February 24, 2024, marked the second anniversary of Russia's offensive against Ukraine. At the same time, the European Union (EU) adopted a new package of restrictive measures against Russia.

Restrictive measures¹, which currently target some twenty countries in addition to Russia, allow "the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries"² and the freezing of assets belonging to natural or legal persons³. They are defined in regulations adopted by the EU Council and are therefore directly applicable within Member States. However, despite their direct effect, it has to be said, as the European Commission has pointed out, that "In practice, very few individuals or legal persons responsible for the violation of Union restrictive measures are effectively held accountable (...) thus frustrating the objectives of those restrictive measures."⁴

To give full effect to the restrictive measures regularly adopted against Russia over the past two years, on December 12, 2023, the Council and the European Parliament reached a political agreement on a proposal for a Directive on "the definition of criminal offences and penalties for the violation of Union restrictive measures".

By harmonizing Member States' laws, this Directive would aim at strengthening the effectiveness of EU restrictive measures. Indeed, imposing penalties for violations of restrictive measures is the responsibility of Member States, which are not currently obliged to criminalize such violations.

In this context, it is relevant to consider the current state of French law on penalties for violations of EU restrictive measures and, accordingly, the possible developments in this area.

A current French legislative arsenal unsuitable to punish violations of EU restrictive measures

Existing legal grounds...

Under French law, violations of EU restrictive measures are punishable in two ways.

On the one hand, in administrative matters, for professionals subject to the anti-money laundering and combating the financing of terrorism (AML/CFT) regime⁵, their respective supervisory authorities are responsible for monitoring compliance with EU restrictive measures⁶, and may impose administrative penalties (which may amount to up to EUR 100 million and 10% of sales for certain legal entities). Individual managers responsible for any breaches may also be subject to disciplinary sanctions, including financial penalties⁷.

On the other hand, in criminal matters, the act of "contravening or attempting to contravene" EU restrictive measures is punishable under Article 459 of the French Customs Code, which provides for a five-year prison sentence, a fine equal to "at least the amount and at most twice the sum to which the offence relates"⁸, and additional penalties (confiscation of the object relating to the offence and confiscation of goods and assets which are the direct or indirect product of the offence).

... But unused or obsolete

However, despite the existence of these legal grounds, in practice, very few convictions for violations of EU restrictive measures have been handed down to date.

In administrative matters - which, given the penalties incurred, are considered to be of a criminal nature⁹ - the competent authorities, notably the French Prudential Supervision and Resolution Authority (ACPR) and the French National Sanctions Committee (Commission Nationale des Sanctions), frequently sanction breaches of compliance by persons subject to the AML/CTF rules. However, in practice, these authorities' control is limited to compliance with restrictive measures against named individuals (freezing of assets), whereas EU restrictive measures cover a much wider field, including exports of goods and services to sanctioned countries. In addition, large commercial companies outside the scope of AML-CTF rules are not subject to such controls.

In strictly criminal matters, prosecutions for violation of European restrictive measures by persons specifically targeted by these measures remain relatively rare¹⁰ and are mainly based on the offence of money laundering, which is more flexible than Article 459 of the French Customs Code¹¹. Above all, to our knowledge, French courts have never handed down a conviction against a financial institution or a commercial company - on which the effectiveness of the restrictive measures is largely based. In this context, we can therefore only speculate as to the reasons behind this lack of criminal response: the customs nature of the offence, the complexity of investigations in a mainly financial field, the absence of a proactive criminal policy in this area, etc. Unless, of course, all operators strictly comply with the EU's restrictive measures...

In this respect, it should be noted that in 2006, a bill¹² aimed at adding to the French Criminal Code an offence of violation of embargoes and restrictive measures. According to the report of French National Assembly's Committee on Foreign Affairs¹³ which reviewed this bill, the legal provisions in force at the time were incomplete, as they did not cover "indirect violations, in which a national company deliberately uses a foreign third party to circumvent an embargo or sanctions regime". Moreover, the report stated that "at present, Article 458 of the French Customs Code reserves to the French Minister of Economics and Finance the right to initiate proceedings for 'infringements of the laws and regulations governing financial relations with foreign countries' provided for in the Code [such as Article 459]. In addition, "customs offences" or "breaches of legislation and regulations relating to financial relations with foreign countries" provided for by this code may be settled by means of a transaction pursuant to its Article 350. Companies generally prefer this more discreet solution". To date, however, there has been no follow up to this bill.

Since then, there has been no development, whereas the national prosecuting authorities themselves concede the ineffectiveness of the French criminal law response, noting that "France has no legislation for the criminal prosecution of embargo violations. We are left with a completely outdated customs offence"¹⁴.

According to the European Commission, this ineffectiveness, which is observed in most Member States, cannot meet the major challenge of ensuring the political credibility of the EU's restrictive measures, particularly with regard to the situation in Ukraine. Yet, in view of the latter's length, a reform has become inevitable.

The inevitable enactment of ad hoc repressive standards to punish violations of EU restrictive measures

A late but ambitious European Directive proposal

Admittedly, it is better late than never. Nevertheless, it is regrettable that the EU waited until late 2022¹⁵ to give itself the power to adopt rules of a criminal nature for violations of the restrictive measures it lays down, whereas such restrictive measures existed long before the outbreak of the Ukrainian conflict.

