JOINT EMLO AND MMLA SPRING SEMINAR 2014 EU
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JOINT EMLO AND MMLA SPRING SEMINAR 2014 EU Sanctions - An update FERGUS RANDOLPH QC The EU courts and the rule of law Preamble to the Charter of Fundamental Rights of the EU: the Union is based on the rule of law Firm recognition of that
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01
JOINT EMLO AND MMLA SPRING SEMINAR 2014 EU Sanctions
- An update
FERGUS RANDOLPH QC<br>
- An update
FERGUS RANDOLPH QC<br>
02
The EU courts and the rule of law Preamble to the Charter of Fundamental Rights of the EU: the Union is based on the rule of law”
Firm recognition of that in the EU Courts’ rulings in sanctions cases
Different approach to other jurisdictions in which substantial judicial deference is given to the will of the legislature<br>
Firm recognition of that in the EU Courts’ rulings in sanctions cases
Different approach to other jurisdictions in which substantial judicial deference is given to the will of the legislature<br>
03
In praise of awkwardness Interesting recent article in the European Constitutional Law Review by Prof Gearty at the LSE
“Standing in the way of [the challenge to the rule of law] are a few unelected judges from an entity that cannot even call itself a state without risking terminal offence. It is an heroic story ...”<br>
“Standing in the way of [the challenge to the rule of law] are a few unelected judges from an entity that cannot even call itself a state without risking terminal offence. It is an heroic story ...”<br>
04
Ukraine/Russia Most recent EU activity has been in relation to Ukraine and Russia
Well-oiled EU sanctions machine swung into action
Absence of UN resolution
Aim as ever is to bring the “recalcitrant State” to heel
At present, that doesn’t appear to be working but UK’s SFO obtained a £23 million restraint order against Ukrainian assets un the UK on 28 April 2014<br>
Well-oiled EU sanctions machine swung into action
Absence of UN resolution
Aim as ever is to bring the “recalcitrant State” to heel
At present, that doesn’t appear to be working but UK’s SFO obtained a £23 million restraint order against Ukrainian assets un the UK on 28 April 2014<br>
05
Iranian sanctions Long-running saga
Focus has moved to the Geneva process
In the meantime, challenges continue to be brought before the EU courts – many are won – but Council then moves the goalposts
Malta has a substantial number of companies affected by these sanctions<br>
Focus has moved to the Geneva process
In the meantime, challenges continue to be brought before the EU courts – many are won – but Council then moves the goalposts
Malta has a substantial number of companies affected by these sanctions<br>
06
Melli Bank Commercial Court judgment Judgment of Simon J of 31 July 2013
Iranian ship owning companies and guarantors attempted to avoid their repayment liabilities under various loan facilities by asserting that the EU sanctions regime forbade payment
The Court dismissed the argument - “it is not the effect of the Regulations nor is it consonant with their broad intent.”<br>
Iranian ship owning companies and guarantors attempted to avoid their repayment liabilities under various loan facilities by asserting that the EU sanctions regime forbade payment
The Court dismissed the argument - “it is not the effect of the Regulations nor is it consonant with their broad intent.”<br>
07
Recent UK proposals FCO recently proposed contract sanctions
These would stop British courts from enforcing commercial agreements involving countries covered by sanctions
Unsurprisingly, substantial criticism from interested parties as such a scheme could threaten London’s role as global legal hub<br>
These would stop British courts from enforcing commercial agreements involving countries covered by sanctions
Unsurprisingly, substantial criticism from interested parties as such a scheme could threaten London’s role as global legal hub<br>
