New reporting obligations, following the addition of Article 5r of Council Regulation (EU) No. 833/2014 through the 12th EU package of economic and individual sanctions against Russia (the “EU Sanctions”) due to its military aggression against Ukraine, were issued on 18th of December 2023.

Note: The position is constantly evolving. Additional sanctions may be introduced in the coming days and these will be the subject of future articles.

This information is:

    • of a general nature only and is not intended to address the specific circumstances of any particular individual or entity;
    • not necessarily comprehensive, complete, or up to date;
    • not professional or legal advice (if you need specific advice, you may consult us).

On December 18, 2023, the European Union (“EU”) adopted its 12th sanctions package against Russia amending EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine and Regulation (EU) 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Reporting Obligations according to the Article 5r of (EU) Regulation 833

“Article 5r provides that:

  1. Legal persons, entities and bodies established in the Union whose proprietary rights are directly or indirectly owned for more than 40 % by:

(a) a legal person, entity or body established in Russia;

(b) a Russian national; or

(c) a natural person residing in Russia,

shall, as of 1 May 2024, report to the competent authority of the Member State where they are established, within two weeks of the end of each quarter, any transfer of funds exceeding 100 000 EUR out of the Union that they made during that quarter, directly or indirectly, in one or several operations.

  1. Notwithstanding the applicable rules concerning reporting, confidentiality and professional secrecy, credit and financial institutions shall, as of 1 July 2024, report to the competent authority of the Member State where they are located, within two weeks of the end of each semester, (i.e. twice annually) information on all transfers of funds out of the Union of a cumulative amount, over that semester, exceeding 100 000 EUR that they initiated, directly or indirectly, for the legal persons, entities and bodies referred to in paragraph 1.
  2. Member States shall assess the information received in accordance with paragraphs 1 and 2 to identify transactions, entities and business sectors that indicate a serious risk of breaches or circumvention of, or use of funds for purposes incompatible with, this Regulation or Council Regulations (EU) No 269/2014, (EU) No 692/2014 or (EU) 2022/263 , or Council Decisions 2014/145/CFSP, 2014/386/CFSP , 2014/512/CFSP or (CFSP) 2022/266 , and shall regularly inform each other and the Commission of their findings.
  3. Based on the information received from the Member States under paragraph 3, the Commission shall review the functioning of the measures provided for in this Article no later than 20 December 2024.

Reporting Obligation as per paragraph 1 of Article 5r

Paragraph 1 of Article 5r of the Regulation 833, sets out the reporting obligations of all legal persons, entities and bodies established in the European Union, whose proprietary rights are directly or indirectly owned for more than 40% by a legal person, entity or body established in Russia or a Russian national or a natural person residing in Russia which are obliged to report on any transfer of funds out of the EU exceeding EUR 100 000, in one or several operations as of 1 May 2024, covering the period between 1 January and 31 March 2024.

By “indirect ownership” it is clarified that we refer to the ownership of an entity through a chain of intermediaries.

Following the announcement of the Cyprus Ministry of Finance issued on 30th of April 2024, the aforesaid deadline is extended to the 10th of May 2024, due to the fact that 1st of May is a public holiday in Cyprus.

As mentioned in the FAQs of EU Commission issued on 12th of April 2024 indirect ownership should not be confused with control, since the latter is established as a result of a factual assessment, taking into consideration all relevant circumstances.

In this respect, EU legal entities, which meet one or more of the three criteria (or should be read as a cumulative or) i.e. 40% direct / indirect ownership by:

(a) a legal person, entity or body established in Russia;

(b) a Russian national; or

(c) a natural person residing in Russia

fall within the scope of application of Article 5r. As it was further clarified, the criterion of control is not relevant for the purposes of Article 5r.

Reporting Obligation as per paragraph 2 of Article 5r

Paragraph 2 of Article 5r of the Regulation 833 sets out the reporting obligations for credit and financial institutions. As of 1 July 2024, EU credit and financial institutions will have to report every semester on transfers of funds out of the EU that they initiated for the aforementioned EU entities where their cumulative amount exceeds EUR 100 000 during that semester within two weeks from the end of each semester.

