Listing of entities for Polish and EU sanctions
At the EU and national levels, severe economic sanctions are in place against many entities, mainly Russian. After entry into force of the Sanctions Act (the Act on Special Solutions for Countering Support of Aggression Against Ukraine and Protecting National Security of 13 April 2022), first published on 26 April 2022, the Polish sanctions list maintained by the Minister of the Interior and Administration took on particular significance. The purpose of its creation is clear: to counter support for Russia’s aggression against Ukraine. Nevertheless, the criteria for inclusion in the list are not clear-cut, and the procedure for issuing a listing decision greatly limits the right to defend against wrongful inclusion, as Polish entities can easily be included in the list.
Grounds for including an entity in the sanctions list
The sanctions list includes individuals and business entities for which the Minister of the Interior and Administration has issued an administrative decision specifying the type and scope of restrictive measures. The minister must issue such a decision if the entity meets the statutory grounds. As we mentioned in the article “Sanctions for violating sanctions,” these grounds include:
- Directly or indirectly supporting the Russian Federation’s aggression against Ukraine
- Direct or indirect serious violations of human rights, suppression of civil society and democratic opposition, or activities posing another serious threat to democracy or the rule of law in the Russian Federation or Belarus
- Direct relationship with persons or entities meeting these grounds, in particular due to ties of a personal, organisational, economic or financial nature, or the likelihood of use of their own funds or economic resources for these purposes.
But these criteria are not precisely formulated, as the Sanctions Act does not indicate what is meant by “indirectly” supporting aggression or violation of human rights, and primarily allows reliance on the likelihood that resources held by the person will be used to support the aggressor in the armed conflict in Ukraine. Theoretically, potentially any entity, regardless of where it is registered, resides or pursues its activity, could be subject to Polish sanctions if the minister determines that there is a likelihood that resources are being used for the purposes indicated or that indirect support of Russian military activities is occurring.
Similar conclusions can be drawn from an analysis of the criteria that should guide the authority in determining the scope of restrictive measures. Art. 3(4) of the Sanctions Act contains a non-exhaustive list of circumstances, which are the nature and scope of the business, the entity’s group structure, and national security considerations.
The vague wording of the grounds and their possibly broad application may lead to overbroad interpretation and inconsistent practice by the minister, which could negatively affect the activity of Polish businesses arbitrarily deemed to be supporters of the Russian or Belarusian regime.
Who is actually subject to ministerial sanctions?
In principle, an administrative decision, as an individual and specific act of a public authority, should exert effect only against the addressee. The decision to include someone on the sanctions list is peculiar in that, in practice, it triggers a number of obligations, in particular bans, also with respect to entities related to the addressee of the decision. In practice, it may have effects on subsidiaries due to the appropriate application of the restrictive measures set forth in:
- Art. 2(1)–(3) of Council Regulation (EC) No 765/2006 of 18 May 2006 concerning restrictive measures in respect of Belarus
- Art. 2 and 9 of Council Regulation (EU) No 269/2014 of 17 March 2014 on restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.
Based on these EU provisions, the freezing of funds and economic resources belonging to, in the possession of, or effectively held or controlled by the addressee of the decision is applicable.
Thus, if the decision to include an entity in the sanctions list indicates the full range of restrictive measures resulting from these EU provisions, these measures may also be applied to entities controlled by or dependent on the listed entity. Similarly, in the case of a ban on providing funds or economic resources, the minister’s decision may also provide for such a ban with respect to entities related to the addressee of the decision.
Restriction of a party’s procedural rights
The Sanctions Act significantly limits the scope of rights a party is entitled to under the Administrative Procedure Code. Art. 4(1) of the Sanctions Act sets forth a fixed catalogue of provisions of the Administrative Procedure Code applicable in these proceedings. In particular, the procedure for entering a unit on the sanctions list does not provide for:
- Issuance of a formal notice of initiation of the proceeding
- Service of the listing decision on the party
- The opportunity to provide explanations or participate in actions taken at any time (this is allowed only at the minister’s request and discretion)
- Inspection of the case file, including making notes, copies or extracts from the file.
