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Criminal Liability under Cyprus Law for the Infringement of EU Restrictive Measures

On 31 July 2014, the European Union (EU) adopted a package of restrictive measures targeting sectorial cooperation and exchanges with the Russian Federation. The package consists of measures aimed at limiting access to EU capital markets for Russian State-owned financial institutions, an embargo on trade in arms, an export ban for dual-use goods for military end use and end users, and restrictions on access to certain sensitive technologies, particularly in the oil sector. The main EU Regulation is 833/2014 of 31 July 2014 concerns restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine, as amended (the “Regulation”). The Regulation has, inter alia, applied restrictions on access to the capital markets for certain financial institutions and other entities (the “Listed Entities”), which are listed in the annexes to the Regulation.

The Regulation applies within the territory of the EU or to any EU nationals, whether inside or outside EU territory, and covers any legal person or entity incorporated under the laws of any member state and also any legal person in respect of any business done within the EU. Such persons or entities are not allowed to provide investment services to Listed Entities. The term “investment services” has been defined broadly as to include the reception and transmission of orders in relation to one or more financial instruments, execution of orders on behalf of clients, dealing on own account, portfolio management, investment advice, underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and any service in relation to the admission to trading on a regulated market or trading on a multilateral trading facility. It is suggested that the use of broad definitions in the Regulation is deliberate and is intended to apply to a wide range of activities. The definitions of transferable securities and money-market instruments are also broadly drafted, as the EU aims to ensure that the relevant sanctions have an extensive effect.

The restrictive measures imposed by the Regulation do not themselves create criminal offences but it is for the member states to create criminal offences while implementing the relevant sanctions in their domestic legal systems. The Regulation provides that member states shall lay down the rules on penalties applicable to infringements of the provisions of the Regulation and shall take all measures necessary to ensure that they are implemented. In April 2016, the Republic of Cyprus enacted the Law concerning the Application of the Provisions of the Resolutions or the Decisions of the UN Security Council (Sanctions) and the Decisions and Regulations of the Council of the European Union (Restrictive Measures) (the “Sanctions Law”) under which Cyprus has introduced specific measures and penalties for the breach and/or non-compliance with the Regulation and any sanctions approved by the executive or legislative bodies of the EU.

Pursuant to the Sanctions Law, the competent authorities, as those are defined by Article 59 of the Prevention and Suppression of Money Laundering Activities Law (2007-2016), are those responsible for monitoring and supervising in their respective area of responsibility.

The Sanctions Law provides that the penalties for breach of the sanctions or the restrictive measures of the EU are imprisonment not exceeding two years or a fine not exceeding €100,000 or both for natural persons and a monetary fine not exceeding €300,000 for legal entities.

EU regulations are in their entirety part of the acquis and are binding and of immediate application in the internal legal order of the EU member states. Therefore, the possible criminal liability for infringement of the restrictive measures prior to the enactment of the Sanctions Law must also be examined. It is commonly argued that any breaches of the restrictive measures prior to April 2016 constituted criminal offences under section 136 (disobedience of law) and 137 (disobedience of legal orders) of the Cyprus Criminal Code. The penalties under section 136 are up to two years of imprisonment and/or a maximum of €2,563 fine, while section 137 provides for imprisonment of two years, unless otherwise expressly provided.

It is important to note that no cases have been prosecuted for possible breach of the EU restrictive measures in Cyprus so far. It is also worth noting that the Regulation provides that actions by natural or legal persons shall not give rise to liability of any kind on their part, if they did not know, and had no reasonable cause to suspect, that their actions would infringe the measures set out in the Regulation.

The Ministry of Foreign Affairs has underlined that it is the responsibility of every EU citizen to verify and ensure that their activities do not infringe and/ or circumvent the EU restrictive measures. CFA members are advised to remain updated with the latest developments on this matter and perform rigorous checks on their clients to ensure that all services offered by them are in compliance with the applicable laws and the Regulation. Also, the relevant checks should be undertaken to establish that their clients, or affiliated or controlled entities thereof, are not sanctioned or Listed Entities.

Authors:

Stella Strati
Limited Partner – Corporate Finance, Pageserve Ltd
President of the Legal & Corporate Affairs Committee

Stylianos Trillides
Legal Consultant, Pageserve Ltd