International sanctions, also known as restrictive measures, are primarily issued by the United Nations Security Council and by the European Union but there are a number of other bodies that also issue such sanctions. A sanction would generally be issued against an individual, an entity or even an entire country at times. Whereas some are designed to force a country, regime or organisation to comply with international law, the scope of others may be to contain a threat to regional or global peace. Sanctions may also condemn the actions or policy of a particular government and thus the reasons for which sanctions may be issued are numerous. Sanctions may, inter alia, include:
Restrictions on trade which may affect the purchase and supply of specified goods, products and materials;
Restrictions on travel;
Restrictions on the provision of financial services;
The requirement to freeze funds, assets and other economic resources; and
Sanction screening is, simply put, a control mechanism used by an organisation to detect, prevent and manage sanctions risk. Therefore, sanction screening procedures are at the heart of an anti-financial crime programme. Sanction screening forms part of the first line of defence and thus, as a result, is absolutely vital when it comes to protecting an organisation from engaging with sanctioned individuals or designated persons/territories.
Implementation of Sanctions in Malta
All sanctions issued by the European Union and the United Nations Security Council are directly applicable and enforceable under the National Interest (Enabling Powers) Act (hereinafter referred to as the ‘NIAct’). Any legal or natural person conducting a relevant activity or relevant financial business as defined in the Prevention of Money Laundering and Funding of Terrorism Regulations is obliged to adhere to applicable sanctions and carry out the necessary checks to ensure that sanctions are always complied with. Should any situation be encountered which is in violation of such sanctions, whether directly or indirectly, there is an obligation to stop any transaction from going through, freeze any assets and inform the Sanctions Monitoring Board (‘SMB’’). The SMB is established by the NI Act and, amongst its numerous functions, has the overall obligation and function of monitoring and ensuring the implementation and operation of sanctions legislation in Malta.
A sanctions list is a database that records individuals, entities and countries who have some form of sanction imposed upon them. The NI Act obliges subject persons to undertake mandatory screening against the lists issued in terms of UNSC Resolutions, EU Council Regulations, and the NI Act. Subject persons may also consider it necessary to screen against other sanctions lists due to their jurisdictional exposure or due to the type of activities undertaken by the subject person. Such lists would include those issued by the Office of Foreign Assets Control in the US (OFAC) or the Office of Financial Sanctions Implementation (OFSI) in the UK or any other lists issued by national authorities in different countries.
Duties and Obligations of the Subject Person
According to Maltese law, all subject persons are obliged to ensure strict observance to all applicable EU, UN and national sanctions at all times. One of the main duties of persons undertaking a relevant activity or a relevant financial business in terms of the PMLFTR is the establishing and implementation of a sanctions-screening procedure. Such a procedure aims to ensure that an organisation has adequate measures in place to allow for the identification of sanctioned individuals/entities, and ultimately to ensure that the subject person is not susceptible or exposed to any sort of illegal activity.
In practice, organisations generally implement ‘transaction screening’ and ‘customer screening’ so as to fulfil their AML/CFT obligations. As their names suggest, the former refers to the monitoring of customer transactions whilst the latter is there to identify targeted individuals or entities. Sanction screening ought to be conducted prior to on-boarding a client. In the case that a business relationship has already been formed, the organisation would have a duty to carry out periodic ongoing screening.
In the event that a client becomes subject to a sanction, the person responsible for the implementation of the sanctions framework within the sanctions-screening procedure must, without delay, act in accordance with the order issued, whether such order was issued by the national authorities, the EU or the UNSC. Generally, financial sanctions would impose the duty to issue a freezing order to prohibit funds, financial assets or economic resources being made available to sanctioned individuals/entities etc.
EU restrictive measures in response to the Ukraine crisis
In this last week, the EU is taking restrictive measures in response to the unprovoked and unjustified military aggression carried out by the Russian Federation against Ukraine.
A timeline of these measures is found below:
On the 23rd February 2022, the Council agreed on a first package of sanctions in response to the recognition by Russia of the non-government-controlled areas of the Donetsk and Luhansk in Ukraine as independent entities.
On the 25th February 2022, the EU proceeded to freeze the assets of Vladimir Putin, President of the Russian Federation, and Sergey Lavrov, Minister for Foreign Affairs of the Russian Federation.
On the 28th February 2022, the European Council approved:
A ban on transactions with the Russian Central Bank;
A five-hundred (€500) million support package to finance equipment and supplies to the Ukrainian armed forces;
A ban on the overflight of EU airspace and on access to EU airport by Russian carriers of all kinds; and
New sanctions on specific persons and entities;
On the 2nd March 2022 the EU suspended the broadcasting activities in the EU of the Russian state-owned outlets Sputnik and Russia Today until the aggression against Ukraine is brought to a halt and until the Russian Federation and its associated outlets cease conducting disinformation actions. The EU has also announced its decision to cut seven Russian banks from the SWIFT payment system. SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a secure system that helps enable cross-border payments, allowing international trade to flow more smoothly. The decision also banned EU operators to invest or cooperate with the Russian Direct Investment Fund, as well as to sell or transfer euro-denominated banknotes to Russia.