Russian war: the duty of vigilance of European companies regarding sanctions

As Ukraine has commemorated two years since the start of Russia’s full-scale war, the EU has strengthened the legislation to enforce sanctions against Moscow, close loopholes for sanctions circumvention, and penalize those responsible for evasion.

In an article for Les Echos, a French lawyer, Charles-Edouard Renault, recalled the legal risks that European companies run when cooperating with Russian companies. Until being accused of complicity in war crimes committed by Russian troops in Ukraine.

European companies will risk accusations of complicity in war crimes when collaborating with Russian firms

European companies will be subject to obligations in terms of environmental protection and human rights in their production chains. EU member states gave the green light to the new legislation on March 15.

After Russia launched an all-out war against Ukraine, the European Union implemented a policy of sanctions against Russian companies, reinforcing measures taken since the illegal annexation of Crimea in 2014. On February 21, 2024, an agreement was thus reached on a 13th package of sanctions to be included in Regulation 833/2014.

Economic sanctions target, in particular, the export of certain goods to Russia, such as dual-use components (civil and military). The implementation of these measures requires alligned application in all EU Member States, as well as the existence of sanctions against any attempt at circumvention.

EU approved the law on duty of vigilance over human rights and supply chain

MEPs and negotiators from Member States concluded a political agreement in December on this flagship text creating a “duty of vigilance,” which obliges companies to identify and correct attacks on the environment and workers’ rights, including at their own premises. subcontractors abroad.

But the 27 states failed twice in February to find the majority required to formally ratify it. Several countries’ reservations have significantly limited the scope of application compared to the December agreement.

Finally, the text approved by EU Member States only targets companies with 1,000 employees or more with a turnover of at least 450 million euros, and the provisions concerning firms in risky sectors have disappeared, according to a diplomatic source.

If we talk about the circumvention of sanctions by Russia, this may prove insufficient because, according to several investigations, Moscow uses small, newly created front companies as intermediaries to import products under sanctions.

EU’s Corporate Sustainability Due Diligence Directive

In December 2023, the Council and the European Parliament reached a provisional agreement on the Corporate Sustainability Due Diligence Directive, which aims to strengthen the protection of the environment and human rights in the EU and worldwide.

The Due Diligence Directive will impose obligations on large companies regarding actual and potential negative impacts on human rights and the environment in relation to their own activities, the activities of their subsidiaries, and those of their commercial partners, the report said.

The Due Diligence Directive establishes rules regarding the obligations of large companies in relation to actual and potential negative impacts on the environment and human rights in relation to their business chains, which include the activities of upstream trading partners of companies and, in part, downstream activities, such as distribution or recycling.

With regard to companies that do not pay the fines imposed on them in the event of a violation of the directive, the provisional agreement provides for several injunctive measures and takes into account the turnover of the company to impose financial sanctions (i.e., a maximum sanction of at least 5% of the company’s net turnover).

The agreement provides, among the measures of the vigilance process, the obligation for companies to ensure constructive collaboration, including dialogue with and consultation with relevant stakeholders.

As per the agreement in March, the approved text will ultimately apply to companies with 1,000 employees or more (compared to 500 in the initial agreement) and 450 million euros in turnover.

The European Parliament will now have to decide on this new legislation by mid-April.

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