The Court of Justice’s Difficulty with Reviewing Smart Sanctions as Illustrated by Rosneft
over de Linden, Heleen
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Reviewing Smart Sanctions as Illustrated by
Rosneft
Heleen OVER DELINDEN*
This article analyses the European Court of Justice (The General Court of the EU (formerly the Court of First Instance) in Luxembourg, hereafter‘the Court’.) judgment of 13 September 2018 on Rosneft (Case T-715/14) (The Rosneft T-715/14 includes more than one applicant: Rosneft, Shelf-Arctic, Shelf-Far East, RN-Exploration and Tagulskoe, together referred to as ‘Rosneft’.) in the light of the obligation to state reasons. Rosneft claimed an infringement by the Council (The Council of the European Union,‘the Council’.) on its obligation to make such statement under Article 41 of the EU Charter of Fundamental Rights (‘The Charter’). The Court concluded that the reasons given by the Council were sufficient (T-715/14 Rosneft paragraph 127). The article will compare the reasoning of the Council and Court with the obligation to state reasons as interpreted in other Russian oil and banking sector judgments, in general and in asset-freeze cases (‘In general’ has to be read to mean ‘not in EU common foreign security policy (CFSP) cases’.). According to Rosneft, the rule of law is substituted with the rule of politics.
1 INTRODUCTION
The Court delivered the Rosneft judgment on 13 September 2018.1 Rosneft is the largest publicly traded oil company worldwide.2 This judgment results from an annulment procedure brought by Rosneft against sanctions Regulation (EU) 833/ 2014 and Decision (CFSP) 512/2014 of 31 July 2018, as amended on 8 September 2018.3 These sanctions regulations4 were adopted by the Council of the EU as
over de Linden, Heleen.‘The Court of Justice’s Difficulty with Reviewing Smart Sanctions as Illustrated by Rosneft’. European Foreign Affairs Review 24, no. 1 (2019): 27–42.
© 2019 Kluwer Law International BV, The Netherlands
* Graduated in Tax law and in Russian language and Literature at the University of Amsterdam, the
Netherlands. She is a fourth-year PhD student at the University of Groningen, the Netherlands. She attended hearings in the Sberbank, Vnesekonombank, GazpromNeft and Rosneft cases in Luxembourg in Nov. and Dec. 2017, which resulted in the September 2018 judgments. The legal opinions expressed in this article do not necessarily reflect the author’s personal opinions. Email: heleen@overdelinden.nl.
1 Case T-715/14, NK Rosneft and Others v. Council, judgment of the General Court (Sixth Chamber) of
13 Sep. 2018, ECLI:EU:T:2018:544.
2 https://www.rosneft.com/press/releases/item/186035/ (accessed 6 Nov. 2018).
3 Resulting in sanctions being applied to three listed oil companies: Rosneft, GazpromNeft and
TransNeft, according to Annex VI of Regulation (EU) 960/2014 of 8 Sept. 2014, and Annex III of Decision (CFSP) 659/2014.
4 Sanctions regulations are based on EU Regulations, which are in turn based on Art. 215 TFEU. EU
Common Foreign Security Policy (CFSP) measures in response to the ‘destabilization’5
of Ukraine by the Russian Federation.6 The Council adopted the measures against Rosneft, stating that ‘more than 50% of the proprietary rights are owned by the Russian government, having an estimated total assets of over one trillion Russian Roubles and whose estimated revenues originate for at least 50% from the sale or transportation of crude oil or petroleum products’.7
For the Russian banks, the criteria were similar: ‘public ownership or control for more than 50%’.8 The main objective of the Council was‘to increase the costs of the Russian Federation’s actions to undermine Ukraine’s territorial integrity and affecting Russia’s interests and cap-abilities in the sector of oil exploration and production which generate substantial revenues for Russia, and thereby reducing its power to threaten countries which depend on it for their energy supplies’.9 The measures against Rosneft included financial restrictions on its access to the capital market, restrictions on the transporta-tion of oil and petroleum products, and a trade embargo for certain goods and services considered‘sensitive’.
The relevance of this first Russian oil and banking annulment procedure under Article 263(4) Treaty on the Functioning of the European Union (TFEU)10 will be set out in what follows. On 31 May 201611 Advocate General Wathelet delivered his opinion under Article 267 TFEU in case C-72/15 Rosneft. The opinion considered a preliminary question addressed by the High Court of Justice of England and Wales, Queen’s Bench Division to the Court of Justice of the EU. The opinion was followed on 28 March 2017 by the Court of Justice’s final judgment. According the principle of res judicata, the Court cannot disregard the Court of Justice’s reasoning in a case involving the same parties and raising
the Council, followed by a regulation based on a joint proposal of the High Representative of the Union for Foreign Affairs and Security Policy and of the European Commission. These regulations and decisions together will be referred to as‘sanctions regulations’.
