Blog Series: Sanctions Enforcement Around the World, the Belgian Perspective

This week in our Sanctions Enforcement Around the World series, we bring you the view from Belgium.

1. What are the recent sanctions enforcement trends in Belgium?

Before Russia took the decision to recognise the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine and to send troops into the region, a limited number of judicial proceedings related to violations of Union restrictive measures were reported.

With the introduction of the first package of sanctions against Russia in February 2022, in view of its actions destabilising the situation in Ukraine, it seems that we are entering into a new era where individuals or legal persons responsible for violations are increasingly being held accountable, including in Belgium.

In that perspective, the Belgian Minister of Finances reported on 24 February 2023 that, one year after the entry into force of the first package of sanctions against Russia, the Belgian Treasury and Customs Administrations intensively steered towards a strict application of restrictive measures. This translated into the following key enforcement actions:

1. EUR 58 billion of Russian assets have been frozen;
2. EUR 191 billion of Russian financial transactions were blocked;
3. 1,789 Russian companies or nationals listed in Annex I to Regulation (EU) No 269/2014 were concerned;
4. 91,020 customs declarations were checked;
5. 7,925 containers were physically checked;
6. Additional information was requested on 28,890 containers; and
7. 19 reports relating to import and export offenses have been transmitted to the public prosecutor’s office and 15 others were being prepared.

While the nature of the violations that have been reported so far is unknown, we expect an increasing number of judicial proceedings, which will subsequently fuel the jurisprudence on these matters in Belgium and increase public understanding about the way these violations are sentenced.

Overall, this is expected to strengthen operators’ legal certainty about the concrete consequences of their actions and about the mitigating factors that are taken into consideration. 

2. What are the maximum penalties for violations?

Not complying with obligations under the EU Sanctions Regulations constitutes a criminal offence under Article 6 of the Belgian Act of 13 May 2003 on the implementation of restrictive measures taken by the Council of the European Union against States, certain persons and entities. For natural persons, this offence is punishable by 8 days to 5 years imprisonment and with a fine of up to EUR 200,000. For legal persons, this offence is punishable with a fine up to EUR 960,000. In case of a repeated offence, the sanctions could potentially be higher.

Alternatively, apart from criminal sanctions, the Belgian Act of 13 May 2003 on the implementation of restrictive measures taken by the Council of the European Union against States, certain persons and entities furthermore provides that not complying with the EU Sanctions Regulations can also be punished by administrative fines up to EUR 2,500,000.

3. Is there a mechanism by which countries can submit a voluntary self-disclosure of possible violations to mitigate penalties?

In Belgium, there is no mechanism by which persons who have committed violations of Union restrictive measures can formally submit a voluntary self-disclosure, as a result of which penalties are mitigated by virtue of law. In practice, however, voluntary self-disclosures are submitted and may informally serve as a mitigating factor.

The Belgian Act of 13 May 2003 on the implementation of restrictive measures taken by the Council of the European Union against States, certain persons and entities provides that, on the one hand, the provisions of Book I of the Penal Code apply to infringements of Union restrictive measures. This means that Belgian judges are allowed, pursuant to Article 85, to take extenuating circumstances into consideration to mitigate imprisonment and monetary penalties.

On the other hand, this Act provides that its provisions shall not prejudice the application of the Belgian Act of 11 September 1962 on the export, the import and the transit of goods. This concretely means that infringements to the implementing acts adopted on that basis are sentenced in line with Articles 231, 249 to 253 and 263 to 284 of the Belgian Act of 18 July 1977 on customs and excises.  In that perspective, Article 263 of that Act provides for the possibility for customs authorities to conclude arrangements with offenders where such persons are able to demonstrate extenuating circumstances and that violations were unintentional. 

4. Do you anticipate increased coordination on enforcement matters with allies?

In anticipation of the upcoming actions, the European Union is willing to undertake to prevent circumvention of EU’s restrictive measures through third countries acting as platforms for reexport to Russia. We have noticed increased controls from Belgian customs authority on that matter, either at its own initiative or upon request of the European Commission (DG TAXUD). Indeed, in an effort to better grasp – intentional or not – diversion (or circumvention) scenarios, several companies informed us about being requested to share transactional data relating to their export and import flows as well as evidences that they did not merely accept the possibility of diversion.

The more companies are aware of the restrictions applying to the direct provision of sanctioned goods or services in Russia, the more the focus of investigations by public authorities is shifting to the indirect provision of such goods and services in Russia and hence on the risks of diversion or circumvention. Improving the effectiveness of the existing measures is expected to be the cornerstone of sanctions enforcement in the coming months.

Improving the sanctions’ effectiveness presupposes that public authorities are able to identify circumvention scenarios and to adopt measures to prevent them. Therefore, achieving that objective implies increased coordination efforts at both national and at intergovernmental levels among the concerned public and private actors.

A top-down approach to enforcement

At this stage, public authorities adopt a top-down position to approach that mapping through investigations – where customs officers play a key role as guardians of the borders – and rely on the results of these audits to fix priorities and decide on mitigating actions. These investigations are targeted taking into account a risk analysis based on evidences, which have been gathered so far as a result of information-exchange, notably, with G7 countries and among EU’s Member States.

