Effective modernisation of the Dutch sanctions system?

The government is working to modernise the Dutch sanctions system to better meet EU requirements. A pre-consultation has been launched to this end. The government aims to intensify and improve supervision and administrative enforcement to deal with sanction violations. Notification requirements are proposed similar to those currently in place for notifying potential money laundering and terrorist financing. Another arrangement being considered is putting companies under administration for reasons of sanctions legislation. An administrator could be appointed in such instances, whether or not at the company's request, if this is necessary to safeguard the company's financial stability and continuity. Finally, preparations are underway to include records in several registers, such as the Business Register and the Cadastre, Land Registry and Mapping Agency.

Improved supervision and enforcement procedures are necessary. Their prioritisation is understandable to this extent. However, it leaves the main practical problem unresolved. While the sanctions rules target specific sectors and persons in and from sanctioned countries, they must be observed by EU citizens. In particular, the sanctions against Russia and Belarus show their dramatic impact, hitting EU citizens and companies hard and inflicting huge damage. Some EU companies' very survival is under threat because of the sanctions. Simply put, they are not allowed to trade with any sanctioned parties or provide services to them. In addition, they must retain and administer any frozen assets. While these consequences are logical and obvious, they should not be too readily brushed aside.

Geographic location and Western European dependence on Russian gas fostered years-long economic ties with the Russian authorities and Russian businesses. When still permitted to do so, many EU citizens and companies entered into partnerships with Russian parties, who subsequently became subject to sanctions. The enduring war has spurred a quick succession of additional sanctions as well as a tightening of sanctions already in place. It is unlikely that the situation in Ukraine will allow for a revocation or relaxation of sanctions against persons and sectors in Russia and Belarus any time soon.

There will certainly be EU citizens and companies looking for ways to further their interests affected by sanctions by violating or avoiding sanctions rules. Better and intensified supervision will make short shrift of such practices. However, there appears to be a much larger group of EU citizens and companies that want to observe the sanctions rules but are simply confronted by vague and very broadly defined standards, which sometimes quickly change again or are not clearly explained as soon as they are introduced.

In our opinion, the sanctions' effectiveness can therefore be particularly enhanced by enabling these parties to further their interests in a sanctions-compliant way. A useful option would be if EU citizens and companies could submit their specific questions on the interpretation and application of sanctions rules to an authority authorised to issue guidance and rulings that EU citizens and companies may rely on, including in a legal sense.

In addition, a modern sanctions system should provide clearly regulated possibilities to cushion the impact of sanctions for the EU's own inadvertently hit citizens and companies. As mentioned, economic ties are particularly strong in relation to Russia in the form of contractual partnerships between European and Russian companies that became subject to tightened EU sanctions only after Russia's incursion into Ukraine, and also in joint ventures, corporate finance and shareholdings. Ironically, the stricter sanctions limit not just the possibilities to enter into new partnerships and transactions, but frequently also the possibilities to 'part ways' with Russian parties or operations.

In that respect, the option of putting companies under administration, which the government is considering, may provide sufficient relief in some situations. In other cases, this may not be enough and reducing the sanctions' adverse impact on EU citizens and companies will require a cutting of ties with sanctioned parties. To that end, more permitting and exemption options should be provided than are currently available, for which we can draw on the ample experience available particularly in the United States.

In short, we believe that a modernisation of the sanctions system should pay more regard to the large majority of sympathetic citizens and companies at the EU and national levels by helping them navigate sanctions legislation and phase out their relationships with sanctioned parties.