As part of its 12th package of sanctions adopted on 18 December 2023, the EU introduced the new Article 5r to Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine (as amended) (the “EU Regulation 833”). Article 5r introduces the following obligations:
Obliged Entities
As of 1 May 2024, entities established in the EU whose proprietary rights are directly or indirectly owned for more than 40% by Russian persons, as defined below, (“Obliged Entities”) will have to, on a quarterly basis, report any transfer of funds out of the EU exceeding EUR 100,000 to the competent authority of the Member State where they are established. In scope transfers can be made directly or indirectly and the value is cumulative. Reports need to be made within two weeks of the end of each quarter.
Credit and Financial Institutions
As of 1 June 2024, credit and financial institutions will have to report to the competent authority of the Member State where they are located information on all transfers of funds out of the EU exceeding EUR 100,000 by Obliged Entities that they initiate (subject to applicable rules on reporting, confidentiality and professional secrecy). In scope transfers can be made directly or indirectly and the value is cumulative over the period of the semester. Reports need to be made within two weeks of the end of each semester.
Russian Persons
A Russian person includes (a) a legal person, entity or body established in Russia, (b) a Russian national, or (c) a natural person residing in Russia. For this requirement there is no exclusion for persons with both Russian and EU nationality, therefore the reporting requirement will apply to dual-nationals.
Transfers of funds in scope of the reporting obligations
All transfers of funds out of the EU are in scope of the reporting obligations, including transfers to G7 and partner countries.
‘Funds’ is broadly defined under Article 1(zd) of the EU Russia Regulation to include “financial assets and benefits of every kind, including, but not limited to:
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- cash, cheques, claims on money, drafts, money orders and other payment instruments;
- deposits with financial institutions or other entities, balances on accounts, debts and debt obligations;
- publicly- and privately-traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures and derivatives contracts;
- interest, dividends or other income on or value accruing from or generated by assets;
- credit, right of set-off, guarantees, performance bonds or other financial commitments;
- letters of credit, bills of lading, bills of sale; and
- documents showing evidence of an interest in funds or financial resources."
Next steps
- The first reports for Obliged Entities are due on 1 May 2024 and should cover the period from 1 January 2024 to 31 March 2024.
- The first reports for credit and financial institutions are due after 1 July 2024.
- Reporting requirements may diverge from Member States to another, we therefore recommend ensuring compliance with local guidance.
- On 12 April 2024 the Commission has published FAQs relating to Article 5r, including a reporting template. Obliged Entities should review the template and ensure they are in a position to submit the first report on 1 May 2024.
Please contact any of the Hogan Lovells lawyers listed above with any questions or concerns regarding the developments or any other sanctions compliance issues.
Authored by Aline Doussin, Kate Poppitt, Pierre Estrabaud, and Helka Kittila.
