Understanding the EU’s 14th Sanctions Package and its Implications

The Council Regulation (EU) 2024/1745 (the “Regulation”) amends Regulation (EU) 833/2014 and comprises the 14th EU sanctions package concerning restrictive measures related to specific activities. The new sanctions package emphasizes anti-circumvention strategies and introduces restrictions for specific sectors and activities, such as liquefied natural gas (LNG). This article addresses the new Article 5s, the amendment of Articles 8-8a and Article 12, and their impact on natural and legal persons established and operating in the EU, with a particular focus on the Cypriot market.

Article 5s

Article 5s introduces restrictions on the acceptance of new intellectual property (IP) applications and related requests from specific nationals or entities by intellectual property offices and institutions within the EU Member States or facilitated through EU member states to other relevant international bodies (such as WIPO). The main provisions of Article 5s include:

  • Prohibition on New Applications: IP offices and other competent institutions within the EU and Member States can no longer accept new applications for trademarks, patents, industrial designs, utility models, protected designations of origin, or geographical indications from specific nationals, residents, or entities. This also applies to jointly filed applications with non-restricted entities or persons.
  • European Patent Office (EPO) Efforts: Member States should ensure that the EPO refuses requests for unitary patent protection from specific nationals or entities, including joint applications with non-restricted parties.
  • European Patent Applications: EU member states shall ensure that the EPO does not accept new European patent applications from specific nationals or entities, including joint applications with non-restricted parties.
  • WIPO and Other International Bodies: Member States and the EU in their roles under the WIPO Convention should ensure WIPO and IP offices do not accept new applications for IP rights from specific nationals or entities, including joint applications with non-restricted parties.

The restrictions do not apply to nationals or residents of EU Member States, countries in the European Economic Area, or Switzerland.

These restrictions significantly impact companies operating in the EU by limiting their ability to engage in Intellectual Property transactions with specific nationals or entities and restricting certain IP from being developed and registered in the EU/EEA. It is important for corporate entities and institutions operating in Cyprus to review their policies and procedures and adopt stringent compliance measures to ensure they do not inadvertently process IP applications or related requests involving restricted parties. Enhanced due diligence will be required to verify the nationality and residency status of applicants and foreign interest investors. Additionally, companies should implement robust internal controls and training programs to educate employees on these new regulations to ensure adherence.

Article 8

Article 8 has been revised so that Member States must establish rules for penalties, including criminal penalties, for violations of the Regulation. These penalties should be effective, proportionate, and dissuasive and may consider voluntary self-disclosure as a mitigating factor. Additionally, Member States must ensure measures for the confiscation of proceeds from such infringements.

Article 8a

Article 8a introduces new obligations for natural and legal persons, entities, and bodies to make their best efforts to ensure that any entities they own or control outside the EU do not engage in activities that undermine the restrictive measures of the Regulation. This requirement for companies to undertake their «best efforts» introduces a significant compliance challenge, especially for those with clients or third parties based outside the EU/EEA. It may necessitate substantial investments in compliance infrastructure and legal consultation. The broad and somewhat ambiguous nature of «best efforts» adds to the compliance complexity and can lead to legal uncertainties and varying interpretations, increasing the risk of inadvertent non-compliance. At the time of writing, there is no additional guidance published at the national level on what will satisfy the «best efforts» requirement for companies registered in Cyprus.

Article 12

Another significant addition to the 14th package is the revised Article 12, which now prohibits knowingly and intentionally participating in activities aimed at circumventing the prohibitions of the Regulation. This applies even if the participation in such activities is without deliberately seeking that object or effect but being aware the participation may have that object or effect and accepting that possibility.

The revised version introduces a stricter approach that creates liability for corporate entities operating in the EU even if they do not deliberately aim to circumvent the restrictions, as long as there is a suspicion that such actions can result in a circumventing effect. For example, a producer in the EU may be prohibited from selling goods to a third country if the goods can be forwarded to a restricted country, regardless of whether the EU producer is involved in the said transaction.

Essentially, Article 12 requires EU-based natural or legal persons to engage with third parties outside the EU/EEA that do not intend to have any commercial relations with restricted countries. Even the possibility of a circumventing effect will amount to non-compliance with the Regulation.

Conclusion

The 14th sanctions package significantly escalates the compliance burden for EU-based corporations by mandating stricter penalties, including criminal sanctions, for violations. This package necessitates diligent monitoring and control over both domestic operations and foreign subsidiaries and third parties to ensure non-engagement in activities that contravene the sanctions. This increases operational costs and compliance complexity, potentially restricting EU companies’ flexibility in forming third-party partnerships and strategic alliances. The challenge lies in balancing these compliance demands with maintaining business viability, raising questions about the sanctions’ long-term efficacy and the broader economic impact on the EU market.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Stephanos Ayiomamitis, Partner at our Limassol Office, Tel +357 25363685 or email stephanos.ayiomamitis@kyprianou.com or contact Lefteris Eleftheriou, Trainee Lawyer at our Nicosia Office, Tel +357 22 447777 or email Lefteris.Eleftheriou@kyprianou.com.

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