EU countries need an agency similar to OFAC to combat "massive" Russian sanctions evasion

Twelve Member States have urged that the EU have its own OFAC-like body to enforce EU sanctions.

The governments, led by the Netherlands, endorse the initiative to combat extensive sanctions evasion by Russian billionaires and industry.

Dutch Foreign Minister Wopke Hoekstra disclosed that sanctions were "being evaded on a massive scale."

Earlier this month, Dutch officials began circulating the sanctions authority proposal, which is supported by major countries including Germany, France, Spain, and Italy.

Hoekstra stated, "We currently have too little capacity in the EU to analyse, coordinate, and promote new sanctions – that is why I would like us to set up a sanctions headquarters in Brussels, aimed at circumvention."

He desires a central agency that "would be a place where member states can pool information and resources on effectiveness and evasion, where we do much more to fight circumvention."

Hoekstra stated, "To me, it is crystal clear that this will be a fundamental part of our future geopolitical toolbox, that we need more for this specific purpose, for this specific war."

The US Treasury Department's Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement department. It manages and enforces economic and trade sanctions in support of national security and foreign policy objectives of the United States.

The proposed EU body based on OFAC would produce a watch list of sectors and trade flows with a high risk of circumvention, according to a Dutch government proposal.

The European Parliament has already recommended that the new AML Authority (AMLA) should also be a sanctions evasion agency; however, the Commission opposes this proposal.

This summer, evasion of sanctions, as opposed to the imposition of new ones, will be a priority, according to a statement made by the Finance Commissioner earlier this month.

"Companies will be obliged to include end-use clauses in their contracts so that their products don’t end up in the Russian war machine," Hoekstra said.

"The EU must use the full strength of its collective economic strength and criminal justice systems against those who assist in sanction evasion – by naming, shaming, sanctioning, and prosecuting them," he stated.

The European Commission proposed plans last year that would make the breaking of sanctions a crime throughout the EU.

The proposal still requires the support of member states, which have historically been reluctant to support reforms that necessitate alterations to their criminal codes.

With this legal provision in place, the new body would have the ability to send cases straight to the EU's general prosecutor.

Belgium, Czech Republic, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Romania, and Spain support such an agency.

The proposal includes measures to tighten the feedback loop between national enforcement practice and EU policy, to strengthen the EU point of contact for sanctions evasion, to identify concrete steps for diplomatic outreach with partners, and to extend listing capacities.

Hoekstra stated, "There is support, but we will need to specify what it can do."

Importantly, the Dutch proposal also appears to advocate a stronger targeting of third countries that are not aligned with or assist in circumventing Western sanctions against Russia.

"We should give a strong signal to persons and entities in third states. The provision of material support to Russia’s military and defence industrial base will have severe consequences regarding their access to the EU market," according to the proposal.

The EU designated a special sanctions envoy in December to advocate for stricter implementation and alignment of its restrictive measures in third countries.

Presently, Member States are responsible for implementing sanctions; they decide on the introduction of the bloc's restrictive measures by unanimity, with EU capitals primarily responsible for their implementation.

Separately, the bloc is about to unveil a new round of sanctions, which will impose further penalties on the financial sector, additional trade restrictions, and additional individual sanctions against regime allies of Vladimir Putin.

But, Russia's closest EU ally, Hungary, has vowed to veto the extension of EU sanctions, which must be renewed every six months, because he wants the removal of four individuals from the list.

Moreover, Hungary opposes a plan supported by all other countries to extend the sanctions extension period from six to twelve months.

By fLEXI tEAM