5 The word‘destabilization’ is not a legal term.
6 Sanctions Regulation EU 833/2014 is not the result of the events in Crimea. Separate sanctions regulations
are applicable to Crimea: Regulation (EU) 269/2014 of 17 April 2014 and (EU) 692/2014 (23 June 2014).
7 69.5% of Rosneft shares are held by Rosneftegaz, a limited company wholly owned by the Russian
Federation, 19.75% are held by BP Russian Investments Ltd, and the remaining 10.75% of the issued share capital is publicly traded.
8 Art. 5 (a) EU regulation 833/2014 of 31 July 2014. According to annex III, five banks are listed:
Sberbank, VTBank, Gazprombank, Vneshekonombank and Rosselkhozbank.
9 T-715/14 para. 106. 10 T-715/14 para. 91.
11 C-72/15 Rosneft. Preliminary ruling, published on 31 May 2016. See for instance: P. Van Elsuwege,
Upholding the Rule of Law in the Common Foreign and Security Policy H v. Council, 54 Com. Mkt. L. Rev. 841–858 (2017). Van Elsuwege commented the H v Council opinion of A-G Wahl, C-455/14 P delivered on 7 Apr. 2016, including the lex imperfecta nature of CFSP: a law that imposes a duty or prohibits a behaviour but does not provide for any penalty for its infringement (para. 34). Van Elsuwege commented also the Rosneft opinion of A-G Wathelet, C-72/15 with the carve-out and claw-back provisions. Carve-out means the unreviewable nature of certain acts adopted in the context of the CFSP. Claw-back means the limited judicial review of CFSP acts (para. 38 (b) and para. 50 (c).
largely the same legal issues.12Rosneft, however, initiated its annulment procedure on the basis of the claim (among other claims) that ‘the General Court is not bound by the considerations voiced by the Court of Justice in that judgment,13 which diverged from its own case-law on restrictive measures. As regards, in particular, the principle of observance of their rights of defence and the Council’s obligation to disclose to them information concerning them, the appli-cants state that the Court of Justice did not rule on those arguments’.14 This annulment procedure is worth analysing in light of this claim.15
On 13 September 2018, the Court also ruled in seven other Russian CFSP cases,16 all based on Council Regulation (EU) 833/2014 of 31 July 2014 and Decision (CSFP) 2014/512, as amended.17 These seven entities, ‘Rosneft et al.’, are major players in the Russian economy: Sberbank, VTB bank, Vneshekonombank, PSC Prominvestbank, the Turkish subsidiary of Sberbank Denizbank, the petroleum company GazpromNeft, and the air and space defence company Almaz-Antey. The entities commenced their annulment procedures in 2014,18directly after being listed for the first time.19
Rosneft submitted nine pleas in law to support their action.20All the pleas were based on alleged infringements of the Charter and were dismissed by the Court without exception. The other seven aforementioned Russian entities achieved the same out-come. The Court ruled that the measures enacted against the oil companies, banks and
12 T-715/14, para. 98. 13 T-715/14, paras 98–100. 14 T-715/14, para. 107.
15 For previous analyses on the judiciary to control EU foreign policy measures see C. Hillion, A Powerless
Court? The European Court of Justice and the EU Common Foreign and Security Policy (30 Jan. 2014), at SSRN: https://ssrn.com/abstract=2388165. (accessed 15 Nov. 2018)
16 The official term for such sanctions is restrictive measures. 17
Council Regulation (EU) 833/2014, amended by Council Regulation (EU) 960/2014, and Decision (CFSP) 2014/512 amended by Decision 659/2014, now extended every six months. Rosneft and the other oil companies were added to the sanctions list on 8 Sept. 2014.
18 The 2014 Almaz-Antey case was followed by a judgment in 2017. The judgment of the 2015 case
followed on 13 Sept. 2018.
19 Cases T-715–14 Rosneft; T-732/14 Sberbank; T-734/14 VTB bank; T-737/14 Vnesheconombank; T-739/
14 PSC Prominvestbank; T-798/14 Denizbank; T-799/14 and T-735/14 Gazprom Neft; and T-515/15 Almaz-Antey (only Almaz-Antey started in 2015). All the cases were brought against the Council of the European Union.
20 T-715/14 Rosneft, para. 94: The nine Rosneft pleas: (1) a failure to state reasons and infringement of
the rights of the defence and of the right to effective judicial protection; (2) lack of any legitimate aim behind the adoption of the measures at issue; (3) infringement of the European Union’s international obligations under the EU-Russia Partnership and Cooperation Agreement and under the General Agreement on Tariffs and Trade (GATT); (4) lack of any rational connection between the objective pursued and the means of giving effect to it; (5) the provisions of the contested regulation on authorization are not an appropriate means of giving effect to the contested decision; (6) breach of the principle of equal treatment and non-arbitrariness; (7) the measures are disproportionate as they unduly encroach upon EU legislative competences and infringe the applicants’ fundamental rights; (8) misuse of powers; and (9) breach of constitutional guarantees of legal certainty.
