Title: The EU Takes a Tougher Stance on Russian Oligarchs
As the EU struggles to approve its 11th sanctions package against Russia, justice ministers have agreed to measures that make it easier for member states to seize the assets of Russian oligarchs and other entities that have circumvented EU sanctions over the war in Ukraine. If approved, these measures will criminalize banks that deal with sanctioned individuals, entities, or states, putting European financial institutions at risk. Banks with transactions exceeding a certain threshold will also be required to report any suspicious dealings to national authorities immediately.
Meanwhile, the EU has been seeking ways to use frozen Russian assets to help Ukraine in its war efforts and finance its reconstruction. Over €200 billion of Russian central bank assets have been tied up under the 10th sanctions package, with €24.3 billion of assets held by listed persons and entities frozen to date. The EU plans to use proceeds from assets held in clearinghouses, such as Euroclear, which reinvests the cash generated by these assets to make a profit that officials plan to divert. Representatives of member states will discuss it next week ahead of the EU leaders’ summit at the end of the month, EU officials said.
Despite the measures, the EU’s 11th sanctions package against Russia has yet to gain unanimous agreement across all 27 members, with Greece and Hungary refusing to back the proposal because their companies are included on the EU’s list of entities considered “sponsors” of Russia’s war effort. Several other countries are also concerned about a proposed mechanism that could damage diplomatic relations with third-country companies seen as middlemen to ship sanctioned goods to Russia. A proposed compromise would create a step-by-step procedure, giving targeted companies fair warning to change their practices before being sanctioned.
The EU is also exploring rules to make it easier to freeze assets linked to criminal offenses more generally, including organized crime, money laundering, fraud, and other offenses. Justice Minister Gunnar Strömmer said, “It will be a very important tool in the fight against organized crime in general.” Europol estimates that only around 2% of the proceeds of crime in the EU are frozen and around 1% are fully confiscated.
The EU’s efforts to enforce sanctions against Russia come at a time when the world is increasingly unfriendly to these types of measures. As countries like India and China become more significant players in the world economy, the power of the West’s collective sanctions is waning. The US has been warning the EU about the economic consequences of an overly aggressive sanctions policy, fearing that it could lead to retaliation by Russia that would hurt the West more than it would hurt Russia.
Summary:
EU justice ministers have agreed to measures that make it easier for member states to seize the assets of Russian oligarchs and other entities that have circumvented EU sanctions over the war in Ukraine. The measures will criminalize banks that deal with sanctioned individuals, entities, or states, putting European financial institutions at risk. Banks with transactions exceeding a certain threshold will also be required to report any suspicious dealings to national authorities immediately. Despite the measures, the EU’s 11th sanctions package against Russia has yet to gain unanimous agreement across all 27 members, with Greece and Hungary refusing to back the proposal. The EU is also exploring rules to make it easier to freeze assets linked to criminal offenses more generally, including organized crime, money laundering, fraud, and other offenses.
Additional Piece:
As the EU moves to enforce its sanctions policy against Russia with greater force, it raises questions about the efficacy of sanctions, particularly in geopolitical contexts where they are being used less and less. US-China relations have reframed that country’s approach to sanctions policy, with the Chinese shining a spotlight on America’s use of financial sanctions.
More recently, India has shown similar reservations about the efficacy of sanctions after they rejected US requests to halt oil imports from Iran. Sanctions against Iran had been accepted before the fall of President Donald Trump, but the Biden administration has yet to reverse its decision. Similarly, South Africa has questioned the US’s decision to freeze Huawei out of the smartphone business.
The effects of sanctions against Russia have been mixed, with the economy slowly recovering since the recession began in 2014. While the West’s sanctions undoubtedly hit economic growth, they also put upward pressure on energy prices, which ultimately ended up benefiting Russia.
Sanctions are not always the most effective tool in international diplomacy because they are exposed to diminishing returns as the number of countries imposing sanctions grows. Such pain can push other countries into the sphere of influence of a sanctioned power; these countries can serve as a useful buffer for the sanctioned country.
Furthermore, sanctions can lead to internal and external state-sponsored economic transformation that reduces a state’s reliance on vulnerable Western markets. Sanctions can also lead to economic nationalism, reducing a state’s offshore economic participation to limit blocking actions that threaten their economy.
Shattered confidence in the tools of international diplomacy leaves the world without an effective means of resolving crises. As relations between global powers become more strained, the need for new forms of governance becomes more urgent. Until new means of governance can be found, the world will be left to rely on the traditional diplomatic tools, regardless of their efficacy, in a world increasingly unfriendly to them.
In conclusion, the EU’s aggressive approach to Russian sanctions is the latest in a trend of punishing sanctioned countries, but these actions may become less effective given how they push other states closer to the sanctioned power. Sanctions also lead to internal and external state-sponsored economic transformation that reduces a state’s reliance on vulnerable Western markets. As countries become more hostile to sanctions, the West must find new ways of diplomatically engaging with the world to address conflicts effectively.
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EU countries have agreed to a bill to make it easier to seize the assets of Russian oligarchs and other individuals or institutions accused of circumventing bloc sanctions against Moscow over the war in Ukraine.
In a move that could hit European financial institutions, justice ministers on Friday approved measures criminalizing helping sanctioned individuals circumvent travel bans, trade prohibited goods or transact with states. or sanctioned entities.
This “will give member states new tools to follow up on sanctions,” Swedish Justice Minister Gunnar Strömmer told the Financial Times.
The measures would affect banks that deal with sanctioned individuals, entities or states. Strömmer said “financial institutions in member states” were the target, adding that those sanctioned would also be affected.
The EU has been scrambling to find ways to use frozen Russian assets to help Ukraine in its war effort and finance its reconstruction. “Discussions are also ongoing on the use of Russian sovereign assets to generate resources for Ukraine,” European Justice Commissioner Didier Reynders said on Friday.
“To date, member states have reported more than €200 billion of Russian central bank assets tied up under the 10th sanctions package,” Reynders said. This is in addition to the “24.3 billion euros of assets held by listed persons and entities frozen to date”.
An option the EU plans to use proceeds from assets held in clearinghouses, which function as the pipelines of the financial system. Institutions such as Euroclear reinvest the cash generated by these assets and make a profit that officials plan to divert. Representatives of member states will discuss it next week ahead of the EU leaders’ summit at the end of the month, EU officials said.
Meanwhile, the EU is still squabbling over an 11th sanctions package against Moscow, but the 27 members have so far failed to reach a unanimous agreement despite weeks of debate.
Hungary and Greece are refusing to back the package in response to kyiv’s decision to include some of their companies on a list of entities considered “sponsors” of Russia’s war effort.
Several countries are also concerned about a proposed mechanism that could allow the EU to target third-country companies seen as middlemen to ship sanctioned goods to Russia. To assuage fears that it could damage diplomatic relations with these countries, a proposed compromise would create a step-by-step procedure, giving targeted companies fair warning to change their practices before being sanctioned.
On Friday, ministers also backed rules to make it easier to freeze assets linked to criminal offenses more generally, including evading sanctions, but also organized crime, money laundering, fraud and other offences.
“It will be a very important tool in the fight against organized crime in general,” Strömmer said.
Europol estimates that only around 2% of the proceeds of crime in the EU are frozen and around 1% are fully confiscated.
The rules still need to be negotiated with the European Parliament before they can come into force. Talks must start before August, a parliament spokesman said.
Member state representatives want to agree on the package ahead of the EU leaders’ summit on June 29.
Additional reporting by Henry Foy in Brussels
https://www.ft.com/content/de46ed80-1acf-4668-8258-b1c9268169c1
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