Opinion on unfreezing assets ‘a win’ for contracting parties of sanctioned entities
The designation of an organisation or individual as a sanctions target should avoid impinging on a third party’s rights to the extent it is possible – while the freezing of assets is not intended to be punitive. This is the upshot of a June opinion from the European Commission on the application of EU Regulation 224/2021 (concerning restrictive measures in view of the situation in the Central African Republic).
The Opinion explains that the regulation imposes an asset freeze on those included in Annex 1 of 224/2021, and also prohibits EU operators ‘from making funds or economic resources available, directly or indirectly, to or for the benefit of any Designated Person listed in Annex I to the Regulation,’ but that ‘according to Article 9 of the Regulation, by way of derogation from Article 5 of the Regulation, if a payment by a Designated Person is due under a contract or agreement that was concluded by, or under an obligation that arose for, the Designated Person before the date of its listing, the NCA may authorise, under such conditions as they deem appropriate, the release of certain frozen funds or economic resources, provided that certain conditions are met.’
The Commission had been asked to provide advice by a national competent authority (‘NCA’) following ‘a request by an EU-incorporated financial institution to unfreeze certain funds of a Designated Person, in order to enforce a guarantee provided by the latter to that financial institution. The guarantee agreement in question predates the listing of the Designated Person.’
Having considered the facts of the case, the Commission said it took the view that:
‘The Commission takes the view that: (1) The execution against the frozen funds of a Designated Person of a guarantee stipulated by the latter prior to its listing amounts to a “payment” in the sense of Article 9 of the Regulation; (2) Provided that all the conditions in Article 9 of the Regulation are fulfilled, the guarantee can be executed also without the consent of or against the Designated Person; (3) It is for the NCA to determine whether these conditions are fulfilled.
‘In particular, in ascertaining whether the payment of the guarantee is due under a prior contract or arises from a prior obligation, the NCA may take into account judicial, administrative or arbitral judgments, decisions and awards rendered after the listing of the Designated Person. In their absence, the NCA will need to make this assessment autonomously. The applicable substantive and procedural rights as prescribed by national law continue to apply. Moreover, the NCA can accompany the authorisation with the conditions that it deems appropriate to ensure that the authorised actions do not frustrate or circumvent the restrictive measures in accordance with Article 12 of the Regulation.’
In a client briefing, Stacy Keen of the law firm Pinsent Masons commented: ‘This is a positive development for those that have contracted with sanctions targets prior to their designation given that the implementation of a lawfully due contractual payment should not be impacted by that designation.
‘A narrower interpretation of the derogation requiring the consent of the sanctions target would leave the execution of pre-existing contractual obligations in the hands of the sanctions targets. Their designation as a sanctions target would allow them to withhold an otherwise lawfully due payment against a counterparty that contracted – at the time – with a non-sanctioned individual or entity.’
