On the 7th October 2022, the Sanctions Monitoring Board (the ‘SMB’) published a Guidance Note on the Imposition of EU Sanctions concerning Restrictive Measures in Respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine following the adoption of the eighth sanctions package in response to Russia’s invasion of Ukraine.
1. The legal basis for Sanctions in Malta
Sanctions consist of a wide range of political and/or economic measures, which are put in place by international and national state bodies with the aim of influencing the behavior of a particular country’s regime/s, individual/s or group/s. The types of sanction measures put in place can vary and may include, inter alia, visa restrictions, financial restrictions, trade (import/export) restrictions, arms embargoes, amongst others.
Sanctions in Malta are principally governed by the National Interest (Enabling Powers) Act, Chapter 365 of the Laws of Malta (the ‘Act’), which enables the implementation of treaties and measures and the restrictions of trade and travel where the national or international interest of Malta so requires.
Apart from Malta imposed sanctions, EU and UN sanctions apply automatically in Malta under the Act. UN Security Council Resolutions imposing sanctions are directly applicable in Malta through the Act; whereas the EU Council implements its adopted sanctions through EU Regulations, which have direct effect in every EU Member State.
However, other countries or organizations such as the USA or the UK, may also impose sanctions and, although not automatically applicable in Malta, one may still be exposed to such sanctions. For example, if a transaction has a US nexus (i.e. if it involves a US person or US origin product or involves an activity in US territory), it may still violate US Sanctions. Hence, when doing business, it is important to check for any exposure to such sanctions and always seek guidance if in doubt.
2. Obligations of Subject Persons and their role as ‘Gatekeepers’
The MFSA and the SMB oblige Subject Persons, such as accountants, auditors, lawyers, notaries, CSPs, banks to comply with international sanctions and take all steps necessary for their immediate implementation by screening their clients against the sanctioned individuals list, who might use Malta to set up structures to conceal their assets.
Subject Persons conducting a relevant activity or a relevant financial business as defined by the Prevention of Money Laundering Act, are thus required to:
- monitor their business relationship and regularly check the list of designations by the UN, EU and the Board to verify their records and to screen their client databases against those lists on an on-going basis and immediately after a change to any of these lists occurs for any information or transactions known or suspected to be connected or related in any manner whatsoever with designated individuals and entities and to identify and freeze any funds, financial assets and economic resources in accordance with the requirements of the sanctions;
- have in place and effectively implement internal controls and procedures to ensure compliance with the obligations arising from the Act and any relevant EU or UN Resolutions or Regulations.
In addition, they are obliged to report the findings of their verifications to the MFSA and the SMB and to inform the Authorities of any action taken as soon as practicable with the information that facilitate compliance with the regulations.
3. Sanction exposure when doing business
Although sanction screening is an obligation for Subject Persons, all businesses need to ensure that, during the course of their business, they do not violate any sanctions, whether Maltese, UN, EU or that of another country/organization in cases of a nexus as the consequences are very serious and far reaching.
Businesses whose activities include cross border transactions need to ensure that they do not violate any of the imposed trade restrictions or other sanctions. It is fundamental that businesses monitor their sanction exposure and ensure that they do not inadvertently violate any laws.
Business in the import/export industry may need authorisation from the SMB to import /export non-prohibited goods from/to Russia.
The EU has also introduced a prohibition on accounting, auditing, tax and consultancy services and public relations services to Russian entities as well as the banning of the provision of architectural and engineering services, IT consultancy services and legal advisory services.
If you are or could be exposed to any such sanctions immediately seek clarification and guidance from the SMB.
4. Consequences for breach of sanctions in Malta
Any sanction violation is a criminal offence under the Act with the following repercussions:
For an individual:
- Imprisonment for a term from 12 months – 12 years
- Fine of not less than €25,000 – € 5 million
- Or both
For a body corporate:
- Fine of not less than €80,000 – €10 million
- Suspension or cancellation of any relevant licence;
- Closure of the business
- Compulsory winding up
Directors and other officers of a Company in breach of sanctions shall also be guilty of an offence unless they prove that the offence was committed without their knowledge and they exercised all due diligence to prevent the offence.
The Act also provides for administrative penalties for Subject Persons in cases of failure to have in place and effectively implement, internal controls and procedures to ensure compliance with the Act. Such Administrative penalties range from a penalty of €100 – €300 for every separate contravention for a first-time breach, and €300 – €800 for serious, repeated and systematic contraventions. Daily cumulative penalties range from €50 up to a total of €1,000. In addition, the Board may issue directives requiring any person to take action to remedy the contravention.
The key message is that it is fundamental to remain abreast of any new developments and monitor the sanctions being issued in order to ensure full compliance and avoid any violations which may lead to serious financial, criminal and reputational repercussions.