Almaz-Antey were of individual application with respect to the restrictions imposed on their access to financial markets.21The Court thus rejected the Council’s argument22 ‘that the criteria laid down in the case-law, relating to the obligation to state reasons for acts imposing individual restrictive measures, are not applicable to the present case’.23
This rejection may have given the applicants a moment’s hope, but it would not last. The Court ruled that the‘applicants have not explained to what extent the lack of a prior hearing or of prior communication by the Council of certain evidence in the file concerning those grounds may have affected their rights of defence or their right to effective judicial protection so as to result in the annulment of the initial acts’.24
The fact that all the pleas in law were dismissed by the Court in the Rosneft et al. series of cases, notwithstanding their different factual back-grounds and the lawyers involved, proves that it does not matter if sanctions regulations target oil companies, banks or other companies. Even cases con-cerning other sanctions regulations, such as the Ukrainian asset-freeze cases,25 were judged similarly to the Russian cases. Relying on circular reasoning, the Court treated very different cases identically.26 The circular reasoning argu-ment was also put forward by Mr Kadi in the 2010 judgargu-ment: ‘listing one person in that annex on the sole ground of his association with the other person amounts to purely circular reasoning’.27 The Court held that Mr Kadi’s argument was well founded, ruling that ‘the Community institutions cannot impose an asset freeze simply because they consider that there are “reasonable grounds” or a “reasonable basis” to suspect or believe something without providing the person concerned with evidence to support that suspi-cion or belief’.28 The Court also ruled that assuming that one person is associated with another without any evidence is an insufficiently reasoned ground or basis.29 The difference between Kadi and the Rosneft et al. series of cases is that the ‘association’ between the affected Russian entities and the Russian Government was not an assumption but a fact. The Russian Government holds an undisputable 50% or more of the shares in the affected companies. However, the remaining objections are that no evidence was
21 T715/14 Rosneft, paras 75–77 and of general application with respect to the trade embargo. 22 T-715/14 Rosneft, para. 113, Almaz Antey T-515/15 para. 70.
23 T-715/14 Rosneft, para. 120. 24 T-715/14 Rosneft, para. 141.
25 (EU) Regulation 2014/208 concerning restrictive measures directed against certain persons, entities and bodies in
view of the situation in Ukraine (5 Mar. 2014), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/ ?uri=CELEX:32014R0208&from=en. (accessed 15 Nov. 2018)
26 T-715/14 Rosneft, para. 122.
27 T-85/09 Kadi v. Council ECLI:EU:T:2010:418 paras 114 and 157, reconfirmed in the Court of
Justice’s judgment of 18 July 2013, C-584/10P, C-593/10P and C-595/10P ECLI:EU:C:2013:518.
28 T-85/09 Kadi, para. 162.
provided that the listed companies were destabilizing the Ukraine. Notwithstanding the dismissal of the arguments presented in the Rosneft et al. cases, the affected persons and entities were not discouraged from com-mencing new annulment procedures, driven by their sense of injustice.
2 LEGAL GROUNDS
As mentioned in the title to this contribution, the Rosneft et al. sanctions are ‘smart sanctions’, meaning individual measures against persons and not against states or governments.30 The fact that the measures are of ‘individual’ and not ‘general’ application, as far as it concerns the access to the capital market, forced the Council to be more precise in its statement of reasons. Theoretically, it has to provide evidence about the alleged crimes.
The sanctioned entities in the Rosneft et al. cases claimed a‘lack of a sufficient legal base because the aim pursued of putting pressure on the Russian Federation is not a legitimate aim that could be pursued by the Council by means of CFSP measures’. I will not elaborate on the legitimacy of the contested regulations in the light of Articles 215 TFEU and 29 TEU but only on the obligation to state reasons as an obligation deriving from the Charter. No discussion is offered here about the applicability of the Charter in CFSP cases. Its applicability is stated under Article 6 TEU and reconfirmed by the Court in the Rosneft et al. cases.31
A relevant fact is that sanctions regulations are non-legislative acts issued by the Council without interference from the European Parliament. The fact that the European legislator has no influence on sanctions regulations has been a matter of great concern for the European Parliament for many years. ‘On 11 March 2010, the European Parliament challenged the Regulation that reformed the European sanction-ing regime givsanction-ing effect to UN sanctions. The Parliament argued that“having regard to its aim and content, the correct legal basis for the Regulation is Article 75 TFEU” and not Article 215(2) TFEU’.32
The legal basis for such measures has not changed since then, however. Under the current state of the law, the Council has no choice – CFSP measures can only be issued as non-legislative acts under Chapter II, Title V TEU. More specifically, under Article 24 TEU33‘The adoption of legislative acts shall be excluded’.34
EU sanction regulations operate as acts with a special status
30 A definition is provided in T85/09 Kadi, para. 114.
31 Art. 6 TEU:‘The Union recognises the rights, freedoms and principles set out in the Charter of
Fundamental Rights of the European Union of 7 Dec. 2000, as adapted at Strasbourg, on 12 Dec. 2007, which shall have the same legal value as the Treaties’.
