Recently, it became known that the European Commission has submitted proposals for the 14th package of anti-Russian sanctions to the EU member states for consideration. However, the final form of the next EU sanctions package will be the result of ongoing negotiations. On May 15, Reuters reported that France and the Netherlands are urging their EU colleagues to supplement the 14th package with a ban on any cooperation with foreign financial institutions that conduct transactions related to the Russian military-industrial complex. Such a step, although a copy of the American Executive Order 14114 adopted in December 2023, could become a significant lever of pressure on Russia's trade with third countries.
According to Denis Hutyk, an expert at the Economic Security Council of Ukraine (ESCU), in addition to financial restrictions, the next EU sanctions package should include another critical tool for monitoring compliance with the sanctions. This tool should be a new European framework of corporate compliance standards for producers and distributors of dual-use goods.
How to implement this:
- Require companies and their subsidiaries in third countries to bear direct responsibility for controlling and preventing the re-export of their goods or services to Russia.
- Establish clear procedures and types of checks, internal investigations, and reporting that companies must apply in the global market or within their industries. There should be clear standards or criteria that internal compliance and due diligence of companies must meet.
- Evaluate companies' activities and their level of control over their supply chains based on these established standards and procedures. Also, assess their responsibility in cases where a European product ends up in a Russian missile or UAV.
- Companies that do not meet the defined standards and do not carry out the necessary procedures, resulting in their goods reaching Russia, should be held accountable.
- This accountability should cover not only deliberate violations of sanctions and export controls but also negligence in their compliance. For example, if CNC machines produced by a European company end up in a Russian military plant without the manufacturer's knowledge, but the manufacturer did not make maximum efforts to prevent this, the company should be held responsible.
- Clearly define the level and nature of such responsibility. The legal framework existing in the fight against money laundering and terrorism financing can serve as an example. However, the higher the penalty, the more effective the private sector's compliance with new regulations will be. The ideal scenario is the criminalization of negligence in controlling the supply chains of dual-use goods.