The Week Nº24

IN-DEPTH:

A lessor of immovable property used as a registered office by the lessee is not an ‘obliged entity’ under the 4th Antimoney laundering and terrorist financing Directive (Case C-22/23, Citadeles)

Anastasia Sotiropoulou

Monopoly of collective management organisations in Italy: Time to let other players join the game (Case C-10/22, LEA)

Manon Verbeeren

C-634/22 OT and Others: the Inadmissibility of the Request for a Preliminary Ruling or Not Everything that Glitters is Gold

Anna Zemskova

The Water Framework Directive does not protect all EU surface waters after all, Sweetman, C-301/22)

Lolke Braaksma

On the calculation of the annual target level of the 2022 ex-ante contributions to the SRF (Dexia v SRB, T-411/22)

Barbora Budinská

New judgment on the ‘Spanish Tax Lease System’ saga: General Court dismisses another action seeking the annulment of Commission’s decision finding Spanish Tax Lease Scheme incompatible with EU State aid rules

Adrián Fernández Domínguez

SYMPOSIUM ON CLIMATE PROTECTION AS A EUROPEAN FUNDAMENTAL RIGHT UNDER THE ECHR AND BEYOND

Verein KlimaSeniorinnen Schweiz v. Switzerland and Article 6(1) of the ECHR: Of Climate Change and Craftsmanship

Anaïs Brucher and Antoine De Spiegeleir

COMPETITION CORNER: SYMPOSIUM ON COMPETITION LAW AND REGULATION

Moving past “Crime and Punishment” in European financial regulation: lessons from competition law on commitment decisions

Enrico Sartori

THE LONG READ:

A Common Criminal Law Approach to the Violation of EU Sanctions? Chances and Perils of the 2024 Directive

Jan Dunin-Wasowicz & Jeff Nielsen

HIGHLIGHTS OF THE WEEK

IN-DEPT H

A lessor of immovable property used as a registered office by the lessee is not an ‘obliged entity’ under the 4th Anti-money laundering and terrorist financing Directive (Case C-22/23, Citadeles)

Anastasia Sotiropoulou

A lessor, who lets his own property to a company that uses it as its registered office with the consent of the lessor should not be regarded as a ‘trust or company service provider’ under Directive 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (‘the Directive’). Accordingly, the lessor should not be required to comply with the obligations arising from that directive. In essence, this is how the Court of Justice construed the notion of ‘trust or company service provider’ under article 3(7)(c) of the directive in its judgement rendered on 18 April 2024 in the ‘Citadeles’ case C-22/23. This interpretation is fully convincing: indeed, it is faithful not only to the wording of Article 3(7)(c), but also to its context and to the objectives pursued by the other rules set forth in the Directive.

The main proceedings opposed Citadeles nekustamie īpašumi’ SIA (‘Citadeles’), a commercial company registered in Latvia and specialised in real estate, to the Latvian State Tax Authority. The latter had imposed a fine on Citadeles for failing to comply with the requirements of the Latvian Anti-Money Laundering Law. It considered that the leasing by Citadeles of a self-owned building to companies which had registered their offices in that building, made Citadeles a ‘provider of services for the establishment and operation of legal arrangements or legal persons’ under the Latvian Anti-Money Laundering Law, which corresponds to the concept of ‘trust or company service provider’ defined by Article 3(7)(c) of Directive 2015/849. Citadeles challenged the decision before the District Administrative Court of Latvia, which in turn asked the Court of Justice to clarify the concept of ‘trust or company service provider’ used for the purposes of the Directive.

Directive 2015/849/EU is the fourth AML directive. Like its predecessors, it aims to prevent the use of the financial system for the purposes of money laundering or terrorist financing. Together with the fifth AML directive (Directive 2018/843), and in line with the guidelines set out in the FATF’s 2012 Recommendations, it lays down the current EU framework for the prevention and fight against money laundering and the financing of terrorism. In order to achieve these goals, these directives impose two sets of requirements on obliged entities, the scope and nature of which are based on the intrinsic risk posed by clients, transactions and the nature of their business relationships (risk-based approach). On the one hand, obliged entities are required to carry out customer due diligence to verify the identity of customers and beneficial owners, to obtain information on their business

relationships and to monitor them. On the other hand, they are required to report any suspicious transaction they identify.

A list of ‘obliged entities’ is furthermore established by Article 2 of the Directive. One of the categories of obliged entities contained in the list is ‘trust or company service providers’ (Article 2(1)(3)(c)), who are defined by Article 3(7)(c), as any person who provides ‘a registered office, business address, correspondence or administrative address and other related services’. However, there is no additional precision in the Directive regarding this notion, which may explain why the Latvian Judge submitted this issue to the Court of Justice in the present case.

To construe Article 3(7)(c), the Court resorted to its traditional method, based upon an analysis which is both textual, contextual and teleological.

Regarding, first of all, the textual analysis of this provision, the Court of Justice, following the Opinion of the Advocate General, concluded that the service consisting in providing a ‘registered office, business address, correspondence or administrative address and other related services’ within the meaning of Article 3(7)(c) involves making available a point of contact to be used for professional and administrative purposes such as the delivery of correspondence. According to the Court, this type of service is, for several reasons, distinct from the mere fact of letting real estate. First, letting property means simply making available that property in exchange for the payment of a rent. Second, providing a registered office or a business correspondence or administrative address does not necessarily imply the conclusion of a lease regarding the immovable property which is used as the office or the address of the beneficiary. Third, the use of the conjunction ‘and’ in the wording of Article 3(7)(c) indicates that, to fall within the scope of this provision, ‘other related services’ must effectively be provided. These additional services require a more active involvement by the service provider than simply providing a registered office, a business address for correspondence or an administrative address. Additional ‘related services’ may, for example, include the management of correspondence or the handling of administrative documents. It goes without saying that the mere consent, given by the lessor to the lessee, to use the property as a registered office cannot be categorised as a ‘related service’.

The textual analysis of Article 3(7)(c) conducted by the Court is well argued and perfectly persuasive: the right, at stake in the present case, to use the leased property as a registered office, is merely derived from the leasing transaction and can therefore in no way be regarded as a distinct service provided by the lessor of the property within the meaning of Article 3(7)(c).

The contextual interpretation of Article 3(7)(c) leads to the same conclusion. Article 2 of the Directive expressly mentions, among the ‘obliged entities’, professionals involved in real estate transactions such as notaries and other independent legal professionals (see Article 2(1)(3)(b)(i) and (d) of the Directive). But it neither links ‘trust or company service providers’ to real estate transactions nor does it include in the ‘obliged entities’ list lessors of immovable properties. In addition, none of the other services provided by a ‘trust or company service provider’ listed in Article 3(7)(a) to (e) of that Directive relates to real estate transactions. In this regard, it should be noted

that the Court’s interpretation corresponds to the FATF definition of ‘trust and company service providers’, which does not refer to any real estate transactions (FATF, Trust and Company Service Providers, June 2019, para. 17) but rather points to providers of trust and company services that are not covered elsewhere by the FATF Recommendations.

It is true that, although the Directive has chosen neither to link ‘trust or company service providers’ to real estate transactions nor to include lessors of real estate property in the list of ‘obliged entities’, Member States remain free to do so since the Directive 2015/849 is a minimum harmonisation Directive (see Article 5). Member States may thus adopt stricter requirements, and even extend the scope of the Directive to other ‘obliged entities’ whose activities are particularly likely to be used for the purposes of money laundering or terrorist financing (see Article 4(1)). However, if Member States decide to extend the personal scope of the Directive, they are required, according to Article 4(2), to inform the Commission. In the present case, it seems that Latvia neither adopted stricter requirements nor informed the Commission.

Regarding, lastly, the teleological interpretation, the Court simply indicates, at the outset of its reasoning, that the aim of the Directive is ‘the prevention of the use of the financial system for the purposes of money laundering and terrorist financing’ and that the provisions of the Directive ‘seek to establish, taking a risk-based approach, a body of preventive and dissuasive measures to prevent flows of illicit money from being able to damage the integrity, stability and reputation of the financial sector and threaten the internal market of the European Union as well as international development’. The Court does not, however, expressly state that treating as an ‘obliged entity’ the owner of immovable property who merely lets this property to a lessee who registers his office within this property, with the consent of the lessor, does not pursue these objectives in a proportionate way. On this point, the decision may be considered as poorly motivated, which is all the more regrettable as the Court could have adopted as her own the teleological analysis conducted by the Advocate General (AG Opinion, points 48-52). The latter had rightfully noted that interpreting the concept of ‘company service provider’ so as to cover lessors of self-owned real estate to companies having their registered office in that property would not be compatible with the principle of proportionality: indeed, it would extend the concept of ‘obliged entity’ and the obligations arising from that status to a very significant number of individuals, whose activity – that is to say, simply letting self-owned real estate – is not, in principle, particularly likely to be linked to money laundering or terrorist financing.

By ruling that the leasing owner of immovable property in which the lessee registers its office with the consent of the leasing owner, does not fall, by that fact alone, within the scope of the concept of a ‘trust or company service provider’, the Court makes a significant clarification as to the scope of this category of ‘obliged entities’. Most importantly, it exempts a significant number of persons, whose activity consists solely in letting self-owned real estate to companies, from having to comply with burdensome obligations, where the risk of performing this activity for the purposes of money laundering and terrorist financing is not so high.

Anastasia Sotiropoulou is Professor of Private Law at the University of Orleans, France

SUGGESTED CITATION: Sotiropoulou, A.; “A lessor of immovable property used as a registered office by the lessee is not an ‘obliged entity’ under the 4th Anti-money laundering and terrorist financing Directive (Case C-22/23, Citadeles)”, EU Law Live, 06/05/2024, https://eulawlive.com/op-ed-alessor-of-immovable-property-used-as-a-registered-office-by-the-lessee-is-not-an-obliged-entity-under-the-4th-anti-money-laundering-and-terroristfinancing-directiv/

Monopoly of collective management organisations in Italy: Time to let other players join the game (Case C-10/22, LEA)

Manon Verbeeren

On 21 March 2024, the Court of Justice of the European Union issued a new judgment on the monopoly granted by certain Member States to collective management organisations for the management of copyright and related rights on their territory (C-10/22, Liberi editori e autori (LEA)). With this decision, the Court ruled that the Italian legislation prohibiting independent management entities established in other Member States to engage in copyright intermediation in Italy is incompatible with the freedom to provide services as provided for in Article 56 TFEU. This Op-Ed unravels the Court’s reasoning, and details why it diverged from its conclusion in OSA (C-351/12).

System of collective management and its recent challenges

The efficiency of the collective management system for copyright no longer needs to be proved, as it benefits both copyright owners and users. However, such system based on monopoly and territoriality must overcome two major challenges.

First, in EU law, the collective management system raises questions with regard to both competition law and the internal market freedoms. Although the Court has already positioned itself on that debate (see, e.g., OSA, C-351/12), there are still situations in which the question of compatibility of the monopoly position of collective management organisations (CMOs) with EU law arises.

Second, the emergence of digital technology and of the internet has significantly altered the landscape of artistic creation and of the dissemination of works. For many authors, internet distribution is sufficient, which also simplifies the management of their rights and makes the individual exercise of those rights much more realistic. Independent management entities (IMEs), which are purely commercial in nature and often operate via the internet, have therefore emerged. Their legal status and relationship with CMOs are still a source of conflict, despite their express recognition by the EU legislature.

Heart of the dispute: the exclusion of IMEs under Italian law

Two entities are in dispute in the present case. Liberi editori a audtori (LEA), the plaintiff, is a CMO governed by Italian law and authorised to operate in the field of copyright intermediation in Italy. Jamendo, the defendant, is an IME incorporated under Luxembourg law and operating as copyright intermediate in Italy. Its management activity is carried out entirely online, via its website.

According to Article 180 of the Italian Law on the protection of copyright, the activity of copyright intermediation in Italy is exclusively reserved to CMOs and therefore prevents IMEs from operating in Italy in this field. Based on Article 180, LEA brought an action for an injunction against Jamendo before the referring court (District Court of Rome), claiming that its activities are carried out unlawfully in Italy.