08
UN / EU / UK Sanctions UN:
Imposed by UN Security Council Resolution under Chapter VII of the UN Charter in order to maintain or restore international peace and security;
EU:
Decisions of the Council / Implementing Regulations
UK:
Statutory Instrument / Counter-Terrorism Act 2008<br>
Imposed by UN Security Council Resolution under Chapter VII of the UN Charter in order to maintain or restore international peace and security;
EU:
Decisions of the Council / Implementing Regulations
UK:
Statutory Instrument / Counter-Terrorism Act 2008<br>
09
Target of sanctions Typically governments
Effects not confined to governments
E.g. UN, EU and UK sanctions targeting Iranian nuclear proliferation
Non-state entities and individuals
E.g. Al Qaida, bin Laden and the Taliban; other terrorist groups<br>
Effects not confined to governments
E.g. UN, EU and UK sanctions targeting Iranian nuclear proliferation
Non-state entities and individuals
E.g. Al Qaida, bin Laden and the Taliban; other terrorist groups<br>
10
Types of sanctions Economic and financial sanctions (freezing of funds or economic resources, prohibition on financial transactions, restrictions on export credits or investment)
Trade sanctions (general or specific trade sanctions, arms embargoes)
Restrictions on admission
Diplomatic sanctions
Suspension of cooperation
Boycotts of sporting or cultural events<br>
Trade sanctions (general or specific trade sanctions, arms embargoes)
Restrictions on admission
Diplomatic sanctions
Suspension of cooperation
Boycotts of sporting or cultural events<br>
11
Targeted financial sanctions Asset freezing of designated / listed entities
Two core obligations:
Obligation to freeze all funds
Prohibition on making funds available
Broad definition of assets frozen and of prohibited conduct<br>
Two core obligations:
Obligation to freeze all funds
Prohibition on making funds available
Broad definition of assets frozen and of prohibited conduct<br>
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“Funds” means financial assets and benefits of every kind, including but not limited to:
(i) cash, cheques, claims on money, drafts, money orders and other payment instruments;
(ii) deposits with financial institutions or other entities, balances on accounts, debts and debt obligations;<br>
(i) cash, cheques, claims on money, drafts, money orders and other payment instruments;
(ii) deposits with financial institutions or other entities, balances on accounts, debts and debt obligations;<br>
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“Funds” (cont) (iii) publicly and privately traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures and derivatives contracts;
(iv) interest, dividends or other income on or value accruing from or generated by assets;<br>
(iv) interest, dividends or other income on or value accruing from or generated by assets;<br>
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“Funds” (cont) (v) credit, right of set-off, guarantees, performance bonds or other financial commitments;
(vi) letters of credit, bills of lading and bills of sale; and
(vii) documents evidencing an interest in funds or financial resources.<br>
(vi) letters of credit, bills of lading and bills of sale; and
(vii) documents evidencing an interest in funds or financial resources.<br>
15
“Economic resources” means assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but may be used to obtain funds, goods or services.<br>
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The obligation/prohibition Must prevent any move, transfer, alteration, use of, access to, or dealing with funds in any way.
Must prevent the use of economic resources to obtain funds, goods or services in any way.
Broad prohibition on making available funds or economic resources<br>
Must prevent the use of economic resources to obtain funds, goods or services in any way.