However, it is fair to say that the European Directive proposal¹⁶ sets out ambitious minimum rules for the definition of criminal offences related to the violation of EU restrictive measures (freezing of assets, sectoral economic and financial measures, embargoes), as well as the applicable penalties. Although the adoption of a definitive text and its transposition into Member States law will probably require a further one to two years, a study of the proposal in its current state nevertheless enables to foresee its possible impact on repressive standards in French law.

In this respect, Member States’ latitude in the transposition of this Directive should be relatively limited, since the proposal precisely defines the acts that would constitute an offence. These include violating the restrictive measures (making funds available or refraining from freezing the funds of a targeted person, carrying out prohibited commercial transactions or providing financial services in connection with such transactions), even if these acts are committed with serious negligence, which could give rise to an unintentional criminal offence. Circumventing EU restrictive measures would also constitute a criminal offence (e.g., concealing funds that should be frozen, or failing to declare frozen funds to the competent authorities).

In light of this proposal and the current state of French law, it would appear that Article 459 of the French Customs Code does not precisely cover the various types of behaviour targeted - in line with the requirement for strict interpretation of criminal law - particularly as regards the notion of serious negligence and the definition of acts of circumvention.

The Directive proposal also sets out the precise criminal penalties that would apply, including a maximum penalty of at least five years' imprisonment for most offences involving funds worth at least EUR100,000, and additional penalties including fines (the amount of which is currently unspecified). On this point, however, it should be noted that the penalties provided for in Article 459 of the French Customs Code are already more severe, since they do not include a threshold for the value of the funds concerned.

Moreover, the proposal adds that Member States should provide for the liability (the nature of which is not specified) of legal entities in the event of infringement of restrictive measures, notably in the event of "lack of supervision or control" on the part of their directors. Fines should be provided for, with a maximum amount not below certain thresholds (5% of the legal entity's sales in most cases). Under French law, the administrative penalties provided for only partly meet these requirements, as they only cover companies subject to the AML-CTF rules.

Anticipating a possible extension of the scope of the Judicial public interest agreement (CJIP) to violations of EU restrictive measures

Given the enduring nature of the conflict in Ukraine, and the risk of proliferation of similar conflicts (which unfortunately cannot be ignored), it is difficult not to endorse the objective of effective restrictive measures which underpins the EU Directive proposal.

In this logic, it would not be surprising if, without even waiting for the adoption of a Directive and its transposition into national law, the French executive were to seek to strengthen the legislative arsenal to punish violations of EU restrictive measures.

In this respect, it should be noted that Article 459 of the French Customs Code was the subject of a priority preliminary ruling on the issue of constitutionality (QPC) referred to the French Supreme Court (Cour de cassation) on December 21, 2023¹⁷. On March 13, 2024,¹⁸ this QPC was partially transmitted to the French Constitutional Council (Conseil Constitutionnel). It is nevertheless very unlikely that this will revolutionize the law in force since the only question remaining after the French Supreme Court’s filter relates to the automaticity of the ancillary penalty attached to Article 459 §4. That being said, this QPC can be seen as another clue of the fact that the French legislative arsenal to combat violations of EU restrictive measures may need to be reassessed, sooner rather than later.

In this context, given the difficulties that investigations into violations of these measures would face, in particular because of their international dimension, it cannot be excluded that, while rewriting the legal provisions in force, the executive would favour the use of the Judicial public interest agreement (CJIP) and broaden its material scope.

On the one hand, it could be argued that this extension would be consistent with one of the primary objectives of the CJIP, which is to enhance the effectiveness and celerity of the criminal justice response to large-scale economic offences.¹⁹

In this respect, offences relating to EU restrictive measures, which generally involve complex and potentially large-scale economic schemes, and in which financial institutions are likely to be involved, that are otherwise required to set up a compliance system, would fit particularly well into this system. This feeling is further reinforced by the Directive proposal, which itself emphasizes the liability of legal entities in the event of a lack of supervision or control.

On the other hand, this enlargement could be seen as a reinforcement of France's judicial and economic sovereignty, since it would demonstrate its ability to effectively prosecute the offences concerned, where appropriate with the cooperation of companies.

Indeed, patterns of violation and circumvention of restrictive measures are international by nature. Yet, recent history shows that European economic operators are mainly targeted by the extraterritorial application of US law, while violations of EU restrictive measures are rarely punished. With respect to the political and financial stakes involved in the Russian-Ukrainian conflict, and in the absence of a criminal law response at EU or French level, there is a reason to fear that the imposition of penalties for the violation of restrictive measures against Russia will be effectively ensured by the American prosecution authorities alone.²⁰

Thus, any prolonged legislative wait-and-see attitude could put French economic operators in the same situation as fifteen years ago, as the Gauvain report²¹ already outlined in 2019: "five years ago, a major French bank was fined $9 billion for transactions with Iran, Sudan and Cuba: we shudder to think what sanctions could be incurred by European companies for transactions of a necessarily different volume with Russia".