In response to this action, Jamendo claimed that Directive 2014/26 confers rights to copyright intermediation not only on CMOs, but also on IMEs. It therefore argues that Italy has incorrectly transposed that Directive.

Compatibility of such exclusion with EU law?

In view of the above, the referring court referred the following question to the Court of Justice for a preliminary ruling:

‘Must Directive 2014/26 be interpreted as precluding national legislation that reserves access to the copyright intermediation market, solely to collective management organisations, to the exclusion of those which can be classified as independent management entities incorporated in that Member State or in other Member States?’

This question, which seems simple at first glance, was the subject of lengthy reasoning by both the Advocate General Maciej Szpunar and the Court of Justice. Indeed, it quickly became clear that the answer to this question could not be resolved by interpreting Directive 2014/26 alone.

Directive 2014/26 and its limits

The recitals and several provisions of Directive 2014/26 show that the European legislature recognises the possibility for authors and artists to entrust the management of their rights to IMEs. However, none of the provisions of this directive can be interpreted as requiring Member States to ensure that rightsholders have the right to authorise an IME of their choice to manage their rights irrespective of the Member State of nationality, residence or establishment of the IME or rightsholder concerned. The exclusion of IMEs as provided for by Italian law is therefore not contrary to the provisions of the Directive 2014/26

On the other hand, both the Advocate General and the Court of Justice considered that the dispute in the main proceedings is characterised by a situation linked to trade between Member States. Therefore, and in order to give a useful answer to the referring court, the Court of Justice decided that it cannot limit its reasoning to Directive 2014/26 and must interpret other provisions of EU law.

Interpretation of other provisions of EU Law

Harmonisation directives

As advised by the Advocate General, the Court of Justice first analysed if the access of IMEs to the activity of copyright management has been the subject of exhaustive harmonisation at EU level. However, contrary to the

Advocate General’s opinion, the Court ruled out the application of Directives 2000/31 and 2006/123, because of the exclusions contained regarding copyright and related rights.

Primary law

In the absence of harmonisation Directives, the Court of Justice assessed the dispute in light of EU primary law. In this case, Article 56 TFEU. According to the Court, Article 180 of the Italian Law on the protection of copyright ‘plainly constitutes a restriction on the freedom to provide services guaranteed in Article 56 TFEU’ (para. 77).

The Court points out, however, that such restriction may be justified by overriding reasons in the public interest, provided that

It is suitable for securing the attainment of the public interest objective concerned; and It does not go beyond what is necessary to attain that objective.

Although the assessment of the first condition was easy since it is settled case-law that the protection of IP rights constitutes an overriding reason in the public interest (OSA, C-351/12, para. 71), the assessment of the second condition was more complex.

The Court decided to ascertain, in the first place, whether the restriction consisting in the exclusion of IMEs that are established in another Member State from the activity of copyright intermediation is suitable for securing the attainment of the public interest objective relating to copyright protection that is pursued by such a measure. According to settled case-law, it would be the case only if the restriction genuinely meets the concern to attain that objective in a consistent and systematic manner (Fussl Modestraße Mayr, C-555/19, para. 59).

The Court therefore examined whether the different treatment of CMOs and IMEs under Italian law meets that requirement. The comparative analysis carried out in paragraphs 88 to 95 of the Court’s judgement shows that IMEs are subject to less stringent requirements than CMOs. Therefore, the different treatment may be considered to be suitable for securing the attainment of the objective.

However, the Court decided to ascertain, in the second place, whether the said restriction does not go beyond what is necessary to secure the attainment of the public interest objective relating to copyright protection. The Court considered that the Italian law could have inserted a measure that is less restrictive of the freedom to provide services than a total exclusion of the IMEs. According to the Court, such measure might consist, in particular, in making the provision of copyright intermediation services in Italy subject to particular regulatory requirements that would be justified in light of the objective of copyright protection.

Difference with the conclusion in the OSA case and justification

On 27 February 2014, the Court of Justice issued a decision in OSA (C-351/12) stating that Article 56 TFEU must be interpreted as not precluding national legislation which reserves the exercise of collective management of copyright to a single CMO in respect of certain protected works in the territory of the Member State concerned and thereby prevents users of such works from benefiting from the services provided by another CMO established in another Member State.

In our view, the Court is right in departing from that reasoning, since the facts of the present case differ from those of the OSA case. Indeed, Italian law prevents IMEs established in other Member States from carrying out the activity of copyright management in Italy, while allowing CMOs established in other Member States to carry out such an activity.

In a nutshell, in the OSA case, the Court had to analyse the difference in treatment between CMOs established in the Member State concerned and CMOs established in other Member States, whereas in the present case, the assessment had to be made between CMOs and IMEs all established in other Member States.

The choice of an in-between solution

On the abovementioned grounds, the Court ruled that Article 56 TFEU, read in conjunction with Directive 2014/26/EU must be interpreted as precluding a Member State from enacting legislation which generally and absolutely excludes the possibility for IMEs established in other Member States to provide their copyright management services in that Member State.

The answer to the question referred for a preliminary ruling was far from obvious. This is illustrated by the significant differences between the reasoning of the Advocate General and that of the Court of Justice. It is particularly interesting to note that, although both the Advocate General and the Court of Justice reached the same conclusion, their interpretations of the relevant European legislation are diametrically opposed on certain points. Such difference is probably due to the many unregulated issues arising from the arrival of the Internet.

Although the Court of Justice’s reasoning is based exclusively on EU primary law, we favour the latter. Thanks to the (in-between) solution provided, the Court of Justice skilfully invites the Italian legislature to amend its legislation with a view to regulating access to the business of copyright management to include the new players, such as IMEs. It remains to be seen how the Italian legislator will choose to implement that in practice and let them join the game.

Manon Verbeeren works as legal counsel and intellectual property (IP) attorney in an IP law firm based in Belgium, where she advises in copyright law, trademark law and design law. She holds a Master of Law (Civil and Criminal Law) (UCL) and a Master of Intellectual Property & ICT Law (KU Leuven).

SUGGESTED CITATION: Verbeeren, M.; “Monopoly of collective management organisations in Italy: Time to let other players join the game (Case C-10/22, LEA)”, EU Law Live, 06/05/2024, https://eulawlive.com/op-ed-monopoly-of-collective-management-organisations-in-italy-time-to-let-otherplayers-join-the-game-case-c-10-22-lea-by-manon-verbeeren/

C-634/22 OT and Others: the Inadmissibility of the Request for a Preliminary Ruling or Not Everything that Glitters is Gold

Anna Zemskova

The recent OT and Others (C-634/22) judgment of the Fourth Chamber of the Court, delivered on 18 April 2024, is a new compliment to the abundant case-law of the Court on the issue of judicial independence, that this time originates from proceedings in Bulgaria.

In this case, a request for a preliminary ruling, submitted by the Sofia City Court, concerned the problematic –in the referring’s court point of view– compatibility of the abolition of the Specialised Criminal Court as a result of the judiciary reforms, introduced in 2022, with EU law. The referring court was particularly interested in the interpretation of Article 2, 6 (1) and (3) and the second subparagraph of Article 19 (1) TEU, read in light of Article 47 of the Charter and the principle of primacy of EU law.

Lack of respect for the principle of independence of the judiciary is, undoubtedly, one of the main concerns that has been continuously raised in the context of judicial reforms in the Member States. The Bulgarian Law amending and supplementing the Law on the judiciary, or the ZIDZSV, having been a subject for heated debates both before and after its adoption, is no exception in this regard. Following the abolition of the Specialised Criminal Court, the Sofia City Court became the successor of the jurisdiction of the abolished court in the cases, where preliminary hearings in first instance criminal proceedings had been held before the entry of the ZIDZSV into force. Such cases would be heard by the Sofia City Court in the same formations before which the preliminary hearings were held as a result of either reassignment of the judges, that had previously served at the Specialised Criminal Court, or their secondment to the Sofia City Court until the proceedings in such cases are finalised.

The proceedings in the present case represent exactly the scenario described above, namely, that the referring court, the Sofia City Court, whose formation has ‘migrated’ from the Specialised Criminal Court for the purposes of the dispute at hand, continues to deal with the criminal proceedings instigated in 2018 against 5 individuals accused of engaging in collusive extortion activities. Concerned by the abolition of the Specialised Criminal Court, the referring court decided to stay the proceedings and send a request for a preliminary ruling, consisting of three questions. Firstly, the referring court questioned whether, in light of the provisions of EU law, the described abolition of the Specialised Criminal Court in itself impairs the independence of that court in the context where several factors are present. First, the former judges of the abolished court would continue to adjudicate in the matters, commenced prior to the court ceasing to exist, and second, such an abolition pursued the objectives of preserving the constitutional principle of the judiciary independence and constitutional rights of the citizens,

hereby implying that the Specialised Criminal Court had allegedly infringed those principles.

Secondly, the referring court inquired whether EU law precludes the adoption of the ZIDZSV as a result of both the deficiencies, described in the first question, and the transfer of the Specialised Criminal Court’s judges to other courts, where these judges would, however, continue to adjudicate in the cases, initiated at the abolished court. And lastly, the referring court asked the Court to explicate if it was necessary to undertake any procedural acts, in case the first two questions were answered in the affirmative.

Whereas the issue of judicial independence, intrinsically connected through Article 19 (1) TEU to the respect for the constitutional principle and the foundational value of the rule of law, enshrined in Article 2 TEU, has been on numerous occasions subject to the scrutiny of the Court (C-64/16, C-619/18, C-192/18, C-558/18 and C-563/18, C-585/18, C-624/18 and C-625/18, C-824/18, C-719/19, C-748/19 to C-754/19, C-487/19, C-132/20, C-204/21, C-430/21), this does not automatically entail the admissibility of the request for a preliminary reference. This is vividly demonstrated by the ruling by the Court in OT and Others (C-634/22). Indeed, by endorsing a view that diverges from the Opinion of Advocate General Campos Sánchez-Bordona, and by declaring the request at hand inadmissible, the Court has confirmed its position in regard to its wellestablished case-law on the admissibility of the requests for preliminary rulings under Article 267 TFEU.

While acknowledging its jurisdiction in the cases, where the Member States, while exercising their competence, are nevertheless bound to comply with the obligations, stemming from EU law (C-634/22, paras. 24-26), the Court reminded of the fact that, even though the questions, referred by national courts enjoy a presumption of relevance, the Court may still refuse to provide guidance in the cases, where it finds that the requested interpretation is irrelevant for the dispute in a national court, where the problem is hypothetical, or where the Court has not been provided with the necessary factual or legal material to enable it to supply a national court with useful answers (C-634/22, para. 29, C-333/21, para. 64). The Court also pointed out that it is imperative that an answer to a question, submitted within the framework of Article 267 TFEU, must be ‘necessary’ for resolving a dispute in a national court (C-634/22, para. 30, C-510/19, para. 27) and that ‘a connecting factor’ between a dispute in a national court and the provisions of EU law, whose interpretation is requested, must be present in the case (C634/22, para. 31, C-181/21 and C-269/21, paras. 64-65). The Court did not dispute the presence of a genuine dispute in the national court or the existence of the connecting link with EU law in this case. However, after having analysed the essence of the external (C-634/22, para. 35, C-430/21, para. 41) and internal (C-634/22, para. 36, C-487/19, paras. 117-118) aspects of judicial independence, the Court found no reasons that would indicate that a serious doubt in regard to independence and impartiality of the abolished court was present in the request for the preliminary ruling. This led the Court to logically conclude that due to the absence of reasons that would give rise to serious doubts in regard to the independence and impartiality of the court at issue, the interpretation sought did not seem to be necessary for adjudicating in a dispute before a national court, which, in its turn, rendered the request for a preliminary ruling inadmissible (C-634/22, para. 41).