32 C. Eckes, EU Counter-Terrorist Sanctions Against Individuals: Problems and Perils, 17(1) Eur. For. Aff.
Rev. 129 (2012).
33 Reiterated in the opinion of AG Wathelet in Case C-72/15 Rosneft. Introduction, legal context para. 4. 34 Art. 24 TEU.
under EU law. Their nature as non-legal instruments has often been criticized not only by the affected countries, persons and entities, but even by the UN.35
As already mentioned, the relevant decisions are prolonged every six months until they are lifted. It does not appear as though the Rosneft et al. sanctions will be lifted soon, since the Council amended on 19 March 2015 its initial statement of reasons36 to incorporate an obligation to implement the Minsk agreements. The Council’s inclusion of this condition did not result in additional questions or remarks.
The fact that the sanctions regulations do not themselves provide for penalties or lifting conditions37 opens the door for arbitrariness and politically motivated measures. This is a very relevant question from the perspective of effective judicial protection. Using sanctions to ‘buy time’ is an extremely effective tool in the CFSP policy and, in my opinion, explains the Council’s ultimate goal in such cases, because individual conditions can be changed irreversibly by their imposi-tion, regardless of the outcome of annulment actions.38
3 THE ROSNEFT (T-715/14) ANNULMENT PROCEDURE
The restrictive measures against Rosneft et al. were based on the aforementioned sanctions regulations. The oil companies including Rosneft were added to the EU sanctions list on 8 September 2014. The sanctions regulations against Russian entities came into force due to‘Russia’s actions destabilizing the situation in Ukraine’.39The Council did not explain why the sanctioned entities fell within the scope of ‘destabilizing’ and why other state-owned entities did not. The Court reiterated that it was not Rosneft’s individual behaviour which was decisive for the adoption of restrictive measures against the entity, but ‘to increase the costs of the Russian Federation’s actions to undermine Ukraine’s territorial integrity, sovereignty and independence, and to promote a peaceful settlement of the crisis’.40
This means that the rights of the other 50% of the shareholders of Rosneft41were being sacrificed to this interest. Because the Council did not provide evidence of the connection between the oil companies or the banks and their destabilization of the Ukraine, the Rosneft et al. cases appear to have been based on suppositions and assumptions. The sanctions may have been imposed on the listed banks because they were financing listed oil companies. Rosneft, a major player in the international oil
35
Report of the Human Rights Council, 12th session, paras 12/22, 44 (2 Oct. 2009).
36 Most recent Decision (CFSP) 2018/964 of 5 July 2018.
37 Opinion of AG Wahl in case C-455/14 ECLI:EU:C:2016:212, paras 38 and 45.
38 Asset freezes may be imposed for more than 10 years. With reference to T-85/09 Kadi, para. 150. 39
Regulation (EU) 833/2014, supra n. 17, preamble.
40 T-715/14 Rosneft, para. 118.
market, was in a position to acquire a substantial part of the other oil companies in the market and may have become more than just a national monopolist. Rosneft had already‘engulfed’ 100% of BP-TNK Russia in 2013. As a result of that transaction, BP obtained a 19.75% interest in Rosneft.42 It can be argued that by offering the Ukraine price reductions on oil and gas, as it did during the Yanukovych regime, Rosneft was indeed ‘destabilizing’ the Ukraine, though from the Russian perspec-tive, this gesture could be explained as‘assisting’ a friendly nation.
With respect to the individual application of the sanctions, the sanctions regulations in question43 contain annexes which list the sanctioned entities by company name.44Neither the Regulation nor the underlying Decisions provide identifying information or statements of individual reasons for the appearance of an entity on the sanctions list.45 Nevertheless, as ruled in Rosneft et al., the sanctions regulations are of individual application as far as they concern finan-cial restrictions.46 In this respect it is worth mentioning that asset-freeze sanc-tions regulasanc-tions always provide identifying and personal information about the listed person, which explains why the question of individual or general applica-tion is not raised in asset-freeze cases. Given that the Court ruled that the Rosneft et al. sanctions were of individual application when it concerns restric-tions to the capital market, I will compare them to the individual sancrestric-tions regulations in asset-freeze cases. The identifying information provided with the statement of reasons in asset-freeze cases, however, give rise to as many annulment procedures as are brought under other sanctions regulations, because the individual statements of reasons also tend to be based on assumptions rather than facts.47
As mentioned in the introduction, I will focus in this article on argu-ments based on ‘the failure to state reasons’. I will consider Rosneft et al., the former Ukrainian politicians’ asset-freeze cases and general non-CFSP regula-tions in the context of the obligation to state reasons under Article 41 of the Charter.
