 December 2021. While the measures which the EU and Switzerland have taken against these individuals and entities are similar, the EU has added more Belarussians to its sanctions list in the past compared to Switzerland. As a result, companies will need to carefully analyse how the sanctions may affect their business. As always, companies will need to ensure effective screening to identify and mitigate any direct or indirect dealings with the sanctioned parties (including, under EU, UK, and US sanctions, assessing any dealings with parties owned by designated parties and for the EU and UK, parties controlled by designated parties). Companies will also need to monitor for further developments as it is possible that more designations may be imposed at the proper time.
- Afghanistan (Security Council passes resolution to Encourage Humanitarian Aid to Afghanistan) – On 22 December 2021, The United Nations Security Council (“UNSC”) adopted resolution 2615, in which it decided that supplying humanitarian aid to Afghanistan is not in breach of sanctions against the Taliban regime. Since 2001, the UNSC has passed several resolutions which aim to restrict Taliban officials by freezing their assets, imposing a travel ban and prohibiting the provision of financial assets to the Taliban. Following the fall of the Islamic Republic of Afghanistan and the rise to power of the Taliban in August 2021, these resolutions have resulted in significant difficulties for humanitarian organisations, as distributing aid increasingly requires interaction with the new Taliban government and its officials. Humanitarian organisations risk breaching sanction restrictions when dealing with these officials, as many of them are placed on the UN sanctions list. Furthermore, financial institutions have tried to mitigate compliance risks from sanctions by delaying or refusing transactions to aid organisations active in Afghanistan.
In resolution 2615, the UNSC assures that providing financial assets, goods and services to those on the sanctions list is allowed and not in breach of other UNSC resolutions when it is necessary to ensure the prompt delivery of humanitarian aid. Through this resolution, the UNSC aims to mitigate a possible humanitarian disaster, as the Afghan economy is struggling, and millions of Afghans suffer from food insecurity as they head into the winter.
Over the past few months, other countries have already taken initiatives to encourage humanitarian aid despite sanctions. The US Treasury has provided new licenses which authorise organisations to provide humanitarian help, and the UK released guidelines for charity organisations on how to remain complaint with sanction restrictions when providing humanitarian aid, as was documented in an earlier edition of our newsletter.
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