Indeed, it is remarkable that the referring court questioned the independence of the Specialised Criminal Court with a reference to its abolition, whereas the parties had not expressed any doubts in regard to any aspect of the judicial independence at any stage of the proceedings and the referring court itself had not questioned its subjective impartiality in the case (C-634/22, paras. 16, 39). The Bulgarian legislature, that by means of adopting the ZIDZSV terminated the existence of the Specialised Criminal Court, had not cast doubt on the individual independence of the members of the abolished court either – on the contrary, it actually vested the former judges of the court with the duties to continue their work in the cases, initiated before the ZIDZSV came into force (C-634/22, paras. 37-38). As the Advocate General Campos Sánchez-Bordona wisely pointed out, no one had actually put forward any concerns with regard to the independence or impartiality of the formation of the court at hand (C-634/22, Opinion, point 25), whereas in practice the order for reference essentially targeted the criticised aspects of the judicial reform of 2022 (C-634/22, Opinion, point 26). While the introduction of the judiciary reforms might rightfully give rise to legitimate concerns regarding the effects they might exert on the independence of the judiciary, as highlighted by the Commission and the Advocate General in his Opinion, restructuring a judicial system, aimed at guaranteeing the independence of the courts, does not necessarily entail curtailment of the independence of the national courts (C-634/22, Opinion, point 63). If such concerns are expressed though, they need to be thoroughly substantiated.

To summarise, by declaring a request for a preliminary ruling inadmissible in OT and Others the Court acted in accordance with the spirit of Article 267 TFEU, that provides a forum for a judicial dialogue between the Court and the national courts on the matters, pertaining to EU law. Article 267 TFEU should not, however, be used for engaging the Court in ‘mediating controversies’, that can naturally occur in the course of the Member States’ legislative proccesses (C-634/22, Opinion, point 68), even when they can revolve around such topical issues, as judicial independence.

Anna Zemskova is Postdoctoral Researcher at the Faculty of Law at Lund University. A full list of her research inputs can be found here

SUGGESTED CITATION: Zemskova, A.; “C-634/22 OT and Others: the Inadmissibility of the Request for a Preliminary Ruling or Not Everything that Glitters is Gold”, EU Law Live, 08/05/2024, https://eulawlive.com/op-ed-c-634-22-ot-and-others-the-inadmissibility-of-the-request-for-a-preliminaryruling-or-not-everything-that-glitters-is-gold-by-anna-zemskova/

The Water Framework Directive does not protect all EU surface waters after all, Sweetman, C-301/22)

Lolke Braaksma

Introduction

On 25 April 2024, the Court of Justice clarified the obligations that apply to non-designated surface water bodies under the Water Framework Directive (Sweetman, C-301/22). In essence, the Court rules that there is no obligation to characterise and classify lakes smaller than 0.5 km2, and to establish and monitor their ecological status. Moreover, the obligations to achieve good surface water status and to prevent deterioration do not apply to these waters. Nevertheless, the Court also rules that the Water Framework Directive could still be important when deciding on an application for a project that affects these lakes, as they may connect to designated surface water bodies.

The facts

The case concerns a small lake on Gorumna Island (Ireland). This lake was not identified as a water body under the Water Framework Directive as it did not meet the criteria in relation to surface area or being located in a protected area. An Irish salmon farmer (Bradán Beo Teoranta) sought permission to abstract freshwater from this lake to bathe diseased salmon and to rid them of amoebic gill disease and sea lice. This permission was granted by the competent authority An Bord Pleanála (the Board). Sweetman lodged an appeal against this decision. He argued that this authorisation would breach the obligation in Article 4(1) of the Water Framework Directive (WFD) to implement the necessary measures to prevent deterioration of the status of that body of surface water. The High Court in Ireland held that this obligation had indeed been breached, but later re-opened the case and requested a preliminary ruling of the Court of Justice (mainly) because of the far-reaching consequences this interpretation of the Directive could have.

In essence, the Court of Justice was faced with two questions: whether an obligation exists to characterise and classify lakes smaller than 0.5 km2, and to establish and monitor their ecological status and whether the obligations to achieve good surface water status and to prevent deterioration apply to these waters.

The judgment and commentary

The negative answer to both questions could come as a surprise after the Court of Justice’s Weser-ruling of 1 July 2015. Here, the Court considered that ‘the ultimate objective of [the Water Framework Directive] is to achieve, by coordinated action, “good status” of all EU surface waters by 2015.’ After years of uncertainty, it turns out that the Water Framework Directive does not, in fact, protect all EU surface waters after all.

The Court of Justice essentially reaches this conclusion by interpreting the obligations from the Water Framework Directive as well as the travaux préparatoires for this Directive. One of the arguments to refrain from characterising and classifying lakes smaller than 0.5 km2 is that this would result in ‘unnecessary high burdens’ in light of the complexity of this process. Besides the lake central to this case, the ruling could be applied by analogy to other types of water bodies, such as rivers smaller than 10 km2 that are not designated and do not need to be designated under the Water Framework Directive.

The foregoing is notwithstanding the fact that the Water Framework Directive could still be important when deciding on an application for a project that affects non-designated surface water bodies. Surface waters can be connected with one another, which could cause the quality of a small non-designated water body to affect the quality of a designated water body. In essence, the Court rules that the competent authority in such cases must ascertain that the consent: (i) is not liable to cause deterioration of the status of another surface water body, (ii) nor is liable to compromise the attainment of good surface water status, and (iii) is compatible with a programme of measures for the concerned river basin – as required by article 11 WFD. It is for the national court to ascertain whether these criteria are met.

Fulfilling these criteria could require a substantial amount of (complex) research before sufficient information is gathered for the competent authority to determine whether a project in a small non-designated surface water body is permissible. Moreover, these water bodies could also still be covered by other Directives, such as the Birds and Habitats Directives. The fact nevertheless remains that for some EU surface waters, it is now clear that they are not protected by the protective regime under the Water Framework Directive.

L.S. (Lolke) Braaksma, LL.M. is assistant professor at the University of Groningen.

SUGGESTED CITATION: Braaksma, L.; “The Water Framework Directive does not protect all EU surface waters after all, Sweetman, C-301/22”, EU Law Live, 09/05/2024, https://eulawlive.com/analysis-the-water-framework-directive-does-not-protect-all-eu-surface-waters-after-all-sweetman-c-30122-by-lolke-braaksma/

On the calculation of the annual target level of the 2022 ex-ante contributions to the SRF (Dexia v SRB, T-411/22)

Barbora Budinská

1.

Introduction

On 10 April, the General Court annulled a decision of the Single Resolution Board (‘SRB’) on the 2022 ex-ante contributions to the Single Resolution Fund (‘SRF’ or ‘Fund’) in so far as it concerns Dexia, a former French credit institution and the applicant in the case (Dexia v SRB, T-411/22). In essence, the General Court found that the SRB had failed to comply with its obligation under Article 70(2) of Regulation No 806/2014 (‘SRM Regulation’) to ensure that the amount of all ex-ante contributions to be paid in 2022 does not exceed 12.5% of the (forecast) final target level of financial resources available in the Fund.

2. The calculation of the annual target level and the 12.5% cap

The purpose of the Fund is to finance resolution of banks. It is financed by the banking sector itself, mainly through annual ex-ante contributions, the amount of which is calculated by the SRB. The process of replenishing the Fund through ex-ante contributions is also referred to as the initial period. This period started on 1 January 2016 and ended on 31 December 2023. The SRB had to ensure that by the end of this period the Fund reaches at least 1% of the amount of covered deposits of all concerned credit institutions. This amount is referred to as the final target level.

Furthermore, for each year of the initial period, the SRB had to calculate the annual target level, that is to say the total amount of ex-ante contributions to be collected in a given year. According to Article 69(2) of the SRM Regulation, the SRB shall calculate the annual target level in such a way as to ensure that the contributions are spread as evenly as possible over time until the final target level is reached. The first and fourth subparagraphs of Article 70(2) of the SRM Regulation specify that ‘in any case’, the aggregate amount of the individual contributions to be paid by the institutions ‘shall not exceed annually the 12,5 % of the [final] target level’.

When calculating the amount of ex-ante contributions for the year 2022, the SRB estimated the final target level to be close to EUR 80 billion. Accordingly, the annual target level should not have exceeded EUR 10 billion (or 12.5% of EUR 80 billion). However, the SRB set the annual target level for the 2022 contribution period at more than EUR 13 billion (see paras. 61-63). This amount thus clearly exceeded the 12.5% cap. As a result, the applicant claimed, inter alia, that the SRB had infringed Article 70(2) of the SRM Regulation.

3. The General Court’s judgment

The SRB put forward two main arguments in its defence. Firstly, it argued that the requirement to apply a 12.5% cap does not apply during the initial period. The General Court rejected that. Among other things, it pointed out that the wording of Articles 69(2) and 70(2) of the SRM Regulation is unambiguous in providing that the 12.5% cap applies during the initial period. Moreover, the travaux préparatoires of the SRM Regulation state that the initial period for the establishment of the Fund was originally set at ten years instead of eight. Accordingly, it was proposed that the annual target level should not exceed 10% of the final target level. It was only at a later stage in the legislative procedure that the duration of the initial period was reduced to eight years and the cap on the annual target level was increased to 12.5%. Thus, there is a clear link between the duration of the initial period and the percentage of the cap on the annual target level. This means that the Union legislator intended for this cap to apply during that period (paras. 23, 27-39).

In the alternative, the SRB, supported by the Parliament and the Council, argued that the requirement to apply a 12.5% cap had to be ‘disregarded or interpreted flexibly’ due to the dynamic nature of the final target level. The General Court agreed that the Union legislator had indeed opted for a ‘dynamic approach’ as regards the calculation of the final target level. The underlying rationale for this choice is that the Fund must have sufficient resources to fulfil its purpose. The more the banking sector grows over time, the more resources will need to be made available to the Fund. The amount of covered deposits is used to estimate the size of the banking sector. Thus, an increase in the amount of covered deposits indicates an increase in the size of the banking sector, which implies an increase in the financial resources required by the Fund (paras. 24-26; 40-44).

In light of that, the General Court recognised that the calculation of the final target level is subject to uncertainty. However, it pointed out that ‘taking account of such uncertainties is inherent in the tasks entrusted to the SRB’. Accordingly, the General Court rejected the SRB’s argument that it is impossible to reconcile its obligation to ensure that the Fund reaches its final target level of at least 1% of covered deposits by the end of the initial period with its obligation to limit the annual target level to 12.5% of the final target level. The SRB has an obligation to calculate the final target level each year during the initial period as precisely as possible in the light of the data available to it at the time of the calculation. This forecast final target level is then decisive for the subsequent calculation of the 12.5% cap. Moreover, the final target level must be at least 1% of covered deposits. This leaves room for the SRB to estimate, on the basis of conservative projections, the evolution of the amount of covered deposits in such a way that the target level is reached and the 12.5% cap is respected (paras. 46-48; 55-59).

The General Court also concluded that the wording of Article 70(2) of the SRM Regulation is ‘unambiguously clear’, since it ‘twice and without any exception’ states that the cap for the annual target level must be exactly 12.5% of the (forecast) final target level. Consequently, an interpretation of Article 70(2) of the SRM Regulation allowing a flexible application of the cap would be contrary to its wording and therefore incompatible with the principle of legal certainty (paras. 49-54).

As a result, the SRB infringed Article 70(2) of the SRM Regulation because it did not respect the 12.5% cap when calculating the amount of contributions to be paid by all institutions in 2022. Consequently, the applicant’s ex-ante contribution for the year 2022 was set too high. Accordingly, the General Court annulled the contested decision in so far as it concerns the applicant. However, in order to protect the financial stability of the Union, the General Court decided to maintain its effects until the SRB replaces it with a new decision or for a maximum period of six months from the date on which its judgment becomes final (paras. 60-75).

Barbora Budinská is a lecturer in European law at Leiden Law School’s Europa Institute and a member of the Young Researchers Group of the European Banking Institute.