The entity against whom the listing decision is issued will not be personally notified of the decision. Together with the list, the decision is published in the Public Information Bulletin on the minister’s own website. This significantly affects the entity’s legal position in the proceedings, as the party may not be aware of the restrictive measures imposed on it for some time. Moreover, the minister’s decision is subject to immediate enforceability and is effective from the day following publication in the bulletin.
Entry is easy, deletion more difficult
An entity can get on the list at express pace, but the road to eventual delisting is long, as there is no quick appeal path provided. Moreover, the law has ruled out the possibility of re-examination of the listing decision. A listed entity may only file a request to be removed from the list. An application may be filed with the minister at any time, and requires justification for the removal.
A separate measure that may lead to deletion of an entity from the list is filing a complaint with the province administrative court, but the 30-day period for filing such a complaint runs from the day following publication of the listing decision in the Public Information Bulletin, as the decision is not subject to service on the party. It may take several months before the court rules on the case, and during this time the entity will be subject to the sanctions specified in the decision.
In the course of administrative court proceedings, a defensive measure may be to apply for a stay of immediate implementation of the decision, which the administrative court should, as a rule, consider before issuing a decision on the merits of the case.
Polish sanctions list versus EU lists
The Polish Sanctions Act, followed by listing decisions issued by the Minister of the Interior and Administration, is not the only set of contracting restrictions to which Polish businesses must adhere. All EU businesses are bound by EU sanctions regulations concerning Belarus (Regulation 765/2006) and Russia (Regulation 269/2014 and Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine). These regulations contain extensive lists of entities subject to severe restrictive measures. The vast majority of these are entities other than those on the Polish sanctions list. No funds or economic resources may be made available to entities listed in the EU regulations, and their own funds and resources are subject to freezing.
One entity on several lists
There are more and more sanctions lists, and it may happen that one entity finds itself on several lists. For example, Regulation 833/2014 provides for several lists of companies from different economic sectors linked to state authorities that have been subject to specific economic sanctions. The lists in Annexes XIX and IV may be particularly relevant.
Art. 5aa of Regulation 833/2014 bans participation in any transaction with an entity listed in Annex XIX. Additionally, entities at least 50% owned by an entity listed in that annex are also subject to the ban.
Next, if the counterparty is on the Annex IV list, sale, supply or export of dual-use goods or related technical assistance to that entity is banned. Therefore, it is essential to vet counterparties against all sanctions lists every time and assess how they affect the business of the given entity. We wrote more about the impact of economic sanctions on contracts in “The impact of EU economic sanctions on business contracts.”
Up to PLN 20 million for violation of sanctions
Violation of the sanctions imposed on entities on the Polish sanctions list and entities appearing in the annexes to EU regulations 765/2006, 269/2014 and 833/2014 can lead to imposition of administrative fines running as high as PLN 20,000,000. When imposing a fine, the authority should take into account, among other things, the gravity and circumstances of the violation, including the duration of the violation and the amount of profit gained or loss avoided. The fine is imposed by an administrative decision. The law provides for the possibility of filing a request for reconsideration by the same body that was competent to issue the administrative act in question.
The vague criteria for inclusion in the list and the explicit limitation of a party’s rights in the proceedings may lead to inclusion in the list of entities that do not realistically contribute to Russia’s support for the war in Ukraine. On the other hand, the undefined grounds allow administrative authorities to more effectively control attempts to circumvent the sanctions regime, such as the sale of Russian shares in Polish companies to de facto subsidiaries, so that Russian entities retain effective control. It is possible that the Polish sanctions list will continue to grow.
Joanna Krakowiak, attorney-at-law, Jolanta Prystupa, M&A and Corporate Practice, Life Science & Regulatory practice, Wardyński & Partners