Broad prohibition on making available funds or economic resources<br>
17
Position of subsidiaries Asset freeze applies to subsidiaries of designated entities
Council “shall” freeze assets of entity “owned or controlled” by designated entities
Melli Bank plc v Council (T-246/08)
Touchstone is control
Presumption of control for 100% owned entities
Ability to appoint directors was key
Melli Bank plc v. Council (C-380/09P)
“the classification as a entity ‘owned or controlled’ must be the substance of a case-by-case evaluation by the Council...”<br>
Council “shall” freeze assets of entity “owned or controlled” by designated entities
Melli Bank plc v Council (T-246/08)
Touchstone is control
Presumption of control for 100% owned entities
Ability to appoint directors was key
Melli Bank plc v. Council (C-380/09P)
“the classification as a entity ‘owned or controlled’ must be the substance of a case-by-case evaluation by the Council...”<br>
18
Exemptions from the freeze Basic needs
Professional fees
Service /maintenance charges for funds/resources
Funds subject to judicial lien/judgment
Certain credits to frozen accounts
Certain payments from designated entities/individuals<br>
Professional fees
Service /maintenance charges for funds/resources
Funds subject to judicial lien/judgment
Certain credits to frozen accounts
Certain payments from designated entities/individuals<br>
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Breach of asset freezes Member State responsibility
E.g. The Iran (Asset-Freezing) Regulations 2011 (SI 2011/1129)
Criminalises breaches of obligation to freeze and prohibition on making funds/economic resources available
Punishable by imprisonment<br>
E.g. The Iran (Asset-Freezing) Regulations 2011 (SI 2011/1129)
Criminalises breaches of obligation to freeze and prohibition on making funds/economic resources available
Punishable by imprisonment<br>
20
Restrictions on admission EU frequently imposes a travel ban
Obligation on Member State to take all necessary measures to prevent entry
Key exception: own nationals<br>
Obligation on Member State to take all necessary measures to prevent entry
Key exception: own nationals<br>
21
Kadi The case of Kadi is the leading authority on the approach of the EU courts to sanctions legislation
It is one of the few cases to have been the subject of 2 appeals
Anyone involved in EU sanctions litigation will need to be acquainted with this line of authorities<br>
It is one of the few cases to have been the subject of 2 appeals
Anyone involved in EU sanctions litigation will need to be acquainted with this line of authorities<br>
22
Kadi – the facts In 2001, Mr. Kadi was identified as being an individual associated with Usuma Bin Laden and the Al-Quaeda network – he was accordingly placed on an EU sanctions list
He sought annulment of that decision by an application to the General Court
That application was dismissed, with the GC holding that it was not for it to review indirectly whether UN Security Council Resolutions are compatible with fundamental principles protected by the EU legal order
It also held that the doctrine of jus cogens precluded an assessment by the Court as to whether there had been an error of assessment or whether the decision had been appropriate or proportionate<br>
He sought annulment of that decision by an application to the General Court
That application was dismissed, with the GC holding that it was not for it to review indirectly whether UN Security Council Resolutions are compatible with fundamental principles protected by the EU legal order
It also held that the doctrine of jus cogens precluded an assessment by the Court as to whether there had been an error of assessment or whether the decision had been appropriate or proportionate<br>
23
Kadi – the first appeal The CJEU set aside the GC’s judgment, holding that obligations imposed by an international agreement could not have the effect of prejudicing the constitutional principles of the EU treaties, which include the principle that all EU acts must respect fundamental rights
The CJEU held specifically that the EU Courts must ensure the full review of the lawfulness of all EU acts and that the competent EU authority was bound to communicate the grounds for the contested listing to the person concerned and to permit that permit an opportunity to be heard<br>
The CJEU held specifically that the EU Courts must ensure the full review of the lawfulness of all EU acts and that the competent EU authority was bound to communicate the grounds for the contested listing to the person concerned and to permit that permit an opportunity to be heard<br>
24
Kadi – Round 2 Following the CJEU’s judgment, the Chairman of the UN Sanctions Committee produced a detailed summary of reasons for listing Mr. Kadi on that committee’s consolidate list