SUGGESTED CITATION: Budinská, B.; “On the calculation of the annual target level of the 2022 ex-ante contributions to the SRF (Dexia v SRB, T-411/22)”, EU Law Live, 10/05/2024, https://eulawlive.com/analysis-on-the-calculation-of-the-annual-target-level-of-the-2022-ex-ante-contributionsto-the-srf-dexia-v-srb-t-411-22-by-barbora-budinska/

New judgment on the ‘Spanish Tax Lease System’ saga: General Court dismisses another action seeking the annulment of Commission’s decision finding Spanish Tax Lease Scheme incompatible with EU State aid rules

Adrián Fernández Domínguez

The General Court, sitting in its Extended Composition formation, handed down its judgment in Hispavima v Commission ( T-514/14), a case concerning, in essence, the applicant’s claim that the Court should annul a Commission’s decision, in so far as it declares the existence of State aid, in the context of a tax leasing regime, implemented by Spain, and orders its recovery from the investors in the Economic Interest Groupings (EIGs).

The judgment in the present case is part of the ‘Spanish Tax Lease System’ saga (STL), concerning several actions brought against Commission Decision 2014/200/EU of 17 July 2013 on State aid (SA.21233 C/11) implemented by Spain through a tax leasing regime applicable to certain finance lease agreements, in so far as it allowed shipping companies to benefit from a 20-30% price reduction when purchasing ships constructed by Spanish shipyards. According to the Commission, the objective of the STL system was to grant tax advantages to EIGs and the investors participating in them, which then passed on part of those benefits to the shipping companies that bought a new ship.

In its judgment, the General Court, on the one hand, dismisses the appeals as having become moot following the annulment of Article 1 of the contested Decision, which designated the EIGs and their investors as the sole beneficiaries of the aid referred to in that Decision, and of Article 4(1) thereof, which ordered Spain to recover in full the amount of the aid exclusively from the EIG investors. However, the General Court rightly clarifies that by its judgment of February 2, 2023, Spain and Others v Commission (C-649/20 P, C-658/20 P and C-662/20 P) the Court of Justice only partially annulled the contested Decision and, therefore, the Decision remains valid insofar as it declares that the STL constitutes unlawful state aid and orders Spain to recover the illegal aid.

As for the other claims, the General Court recalls the judgment of the Court of Justice on several occasions, suggesting that a potential appeal against this ruling might yield only limited success. The applicant challenges the selective nature of the aid. However, the Court of Justice already confirmed that the presence of discretionary factors was such as to favour beneficiaries over other taxpayers in a comparable factual and legal situation, giving the tax authority significant discretion.

Regarding the recovery of the aid received, the General Court recalls, as the Court of Justice did in its judgment of February 2, 2023, that the standard for protecting legitimate expectations is very high and it is only on exceptional

circumstances that it can be relied on. According to the Court, the decision on the French tax lease system should have caused ‘any prudent and alert economic operator’ to realise that a regime similar to the STL system could be State aid and dismissed the parties’ allegations.

However, a potential appeal to the Court of Justice could help clarify the specific scope of the recovery obligation that now falls on the Spanish state. The contested Decision stated that Spain shall recover the incompatible aid from the EIG investors that benefited from it ‘without the possibility for such recipients to transfer the burden of recovery to other persons’. The appellant alleges that this improperly establishes that contractual clauses under which investors could claim the amounts they would have had to reimburse to the State would be void. According to the applicant, the Commission exceeded its competences in the field of State aid, as the validity of private agreements related to State aid falls exclusively under the purview of national judicial bodies.

The General Court argues that the contested Decision only aims to clarify the scope of the recovery obligation addressed to Spain, based on two main arguments. On the one hand, the Member State is obliged under Article 288 TFEU to take all measures necessary to ensure implementation of that decision and ensure the actual recovery of the sums owed (see Commission v Spain, C 529/09, para. 91). On the other hand, the restoration of the situation as it was before the aid was granted is only attained once the recipient repays the aid and forfeits the advantage which it had enjoyed over its competitors on the market (see Spain and others v Commission, C 649/20 P, C 658/20 P and C 662/20 P, para. 130). The contested Decision only aims to clarify the scope of the recovery obligation, without the beneficiaries being able to transfer the burden of recovery to any other contracting party, as otherwise, it could compromise the effective functioning of the State aid control system established by the Treaty. In this sense, a possible appeal to the Court of Justice would clarify the scope of the aforementioned indemnity clauses and to what extent they compromise the recovery obligation of the aid.

To wrap up, following the judgment of the Court of Justice of 2 February 2023, the General Court examines the appeal lodged by Hispavima against the Commission Decision, shortly after a new judgment on the STL saga was delivered on 21 February 2024 in the judgment Telefonica and other v Commission ( T-29/14 and T-31/14). Although, in general terms, it repeats what has already been stated by the Court of Justice, a possible appeal could clarify the scope of the partial annulment of the contested Decision, which annuls the designation of the EIGs and their investors as the sole beneficiaries of the disputed aid and, consequently, as for the recovery of the aid. A potential future appeal to the Court of Justice could also clarify the specific scope of the recovery obligation that falls on the Spanish state and the validity of indemnity clauses.

It is important to note that the Judgment deals with the illegality of the previous framework of the STLS, but it does not affect its current configuration. This is because Spain changed its laws in 2012 and received the approval of the European Commission through its Decision of November 20, 2012, in Case SA.34.736.

Adrián Fernández graduated from the College of Europe in Bruges in 2023 and now works for an international law firm in Brussels.

SUGGESTED CITATION: Fernández, A.; “New judgment on the ‘Spanish Tax Lease System’ saga: General Court dismisses another action seeking the annulment of Commission’s decision finding Spanish Tax Lease Scheme incompatible with EU State aid rules”, EU Law Live, 07/05/2024, https:// eulawlive.com/analysis-new-judgment-on-the-spanish-tax-lease-system-saga-general-court-dismisses-another-action-seeking-the-annulment-ofcommissions-decision-finding-spanish-ta/

SYMPOSIUM

SYMPOSIUM ON CLIMATE PROTECTION AS A EUROPEAN FUNDAMENTAL RIGHT UNDER THE ECHR AND BEYOND

Verein KlimaSeniorinnen Schweiz v. Switzerland and Article 6(1) of the ECHR: Of Climate Change and Craftsmanship

Anaïs Brucher and Antoine De Spiegeleir

This contribution is part of the EU Law Live Symposium on Climate Protection as a European Fundamental Right under the ECHR and beyond. Previous Op-Eds were authored by Carolina Ramalho dos Santos and Erriketi Tla da Silva and Bas van Bockel. More Op-Eds on this topic will be published soon on EU Law Live.

On April 9, the European Court of Human Rights (ECtHR) issued its much-awaited rulings in three climate change cases: Verein KlimaSeniorinnen Schweiz v. Switzerland, Duarte Agostinho and Others v. Portugal and 32 Other States, and Carême v. France. In this Op-Ed, we look at how the right to a fair trial under Article 6(1) of the European Convention on Human Rights played out in KlimaSeniorinnen, the only case in which this provision was relied upon by the applicants. While this aspect of the Grand Chamber judgment is not revolutionary, its significance should not be understated. First, we summarize the ECtHR’s application of Article 6(1) in this seminal climate change case. Second, we voice concerns about the ECtHR’s finding that the individual applicants’ claim under Article 6(1) was inadmissible. Third, we reflect on KlimaSeniorinnen’s treatment of Article 6(1) as an example of creative judicial craftsmanship.

The ECtHR’s Approach to Article 6(1) in KlimaSeniorinnen

In KlimaSeniorinnen, a non-profit association and four individual applicants (who are also members of the association) complained before Swiss authorities that Switzerland was not doing enough to protect them from the adverse effects of climate change on their health and quality of life. Having declared the applicants’ claims inadmissible for lack of legal standing, not a single domestic authority, either administrative or judicial, examined these claims in their merits. In Strasbourg, the applicants complained that this non-examination amounted to denying their right of access to court guaranteed under Article 6(1) of the Convention.

Throughout its judgment, the ECtHR underlined the uniqueness of climate-related litigation, including the need to reflect this uniqueness when interpreting Article 6(1) (KlimaSeniorinnen, paras. 608-614). Although the ECtHR went on to remark that ‘the characteristics of the subject matter do not at present prompt the ECtHR to revise its firmly established case law on Article 6’ (Ibid, para. 608), the theme of climate change did influence how the ECtHR ruled on (i) the applicability conditions of Article 6(1) and (ii) the assessment of compliance with this provision.

While the applicability of Article 6(1) was largely assessed by reference to other judgments (Balmer-Schafroth and Others v Switzerland, and Athanassoglou and Others v Switzerland), one tricky question remained. Were the

domestic proceedings ‘directly decisive’ for protecting the applicants’ rights against the adverse effects of climate change? Contrary to environmental harms caused by specific operations, which the ECtHR addressed in a long line of case law, climate change-related risks are broader and diffuse—and the climate crisis’ worse effects will only materialize in the future. Assessing the decisiveness of the domestic proceedings for risk alleviation or reduction is necessarily in part prospective. One needs to strike a balance between avoiding an actio popularis based on strictly hypothetical risks and acknowledging the pressing need for access to courts today to prevent irreversible harm tomorrow (Ibid, para. 614).

The ECtHR provided a nuanced answer to the question of decisiveness. Similarly to its approach under Article 8, it only declared the association’s complaint admissible under Article 6(1), rejecting the individuals’ complaint. Associations can act as a collective voice, which is especially relevant to climate change-related concerns shared by an indefinite number of persons, including future generations and other society members at a distinct representational disadvantage. In light of this important role of associations in climate change litigation, the ECtHR allowed the condition for a ‘directly decisive’ outcome to be ‘taken in [a] broader sense of seeking to obtain a form of correction of the authorities’ actions and omissions’ (Ibid, para. 622) and ruled that the association had demonstrated an ‘actual and sufficiently close connection to the matter complained of and to the individuals seeking protection against the adverse effects of climate change on their lives’ (Ibid, para. 621).

The climate change context of KlimaSeniorinnen also influenced the ECtHR’s assessment of the Swiss proceedings’ compliance with Article 6(1) requirements. The ECtHR agreed to examine the association’s claim as long as it was concerned with domestic actions relating to the effective implementation of mitigation measures required under domestic law to tackle climate change, as opposed to requests for legislative and regulatory action. It found that the complete lack of examination of the merits of the association’s claim impaired the ‘very essence’ of the association’s right of access to court (Ibid, paras. 629-640). This finding does not depart from the ECtHR’s well-established Article 6(1) case law. Noteworthy is the ECtHR’s insistence on how climate change posed a (new) pressing need to ensure ‘legal protection of human rights as regards the authorities’ allegedly inadequate action to tackle climate change’ (Ibid, para. 634). One wonders whether the ECtHR did not almost suggest that climate change litigation warrants additional vigilance, or lenience, when applying access to court criteria. Such a suggestion, if indeed more than a figment of enthusiastic interpreters’ imagination, remains timid; KlimaSeniorinnen will not overhaul the ECtHR’s Article 6(1) case law.

Victim status of individual applicants under Article 6(1)

For all the sophistication of KlimaSeniorinnen’s reasoning, we are puzzled by the ECtHR’s finding that the individuals’ claim under Article 6(1) was inadmissible. To start with, as pointed out by Judge Eicke in his partial dissent, this finding of inadmissibility breaks with a long tradition of Article 6(1) case law where ‘victim status’ is granted to any individual applicant demonstrating that they have been a party in proceedings brought by them before domestic courts. Pragmatism and self-preservation may explain the ECtHR’s restraint. As it worried about preventing actio popularis, the ECtHR decided to reduce chances for individuals to make it to Strasbourg. The

ECtHR was well-aware of the repercussions its first ruling on climate change would have beyond its courtroom. Hence, the ECtHR played it safe. Whether we like it or not, this approach presented two main advantages for Strasbourg. First, the ECtHR avoided being flooded by future claims from individuals somehow directly affected by climate change and whose claims would have been dismissed at the domestic level. Second, by rejecting the victim status of individual applicants throughout its judgment, the ECtHR sidestepped the risk of creating a dissonance between its findings under Article 6 and under Articles 2 and 8. Instead, the ECtHR built a clear common thread for climate change cases: if one hopes to be successful in Strasbourg, one might wish to resort to associations.