Therefore, by 15 July 2024, the credit and financial institutions must report the said transfers for the period between 1 January 2024 and 30 June 2024.

The reporting obligation is a continuous obligation that binds both EU entities and EU credit/financial institutions.

In addition, we need to mention that the reporting obligations of legal entities/bodies and credit and financial institutions have been also clarified through the relevant announcements of the Cypriot Ministry of Finance dated 16/04/2024 and 30/04/2024, CySEC’s Circular C635 issued on 19/04/2024 and the announcements of Cyprus Bar Association dated 17/04/2024 and 24/04/2024.

A reporting template in excel format was also included in EU’s Article issued on 12/04/2024 regarding Frequently Asked Questions (FAQ’s) for Article 5r of Regulation 833, clarifying the expected content of reporting. This template must be used by the obliged entities and EU credit and financial institutions for complying to their reporting obligations and include among others detailed information of the type, date and amount of transaction, sender’s and beneficiary’s bank details, country, contact person’s details, transaction description and number. This reporting template has been further updated to include the reporting on financial instruments in tab 2.1 and can be found here:

Potential Domestic Liability for breach of EU sanctions – Breach of the Law which provides for the Implementation of the Provisions of the Resolutions or Decisions of the United Nations Security Council (Sanctions) (the “UNSC”) and the Decisions and Regulations of the Council of the European Union (Restrictive Measures) of 2016 (the “Law on Sanctions and Restrictive Measures”)

According to Article 3 of the Law on Sanctions and Restrictive Measures, each ministry or its department, each independent authority, as well as the supervisory authorities defined in Article 59 of the Prevention and Suppression of Money Laundering Activities Laws of 2007 to 2016 (the “Supervising Authorities”) have the authority for securing the implementation of the provisions of the resolutions and decisions of the UNSC on sanctions and/or the decisions and regulations of the Council of the EU on restrictive measures, in those sectors for which the said ministry or its department or independent office or the Supervising Authorities have competence according to the Constitution of the Republic of Cyprus, the laws, the regulatory administrative acts, and the decisions of the executive authority.

In the event that any person whether natural or legal contravenes or is in way found to have breached United Nations Security Council Resolutions or Decisions (Sanctions) and of the European Union Council Decisions and Regulations (Restrictive Measures), is guilty of an offence, and without prejudice to any other legislative provision providing a greater penalty upon conviction is subject to:

    • in the case of an individual, imprisonment not exceeding two years, or a fine not exceeding €100,000 (One Hundred Thousand Euro) or both these penalties; and
    • in the case of a legal entity, a fine not exceeding €300,000 (Three Hundred Thousand Euro).

In case that any Supervising Authorities are alerted to the fact that any legal or natural person may have or has contravened the United Nations Security Council Resolutions or Decisions (Sanctions) and of the European Union Council Decisions and Regulations (Restrictive Measures) then a report of the potential violation is submitted to the Police which in turn carries out relevant investigations.

It is noted that criminal prosecution of any person whether natural or legal in violation of any of the provisions of the Resolutions or Decisions of the Security Council (Sanctions) and/or the Decisions and Regulations of the Council of the European Union (Restrictive Measures) is carried out only with the approval of the Attorney General of the Republic of Cyprus.

We further note that infringements of EU Sanctions in Cyprus also constitute a criminal offence and can be dealt with by invoking articles 136 (Disobedience to statutory duty) and 137 (Disobedience of lawful orders) of the Criminal Code (Cap. 154).

Next Steps

MPC Legal monitors closely developments within the EU and any further updates and guidelines regarding the reporting obligation under Article 5r of Regulation 833 will be provided through an additional article. Legal Persons and specifically Financial institutions should seek immediate advise as to their reporting obligations to ensure compliance with the EU Sanctions.

 

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