42 Rosneft obtained shares in BP.‘Aktsioner’ no. 6, (in Russian акционер) 20 June 2013,www.rosneft.
com.
43
Regulation (EU) 833/2014 (supra n. 17) and Decision (CFSP) 512/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014D0512 (accessed 15 Nov. 2018)
44 With the exception of Denizbank, which is not listed in the Annex of the sanctions regulations. A.Ş.
Denizbank is a Turkish bank in Istanbul (Turkey), more than 50% owned by Sberbank.
45
Rosneft, para. 118.
46 See for instance, L. Lonardo, The Political Question Doctrine as Applied to Common Foreign and Security
Policy, 22(4) Eur. For. Aff. Rev. 571–588 (2017), on the unconvincing distinction between restrictive measures of general and individual application (at 576).
4 THE FAILURE TO STATE REASONS Article 41 Charter, the right to good administration:
1. Every person has the right to have his or her affairs handled impartially, fairly and within a reasonable time by the institutions, bodies, offices and agencies of the Union. 2. This right includes: a) the right of every person to be heard, before any individual measure which would affect him or her adversely is taken; b) the right of every person to have access to his or her file, while respecting the legitimate interest of confidentiality and of professional and business secrecy; c) the obligation of the administration to give reasons for its decisions.48
4.1 ART. 41 (2) (C): The obligation of the administration to give reasons for its decisions
The Court divided the Rosneft pleas regarding the statement of reasons49 into two parts: (1) ‘the plea, alleging a failure to state reasons’50 and (2) ‘the plea, alleging infringements of the rights of the defence and of the right to effective judicial protection’.51
According to Rosneft,‘the Council failed to state reasons how the targeting of the oil sector would further the aim pursued by those acts and what have been the selection criteria used in targeting the oil sector’.52
According the Court, the obligation to state reasons implies that ‘it is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons is sufficient must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question. In particular, the reasons given for a measure adversely affecting a person are sufficient if that measure was adopted in a “con-text” which was known to that person and which enables him to understand the scope of the measure concerning him. Moreover, the degree of precision of the statement of the reasons for a measure must be weighed against practical realities and the time and technical facilities available for taking the measure’.53
The context which should have been known to Rosneft was that the Russian Federation was ‘destabilizing the situation of the Ukraine’.54It is worth mentioning
48 Art. 41 consists of four paras. Paras 3 and 4, not cited. 49
Rosneft, para. 102 until 149.
50 Ibid., at para. 110. 51
Ibid., as of para. 127.
52 Ibid., at para. 102. 53
Rosneft, para. 112; GazpromNeft, para. 113; and the asset-freeze cases such as: Yanukovych C-346/14, para. 78.
54
that in the Ukrainian asset-freeze cases against the former President of Ukraine Viktor Yanukovych and others, the Court ruled similarly with respect to the context argu-ment: it was sufficient that the context was known. The context for Rosneft et al. was the‘international tension’,55and for Yanukovych et al., the individual ‘misappropria-tion of state funds in Ukraine’. Most of the context cases refer without further explanation to a statement of reasons in another judgment related to other sanctioned countries, such as Iran or Egypt, where the context argument was also used.56 However, except for the controversial context argument, the sanctions in Iran and Egypt were adopted on the basis of UN Security Council decisions, implemented or ‘copy-pasted’ into EU sanctions.57In my view, the‘context’ argument cannot to be
upheld without a more detailed statement of reasons, because the EU sanctions were based on non-legislative58acts and not on UN Security Council sanctions.
With respect to the question why the Russian and Ukrainian regulations were not based on UN Security Council decisions, the answer is evident, because the Russian Federation did not support such Security Council decisions. Instead of a UN Security Council decision, on 27 March 2014, the UN General Assembly adopted a resolution concerning the territorial integrity of Ukraine. Such a General Assembly Decision cannot impose obligations on third parties other than‘to pursue immediately the peaceful resolution of the situation with respect to Ukraine through direct political dialogue, to exercise restraint, to refrain from unilateral actions and inflammatory rhetoric that may increase tensions and to engage fully with international mediation efforts’.59
In this sense, the sanctions regulations are even contrary to the obligation to conduct political dialogue.
The Court reiterated in Rosneft that the obligation to state reasons does not imply going into all the relevant facts and points of law:‘consequently, the Council was not required to set out in further detail the reasons underpinning its decision to impose restrictive measures targeting certain sectors of the economy and to prohibit the export of certain goods and services that were considered “sensitive”’.60
Read alongside Kadi, this judgment61 does at least question on which grounds the Rosneft et al. court decisions will be upheld when it comes to the appellate procedure.
