On July 3, 2024, the Council of the European Union published a new EU Best Practices for the effective implementation of restrictive measures, which provide recommendations for the effective implementation of these measures. The new EU Best Practices contain important changes to the assessment of whether Ownership or Control can be established.
On 3 July 2024, the Council of the European Union published a new EU Best Practices for the effective implementation of Restrictive measures (Sanctions) that contains significant changes to both the Ownership criteria and the Control criteria. These changes will impact many companies' current sanctions compliance programs and updates hereof will be necessary.
Below is a short highlight of the most important changes to the Ownership criteria and the Control criteria.
- The EU Best Practices provides a guidance in the assessment of whether a designated person or entity is considered an owner of a legal person or entity. The assessment of Ownership has been changed so that a person or entity is now considered to be the owner of a legal person or entity if they own 50% or more of the proprietary rights of an entity or have a majority interest in it. Previously, the EU position required more than 50% to constitute Ownership. Additionally, the new EU Best Practices states that the aggregated Ownership must be taken into account in the assessment, which means that a person or entity can be considered the owner even if they do not own 50%, as long as they are the person or entity with the largest percentage.
- Further, the EU Best Practices provides guidance on when a designated person or entity can be considered to have Control over a legal person or entity. The new EU Best Practices includes, as a criterion in the Control assessment, whether a designated person or entity has the power to de facto exercise dominant influence over a legal person or entity without holding the formal right to do so. This expands the access to establish Control, as the previous EU Best Practices did not include references to de facto cases.
- Furthermore, the EU Best Practices now states that if a designated person is the largest shareholder in a company compared to the other shareholders, this could be an indicator that the designated person has Control over the company.
- Moreover, the new EU Best Practices add that it could be an indicator of Control, if a designated former owner of a company has the opportunity to buyback the company under favorable terms.
- The EU Best Practices now also specifies that it could be an indicator of Control whether a person makes a transfer of shares to a new owner of an entity shortly before the person has been designated.
- A further addition to the EU Best Practices is, that it should be considered in the Control assessment whether a new owner is closely connected to a designated previous owner. This can include, for instance, family members and former employees. It is a relevant factor in the assessment whether the sale price was too low or abnormal.
- Another indicator of Control added to the EU Best Practices is whether an entity is part of a needlessly complex corporate structure. This could, for instance, involve shell companies, trusts, or limited liability companies linked to a designated person.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.