If this pragmatism is understandable, it strikes us as somewhat untenable. Indeed, it results in a strange situation: the admissibility test under Article 6(1) was softened for environmental associations and simultaneously hardened for individuals… while their claims under this provision were virtually identical. Associations aim to defend the rights and interests of their members—the ECtHR itself held that the ‘association’s action was based on the threat arising from the adverse effects of climate change as they affected its members’ health and well-being’ (Ibid, para. 618). The same basis (even more directly) animated the individual applicants’ action: their action was based on the threat arising from the adverse effects of climate change for their own health and well-being. Specifically in the context of Article 6(1), we fail to understand why the individuals’ claims could not also be found on its own to have a ‘direct and sufficient link’ with the dispute raised before domestic courts.

One additional detail makes the distinction between associations and individuals under Article 6(1) even odder. As we recalled above, the ECtHR found Switzerland to impair the ‘very essence’ of the association’s right of access to court (Ibid, para. 638). Arguably, despite its rhetorical splendeur, such a finding based on the essence of a right is not particularly compelling or impressive; in KlimaSeniorinnen, it is merely a near-synonym of the measure being disproportionate to its aims. That said, it remains difficult to reconcile the ECtHR’s dramatic ‘essence’ terminology, and the separation it implies within the Convention provisions between a universalist core and a periphery, with the ECtHR’s sharp distinction between the legal standing of associations and individuals. By granting legal standing only to the association, KlimaSeniorinnen indirectly entitled member states to impair the essence of individuals’ right to access to court, even though this essence was found to be threatened by domestic authorities’ failures.

Below, we argue that the very structure of the KlimaSeniorinnen judgment may be to blame for these issues.

KlimaSeniorinnen as a Feat of

Judicial Craftsmanship

This Op-Ed’s focus on the right to a fair trial in KlimaSeniorinnen offers a welcome opportunity to reflect more abstractly on the craftsmanship that goes into writing collectively such a long and elaborate ruling. As many commentators have noted in the last weeks, this judgment is a testament to the thoroughness and professionalism of the individuals who sit on the Strasbourg bench. Spanning 657 paragraphs, KlimaSeniorinnen is a feat of judicial drafting that is worth studying as such. Above, we pointed out how the ECtHR repeatedly underscored the unique role of environmental associations. Another strategy used by the ECtHR is the ordering of its rulings.

When an application encompasses multiple claims, the ECtHR is free to choose which one to discuss first and in which subsequent order to address the others. When it finds that a Convention provision has been breached, it can also decide not to address other claims. In KlimaSeniorinnen, this ordering may have had an important influence on the finding of inadmissibility of the individuals’ claims under Article 6(1), which the ECtHR addressed after touching on Article 8 (and 2), as suggested by Judge Eicke in his partial dissent. Indeed, the ECtHR may have merged considerations on victim status and applicability under Article 6(1) for the mere reason that it had done so under Article 8 and was aiming for overall consistency. The ECtHR may also have denied the individual applicants’ victim status under Article 6 because it had denied it under Article 8 and aimed for consistency of reasoning.

All rulings involve these sorts of choices—commentators will surely continue to bicker over whether Strasbourg made the right ones in KlimaSeniorinnen. Whatever the answer, this judgment stands as a model of judicial craftsmanship that will leave an indelible mark on the (European) human rights landscape.

Anaïs Brucher and Antoine De Spiegeleir are PhD researchers at the Law Department of the European University Institute (Florence).

SUGGESTED CITATION: Brucher, A. and De Spiegeleir, A; “Verein KlimaSeniorinnen Schweiz v. Switzerland and Article 6(1) of the ECHR: Of Climate Change and Craftsmanship”, EU Law Live, 08/05/2024, https://eulawlive.com/op-ed-verein-klimaseniorinnen-schweiz-v-switzerland-andarticle-61-of-the-echr-of-climate-change-and-craftsmanship-by-anais-brucher-and-antoine-de-spiegeleir/

SYMPOSIUM

COMPETITION CORNER:

SYMPOSIUM ON COMPETITION LAW AND REGULATION

Moving past “Crime and Punishment” in European financial regulation: lessons from competition law on commitment decisions

Enrico Sartori

Introduction

Public enforcement of EU financial markets law is clearly based on a sanctioning pillar. Public authorities tasked with enforcing financial markets law throughout the EU can impose hefty pecuniary penalties and several other administrative measures. At times, even criminal penalties can apply, such as in the most serious cases of market abuse. However, something more is required to increase the enforceability of financial markets law. In particular, the development of a second public enforcement pillar, based on negotiated solutions, is advisable. The present contribution advocates for the introduction of commitment decisions – a decades-old practice in EU competition law – in EU financial markets law.

Public enforcement of EU financial markets law: standing on a sanctioning pillar

After the global financial crisis of 2008, the European legislator felt a heightened urgency of punishing misconduct in financial markets. The ensuing quest for harmonisation of sanctioning regimes led to the development of a minimum sanctioning toolbox to be made available to public enforcers (national competent authorities, or “NCAs”) throughout the EU. Accordingly, current European legislation includes detailed sanctioning provisions, such as art. 30 ff. of the Market Abuse Regulation (Regulation (EU) No 596/2014), art. 38 ff. of the Prospectus Regulation (Regulation (EU) 2017/1129), and art. 70 ff. of MIFID II (Directive 2014/65/EU).

Within the new regime, the high foreseeable amount of pecuniary penalties attracted particular attention. In fact, in the case of violation of financial markets law provisions, Union legislation requires that NCAs may impose fines based on entities’ economic strength. For example, pecuniary penalties for violations of the Prospectus Regulation can amount to 3% of a firm’s turnover. Notably, fines can reach as high as 15% of an entity’s turnover in serious cases of market abuse (thus even higher than the maximum fines for competition law violations, currently set at 10% of a firm’s turnover). Other administrative sanctions and measures, both for natural and legal persons, further bolster NCAs’ enforcement powers. Such provisions form the “sanctioning pillar” of EU financial markets law.

Achieving a stronger sanctioning framework was thought to be the optimal reaction to a financial environment seen as plagued by widespread violations and corporate impunity. However, this approach led to overlooking other important aspects of an effective public enforcement. In fact, a system of public enforcement based primarily on criminal and administrative sanctions is constrained within well-known limits. For example, the scarcity of personnel and resources pushes public enforcers to concentrate on selected potential violations. It is therefore impossible for NCAs and prosecutors to adequately pursue all the potential violations they detect.

Focusing enforcement on a sanctioning pillar also has broader implications. In fact, the type and amount of sanctions imposed in a jurisdiction constitute an important competitive factor for its financial markets. Under-, or overdeterrence may reduce the appeal of the jurisdiction at issue for investors, or for companies seeking a listing on a stock exchange. Where the only possible reaction to a suspected violation is the opening of a sanctioning proceeding, a financial hub may acquire a reputation for overdeterrence.

More generally, financial regulation is shaped by numerous and detailed provisions, at times of difficult interpretation and often dealing with minutiae of firms’ business activities. Especially for smaller firms, this creates the potential for relatively minor infringements of formal requirements, or violations due to simple negligence. Dealing with minor violations by means of sanctions may not always be the most conducive to a well-functioning market, especially when alternatives exist.

The use of commitment decisions in EU competition law

Interesting alternatives are indeed offered by other areas of EU law. Notably, EU competition law has developed a series of non-sanctioning tools to deal with potential anti-competitive behaviours. Settlements and commitment decisions are both successful examples of such an approach, but I believe that commitments are of particular interest. Through commitments, companies can avoid sanctioning proceedings by proactively addressing concerns as to the conformity of their activities with competition law. In particular, companies can undertake to follow a specific course of action; companies’ commitments are then made legally binding through a decision of the competition authority.

With a commitment decision, the competition authority does not take a position as to the existence of a competition law violation, and the firm is not required to recognise its liability. Due to their consensual nature, such tools require less resources than sanctioning proceedings, and the resulting economies can be thus directed to other potential violations. Moreover, the decision is unlikely to be contested in court by the addressee, since the latter has been involved in its elaboration.

Of course, commitments are not adequate for every type of conduct which raises competition law concerns. First of all, such tools can only address future behaviours. Secondly, commitment decisions are considered not applicable in hardcore cartel cases and other particularly serious infringements.

Still, competition law commitments show that compliance with applicable laws can be pursued not only through sanctions, but also through cooperation between public authorities and regulated entities. In fact, the tool has proven so convincing to the EU legislator that commitments, initially developed in the practice of the European Commission (now enshrined under art. 9 of Competition Regulation 1/2003), are now part of the enforcement toolbox of all EU national competition authorities (under art. 12 of ECN+ Directive 2019/1).

Introducing commitment decisions in EU financial markets law: towards a public enforcement pillar based on negotiated solutions

Competition law practice reveals several advantages of commitment decisions. But could commitment decisions, and the connected benefits, be imported into EU financial markets law? In my view, the answer is positive. First of all, public enforcers of financial markets law throughout the EU are subject to the resource paucity typical of any public enforcement authority. Therefore, they would only benefit from employing proceedings which appear less resource-intensive than sanctioning proceedings when dealing with minor violations.

However, the main benefit of introducing commitment decisions in financial market legislation at the EU level would be qualitative. In fact, such a reform would complement the existing sanctioning pillar with a different one, based on negotiated solutions. In particular, this second pillar would foster supervisory cooperation between regulated entities and public authorities, with several positive spillovers.

First of all, the process to reach a commitment decision involves a dynamic information exchange between NCAs and firms. Over time, NCAs would gather valuable information on the inner workings of firms, whereas firms at issue would be better informed about the views and expectations of supervisors. Secondly, the result would be less contentious than a sanctioning decision, leading to a more acceptable solution. A diminution of enforcement resources devoted to litigation can be expected. Ultimately, commitments would enable NCAs to gently steer the development of market practices according to regulatory goals, with a view to market integrity and investors protection.

In light of the above, it should not surprise that commitments made their way into the financial markets law of certain EU member states. Lastly, for example, the Italian legislator (with art. 23 of Law No 21 of 5 March 2024) enabled CONSOB, the Italian financial markets authority, to issue commitment decisions with reference to all types of infringements of the Italian Consolidated Financial Law (Legislative Decree No 58 of 24 February 1998).

Of course, commitments should be handled with care. An inappropriate use could lead, depending on which of the actors is tilting the balance, to unwarranted supervisory intrusion in market practices, or to a weakening of the enforcement regime. Such risks advise a particularly careful selection of the violations to which commitments should be applicable, and a calibration of the criteria that should guide their use.

Several potential violations of EU financial markets law could be best remedied through commitment decisions, especially with reference to protracted conducts, which can still be changed in the future. In this light, commitments should be applicable to potential infringements of governance and organisational provisions. Additionally, they would apply well to potential breaches of conduct of business duties by firms vis-à-vis investors.

On the contrary, commitments are ill-suited for instances of market manipulation and prospectus violations, as these conducts cease abruptly in a specific point in time. However, concerning minor prospectus violations,

commitments should still be admissible to help remedy the consequences of the violation. For example, they may include the obligation to compensate damaged investors.

Closing remarks

As demonstrated by competition law, an enforcement approach which includes negotiated solutions alongside traditional sanctions is possible and operable. Within negotiated solutions to potential violations, commitment decisions present several advantages.

Such benefits would be easily replicated in the enforcement of EU financial markets law if commitment decisions entered the toolbox of financial NCAs. As a result, public enforcement of EU financial markets law would be standing on two pillars: one providing for hefty sanctions, and one based on consensual solutions. Ultimately, market integrity and investors would turn out to be the real beneficiaries.

Enrico Sartori is a Doctoral Researcher at the Luxembourg Centre for European Law, pursuing a joint PhD program at the University of Luxembourg and at Goethe University Frankfurt.