That list was transmitted to the European Commission and to Mr. Kadi and he was asked to comment. Despite receiving those comments in which Mr. Kadi stated that the reasons were unfounded, the Commission adopted a regulation in which Mr. Kadi was sanctioned
Mr. Kadi sought the annulment of that decision before the General Court.<br>
That list was transmitted to the European Commission and to Mr. Kadi and he was asked to comment. Despite receiving those comments in which Mr. Kadi stated that the reasons were unfounded, the Commission adopted a regulation in which Mr. Kadi was sanctioned
Mr. Kadi sought the annulment of that decision before the General Court.<br>
25
Kadi – GC2 The GC in the second appeal held that its task was to ensure in principle a full review of the lawfulness of the contested regulation
It also held that judicial review of such measures should extend not only to the apparent merits of the measure in question but also to the evidence and information on which the findings were based
Having examined Mr. Kadi’s appeal on that basis, the Court found that his rights of defence had been infringed. It also found infringements of the principle of effective judicial protection
The General Court accordingly annulled the contested regulation insofar as it affected Mr. Kadi<br>
It also held that judicial review of such measures should extend not only to the apparent merits of the measure in question but also to the evidence and information on which the findings were based
Having examined Mr. Kadi’s appeal on that basis, the Court found that his rights of defence had been infringed. It also found infringements of the principle of effective judicial protection
The General Court accordingly annulled the contested regulation insofar as it affected Mr. Kadi<br>
26
Kadi – CJEU2 The judgment of the GC was then appealed to the CJEU by the Commission and the Council
3 grounds of appeal were put forward re:
Error of law arising from the jus cogens point
Intensity of judicial review
Errors in dealing with rights of defence and right to effective judicial protection
12 Member States intervened. In addition, the UK was an appellant in its own right and France was a repeat intervener from the first instance proceedings
The CJEU heard the appeal in Grand Chamber with 13 judges and Advocate General Bot sitting<br>
3 grounds of appeal were put forward re:
Error of law arising from the jus cogens point
Intensity of judicial review
Errors in dealing with rights of defence and right to effective judicial protection
12 Member States intervened. In addition, the UK was an appellant in its own right and France was a repeat intervener from the first instance proceedings
The CJEU heard the appeal in Grand Chamber with 13 judges and Advocate General Bot sitting<br>
27
Kadi – CJEU2(cont) The CJEU’s judgment, dismissing the appeals, was handed down on 18 July 2013
As to the first ground – jus cogens – the Court reiterated that the Union was based on the rule of law and that the fact that EU institutions should pay due regard to the UN institutions did not mean that there should be no review of the lawfulness of relevant EU measures, in the light of the fundamental rights that were an integral part of the general principles of EU law.
Accordingly, the first ground was dismissed<br>
As to the first ground – jus cogens – the Court reiterated that the Union was based on the rule of law and that the fact that EU institutions should pay due regard to the UN institutions did not mean that there should be no review of the lawfulness of relevant EU measures, in the light of the fundamental rights that were an integral part of the general principles of EU law.
Accordingly, the first ground was dismissed<br>
28
Kadi - CJEU2(cont) As to the second ground of appeal – intensity of review – the Court reiterated that the EU Courts had to ensure the review, in principle the full review, of the lawfulness of all EU acts in the light of the fundamental rights forming an integral part of the EU legal order
Those rights included respect for the rights of defence and the right to effective judicial protection
The question as to whether there has been an infringement of those rights must be examined in relation to the specific circumstances of each particular case
The effectiveness of the judicial review required a verification of the allegations relied on by the EU institutions<br>
Those rights included respect for the rights of defence and the right to effective judicial protection
The question as to whether there has been an infringement of those rights must be examined in relation to the specific circumstances of each particular case
The effectiveness of the judicial review required a verification of the allegations relied on by the EU institutions<br>
29
Kadi – CJEU2(cont) The Court made clear that it was the task of the competent EU authority to establish in the event of a challenge that the reasons relied on against the person concerned were well founded and it was not the task of that person to adduce evidence of the negative