55 Ibid.
56 T-256/11 Ezz v. Council, 27 Feb. 2014, EU:T:2014:93, paras 47 and 108. 57 As mentioned under‘legal grounds’.
58 Using the Arts 215 TFEU and 29 TEU as legal bases. 59
UN General Assembly resolution, 68e session, 252 (27 Mar. 2014), https://www.securitycouncilreport. org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/a_res_68_262.pdf (accessed 15 Nov. 2018)
60 Rosneft, para. 125.
4.2 ARTICLE 41(2)(A) Charter, the right of every person to be heard,
before any individual measure which would affect him or her adversely is taken
The right to be heard is also an important right under Article 41 of the Charter, alongside the right to a statement of reasons. The Court considered the ‘surprise effect’ argument in Rosneft et al., as it had already done in the Ukrainian asset-freeze cases, to substantiate the scope of the right to be heard prior to the challenged measures entering into force.62 This need for a ‘surprise effect’ argu-ment was important in the asset-freeze cases, because the Council had not heard the parties and had not communicated its intentions prior to the imposition of the sanctions. The Court used this argument, stressing that when there was no ques-tion of need for a‘surprise effect’, as in Rosneft, there was no reason not to give the party notice and the right to make representations. According to the Court: ‘consequently, since the restrictions imposed under the provisions on access to the capital market constitute restrictive measures that are of individual application to the applicants and in the absence of the proven need to give a surprise effect to those measures in order to ensure their effectiveness, the Council ought to have communicated the grounds concerning the application of those measures with regard to the applicants prior to the adoption of the contested acts’.63
However, ‘the applicants have not explained to what extent the lack of a prior hearing or of prior communication by the Council of certain evidence in the file concerning those grounds may have affected their rights of defence or their right to effective judicial protection so as to result in the annulment of the initial acts’.64In my view, permitting a hearing and representations prior to the entry into effect of sanctions is a very important aspect of the obligation to state reasons, because if the person or entity is not heard in CFSP cases, their first opportunity will be, at the earliest, eighteen months later in Court. Comparing this to Dutch Procedural Law to illustrate the difference between sanctions regulations and non-CFSP measures, under the Dutch Administrative Code,65 the obligation to hear representations is an essential part of the objection procedure which has to occur before any final individual administrative measure enters into force. A written report of the hear-ing, taking into consideration the arguments of both parties, becomes part of the final decision. From this perspective, the report is essential. Two important out-comes of being heard are that the decision is generally better supported and
62 Rosneft, para. 139. 63
Ibid., para. 141.
64 Ibid.
understood by both parties, because the applicant would have been able to set out their complaints, which should result in fewer appeals.
4.3 ARTICLE41(2)(B) Charter: the right of every person to have access to
his or her file, while respecting the legitimate interests of confidentiality and of professional-, and business secrecy
Rosneft claimed66that they had no access to their files, stressing that this access is a fundamental right. This was a very important point for Rosneft, as aforementioned in the introduction of this article. Generally, in EU countries, access to the file in court proceedings is not an issue because if some of the relevant evidence is not provided, the procedure will usually be ended as ‘not proven’, or as an infringement of the principle of diligence. Contrary to this principle of diligence, the Court held in Rosneft that‘In addition, it must be borne in mind that when sufficiently precise information has been communicated, enabling the person concerned to make known its point of view effectively on the evidence adduced against it by the Council, the principle of respect for the rights of the defence does not mean that that institution is obliged spontaneously to grant access to the documents in its file. It is only at the request of the party concerned that the Council is required to provide access to all non-confidential official documents concerning the measure at issue’.67
Furthermore, the Court ruled that‘in the present case, it is clear that the Council complied with that obligation and replied to the applicants’ various requests for information of 20 August, 15 October and 12 November 2014. In that context, the Council granted access to numerous documents relating to its decision to impose restrictive measures in view of the Russian Federation’s actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine’.68 According to Rosneft, however,‘even though the Council had belatedly, shortly before the present action was brought, disclosed around eighty documents to the applicants, those documents shed no light on the Council’s reasoning regarding the application of the criteria which led it to target certain sectors or certain goods in particular’.69
In my view, such confidential information, was not accessible to the Council or did even not exist. I observed hearings in Luxembourg in the Ukrainian asset-freeze cases in which the Council provided confidential information to the Court based on information received from the Ukrainian authorities. However, it goes without saying that the Russian authorities were hardly likely to provide evidence for the Rosneft et al.’s alleged actions, and for
66 Rosneft, para. 104. 67 Ibid., para. 146. 68 Ibid., para. 147. 69 Ibid., para. 104.
the presumed criminal activity which was not criminal under Russian law. In such cases, it is nonetheless generally the task of the Court to take steps to balance legitimate security concerns with adequate procedural justice.70
4.4 THE RIGHT TO BE HEARD IN ADMINISTRATIVE,CRIMINAL AND CIVIL LAW IN THE
CONTEXT OFTHECFSP asset-freeze cases
In non-CFSP cases, the right to be heard before the imposition of administrative individual measures is a fundamental right. According to Dutch administrative law, the right to be heard can only be restricted in a limited number of circumstances.71 This limited number does not include the idea that being heard or not, the decision of the Council will not alternate, as used by the Court.72Such reasoning would be considered prejudiced. In criminal cases73 the suspect is always heard, even when in prison. This right is supported by guarantees such as the right to consult a lawyer prior to the first hearing before a law enforcement authority. The right to be heard in civil law cases will be set out after I explain the procedural aspects of CFSP asset-freeze injunctions.