SUGGESTED CITATION: Sartori, E.; “Moving past “Crime and Punishment” in European financial regulation: lessons from competition law on commitment decisions”, EU Law Live, 06/05/2024, https://eulawlive.com/competition-corner/moving-past-crime-and-punishment-in-europeanfinancial-regulation-lessons-from-competition-law-on-commitment-decisions-by-enrico-sartori/

THE LONG READ

A Common Criminal Law Approach to the Violation of EU Sanctions?

Chances and Perils of the 2024 Directive

Jan Dunin-Wasowicz & Jeff Nielsen 1

Introduction

In many ways, Russia’s war of aggression against Ukraine pushed the European Union (‘EU’) into a new age of sanctions implementation and enforcement.2 Having adopted successive rounds of measures, EU and Member State policy makers progressively pivoted their attention to improving implementation and bolstering enforcement. While a 14th package of EU sanctions against Russia was under consideration,3 on 24 April 2024, the Council of the European Union (the ‘Council’) and the European Parliament (the ‘Parliament’) adopted a Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures (the ‘Directive’). The Directive was published in the Official Journal of the EU on 29 April 2024.4 Member States will have until 20 May 2025 to implement it into national law.

The long-awaited, potentially groundbreaking Directive was adopted at a critical time for the EU. With Russia’s aggression entering its third year, concerns over the effectiveness of sanctions continue to grow. At the same, from a structural perspective, enforcement of EU sanctions is still a relatively novel subject in the EU. The Directive seeks to harmonise relevant criminal offences and penalties for those offences across the EU. It is intended to make it easier to investigate and prosecute such violations in all Member States in the same way, closing loopholes and increasing the deterrent effect of violating EU sanctions. The Directive was thus introduced in a very dynamic context, marked by heightened political, security and legal concerns.

This Long-Read takes a first critical look at the Directive. It considers the Directive and its objectives couched in the broader context of enhancing sanctions enforcement in the EU. Part I summarises the genesis of the Directive and the problems in the EU’s current sanctions framework that it seeks to cure. Part II presents the Directive, its mandate and key provisions. Part III then discusses the strengths of the Directive and raises several challenges. While the Directive is a significant accomplishment, this Long-Read cautions against thinking that the Directive itself will be enough to achieve truly effective sanctions implementation and enforcement in the EU.

1. Jan Dunin-Wasowicz is a partner in the Paris office of an international law firm and Jeff Nielsen is an in-house lawyer at a firm based in Copenhagen.

2. Jan Dunin-Wasowicz, ‘The Long Arm of EU Sanctions’ EU Law Live 25 October 2022.

3. See eg. ‘EU finally ready to bring down Russia’s gas empire … sort of’, Politico, available here

4. Directive (EU) 2024/1226 of the European Parliament and of the Council of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures and amending Directive (EU) 2018/1673, OJ L, 2024/1226, 29.4.2024.

I. Charting the Path to More Robust Sanctions Enforcement Across the EU

A. The Origin of the Problem: The Kaleidoscope

Before discussing the Directive, it is helpful to understand the context in which it was introduced. Although Russia’s war of aggression prompted the EU to adopt significant sanctions, a broader trend to use sanctions more often and for a variety of policy objectives was already developing. With over 40 EU sanctions programs in place and additional programs being considered, political and policy appetite is strong to adopt sanctions in response to various international events. However, while the EU has significantly expanded its ‘sanctions activity’ in the sense of imposing sanctions, it has not, until recently, focused on the effectiveness of its implementation and enforcement within the EU.

Under the current framework, EU sanctions law-making and enforcement, though inherently interwoven, are pulled in two different directions. While adopting EU sanctions presupposes that all Member States converge to one common (political and legislative) view on the measures, enforcing EU sanctions requires turning to each national legal framework independently.5

Under Article 288 of the Treaty on the Functioning of the European Union (‘TFEU’), Council Decisions and Regulations on sanctions become binding law automatically in each Member State. As to enforcement of such measures, Council Decisions and Regulations on sanctions require only that ‘Member States shall lay down the rules on penalties applicable to infringements of the provisions of [such] Regulation and shall take all measures necessary to ensure that they are implemented. The penalties provided for shall be effective, proportionate and dissuasive.’6 Some require also that ‘Member States shall also provide for appropriate measures of confiscation of the proceeds of such infringements.’7 Member States are required to notify the European Commission (Commission) of their enforcement rules.8

Beyond this broad, rather ambiguous requirement, the implementation and enforcement of EU sanctions is the exclusive mandate of Member States. Competent authorities in Member States are left full discretion to assess whether there has been a breach of Council Decisions and Regulations on sanctions adopted under Article 29 of the Treaty on the European Union (‘TEU’) or Article 215 of TFEU, respectively, and – if so – to take appropriate actions. This presupposes that Member States have the right tools and resources to address possible violations of EU sanctions.

5. Article 29 TEU.

6. See, e.g., Article 13(1) of Council Regulation (EU) No 359/2011 of 12 April 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Iran, OJ L 100, 14.4.2011, p. 1–11.

7. See, e.g., Article 8(1) of Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, OJ L 229, 31.7.2014, p. 1–11.

8. See, e.g., Article 13(2) of Council Regulation 359/2011 and Article 8(2) of Council Regulation 833/2014.

This bifurcation between uniform sanctions laws promulgated by the EU enforced by the individual laws of each of its 27 Member States has resulted in a complex paradigm that may weaken the efficacy of EU sanctions. The main risk is that there is inconsistent enforcement of sanctions among Member States. There are myriad examples of this patchwork system:

• Member States laws on what acts amount to a criminal violation of sanctions varies widely. Some Member States have parallel civil enforcement regimes, whereas others have only criminal regimes – 12 Member States have only criminal regimes whereas 13 other Member States have both civil and criminal regimes.

• In Member States with civil enforcement, some acts that are criminal in another Member State are subject to only a civil fine. In Member States with solely criminal regimes, acts that amount to criminal behaviour varies.

• Penalties vary widely among Member States – where sanctions violations are criminal, prison sentences vary widely and maximum fines for both civil and criminal violations range from EUR 1,200 to EUR 5,000,000. These broad variations among Member States provides sanctions evaders with broad risk-mitigation discretion to forum shop among Member States for the narrowest criminal penalty definitions and lowest penalties.

In addition to an ineffective EU sanctions regime, the result may also be that companies in stricter Member States are at a competitive disadvantage to those on Member States with weaker enforcement appetites.9 In addition to the above, there is one factor that all Member States have in common: very few individuals and companies responsible for EU sanctions violations are ever held accountable across all Member States’ sanctions enforcement regimes, either civilly or criminally. Why this is so is debated, most arguments reveal under-resourced competent authorities and political lack of enforcement -prioritisation.

B. The Commission’s Solution: Harmonization of Sanctions Crimes and Offenses

While many ideas were floated in Brussels and among Member States, consensus quickly emerged to create an EU-level mechanism to create a baseline for Member State criminal enforcement standards with the goal to incentivise Member States to build more robust enforcement regimes – and begin enforcing violations against malfeasant economic operators in their jurisdictions. It was agreed that the legal instrument to achieve this objective would be a Directive issued to Member States that requires them to implement in their own laws a harmonised baseline for the definitions of criminal offenses and related penalties for violations of EU restrictive measures.

9. See European Commission, Proposal for a Directive of the European Parliament and of the Council on the definition of criminal offenses and penalties for the violation of Union restrictive measures of 2 December 2022, COM/2022/684 final (the ‘Proposal’), pp. 1-2.

So that the Directive could be introduced via the ordinary legislative procedure, an amendment to the TFEU that added the violation of EU restrictive measures as a serious criminal offense under Article 83(1) was first required. On 25 May 2022, the Commission issued its TFEU amendment proposal. The Council adopted the proposal on 28 November 2022.10

Just four days later, on 2 December 2022, the Commission proposed the Directive.11 The Parliament and Council began negotiations that lasted throughout 2023, and the Directive was passed on 24 April 2024.

II. Overview of the Directive’s Mandate to Member States.

A. The Directive’s Mandate and Scope

At the outset, an important distinction should be noted: the harmonisation measures enacted are in the form of a Directive, not a Regulation.12 This means that the Directive’s enactment is not immediately law in each Member State, but rather that each Member State must now independently reform its national laws, if necessary, to align with the Directive’s requirements. Significant to this, each Member State is also free to enact criminal law that exceeds the Directive’s ambitions. Each Member State can ‘tailor’ its approach as long as the national framework meets the Directive’s requirements.

Further, the Directive is silent on civil or administrative enforcement. Thus, the 12 Member States that currently have no civil/administrative enforcement regimes will not be required to create one. However, the two Member States that have only a civil enforcement regime will be required to create a criminal regime.

Last, the Directive does not include export control-related dual use or arms control violations if such violations are not scoped into restrictive measure regulations.

B. Main Provisions

Substantively, Article 3 of the Directive mandates that Member States criminalise numerous acts in violation of EU restrictive measures if they are ‘intentional’; however any violations of restrictive measure provisions that relate to dual use or arms is to be criminalized if committed with ‘serious negligence’.

Criminal acts prescribed in Article 3 include making frozen funds or economic resources available to designated persons or entities, failing to freeze funds and economic resources as required by restrictive measures regulations,

10. Council Decision (EU) 2022/2332 of 28 November 2022 on identifying the violation of Union restrictive measures as an area of crime that meets the criteria specified in Article 83(1) of the Treaty on the Functioning of the European Union, OJ L 308, 29.11.2022, p. 18.

11. See, generally, the Proposal.

12. See, generally, the Directive.

enabling designated persons to travel in or through the EU, entering into or continuing transactions with designated governments, and any activity (trading, importing, exporting, selling, purchasing, transferring, transiting, transporting, brokering and technical assistance) relating to prohibited imports or exports and financial services in violation of restrictive measures regulations. Violations of Member State competent authority orders relating to specific activities (e.g., exceeding the limits of a specific license authorising certain conduct) are also criminalised.

Article 3 also mandates that circumvention be criminalised, including moving funds via third parties that are owned or controlled by designated persons or entities, providing false or misleading information to conceal designated ownership of assets, and failing to report or provide information to competent authorities relating to frozen assets or economic resources as required by law. Somewhat surprisingly, circumvention of other restrictive measures themes (e.g., import and export bans) are not included.

Article 3 permits – but does not require – Member States to remove from the scope of criminal liability violations involving frozen funds, economic resources, goods, services, transactions or activities where the value is less than EUR 10,000. How such valuation is measured is not specified.

Article 4 adds that intentionally inciting, and aiding and abetting, any offence is to be criminalised. Also, any intentional attempt (even if not a completed act) of any act other than failing to freeze funds or failing to comply with reporting or information sharing requirements is also to be criminalised.

Article 5 describes minimum standards for penalties for natural persons. Notably, the penalty standards are triggered only where the relevant frozen assets, economic resources or goods or services are valued at a minimum of EUR 100,000. Member States are left full discretion as to any value under this threshold. Upon this, natural persons are to be subject to a maximum of at least one year imprisonment for failure to report or provide information as required by law. Making available to designed parties, failing to freeze and moving frozen funds and economic resources via third parties is to be punished by a maximum of at least five years imprisonment. Enabling designated person transit to or through the EU is to be punished by a maximum of three years imprisonment. Trade with banned governments, export- and import-related activities and financial services activities are subject to a maximum of at least five-year imprisonment. A caveat to the export and import penalty is that there is no minimum value of goods if the criminal activity involved dual use items or arms as specified in the relevant restrictive measure regulation. No fine standards are specified, but Member States are required to set ‘proportionate’ fines as well as banning those convicted from leadership in companies and elected office as well as withdrawal of relevant government permits. Criminal convictions are also to be published.

Article 6 requires that Member States hold legal persons responsible when natural persons with authority or power in the legal person have violated the law for their ‘benefit’. Notably, natural persons are also to be criminally liable when there has been a ‘lack of supervision or control’ by those natural persons with authority or power that has made ‘possible’ any criminal act by others in the legal person.