In this context, it is possible that the French executive, in view of companies' growing appetence for negotiated solutions, may decide to include offences relating to the violation of EU restrictive measures within the material scope of the CJIP. This would enable the Public Prosecutor's Office (probably the National Financial Prosecutor's Office (PNF), given the specific nature of the matter) to coordinate its action with foreign prosecution authorities (DOJ in the USA, SFO in the UK)²² by acting, as they regularly do, by means of negotiated justice. This is notably the case with the DOJ's National Security Division, which is responsible for prosecuting violations of US restrictive measures, and which, under certain conditions, offers companies that have fully cooperated to negotiate the terms of NPAs or DPAs²³.

In the current geopolitical context, and in the face of an inevitable reform whose outline has yet to be defined, companies must, more than ever, ensure that restrictive measures are strictly complied with, given the risks involved. This is absolutely true for companies subject to the AML/CTF rules, whose competent authorities can already initiate disciplinary proceedings on the basis of Articles L. 531-36 et seq. of the French Monetary and Financial Code, in the event of violation of EU restrictive measures.

Authored by Jean-Pierre Picca, Arthur Merle-Beral, and Hélène Luciani.
 

References

1 Based on Articles 29 TEU and 215 TFEU.

2 TFEU - Part Five: The Union's external action - Title IV: Restrictive measures - Article 215.

3 Ibid.

4 Proposal for a Directive of the European Parliament and of the Council on the definition of criminal offences and penalties for the violation of Union restrictive measures, COM/2022/684, explanatory memorandum.

5 List defined in Article L. 561-2 of the French Monetary and Financial Code.

6 In accordance with Articles L. 531-36 et seq. of the French Monetary and Financial Code.

7 Financial penalties up to EUR 5 million for professionals supervised by the French Prudential Supervision and Resolution Authority (ACPR) (Article L. 561-36-1 of the French Monetary and Financial Code) and EUR 15 million for those supervised by the French Financial Market Authority (AMF) (Article L. 621-15 of the French Monetary and Financial Code).

8 According to Article 131-38 of the French Criminal Code, "the maximum fine applicable to legal entities is equal to five times the fine set for natural persons by the law that punishes the offence". Although the lower courts have already ruled that, in the case of fines set on a proportional basis, this provision should be applied to determine the amount of the fine incurred by legal entities (Paris Civil Court (TGI Paris), February 20, 2019, no. 11055092033), this point has not yet been definitively settled by case law and doctrine. To date, therefore, the application of the fines provided for in Article 459 of the French Customs Code to legal entities has not yet been determined.

9 In accordance with case-law based on Article 6 of the ECHR.

10 Case law on the seizure of assets subject to asset freezing refers in some cases to criminal prosecutions (e.g., Douai Court of Appeal, 1^st Chamber, 1^st Section, December 15, 2022, no. 22/03457), which do not appear to have resulted in convictions at this stage.

11 Les sanctions européennes contre la Russie : le tour d'écrou pénal, Raphaële Parizot, RTD Eur. 2023 p.351.

12 Bill relating to the violation of embargoes and other restrictive measures" submitted to the French Senate on February 21, 2006.

13 Report made on behalf of the Committee of the Foreign Affairs on the bill relating to the violation of embargoes and other restrictive measures (first reading), submitted on January 20, 2016.

14 Parliamentary committee of inquiry into political, economic, and financial interference by foreign powers - States, organisations, companies, interest groups, private individuals - aimed at influencing or corrupting opinion leaders, leaders or French political parties - Report No. 11 (9 February 2023), speech by Mr Jérôme Simon, First Deputy Financial Prosecutor, page 9.

15 Council Decision (EU) 2022/2332 of 28 November 2022 on identifying the violation of Union restrictive measures as an area of crime that meets the criteria specified in Article 83(1) of the Treaty on the Functioning of the European Union.

16 Proposal for a Directive of the European Parliament and of the Council on the definition of criminal offences and penalties for the violation of Union restrictive measures, COM/2022/684.

17 Rouen Criminal Court (Tribunal correctionnel de Rouen), December 21, 2023, No. 2326/23, "Navire Baltic Leader". This QPC was based on the principles that criminal offences and penalties must be defined by law, necessary and proportional, raising in particular the lack of clarity and precision of the incrimination law and its regulatory origin.

18 Criminal Chamber of the French Supreme Court (Cour de cassation), March 13, 2024, n° 23-90.027.

19 Guidelines on the implementation of the Judicial public interest agreement (CJIP), National Financial Prosecutor's Office (PNF), January 16, 2023.

20 With regard to similar restrictive measures taken by the EU and the United States.

21 Restore the sovereignty of France and Europe and protect our companies from extraterritorial laws and measures, Report commissioned by French Prime Minister Édouard Philippe, issued by Raphaël Gauvain, June 26, 2019.

22 Guidelines on the implementation of the Judicial public interest agreement (CJIP), National Financial Prosecutor's Office (PNF), January 16, 2023.

23 Non prosecution agreements and Deferred prosecution agreements, see : Export control and sanctions enforcement policy for business organizations, DOJ - NSD, December 13, 2019.