The right to freeze assets in CFSP cases has no direct legal base.74As already mentioned, CFSP asset-freeze injunctions are not based on a legal act, but on a decision of the Council to freeze assets. Such a decision is, in a strict legal sense, a non-executory title,75 though it is executed in practice. The CFSP freeze proce-dure does not allow for preliminary judicial review. The CFSP asset freeze also does not provide for a confirmatory process or review by the authorities of the third country whose citizens will suffer from the results of the restrictive measures. There is no review at all, which means that the Council wears two hats: that of legislature and executive, which is in contradiction with the principle of the separation of powers. To obtain an asset-freeze injunction under Dutch law, a whole judicial path has to be followed.
In the Netherlands, under civil law, an application to freeze assets has to be submitted in court in order to get freezing order.76 Only with the freezing order under Article 700 of the Dutch Procedural Code can bank accounts be frozen and assets seized. To obtain a freezing order, the applicant must state reasons in court and provide evidence to substantiate the need to freeze. This procedure implies
70 According to C-402/05P and C-415/05P Kadi (3 Sept. 2008), para. 344.
71 Art. 7.3 Dutch Administrative Law. Reasons not to hear: generally procedural reasons, such as
submission of a claim after the subjection period ended.
72
Rosneft, para. 141.
73 Art. 257c, Dutch Procedural Criminal Code.
74 Art. 15 TFEU and Art. 29 TEU do not facilitate asset freezes in the strict sense of the word. 75 In Dutch, executoriale titel.
that the‘surprise effect’ is guaranteed because the potentially affected person is not heard. Instead of a preliminary hearing, the judge performs the legal review. On receipt of the freezing order, the main court proceedings can be established. The assets will then be frozen under the freezing order as long as the main proceedings remain pending.77In Dutch criminal law, asset freezes can be made under Article 94-a of the Dutch Criminal Code; however, only with the written consent of the supervisory judge.78 Asset freezes in Dutch Administrative Law can only be obtained in case of administrative debts or penalties. These situations are not comparable with CFSP asset freezes.
The Court ruled in the Ukrainian case that a CFSP asset-freeze decision could take effect with the right to be heard being provided at the same time or immediately after the decision was adopted: ‘as regards the initial acts, it should be borne in mind that it has been acknowledged in the case-law that, in the case of an initial decision to freeze funds, the Council was not obliged to inform the person or entity concerned beforehand of the grounds on which that institution intended to rely in order to include that person’s or entity’s name in the relevant list. So that its effectiveness may not be jeopardized, such a measure must, by its very nature, be able to benefit from a surprise effect and to be applied immediately. In such a case, it is, as a rule, enough if the institution notifies the person or entity concerned of the grounds and affords it the right to be heard at the same time as, or immediately after, the decision is adopted’.79 The ‘surprise effect’ argument put forward by the Council to justify not hearing the sanctioned persons is not valid, because in democratic countries, the issue is tackled by the preliminary judicial review, as already mentioned. Also, as noted previously, annulment proceedings for such freezing decisions under the CFSP procedure may take eighteen months to appear before the Court.
It should be noted that the Council argued that the asset freeze injunctions were only reversible and temporary administrative measures.80This view is unten-able, however. In most cases, the measures are prolonged yearly, resulting in asset freezes not being limited to their original eighteen month period but sometimes lasting ten years.81 The sincerity of the Court’s claim that the measures are ‘reversible’ is also belied by the fact that they were justified as recovering ‘mis-appropriated Ukrainian State funds’.82Considering also that not only were savings accounts frozen, but also the activities of ongoing enterprises, it should go without
77 In Dutch, bodemprocedure. 78 In Dutch, rechter-commissaris. 79 Rosneft, para. 137.
80 Case C-245/15 Klymenko (8 Nov. 2017); Case C 346/14 Yanukovych (15 Sept. 2016). 81 Kadi (2010), para. 150, as cited above.
