EU sanctions: tweaking sanctions against trusts
The 'sixth package' of EU sanctions against Russia was adopted on 3 June 2022. While the sanctions on Russian oil have grabbed the headlines, the EU has also taken the opportunity to refine some of the pre-existing sanctions, including Article 5m of Regulation (EU) No 833/2014, which targets trusts and similar legal arrangements with Russian connections1. We have discussed the broad scope of Article 5m in previous articles: EU sanctions: impact on the trust industry (shlegal.com) and EU sanctions: application of trusts measures outside the private trusts sphere (shlegal.com).
The amendments to Article 5m fall into three broad categories:
Extended winding down period
First, the deadlines to cease the provision of fiduciary services2 (Article 5m(2)) and to terminate non-compliant contracts concluded before 9 April 2022 and ancillary contracts (Article 5m(3)) have been extended from 10 May 2022 to 5 July 2022. According to recital 24 of Council Regulation (EU) 2022/879, this is appropriate "in order to ensure the smooth implementation of Article 5m".
Article 5m(5)(a) also enables national competent authorities to authorise the provision of fiduciary services (but not management services3) beyond 5 July 2022 for the completion by 5 September 2022 of operations strictly necessary for the termination of contracts referred to above, provided that such operations were initiated before 11 May 2022. One of the concerns raised regarding the previous Article 5m was that it did not allow a reasonable period of time to properly organise a transfer of trusteeship between an outgoing and an incoming trustee.4
Authorisation to continue providing fiduciary services
Second, Article 5m(5)(b) provides that national competent authorities may authorise the provision of fiduciary services beyond 5 July 2022 for "other reasons". Service providers benefitting from this derogation must not accept from, or make available to, the persons referred to in Article 5m(1)5 any funds or economic resources, directly or indirectly, or otherwise provide such persons with any benefit from assets placed in a trust.
This derogation applies to the provision of fiduciary services only; the derogations in Article 5m(6) are available in more limited circumstances if it is necessary to provide management services.
Additional derogation for certain types of trusts
Third, national competent authorities may now authorise the provision of management services and fiduciary services for the operation of trusts whose purpose is the administration of occupational pension schemes, insurance policies or employee share scheme, charities, amateur sports clubs, and funds for minors or vulnerable adults (Article 5m(6)(c)).6 This is more consistent with the European Commission's reference to "a prohibition on providing advice on trusts to wealthy Russians, making it more difficult for them to store their wealth in the EU".7 The new derogation captures some – but not all – of the examples of trusts outside the private wealth sphere that we identified in our previous article. Article 5m(5)(b) referred to above may be of assistance in other cases, although we note that it only applies to fiduciary services and not management services.
Any authorisation granted by a national competent authority must now also be reported to the European Commission (Article 5m(7)).
If you would like to discuss the impact of the sanctions, then please contact one of our team.
1 Being those having as a settlor or a beneficiary:
(a) Russian nationals or natural persons residing in Russia;
(b) legal persons, entities or bodies established in Russia;
(c) legal persons, entities or bodies whose proprietary rights are directly or indirectly owned for more than 50 % by a natural or legal person, entity or body referred to in points (a) or (b);
(d) legal persons, entities or bodies controlled by a natural or legal person, entity or body referred to in points (a), (b) or (c);
(e) a natural or legal person, entity or body acting on behalf or at the direction of a natural or legal person, entity or body referred to in points (a), (b), (c) or (d).
2 Acting as, or arranging for another person to act as, a trustee, nominee shareholder, director, secretary or a similar position.
3 The registration, provision of a registered office, business or administrative services as well as management services (prohibited by Article 5m(1)).
4 See, for example, https://www.step.org/system/files/media/files/2022-05/step-position-paper-on-eu-sanctions-amended-23-may-2022.pdf
5 See footnote 1 above.
6 This is in addition to existing derogations for humanitarian purposes and civil society activities that directly promote democracy, human rights or the rule of law in Russia.
