The Evolution of Secondary Sanctions: A Shift in EU and UK Policies
As a customs, export control, and sanctions professional with over 20 years of experience, I’ve always maintained that the United States was the only jurisdiction in the world to impose formal secondary sanctions—those sanctions targeting third parties (non-US persons) for engaging in prohibited activities with sanctioned entities or countries. But this landscape is shifting, and I wanted to take this opportunity to share with you how the EU and UK have started to follow suit.
In this blog, I will discuss recent developments that have dramatically altered the way we understand secondary sanctions. I'll break down the EU and UK regulations amendments that effectively blur the lines between primary and secondary sanctions, giving non-EU and non-UK entities a lot more to consider when dealing with Russia. As an expert in this field, I’ll walk you through the intricate details of how these sanctions are evolving and what they mean for your compliance strategy moving forward.
The June and July 2024 Amendments: A Game-Changer
On June 24, 2024, the EU made significant amendments to its sanctions framework via Council Regulation (EU) 2024/1745, which updated Council Regulation (EU) No. 833/2014. Meanwhile, on July 31, the UK followed suit with changes under the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2024, which updated its Russia (Sanctions) (EU Exit) Regulations 2019. These amendments have fundamentally changed the way secondary sanctions operate in these jurisdictions.
In my earlier analysis, I noted that while the US was the only country to impose formal secondary sanctions, the EU and UK were still relying solely on primary sanctions, targeting only those entities within their own borders. This analysis is now outdated. Both the EU and the UK have introduced de jure (formal) and de facto (informal) secondary sanctions, although they might not be as overt about it as the US. For instance, the UK’s formal stance has shifted without necessarily acknowledging the extent of this change. In contrast, the EU continues to claim that its sanctions have no extraterritorial reach—something I now find highly debatable based on the recent amendments.
Understanding Secondary Sanctions: The US, EU, and UK Approach
Let’s start by taking a closer look at how the US handles secondary sanctions, and then we’ll dive into the emerging EU and UK approaches. The US has long been the global leader in secondary sanctions enforcement, particularly through provisions in various Executive Orders and legislative frameworks like the Countering America's Adversaries Through Sanctions Act (CAATSA). These sanctions allow the US to target non-US persons for specific actions that violate US sanctions or involve sanctioned entities.
US Primary Sanctions: Extension to Non-US Persons
Under US primary sanctions, non-US persons can be held liable if they cause US persons—whether financial institutions or exporters of dual-use goods—to violate US sanctions. This also applies to actions that aim to evade or avoid a US sanctions violation, including violations of export control restrictions.
For non-US professionals working in industries that have any US nexus, this is crucial. The liability here can be indirect, meaning even without directly violating sanctions yourself, you could be held responsible for facilitating or enabling US persons to do so.
US Secondary Sanctions: Russia-Specific Provisions
When it comes to Russia, the US secondary sanctions landscape is particularly complex. Under CAATSA, for instance, non-US persons may face penalties for “materially violating, attempting to violate, or conspiring to violate” US sanctions on Russia. This could involve facilitating significant transactions with individuals or entities on the Specially Designated Nationals (SDN) or Sectoral Sanctions Identification (SSI) lists, or engaging in business with Russia’s defense and intelligence sectors.
In addition, under Executive Order 14114, foreign financial institutions (FIs) are at risk of secondary sanctions if they conduct significant transactions with entities supporting Russia’s military-industrial complex or persons designated under EO 14024.
What does this mean for professionals? If you or your clients are operating in sectors even remotely connected to Russia’s defense industry, financial services, or sanctioned entities, the stakes are incredibly high. You could face severe penalties without ever having a direct US business interest.
The EU’s Shifting Stance: De Facto Secondary Sanctions?
For years, the EU has maintained that its sanctions policies are strictly territorial. The European Commission has gone so far as to include a question in its 14th Russia sanctions package FAQs that specifically states, "Is the Council extending the reach of sanctions beyond EU territory?" Their answer, of course, is "no." However, the text of Article 5ad of Council Regulation (EU) No. 833/2014 suggests otherwise.
This provision prohibits EU persons from engaging with non-EU financial institutions and Virtual Asset Service Providers (VASPs) that facilitate the export, sale, supply, transfer, or transport of certain dual-use goods, firearms, ammunition, and other sensitive items to Russia. What’s striking here is that the prohibition applies regardless of whether the goods originate from the EU or elsewhere. This kind of broad prohibition makes it clear that EU sanctions are starting to operate in a manner that closely resembles secondary sanctions.
While the EU may continue to insist on the territoriality of its sanctions, Article 5ad shows that their scope has expanded significantly. If you’re working with any financial institutions or service providers outside the EU, this is a development you cannot afford to ignore.
The UK’s Subtle Shift: Formal Secondary Sanctions
Meanwhile, the UK has formalized its approach through amendments to its Russia (Sanctions) (EU Exit) Regulations 2019. Specifically, the July 2024 amendments introduce provisions that significantly broaden the scope of who can be sanctioned. Regulations 6(4)(f) and 6(4A)(m) now extend the definition of an “involved person” to include individuals and entities providing financial services, goods, or technology to sanctioned persons.
What’s important to note here is that the UK Government, in its explanation of the July amendments, indicates that this broadening is intended to bring UK sanctions more in line with the US model of secondary sanctions. In essence, this means that foreign financial institutions and other entities engaging in business with Russia could now find themselves in the crosshairs of UK sanctions enforcement.
The Big Takeaway: Navigating the New Sanctions Environment
The developments in both the EU and UK reflect a broader trend towards holding non-EU and non-UK entities accountable for indirectly violating or facilitating violations of sanctions. If you’re a compliance professional, this means that your obligations are no longer limited to the jurisdiction in which your business is based. Whether you're dealing with EU, UK, or US sanctions, the risk of secondary sanctions is becoming a reality.
It’s crucial to keep a close eye on these developments, as they’re not always clearly articulated by the governments enforcing them. I strongly recommend revisiting your compliance protocols, especially if you work with financial institutions, dual-use goods, or services connected to Russia. Ignorance of these developments could expose your business to significant penalties, regardless of where you operate.
In conclusion, I hope this analysis helps clarify the increasingly complex sanctions landscape. I will continue to monitor these developments and share insights to help you navigate the ever-changing rules governing global trade.
Let’s continue this conversation—feel free to reach out with any questions or thoughts you may have. I’m here to help you stay compliant and competitive in this challenging environment.
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About the Author: Arne Mielken is a renowned expert in customs, export control, and sanctions with over 20 years of experience. He is the Managing Director of Customs Manager Ltd, a Freeman of the City of London, and a Liveryman of the Worshipful Company of World Traders.
Our Meeting Place: Meet me at the German Business Hub in Central London for live training and networking events.
Disclaimer: This article is for educational purposes only and should not be considered legal advice. For tailored guidance, contact a legal professional.
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