Sanctions for violating sanctions
Until now, the obligation to comply with the EU economic sanctions regime has arisen directly from the EU regulations, in particular Regulation 833/2014 and Regulation 765/2006 containing restrictive measures against Russian and Belarusian entities, but violation of bans has not been subject to fines. This situation should change, as a bill on special solutions to prevent the support of aggression against Ukraine and to protect national security is being taken up in the Polish parliament.
Effects of the Russian coal scandal
Today, compliance with economic sanctions is a fundamental element of sustainable business based on ESG (environmental, social and governance) factors. So far, failure to comply with sanctions has primarily led to reputational losses and boycotts of goods and services of businesses involved in trade with Russia. It seems that the import of coal from Russia to Poland in a situation where Poland itself produces an abundance of coal will soon lead to adoption of a law in Poland dedicated to economic sanctions. It will introduce a regime of legal liability for non-compliance with sanctions, with the possibility of record-setting fines, as well as set a precedent for imposing domestic restrictions in relation to Rusia, targeting certain entities and subject matter, more far-reaching than the EU’s sanctions. The sanctions for non-compliance will relate to violations of entering into new contracts and improper implementation of contracts concluded before Russia’s aggression against Ukraine.
Up to PLN 20 million for violating economic sanctions
The bill provides for severe sanctions for non-compliance with the restrictive measures contained in the relevant EU regulations (mainly Regulation 833/2014 and Regulation 765/2006 containing restrictive measures against Russian and Belarusian entities).
In particular, the bill provides for the possibility of imposing an administrative fine up to PLN 20,000,000 on businesses operating in Poland and conducting prohibited transactions with entities from Russia or Belarus. This fine is provided for ban violations consisting of:
- Sale, supply, transfer or export of products or technologies dedicated to extraction of fossil fuels listed in Annex II of Regulation 833/2014 to any entity in Russia
- Sale, supply, transfer or export of luxury goods listed in Annex XVIII of Regulation 833/2014 to any entity in Russia
- Imports to the EU of iron and steel products listed in Annex XVII of Regulation 833/2014 originating in or exported to Russia
- Participation in any transaction with an entity listed in Annex XIX of Regulation 833/2014 or controlled by an entity listed in that annex
- Deliberate actions with the purpose of circumventing these bans.
Compliance with Regulation 833/2014 and Regulation 765/2006 will be subject to customs and fiscal control. Fines are to be imposed by the head of the National Revenue Administration by way of an administrative decision, which cannot be appealed to a higher instance. It will only be possible to apply to the same authority for reconsideration.
The bill does not include specific provisions on mitigation of penalties, and thus the general provisions of Section IVa of the Administrative Procedure Code will apply. Pursuant to Art. 189d of the code, when imposing a fine, the authority shall take into account, among other things, the gravity and circumstances of the violation, in particular protection of an important public interest, the frequency of violations of the same type in the past, and the amount of the benefit derived.
In addition to administrative sanctions, a criminal sanction of imprisonment for not less than three years is also foreseen. Indeed, the bill provides for the possibility of criminal liability of anyone who violates the bans in the form of conducting transactions with Russian entities, such as:
- Sale, supply or transfer, including provision of technical or financial assistance, of dual-use goods and technology listed in Annex I of Regulation 2021/821
- Sale, supply or transfer, including provision of technical or financial assistance, of goods and technology of potential military use listed in Annex VII of Regulation 833/2014
- Sale, supply, transfer or export of products or technologies dedicated to extraction of fossil fuels listed in Annex II of Regulation 833/2014
- Sale, supply, transfer or export of goods and technology suitable for aerospace industry use listed in Annex XI of Regulation 833/2014.
Analogous criminal sanctions are foreseen for violation of Regulation 765/2006 containing restrictive measures against Belarus.
National entity-based and subject-matter sanctions
Polish lawmakers assume that sanctions imposed by the EU establish a minimum set of restrictive measures, which can be expanded at the level of individual member states, particularly in Poland. The bill is not limited to indicating fines for non-compliance with the bans set out in EU regulations. Also, the proposal provides for introduction of sanctions not regulated yet at the EU level. These include a ban on import to Poland and transit through Poland of coal falling under item 2701 of the Common Customs Tariff and originating from Russia or from the Donetsk and Luhansk regions.
Additionally, Art. 2 of the bill authorises the minister for internal affairs to create a list under national law of natural or legal persons of significant importance to the economy of Belarus and Russia, whose funds and economic resources will be frozen, i.e. temporarily prohibited from disposal. The list published in the Public Information Bulletin on the ministry’s website will include only entities not provided for in Regulation 765/2006 and Regulation 269/2014, which clearly indicates a widening of the scope of sanctions against specific entities.
Both the banned import of coal from Russia to Poland and the failure to comply with obligations relating to the freezing of funds or economic resources of entities on the minister’s list are to be subject to administrative fines of up to PLN 20,000,000.
Summary
Currently, the bill is in the Sejm, and it is difficult to predict when and in what final form the act will be passed. However, its fate should be carefully followed, as the act is to enter into force the day after publication in the Journal of Laws, which means that at the moment, no grace period for businesses to adjust to the new regulations has been foreseen.
Joanna Krakowiak, attorney-at-law, Jolanta Prystupa, M&A and Corporate practice, Life Science & Regulatory Disputes practice, Wardyński & Partners
