EU Regulation 269/2014
In March 2014, the European Council adopted EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (Sanctions Regulation) in response to the Russian annexation of Crimea. The Regulation introduced restrictive measures, including asset freezing, trade restrictions and travel bans on listed entities. EU Regulations are directly effective in Ireland, and private companies must comply with these measures.
In February 2022, the EU introduced a package of sanctions following the escalation of Russian aggression against Ukraine. These updated sanctions targeted the military, political and business sectors of Russia. The EU further blocked Russian access to the Union’s capital and financial services. Ten successive packages of sanctions have been introduced, significantly curtailing Russia’s economic power and war efforts. Transactions with state-owned enterprises were explicitly banned in March 2022.
Annex I of the Sanctions Regulation contains a list of sanctioned individuals and bodies typically associated with the Russian government. Article 2 of the Sanctions Regulation states that all funds and economic resources belonging to any natural or legal persons, entities or bodies associated with them, as listed in Annex I shall be frozen. It further provides that no funds or economic resources shall be made available to these listed groups.
Article 5 of the Sanctions Regulation
The Sanctions Regulation provides for certain derogations from freezing assets under Article 2. Article 5 outlines that Member States’ competent authorities may authorise the release of certain frozen funds or economic resources. These derogations permit the giving effect of judicial decisions made in Member States. Article 5 was implemented to recognise the property rights of uninvolved third parties while avoiding the disruption of ordinary commercial operations. Individuals may be entitled to make payments to a sanctioned person, entity, or body where the competent authority is notified under Article 5.
The Central Bank of Ireland (Central Bank) is the competent authority responsible for administrating and enforcing financial sanctions in Ireland. The Central Bank authorises applications for the derogation provisions provided for in the Sanctions Regulations. This process may take several weeks due to the volume of derogation applications. Cases regarding urgent matters will be prioritised.
Companies may also obtain derogations in non-EU jurisdictions such as the United Kingdom. William Fry LLP has experience advising companies seeking recognition and enforcement of court orders of the High Court of England and Wales in the Irish High Court, to then facilitate the submission of a derogation application to the Central Bank pursuant to Article 5.
Making a Derogation Application to the Central Bank
Article 5 of the Sanctions Regulation provides that the Notice Party (the Central Bank) may make an authorisation for a derogation from Article 2 to give effect to judicial decisions in Member States. The Central Bank will permit the release of frozen funds or economic resources under Article 5 where specific conditions are met:
- The funds or economic resources are subject to an arbitral decision rendered before the date on which the sanctioned body was included in Annex I, or to a judicial or administrative decision rendered in the Union,
- These funds or economic resources will be used exclusively to satisfy claims secured by such a decision, within the limits set by applicable laws and regulations governing the rights of persons having such claims,
- The decision is not for the benefit of an individual or body listed in Annex I of Regulation 269/2014,
- Recognition of this decision is not contrary to public policy in the concerned Member State.
William Fry has been involved in several recent judicial and derogation applications on behalf of clients impacted by the sanctions regime, primarily in circumstances where clients had long vessel and aircraft leasehold and charterparty arrangements in place with now sanctioned entities.
Our restructuring colleagues, on behalf of a group of bondholders who were owed over $175million by GTLK Europe DAC and GTLK Europe Capital DAC (Companies), designated entities and subsidiaries of JSC GTLK, recently were successful in their application for the liquidation of the Companies. On 11 July 2023, Mr Justice Quinn determined that the presumption of control by the JSC GTLK, which arises in respect of the Companies under Article 2 of the Sanctions Regulations, is rebutted in circumstances where Joint Liquidators have been appointed to the Companies. This has allowed for the unfreezing of various assets of the subsidiaries of the Companies and has created another avenue for the recovery of Russian-held assets and finances. William Fry LLP is currently advising various companies in their negotiations with Joint Liquidators for the buyout of the assets. You can read more about the liquidation process here.
Conclusion
William Fry continues to advise non-sanctioned parties seeking derogations pursuant to the Sanctions Regulations and is also actively engaging with the Joint Liquidators of GTLK to assist clients with recovery of assets.
Please get in touch with your usual William Fry contact or Laura Murdock and Paul Convery if you require advice on these matters.
Contributed by Cillian Mulraney