The Court did admit that overriding considerations of security or the conduct of international relations could preclude the disclosure of some information
The Court suggested in such circumstances that the EU Courts could adopt “techniques which accommodate ... legitimate security considerations ... and ... the need sufficiently to guarantee to an individual respect for his individual rights.”<br>
The Court did admit that overriding considerations of security or the conduct of international relations could preclude the disclosure of some information
The Court suggested in such circumstances that the EU Courts could adopt “techniques which accommodate ... legitimate security considerations ... and ... the need sufficiently to guarantee to an individual respect for his individual rights.”<br>
30
Kadi – CJEU2(cont) The Court held in the light of those principles that in the present case the competent EU authority had to (i) disclose to Mr. Kadi the summary of reasons provided by the Sanctions Committee; (ii) enable Mr. Kadi effectively to make known his observations thereon and (iii) examine whether the reasons were well founded in the light of the observations
The Court was also bound to examine whether the reasons themselves were sufficiently detailed and specific and where appropriate whether the accuracy of the facts relating to the reasons had been established<br>
The Court was also bound to examine whether the reasons themselves were sufficiently detailed and specific and where appropriate whether the accuracy of the facts relating to the reasons had been established<br>
31
Kadi – CJEU2(cont) In applying those points to its review of the GC’s judgment, the CJEU found that the GC had fallen into error in particular in relation to the consequences to be drawn from when the Commission did not have possession of certain information or evidence. In particular, the CJEU held that the GC was wrong to find that in such a situation, Mr. Kadi’s rights had been infringed
However, despite those errors, the CJEU nonetheless dismissed the appeal finding that none of the allegations presented against Mr. Kadi in the summary provided by the Sanctions Committee were such as to justify the adoption at EU level of restrictive measures against him<br>
However, despite those errors, the CJEU nonetheless dismissed the appeal finding that none of the allegations presented against Mr. Kadi in the summary provided by the Sanctions Committee were such as to justify the adoption at EU level of restrictive measures against him<br>
32
Other recent developments in the EU courts Melli Bank plc: decision of the Grand Chamber CJEU of 13 March 2012
Fulmen: decision of 4th Chamber GC of 21 March 2012
Kala Naft: decision of 4th Chamber GC of 25 April 2012
CF Sharp Shipping: decision of 4th Chamber GC of 26 October 2012
Qualitest: decision of 4th Chamber GC of 5 December 2012
Sina Bank: decision of 4th Chamber GC of 11 December 2012
Bank Mellat: decision of 4th Chamber of 29 January 2013
Bank Sederat: decision of 4th Chamber of 5 February 2013<br>
Fulmen: decision of 4th Chamber GC of 21 March 2012
Kala Naft: decision of 4th Chamber GC of 25 April 2012
CF Sharp Shipping: decision of 4th Chamber GC of 26 October 2012
Qualitest: decision of 4th Chamber GC of 5 December 2012
Sina Bank: decision of 4th Chamber GC of 11 December 2012
Bank Mellat: decision of 4th Chamber of 29 January 2013
Bank Sederat: decision of 4th Chamber of 5 February 2013<br>
33
Other recent developments in the EU courts (2) HTTS GmbH v. Council : decision of the 4th Chamber of the General Court 12 June 2013 -
Council v. Fulmen: decision of the 5th Chamber CJEU 28 November 2013
Council v. Kala Naft: decision of the 5th Chambers CJEU of 28 November 2013<br>
Council v. Fulmen: decision of the 5th Chamber CJEU 28 November 2013
Council v. Kala Naft: decision of the 5th Chambers CJEU of 28 November 2013<br>
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Good Luck judgment Judgment of 4th Chamber GC of 6 September 2013
The Court annulled EU provisions imposing restrictive measures on Good Luck Shipping LLC, a shipping agency based in Dubai. That company had been included on the list on the basis of an allegation that it acted on behalf of the Islamic Republic of Iran Shipping Lines (IRISL) and two other designated entities.
The Court held that it was wrong for the Council to have included Good Luck Shipping on the list. The reason given by the Council for doing so was that it acted on behalf of IRISL. the Council was ordered to pay the applicant's costs.<br>
The Court annulled EU provisions imposing restrictive measures on Good Luck Shipping LLC, a shipping agency based in Dubai. That company had been included on the list on the basis of an allegation that it acted on behalf of the Islamic Republic of Iran Shipping Lines (IRISL) and two other designated entities.