Article 7 requires more broadly that Member States enact ‘effective, proportionate and dissuasive criminal or non-criminal penalties or measures’ that ‘may’ include fines and other measures, including: bans on public benefits, tenders and grants; loss of business licenses and permits; placement under judicial supervision; winding up; and finally, publication of a criminal conviction. Ignoring reporting or disclosure requirements is to be penalised by a fine with a maximum of not less than one percent of annual global turnover or EUR 8,000,000. All other acts are to be penalized by a fine with a maximum of not less than five percent of annual global turnover or EUR 40,000,000.

When assessing a penalty, Article 8 requires that Member States consider the following to be aggravating circumstances: organised criminal activity, falsification of documents, professional service provider or public official acting in violation of obligations, the act was to generate or avoid expense, evidence was destroyed or there has been a prior offence. Article 9 requires Member States to consider the following to be mitigating circumstances: providing information that the Member State competent authority would otherwise not have had and turning over other malfeasants. Notably, voluntary self-disclosures are not defined as a mitigating.

Article 10 requires that Member States ensure that assets and economic resources required to be frozen, but that were not previously frozen because of criminal activity, be frozen.

Article 11 requires that Member States set a five-year limitation period (i.e., statute of limitation) from commission of any act, but Member States may derogate to a three-year period and provide that limitations periods may be suspended in the event of acts specified by the Member State.

Article 12 requires that Member States ensure jurisdiction to criminally prosecute any act within their territory, on board any vessel or aircraft registered by their jurisdiction or where an act is committed by one of their nationals. Notably, this last element requires that Member States punish acts outside their countries as long as one of their nationals was involved. Member States are free to prosecute other acts that occur outside their territory, but must notify the Commission when a prosecution involves a habitual resident of the Member State, one of the Member State’s officials, the act was for the benefit of a legal person established in the Member State or for the benefit of a legal person in respect of any activity otherwise in the Member State.

The Directive’s remaining provisions address resourcing, reporting and coordination. Article 13 requires Member States to ramp up investigation and prosecution resources. Article 14 requires Member States to report violations to the Commission. Article 15 requires Member States to coordinate on strategy and enforcement, and Article 16 requires cooperation among Member States, Commission, Europol, Eurojust and the European Public Prosecutor’s Office (EPPO).

Article 17 requires statistical data reporting to the EU on implementation of the Directive, investigations and prosecutions. Article 18 ties the Directive into the EU’s Anti-Money Laundering Directive. Related to Article 17, Article 19 requires the Commission to consider the efficacy of the Directive by submitting reports to the Parliament three and six years after enactment, with the possibility of amending the Directive in six years.

Per Article 20, Member States are required to transpose the Directive’s mandates into law by 12 months from publication in the Official Journal.

III. The Directive is a Significant Milestone - but Not the End of the Road

A. Setting a Common Base Line (Harmonization)

As of April 2024, the EU has adopted and enriched 40 different sanctions programs. These programs address both country-specific and subject-specific situations, and they are implemented against a broad array of targets, including third countries, entities, legal and natural persons.

For Russia alone, since February 2022, the EU has adopted 14 packages of restrictive measures targeting nearly 2,140 individuals and entities, as well as key sectors of the Russian economy. As such, restrictive measures have been a key tool in furtherance of the EU Common Foreign and Security Policy (‘CFSP’) and the promotion of the EU’s fundamental interests and values, the first of them being the preservation of peace.

Before adoption of the Directive, Member States were only broadly required by the regulations of each sanctions program to adopt domestic rules and mechanisms providing effective, proportionate, and dissuasive penalties for the violation of EU sanctions. However, there was no obligation to specifically impose criminal penalties. As criminal jurisdiction lies in Member States’ sovereignty domain, not every one of them was equally diligent in investigating violations of restrictive measures, and prosecuting offenders, which in turn greatly weakened EU actions’ cohesiveness and credibility. Further, lack of harmonisation resulted in wide discrepancies among national enforcement systems, which in turn undermined efficacy of the measures across the EU.

For that very reason, the Directive is a necessary and long-awaited repudiation of the business-as-usual mantra in sanctions enforcement. The Directive’s impetus is a manifestation of a political project that relies greatly on the strength, fairness, and harmony of the rules governing the internal market in which economic operators seek to compete. It addresses, at least partially, the forum shopping phenomenon which translated in economic operators registering their activities in Member States where the enforcement of restrictive measures was discreet, if not nonexistent, so they could stay out of their reach.

As such, the Directive confirms that repressive consistency is a key factor for a better harmonisation and a united action of Member States on the enforcement front.13 Not only does it set the intentional violation of restrictive measures as an act of particular gravity throughout the Union, but it also provides for a definition of the offense that will be the same in every national enforcement system, along with a minimum level of penalties below which Member States will not be able to go.

Therefore, the Directive should have a persuasive effect on competent national authorities that were reluctant to investigate and prosecute, as well as a deterrent effect against those who had been or who would be tempted to ignore restrictive measures in the future. Infringement will be met with an equivalent level of severity, no matter where it is committed. By doing so, the Directive equips the EU with a repressive device that is more nearly equivalent in scope to that of the United States, further safeguarding EU criminal enforcement sovereignty over its citizens.

Finally, the Directive emphasises cooperation among Member States, as well as on interactions between Member States and the EU authorities. Collaboration is, indeed, a determinant tool in guaranteeing a greater and more efficient implementation of restrictive measures in national systems and cultures. Collaboration will, in addition, hopefully enhance the readability of restrictive measures for economic operators.

B. What is Left Out of The Directive

In its Proposal, the Commission highlighted that harmonisation via the Directive would reduce ‘forum shopping’ by bad actors and that, by aligning criminal offence definitions and penalties, incentivise Member States to prioritise sanctions enforcement. While the Directive takes an important step toward these goals, it will not necessarily achieve them. The Directive leaves broad gaps and many of the harmonisation requirements are vague, thus leaving significant space for lax criminal regimes.14

In particular, what is left beyond the Directive’s scope is significant. There are criminal enforcement dimensions unique to Member States that neither the Directive nor a Regulation can tackle given the constitutional limits of the TEU and TFEU.

First, it is not possible for the EU to mandate the threshold evidentiary standard to initiate a prosecution in each Member State. Nor is it possible for the EU to set a harmonised evidentiary burden of proof for conviction. Thus, Member States will be left to apply widely varying evidentiary standards necessary both for initiation of prosecutions and for conviction. This leaves open broad differences as to when a prosecutor may initiate a criminal enforcement and upon what evidence a prosecutor can procure a conviction. To the extent parties seeking to

13. See Proposal, pp. 4-7; Directive, recitals 1-6.

14. See, e.g., Directive, Arts. 5 and 6 (prescribing broad frameworks for penalties).

ignore sanctions or to participate in evasion shopping among EU countries for their domicile and activity, they will continue to prefer the Member States with higher standards for initiation and conviction.

Further, the EU cannot set a standard burden of persuasion and requirements for potential shifting of this burden between prosecution and defendant upon various evidentiary proofs. This too will be a consideration of parties seeking Member States where it is easier to ignore or evade sanctions.

Also, as stated above, the Directive is silent on the interplay between civil and criminal enforcement regimes, and specifically the extent to which Member States can be free to maintain parallel civil enforcement in tandem with criminal regimes that meet the Directive’s standards. This could raise a complex question in light of the standard ‘no liability’ clause involved in EU sanctions regulations. Member State competent authorities would be free to discretionarily assign cases to civil enforcement in lieu of a criminal enforcement pursuant to the Directive’s mandates, even where conduct meets the Directive’s ‘intentional’ or ‘significant negligence’ mens rea thresholds. Also, Member States can couch the Directive’s ‘intentional’ and ‘significant negligence’ criminal mens rea standards within complex criminal law intent regimes that allow for civil enforcement even where some level of intent or serious negligence is present. Sanctions evaders will prefer activity or domicile in such Member States.

Last, both substantive and procedural appellate rights are left entirely to the discretion of Member States. Thus, aside from the limited jurisdiction of the EU General Court and the Court of Justice, Member States’ jurisprudential development of violations of EU restrictive measures Decisions and Regulations will be left to vary widely.15 Member States with easier access to appellate relief and with more assertive appellate courts will be favoured by sanctions evaders.

C. Dissuading Legal Entities from Breaching Restrictive Measures

As the Directive provides for higher fines for legal persons, the newly harmonised rules emphasise corporate liability, which will surely translate into an enforcement priority for most national competent authorities involved.

When the process of identifying specific natural persons with authority or power in the legal person who have violated restrictive measures for the legal entities’ benefit will prove to be tricky, judges will likely devote particular scrutiny to assessing whether a lack of supervision or control by a person with a leading position may have made possible the commission of a breach or the conduct of a circumventing scheme for the benefit of the legal entity for which it acts.

15. The EU does not have authority to impose requirements on the functioning of Member State criminal justice systems. See TEU, Art. 5 (limiting EU’s authority pursuant to the principles of conferral, subsidiarity and proportionality).

Projected fines are especially dissuasive for legal entities. Depending on the option elected by each Member State in the implementation process, amounts can reasonably even reach stratospheric levels for multinationals that would fall under the jurisdiction of national enforcement systems in which ‘not less than five percent of the annual global turnover’ is the standard adopted. Thanks to the harmonisation the Directive seeks to promote, no Member States will be a safe haven for legal entities tempted to escape from their responsibilities.

D. Heightening the Focus on Business Compliance

In this perspective, business compliance will prove to be an essential protective and proactive tool for legal entities. Again, fines for potential offenders who commit a breach or a circumvention of EU restrictive measures may reach millions of euros. Sentences may, in addition, have a devastating impact on their reputation and ability to pursue their operations domestically and abroad.

Moreover, legal entities that ignore reporting and disclosure requirements relating to their economic resources face equally dissuasive penalties under the Directive, which should therefore pressure them into enhancing their compliance functions and mechanisms, as well as the resources they put into it.

The severity of the minimal penalty thresholds required by the Directive will weigh heavy on management deliberations to reinforce their companies’ compliance functions to ensure the that internal policies and procedures effectively prevent, detect, investigate and punish behavior in violation of sanctions by their representatives and employees.

However, the Directive also calls for Member States to provide for mitigating circumstances in determining sentences which shall be adopted against potential offenders. Such mitigating circumstances include the provision of key information to help competent authorities find evidence or to identify and bring to justice other offenders. The Directive, however, does not define clear incentives for the private sector. It would have been a welcomed opportunity to introduce common standards on cooperation and voluntary self-disclosures. Neither does the text foresee that having performed adequate due diligence could be a defence or even a mitigating factor.

In the meantime, this is where the Directive likely wields an implied carrot: the more robust and actionable compliance tools and procedures a legal entity with a global outreach will have, the better will it be able to react, cooperate and, eventually, mitigate its criminal liability risks and impact. At the same time, overly repressive enforcement regimes can disincentivise such efforts. The modern EU sanctions framework will need to find the right balance between dialogue on implementation and criminal enforcement.

Conclusion

In many ways, it is remarkable that the EU was able to adopt such a rich piece of legislation is so little time. The Directive is imperfect, but it should prompt meaningful debates across the EU on improving enforcement. The Directive’s success now turns on Member State implementation, for as the Treaty framework requires, the responsibility for enforcement remains squarely within the sovereign domain of each Member State. The collective will of Member States to meaningfully enforce EU sanctions will reflect on the EU’s credibility as a sanctioning authority and partner of the ‘sanctions coalition’. The transposition period is a rare opportunity for Member States to reflect upon their enforcement regime and modernise them accordingly.

The Directive includes mechanisms that require Member States to report to the Commission on their implementation of the Directive and enforcement thereafter. These provisions were included specifically to provide the Commission with information it may need for further reform. The Commission could leverage such information to advocate for further enhancement of sanctions enforcement in the EU – and that the Parliament and Council agree to additional legislation proposed by the Commission to do so.

While the effort to define a common criminal approach to sanctions enforcement is commendable, the EU should not overlook the importance of using other tools to promote sanctions compliance and enforce violations. Civil and administrative enforcement have a very important role to play, particularly for the EU private sector. Thus, a parallel Directive on common civil and administrative penalties for the violation of EU sanctions seems in order.

