EU enhances sanctions reporting obligation on payment transfers by EU entities with ties to Russia
In a significant move aimed at enhancing financial security and addressing potential risks associated with funds transfers, the European Union has introduced new reporting requirements through the new Article 5r of Regulation 833/2014, for legal persons and entities with substantial connections to Russia – see further below for details. Article 5r forms part of the EU’s 12th package of sanctions measures on Russia.
Entities fulfilling the criteria outlined below must, as of 1 May 2024, report to the competent authority of the Member State where they are established, within two weeks of the conclusion of each quarter and should detail any transfer of funds exceeding €100,000 out of the EU effected during that quarter, whether through direct or indirect means.
The reporting obligation under Article 5r applies to EU legal persons, entities, and bodies whose proprietary rights are, directly or indirectly owned for more than 40 per cent by:
- A legal person, entity, or body established in Russia
- A Russian national
- A natural person residing in Russia
Furthermore, Article 5r provides for a parallel reporting obligation for credit and financial institutions for transfers of funds out of the EU exceeding €100,000 initiated, directly or indirectly, for the EU legal persons, entities, and bodies mentioned above. This obligation will apply as of 1 July 2024 and reporting institutions must report to the competent authority of the Member State where they are located within two weeks of the end of each semester.
Importantly, there is no safe harbour under Article 5r with respect to EU legal persons, entities and bodies that are owned by dual EU-Russia citizens; EU citizens residing in Russia or Russians permanently resident in the EU.
Article 5r further requires that Member States use the reported information to identify transactions, entities and business sectors that present a serious risk of breaches, circumvention, or misuse of funds contrary to the applicable sanctions framework. Member States are further required to regularly share their findings with each other and the European Commission.
Finally, Article 5r provides that the European Commission must review the functioning of the above reporting requirements based on information received from Member States no later than 20 December 2024.
The Council Regulation (EU) 2023/2878 of 18 December 2023 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine can be found here.
Our more general blog on the 12th EU package can be found here.