The Court held that it was wrong for the Council to have included Good Luck Shipping on the list. The reason given by the Council for doing so was that it acted on behalf of IRISL. the Council was ordered to pay the applicant's costs.<br>
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Good Luck judgment (cont) The Court found that the Council had not provided any evidence to substantiate those allegations, and would not permit the Council to rely on additional unsubstantiated material read out from the internet at the oral hearing, without notice to the Court or the applicant. The only evidence provided by the Council further to specific requests from the applicant were proposals from two Member States requesting that Good Luck Shipping LLC be sanctioned, and reports of meetings of a Council working group and a note to Coreper which did not contain details or evidence relating to the applicant.<br>
36
Good Luck judgment (cont) The Court noted that in the course of proceedings, the Council had relied only on "unsubstantiated general statements" for the purpose of trying to rebut the applicant's submissions. The EU provisions imposing restrictions on Good Luck Shipping LLC were accordingly annulled and the Council was ordered to pay the applicant’s costs<br>
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Irisl judgment Judgment of 4th Chamber GC of 16 September 2013
Islamic Republic of Iran Shipping Lines (IRISL) was included on the European Union's list of individuals and companies targeted by the EU's sanctions against Iran in 2010, along with a number of companies said to be "owned or controlled" by IRISL. The General Court of the European Union held that the European Council should not have included IRISL on its sanctions list ("restrictive measures") because its reasons for doing so were too vague and because it had no evidence to support its allegations.<br>
Islamic Republic of Iran Shipping Lines (IRISL) was included on the European Union's list of individuals and companies targeted by the EU's sanctions against Iran in 2010, along with a number of companies said to be "owned or controlled" by IRISL. The General Court of the European Union held that the European Council should not have included IRISL on its sanctions list ("restrictive measures") because its reasons for doing so were too vague and because it had no evidence to support its allegations.<br>
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Irisl judgment (cont) The allegations against IRISL were that it supported nuclear proliferation in Iran by shipping "proscribed cargo", and that it assisted other companies to breach United Nations sanctions against Iran. The Court held that the latter reason was too vague to comply with the Council's obligation to give reasons, and therefore the Council could in principle only rely on the former reason (involvement in nuclear proliferation). But since IRISL denied any involvement in nuclear proliferation, and submitted evidence showing that the goods to which the Council referred were military goods, unrelated to nuclear proliferation, and since the Council had produced no evidence to substantiate its assertions to the contrary, its designation could not be sustained.<br>
39
Irisl judgment (cont) The Court emphasised that inference and speculation about future risks is insufficient, and that if the EU wishes to sanction a company on the grounds of involvement in proliferation, it has to present evidence of actual involvement. It also said that if the EU wishes to include different criteria for listing companies it will have to legislate to do so. Since IRISL's designation was unjustified, so too was the inclusion of companies on the grounds that IRISL "owns or controls" them. A number of challenges by those companies are currently pending before the General Court, with oral hearings having been held at the end of April 2014.<br>
40
Council action following the IRISL judgment The Council did not appeal the judgment
Instead they amended the underlying legislation so as to re-list IRISL and the other entities
That re-listing is the subject of two fresh challenges
10 days ago, the Council at another oral hearing sought to argue (for the first time) that it was not possible to rely on the IRISL judgment in other cases involving companies owned or controlled by IRISL as such reliance would constitute a fresh plea.<br>
Instead they amended the underlying legislation so as to re-list IRISL and the other entities
That re-listing is the subject of two fresh challenges
10 days ago, the Council at another oral hearing sought to argue (for the first time) that it was not possible to rely on the IRISL judgment in other cases involving companies owned or controlled by IRISL as such reliance would constitute a fresh plea.<br>
41
Conclusion(1) EU Courts willing to annul sanctions decisions where they breach fundamental principles
Marked contrast to other jurisdictions
Possibility of consequential claims in domestic courts by parties adversely affected by the sanctions<br>
Marked contrast to other jurisdictions
Possibility of consequential claims in domestic courts by parties adversely affected by the sanctions<br>
42
Conclusion (2) Malta is directly affected by sanctions legislation
Growing conflict in Ukraine will doubtless lead to expanded sanctions, domestic “freezing” actions and challenges before the EU courts<br>
Growing conflict in Ukraine will doubtless lead to expanded sanctions, domestic “freezing” actions and challenges before the EU courts<br>