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The EU global sanctions regime: How human rights affect supply chains

On 7 December 2020, the Council of the European Union adopted a decision and a regulation establishing a global sanctions regime for human rights violations. On this basis, the EU will be able to impose sanctions on persons, entities and bodies involved in or responsible for serious human rights violations and abuses worldwide—no matter where in the world such actions take place. As soon as possible, EU undertakings active on the global market should adapt their internal compliance systems and reflect human rights issues in designing their supply chains.

Council Regulation (EU) 2020/1998 concerning restrictive measures against serious human rights violations and abuses is directly applicable in all member states. Now the member states must lay down rules on penalties applicable to infringements of the regulation and make sure that they are implemented.

This horizontal regime will also apply to the existing EU geographical sanctions regimes, currently targeting over 200 individuals and entities responsible for human rights abuses. Before, the EU imposed sanctions on third countries for human rights violations under country-specific sanctions regimes. The EU did not have at its disposal a specific mechanism for imposing sanctions on individuals and entities accused of human rights violations. The newly adopted global sanctions regime will allow sanctions to be targeted to those responsible for serious human rights abuses worldwide, no matter where the abuses occur.

Who may be subject to sanctions?

Sanctions may be imposed on:

  • Natural or legal persons responsible for or involved in serious human rights violations or abuses worldwide
  • Persons who provide financial, technical, or material support for the commission of such acts by planning, preparing, ordering or directing them, or assisting in or encouraging their commission
  • Persons associated with any of the above categories.

The regulation applies in EU territory, applies inside or outside the EU to nationals of EU member states and legal persons registered in the EU, and applies to all entities in respect of any business done wholly or partly in the EU.

Human rights violations covered by the sanctions regime

The sanctions apply to acts such as genocide, crimes against humanity, torture, slavery, extrajudicial executions, and arbitrary arrest or detention. Other human rights violations or abuses may also be subject to sanctions if they are widespread or systematic, or otherwise give rise to serious concern in relation to the objectives of the common foreign and security policy as set out in the Treaty on European Union (sexual and gender-based violence, violations or abuses of freedom of opinion and expression, violations or abuses of freedom of religion or belief). However, unlike similar mechanisms in other countries, such as the United States and Canada, the EU instrument does not allow for sanctions against corruption.

Types of sanctions

Sanctions include the freezing of all funds and economic resources belonging to or owned by the listed entities. The regulation also contains a number of exceptions allowing for release or access to certain frozen funds or economic resources to listed persons. But in each case, a prior agreement of the competent national authority is required, which may be given in specific, well-defined cases.

Restrictive measures may also extend to non-designated items owned or controlled by sanctioned persons and entities, as well as persons and entities linked to sanctions. This means that undertakings should ensure that all counterparties and business partners are checked against the EU asset-freeze list, even if they do not have a registered office in a country subject to the EU sanctions regime.

Member states are required to adopt measures restricting the right of listed entities to enter or transit through their territories.

Also, member states should lay down criminal provisions applicable to violation of Regulation 2020/1998 and ensure their implementation. As stated by the Council, “Those penalties should be effective, proportionate and dissuasive.”

Need for human rights due diligence

The EU global human rights sanctions regime is part of the EU Action Plan on Human Rights and Democracy (2020–2024), which, among other things, aims to improve the EU decision-making process concerning human rights and democracy issues, and eliminate gaps in accountability and erosion of the rule of law.

The actions of the Council should be read in conjunction with a Commission proposal announced in September 2020 to require undertakings to conduct mandatory human rights due diligence as an important tool for identifying and mitigating risks in the global supply chain. This clearly shows that promotion and protection of human rights will remain a priority for the EU.

A basic principle of effective environmental, social and corporate governance is that responsibility for the supply chain is shared by all participants in the chain, from producers of raw materials, and entities responsible for transport and logistics, to manufacturers of the end product. This means that even if an undertaking’s contracts with suppliers create binding obligations only at one or two stages of the supply chain, due diligence on the part of the end users in the chain covers all its links.

Undertakings involved in international trade should bring their internal compliance programmes into line with these requirements as soon as possible and give due consideration to human rights issues. Caring for human rights must be integrated not only into risk management and business sustainability strategies, but also into the compliance scheme for sanctions, trading controls, and money laundering.

Anna Olejniczak-Michalska, attorney-at-law, Private Client practice, Reprivatisation practice, Wardyński & Partners