Time will tell how Member States will fare in implementing the Directive. In the meantime, the transposition period offers a rare and unique opportunity for constructive debate on how to improve implementation and enforcement in this new ear of EU sanctions.

HIGHLIGHT F THE WEEK S O

Citizens’ Committee of the European citizens’ initiative “End the Cage Age” initiates legal action against European Commission

Monday 6 May

The Citizens’ Committee of the European citizens’ initiative “End the Cage Age” initiated legal action against the European Commission in Case T-151/24, a dispute revolving around the Commission’s alleged failure to act in response to the initiative aimed at ending cage farming practices.

Read on EU Law Live

Court of Justice to hear case regarding an action, brought by Italy, against Regulation 2023/2842 on fisheries control

Monday 6 May

Official publication was made of an action, brought on 11 March 2024, by the Italian Republic against the European Parliament and Council of the EU, by which the annulment of Regulation (EU) 2023/2842 of the European Parliament and of the Council was sought:Italy v Parliament and Council (C-194/24).

Read on EU Law Live

Lattanzio KIBS and Others v Commission: dispute over procurement exclusion decision, published in OJ

Monday 6 May

Lattanzio KIBS SpA, along with individuals CY, CV, and CW, have filed an action against the European Commission, in Case T-113/24, regarding the Commission’s decision of 13 December 2023 to exclude the first applicant from participating in award procedures for public procurements and grants governed by EU regulations, as well as from being selected for the implementation of funds regulated by them.

Read on EU Law Live

Independent Farmers Organisation of Ireland contest the inclusion of “Irish Grass Fed Beef” designation into the register of protected designations of origin and protected geographical indications

Monday 6 May

The Independent Farmers Organisation of Ireland Ltd initiated legal action against the European Commission in Case T-62/24, a dispute regarding the Commission’s Implementing Regulation (EU) 2023/2666, which entered the name “Irish Grass Fed Beef” (PGI) into the register of protected designations of origin and protected geographical indications.

Read on EU Law Live

Preliminary ruling requests on compatibility with Reception Conditions Directive of Italian law provisions providing financial guarantee as alternative to detention of applicant for international protection

Monday 6 May

The Official Journal of the EU published two preliminary ruling requests from the Supreme Court of Cassation (Italy), lodged on 8 February 2024, regarding the compatibility of national legislation with Articles 8 and 9 of Directive 2013/33/ EU of the European Parliament and of the Council of 26 June 2013 laying down standards for the reception of applicants for international protection: Questore della Provincia di Ragusa and Ministero dell’Interno (C-104/24) and Questore della Provincia di Ragusa and Ministero dell’Interno – II (C-105/24).

Read on EU Law Live

Preliminary reference on the interpretation of Directive 2014/41 on European Investigation Order in criminal matters, in the context of transfer of telecommunications data

Monday 6 May

A request for a preliminary ruling from the Regional Court of Berlin (Germany), lodged on 14 November 2023, in Staatsanwaltschaft Berlin v M.R., concerning, primarily, the interpretation of Article 6 of Directive 2014/41/EU of the European Parliament and of the Council of 3 April 2014 regarding the European Investigation Order in criminal matters, was officially published in the Official Journal of the EU: Staatsanwaltschaft Berlin II (C-675/23).

Read on EU Law Live

Single Resolution Board Legal Conference 2024: Navigating Legal Frontiers in the EU Banking Union and Beyond

Monday 6 May

The Single Resolution Board (‘SRB’) will hold its next legal conference, on Thursday, 6th of June 2024, with the aim of exploring the convergences and tensions of law in the EU Banking Union and beyond.

Read on EU Law Live

Court of Justice to rule on taxation of cross-border dividends dispute involving Banca Mediolanum

Monday 6 May

The Corte di giustizia tributaria di secondo grado della Lombardia (Italy) has referred three cases, C-92/24, C-93/24, and C-94/24, to the Court of Justice concerning a tax dispute involving Banca Mediolanum SpA. These cases revolve around the interpretation of Italian tax law, specifically Article 6(1) of Legislative Decree No 446/1997, regarding the taxation of dividends received by financial intermediaries domiciled in Italy, categorised as parent companies under Council Directive 2011/96/EU.

Read on EU Law Live

Commission to close Article 7(1) TEU procedure against Poland

Monday 6 May

The European Commission concluded its assessment of the rule of law situation in Poland, under the Article 7(1) TEU procedure, determining that there is no longer a clear risk of a serious breach of the rule of law, following Poland’s implementation of a series of legislative and non-legislative measures addressing concerns regarding the independence of the justice system and affirmed the primacy of EU law.

Read on EU Law Live

EFTA Surveillance Authority green-lights Norway’s action to eradicate salmon fluke

Tuesday 7 May

The EFTA Surveillance Authority (ESA) approved Norway’s updated eradication program for salmon fluke, a parasite also known as the salmon killer that lives on the body surface of freshwater fish.

Read on EU Law Live

Advocate General Richard de la Tour reaffirms recognition of gender identity and name changes across Member States

Tuesday 7 May

Advocate General Richard de la Tour delivered his Opinion in case Case C-4/23 | Mirin, asserting the rights of EU citizens regarding the recognition of changes in forename and gender identity acquired in one Member State by another.

Read on EU Law Live

Court of Justice: Austrian Independent Arbitration Committee does not satisfy independence requirement to be able to submit an admissible preliminary ruling request

Tuesday 7 May

The Grand Chamber of the Court of Justice delivered its judgment in NADA and Others (C-115/22), a case concerning a preliminary ruling request on the compatibility of the disclosure of information contained in a decision attesting to a person having committed a doping violation with the General Data Protection Regulation (‘GDPR’).

Read on EU Law Live

ECtHR: No violation of Article 10 ECHR in Thomaidis v. Greece concerning journalist’s liability in Greek football scandal

Tuesday 7 May

The European Court of Human Rights (ECtHR) delivered its judgment in Thomaidis v. Greece (Application no. 28345/16) concerning the civil liability and damages imposed on the applicant, a journalist and TV presenter, for his coverage of a match-fixing scandal involving prominent figures in Greek football.

Read on EU Law Live

Court of Justice streaming hearing of case concerning interpretation of several provisions of EU law in relation to an assignment of claims for compensation arising from harm suffered by infringement of competition law

Tuesday 7 May

The Court of Justice’s Grand Chamber hearing in ASG 2 (C-253/23), a case concerning a preliminary ruling request on the interpretation of Article 101 TFEU, Article 4(3) TEU, Article 47 of the Charter of Fundamental Rights, and Articles 2(4) and 3(1) of Directive 2014/104/EU, in the context of claims for compensation for damages arising from harm suffered from a violation of competition law, was streamed on the Court’s website.

Read on EU Law Live

Council approves directives for women’s safety and equality bodies

Tuesday 7 May

The Council approved the first-ever EU directive to combat violence against women and domestic violence, thus mandating criminalisation of offenses such as female genital mutilation, forced marriage, and cyber violence.

Read on EU Law Live

Directive (EU) 2024/1275 of the European Parliament and of the Council of 24 April 2024 on the energy performance of buildings, published in OJ

Wednesday 8 May

Directive (EU) 2024/1275 of the European Parliament and of the Council, adopted on April 24, 2024, focuses on enhancing the energy performance of buildings in alignment with climate objectives, thus emphasising the need for a comprehensive strategy to address the challenges posed by climate change, as outlined in the Paris Agreement and the European Green Deal.

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EFTA Surveillance Authority decision opening formal investigation in relation to exemptions from excise duty and tax imposed on CO2 emissions, published in OJ

Wednesday 8 May

Official publication was made of the EFTA Surveillance Authority (‘ESA’) Decision No. 039/24/COL of 27 March 2024 to open a formal investigation into Norwegian measures exempting from the excise duty on waste incineration and the CO2 tax on LPG and natural gas for undertakings covered by the ETS.

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General Court annuls SRB decision on ex ante contributions calculation concerning Max Heinr. Sutor

Wednesday 8 May

The General Court delivered its judgment in Max Heinr. Sutor v SRB (T-393/21) concerning an annulment action of Decision SRB/ES/2021/22 of the Single Resolution Board (SRB) concerning the calculation of ex ante contributions for 2021 to the Single Resolution Fund (SRF).

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General Court annuls Commission’s decision approving restructuring aid granted to Condor charter airline

Wednesday 8 May

The Eighth Chamber of the General Court handed down its judgment in a case concerning an action for annulment against the Commission’s decision approving restructuring aid for charter airline Condor: Ryanair v Commission (Condor ; aide à la restructuration) (T-28/22).

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General Court dismisses actions for annulment concerning definitive anti-dumping duty on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel from Turkey

Wednesday 8 May

The General Court delivered its judgments in Çolakoğlu Metalurji and Çolakoğlu Dış Ticaret v Commission (T-630/21) and Ereğli Demir ve Çelik Fabrikaları and Others v Commission (T-629/21), cases concerning actions based on Article 263 TFEU, by which the applicants, sought the annulment of Commission Implementing Regulation (EU) 2021/1100 of 5 July 2021 imposing a definitive anti-dumping duty and definitively collecting the provisional duty imposed on imports of certain hotrolled flat products of iron, non-alloy or other alloy steel originating in Turkey.

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Izuzquiza and Others v Parliament: General Court gives priority to public’s right of access to institutions’ documents over individual protection of privacy and integrity

Wednesday 8 May

The General Court, sitting in its Extended Composition formation, rendered its judgment in Izuzquiza and Others v Parliament (T-375/22), a case concerning an action for annulment against the final decision of the European Parliament, reference A(2021)10718C, dated 8 April 2022, insofar as the European Parliament concluded that it was entitled to rely upon Article 4(1)(b) and/or Article 4(6) of Regulation 1049/2001 of the European Parliament and of the Council, to justify full and/or partial non-disclosure of the documents requested by the applicants in their confirmatory application dated 28 February 2022.

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Judgments on Spain’s Tax Lease System delivered by General Court

Wednesday 8 May

The General Court delivered its judgments in several cases involving Spain’s “Spanish Tax Lease” system (SEAF) and its application to financial leasing contracts for shipbuilding.

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Court of Justice: Czech Republic failed to fulfil its obligations under Directive 2005/36 on the recognition of professional qualifications

Wednesday 8 May

The Court of Justice handed down judgment in Commission v. Czech Republic (C-75/22), following an infringement action brought by the Commission for an alleged violation, by the Czech Republic, of Directive 2005/36/EC on the recognition of professional qualifications, as amended by Directive 2013/55.

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AG Richard de la Tour: Directive 2004/80 precludes Italian legislation concerning compensation of murder victim on the ground of providing inappropriate compensation

Wednesday 8 May

In Burdene (C-126/23), Advocate General (AG) Richard de la Tour handed down his Opinion in a case regarding the compatibility with Directive 2004/80 of national legislation which, first, makes the payment of compensation to the parents and sister of a murder victim conditional on there being no spouse or children of the victim and, secondly, makes the payment of that compensation conditional on the availability of reserves in a fund established by that legislation, without such legislation providing for setting aside sufficient resources specifically intended to pay the compensation.

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Advocate General Campos Sánchez-Bordona’s Opinion on customs infringements and penalties in Regulation (EU) No 952/2013

Wednesday 8 May

Advocate General Campos Sánchez-Bordona delivered an Opinion concerning two requests for a preliminary ruling from Bulgarian courts regarding the interpretation of regulations on infringements and penalties in Regulation 952/2013 laying down the Union Customs Code: Sistem Lux (Cases C 717/22 and C 372/23).

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Puma v. EUIPO: General Court dismisses two appeals concerning absence of individual character of Community designs

Wednesday 8 May

The General Court handed down judgment in Puma v. EUIPO (T-757/22 and T-758/22), two actions by which Puma sought the annulment of the decisions of the Third Board of Appeal of the EUIPO in Case R 1900/2021-3 (T-757/22) and Case R 1876/2021-3 (T-758/22).

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