Following the situation in Ukraine, the use of the sanctions instrument has increased significantly in recent years. During this period, a perception has emerged that effective compliance and enforcement of the ‘Russia sanctions’ has been lagging due to implementation bottlenecks. To implement sanctions effectively in the future, the Dutch sanctions regime needs to be modernised and the Sanctions Act 1977 needs to be revised. In the proposed International Sanctions Act, we identify a wish to expand enforcement and intervention options, and to make it easier to comply with sanctions regulations. Below, we will briefly reflect on these key elements.
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1. Expanded enforcement and intervention modalities
The International Sanctions Acts proposes expanded enforcement modalities that, in part, shift the onus of sanction legislation enforcement from criminal to administrative law, and provide more means for the authorities to intervene in a company’s governance.
Administrative enforcement
Under the current Dutch sanction regime, sanction violations can only be sanctioned through Dutch criminal law (a violation of sanctions regulations is an economic offence within the meaning of the Economic Offences Act, Wet op de Economische Delicten). According to the cabinet, administrative enforcement and sanctioning may be more suitable when it comes to violations involving administrative standards (such as, for example, reporting obligations) or violations considered less severe. For these violations, the International Sanctions Act introduces enforcement and sanctioning through administrative law by means of a designation decision (aanwijzingsbeschikking), an order subject to a penalty (last onder dwangsom) or a maximum fine of, at the moment, EUR 1,030,000. This will allow criminal law to be applied in case of a serious violation and as ultimum remedium.In addition, the International Sanctions Act seeks to bring civil-law notaries, (registered) (forensic) accountants and tax advisors, and lawyers under the scope of the supervision on business operations. These legal professions must also ensure that they take steps in their AO/IC (e.g. by implementing measures to ensure compliance with sanctions regulations with regard to their internal control structure). This relies on having adequate policies that outline various guidelines, procedures, and measures through which the institution ensures compliance with sanctions regulations. This includes e.g. checking whether a customer’s identity matches an individual or entity referred to in sanctions regulations and immediately notifying the supervisory authority of any matches. Moreover, sanctions regulations, including EU sanctions, encompass complex matters. Therefore, it is essential to train employees and policymakers at institutions who are responsible for compliance with sanctions regulations.
It can be expected that the introduction of administrative enforcement and the expansion of supervision to legal professionals will lead to an increase of sanction enforcement, either through administrative or criminal law procedures. The cabinet leaves it to the administrative authorities (e.g. DNB, AFM) and the Dutch Public Prosecution Service to coordinate their fining and prosecution policies. Consequently, we will have to wait and see how this balance will eventually play out in practice.
Introduction of the undisclosed administrator
The International Sanctions Act also enables the competent Minister to appoint an undisclosed administrator (stille bewindvoerder) to companies that are affected by sanctions imposed on their owner. This undisclosed administrator can issue instructions to ensure the effectiveness of sanctions, while simultaneously minimising its negative public effects (for example, by ordering the creation of a “firewall” between the company and its sanctioned owner). Because of this focus on the negative public effects, a undisclosed administrator may only be appointed if a broader public interest is at stake. Even farther-reaching is the introduced ability for the Minister to replace the board or leadership of a company in the event of severe non-compliance with sanctions legislation or an increased risk of sanctions circumvention.Dutch criminal law already provides for the possibility to appoint a temporary administrator to a company, albeit by a court following a conviction. This measure is seldomly imposed. Considering the proposed thresholds for appointing an undisclosed administrator or replacing the board or leadership of a company, we wonder how many times these measures will actually be taken in practice.
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2. Sanctions compliance
The proposed International Sanctions Act also aims to help navigate the sanctions compliance landscape.
Sanctions record keeping
Currently, the Dutch trade register (Handelsregister), patent register (Octrooiregister) and land register (Kadaster) may include a note that entities (or registered properties) are sanctioned pursuant to Regulation (EU) 269/2014 (regarding Russia) and Regulation (EU) 765/2006 (regarding Belarus). The International Sanctions Act aims to expand this option to all sanction regimes and to include more public registers, such as the UBO register for trusts.We note that, although helpful, this will only be a tool. The registers do not exempt a company from complying with sanctions laws and regulations and conducting its own investigations. Ultimately, it is up to the company to determine whether sanctions apply and if so, what the consequences are for its activities or services. It can, however, be advised to incorporate the public registers in a company’s ‘sanctions policy’, because a ‘sanctions check’ that did not consult the public registers may be considered insufficient.
Central register
The International Sanctions Act also introduces a central registration centre for sanction compliance to receive, register, check and analyse (in principle) all sanctions-related reports. Considering the wide array of sanction reporting obligations and the possible consequences of a faulty or false positive report, we welcome a central registration centre, as it will relieve some of the burden accompanied with making a report. However, we note that exceptions may still apply. For example, reports on import and export must still be made with the Central Import and Export Service (Centrale Dienst In- en Uitvoer) of the Dutch Customs (Douane). A thorough review will still be required of whether a report should, in fact, be made with the central registration centre for sanction compliance or elsewhere.
Preparations for the International Sanctions Act
Although not yet officially adopted, the International Sanctions Act may be amended during the still ongoing legislative process. These measures indicate a significant strengthening of the Dutch sanctions regime. For effective compliance and enforcement of sanctions measures, the government is committed to an expansion of sanctions supervision through administrative law and if necessary to intervene in a company’s governance. At NautaDutilh, we will monitor any developments closely to remain well versed in sanctions legislation, as well as administrative and criminal law procedures. If you have any questions about these new standards and the consequences for implementation in your current or future business, do not hesitate to contact us.