At the European Union’s level, DG TAXUD plays a key role in that process by flagging suspicious trade routes, which are suspected of being used to indirectly deliver sanctioned goods to Russia, and by subsequently requesting local customs authorities to conduct detailed assessments.

We note that a department within the Belgian customs administration is responsible for non-tariff measures. It acts as an intermediary between customs officers in charge of border controls and other governmental agencies, which have been identified as competent authorities for the purposes of implementing, for example, EU’s restrictive measures. Our recent experiences revealed an increased involvement of that unit, which seems to play a growing internal advisory role as it relates to the enforcement of restrictive measures at the Belgian border.

Overall, that top-down approach is strongly linked with enforcement, which means that where economic operators violated EU’s restrictive measures, even unintentionally, national penalties for such infringements will apply. However, the more suspicious trade routes are being investigated, the more new circumvention strategies will appear. Improving the Union restrictive measures’ effectiveness must also therefore (and mostly) rely on information exchanged by economic operators.

Towards a bottom-up approach to enforcement

With adequate guidance from the European Commission, and taking into account their market’s knowledge, economic operators would be in position to better flag suspicious movements and report them to the European Commission either directly or indirectly (through the national competent authority). This information would then be disseminated across the European Union, and with G7 countries to further improve the sanctions’ effectiveness and hence steer towards achieving the EU’s foreign policy goals faster.

Adopting such bottom-up approach to allow EU economic operators to support public authorities to improve the effectiveness of EU’s restrictive measures implies that a favourable and predictable legal environment is available to protect them against legal pursuits – or to provide for mitigating penalties – in case of unintentional infringements and voluntary disclosures. As mentioned above, no voluntary self-disclosure mechanism is available in Belgium or at the EU-level. However, this would provide economic operators with incentives to strengthen their collaboration and their contribution to achieve EU’s objectives. 

5. What is one thing that you would recommend companies do now to get ready for increased enforcement?

Considering that the improvement of the Union restrictive measures’ effectiveness is expected to be the cornerstone of sanctions’ enforcement in the coming months, we would recommend economic operators to anticipate any upcoming controls by the authorities around the risks of diversion or circumvention.

In a nutshell, these controls are driven by data analytics, and hence rely on concepts derived from the customs legislation, including customs classification and non-preferential origin.

National customs authorities, as well as DG TAXUD, investigate trade flows between third countries and EU’s Member States to identify suspicious increases in trade volumes. Where abnormal flows are detected, the authorities go one step further by investigating whether such movements can be linked to increased trade volumes between third countries and Russia. If these doubts are substantiated, economic operators are invited to provide detailed information about the suspected movements and share the concrete processes they have put in place to mitigate the risk of diversion.

By engaging in actions to mitigate the risk of diversion, economic operators limit their likelihood of being held responsible for the indirect provision of sanctioned items to Russia and for engaging in activities the object or effect of which is to circumvent the restrictive measures the European Union adopted against Russia.

On the topic of “circumvention”, the consolidated FAQ issued by the European Commission on the implementation of Council Regulation No 833/2014 and Council Regulation No 269/2014 provides insights about how this prohibition is being determined in practice. It stresses that the threshold is “acting with knowledge and intent to circumvent a prohibition included in the Regulations.” In that context, the cumulative requirements of knowledge and intent”are met where the operator deliberately seeks that object or effect or is at least aware that its participation may have that object or that effect and accepts that possibility.” Not having the proper internal controls in place can therefore be perceived as a proof that economic operators accept the possibility of circumventing EU’s restrictive measures.

To engage in that journey, we would recommend the following very concrete actions:

1. First, secure the classification and origin of the products you import/export. These International Trade pillars constitute the basis on which restrictive measures are imposed. Not securing the proper classification or origin of a product could trigger the (non-) application of measures relating to EU customs tariff and commercial legislation, which will subsequently – in addition to the company’s conformity with the applicable rules – impact: (i) the duty burden, (ii) the relevance of import/export authorisation/licensing requirements; and (iii) the pertinence of import/export prohibitions.

2. Second, assess current trade volumes against the company’s trade flows’ history before 24 February 2022. Orders coming from new customers – especially distributors – shall be carefully assessed, especially if they are located in countries part of the Eurasian Economic Union, or in any other countries that did not position itself against Russia’s actions destabilising the situation in Ukraine.

3. Third, develop internal controls to consistently check transactions against the risks of diversion or circumvention. In that perspective,

• Section 3.5 of the AEO self-assessment questionnaire can be considered as a starting point (especially 3.5.4 and 3.5.5).
• The consolidated FAQ on the implementation of Regulation 833/2014 and Regulation 269/2014 provides examples of due diligence procedures to mitigate the risk of diversion – such as “contractual clauses with […] third-country business partners giving rise to liability in case the latter re-export the items to Russia, as well as ex post verifications.“
• End-user Certificates are considered as an “important element in establishing effective end-user controls and minimising the risk of undesirable diversion.” (see Recital 16 of Council Decision (SFSP) 2021/38). In that perspective, the legalisation of an EUC by a local embassy would contribute to resolve any doubts of customs authorities about the reliability of the end-user.

4. Fourth, engage and collaborate with the authorities either spontaneously, by sharing diversion scenarios that have been flagged as a result of the company’s due-diligence, or in the course of investigations.