82
saying that any company affected by an asset freeze decision, that prevents it from paying its staff and creditors, will not be in the same ‘reversible’83 situation two years or ten years later. In addition to the irreversibility of the measures, it is also relevant to consider whether these sanctions are administrative or criminal law measures and impact the subsequent assessment of the relevant scope of application of the Charter.84 This directly impacts the rights of the affected persons, because evidence in criminal cases is covered by far more guarantees than that in admin-istrative cases. Of course, you could argue that all of these points are moot, because nothing will change in ‘CFSP land’, nothing having ever changed before. However, on 13 September 2018, AG Sharpston provided an opinion in an Iranian sanctions case on the qualification of restrictive measures: ‘that the restric-tive measures at issue are not intended to penalize any misconduct in which the persons concerned may have engaged. Inasmuch as the assets of the persons and entities to which the restrictive measures provided for by the 2013 criteria apply have not been confiscated as the proceeds of crime but rather frozen as a pre-ventive measure, those restrictive measures do not constitute criminal sanctions85, though AG Sharpston also stated that ‘as regards the assessment as to whether proceedings and penalties are criminal in nature, three criteria are relevant: (1) the legal classification of the offence under national law, (2) the intrinsic nature of the offence and (3) the degree of severity of the penalty that the person concerned is liable to incur’.86In my view, the door has now been reopened to the fundamental discussion about the labelling of the sanctions as administrative or criminal law measures.87 The reason why the Council and the Court reiterate regularly that such sanctions are administrative and reversible, temporary measures is clear: because if they were not, the whole system of the imposition of restrictive measures would have to be changed to treat them as (1) legislative acts, (2) which are open to preliminary judicial review and (3) the introduction of the role of a prosecutor. This point may however soon be reached as a result of the Directive 1371/2017 ‘on the fight against fraud to the Union’s financial interests by means of criminal law’ which entered into force on 5 July 201788
and the
83 According to the Council and the Court of Justice, asset-freeze measures are reversible.
84 See for instance, Eckes, supra n. 32. Eckes stated that:‘because of these (i.e. legal, social, reputational and
financial) devasting effects on the lives of those listed, individual sanctions amount to a criminal charge within the meaning of Art. 6 (ECHR) and should be therefore, in substance, considered criminal law.’ (at 116).
85 Case C-225/17P, 13 Sept. 2018, opinion AG Sharpston, para. 110, with reference to fns 80 and 81 86
Ibid., para. 107, with reference to fn. 77.
87 See for instance, B. F. Keulen & H. E. Bröring (Published only in Dutch), Bestraffende sancties in het
strafrecht en het bestuursrecht (Punitive sanctions in criminal law and administrative law) 47 (Zutphen 2017): etikettenzwendel. Labelling fraude: an administrative label on criminal law measures.
88 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017L1371&from=EN
creation of a European Public Prosecutors Office (EPPO)under Article 86 TFEU which became operational in October 2017.
5 CONCLUSION
The measures brought against Rosneft et al.89 will not achieve the objective mentioned in the relevant sanctions regulations: the peaceful settlement of the situation in Ukraine. The EU and Russia are deadlocked, with both parties unable to yield ground. The sheer number of annulment procedures dismissed is causing the entities involved to become convinced that the judgments are politically motivated. This is a legitimate concern, because the EU Sanctions are political measures, reconfirmed frequently by the Court and advocates general.90 In some asset-freeze cases,91 the Court has stated more explicitly that CFSP measures are not only political measures but also measures to assist Ukraine92: ‘it must be noted that, as is apparent from the examination of the first plea in law, the contested acts comply with the objective, referred to in Article 21(2)(b) TEU, of “consolidat[ing] and support[ing] the rule of law”. In so doing, those acts form part of a policy of supporting the Ukrainian authorities, intended to promote both the economic and political stability of Ukraine and, in particular, to assist the authorities of that country in their fight against the misappropriation of public funds’.93
The UN expressed its opinion on the unilateral coercive measures in its 2010 report of the Human Rights Council, under the section heading ‘deeply concerned’, it expressed‘its concern at the negative impact of unilateral coercive measures on human rights, development, international relations, trade, investment and cooperation, and contrary to norms of international law and the Charter, unilateral coercive measures continue to be promulgated, implemented and enforced by, inter alia, resorting to war and militarism, with all their negative implications for the social-humanitarian activities and economic and social development of developing countries’.94
Solely expressing concerns without offering possible solutions is not how I want to conclude this contribution. What can be done? In my view, the qualifica-tion of restrictive measures in administrative versus criminal law must be solved. Already more than six years ago, Eckes (2012) noted that‘the EU should firmly stick to a criminal justice approach and fight terrorism financing through harmonization of
89 Case T-715/14 Rosneft, para. 160.
90 Opinion AG Wathelet in case C-72/15 Rosneft preliminary ruling ECLI:EU:C:2016:381, para. 52. 91 Case C-245/15 Klymenko (8 Nov. 2017).
92 See Lonardo, supra n. 46:‘judges are not elected and therefore should not interfere with the political
process regulated by the relationship between citizens and their representatives, at 584.
93 Klymenko, para. 206. 94
national criminal laws’.95
However, since that time, the situation has not changed. The good news is that the Directive and the EPPO provide an effective solution under criminal law for asset-freeze cases. Under Article 4(3) of the Directive, the misappropriation of state funds by EU or national officials96 became a criminal offence.97 If the sanctions regime was transferred from the administrative to the criminal level, the legal protection afforded under it would be much more in line with the Charter. The imposition of sanctions based on non-legal acts based on assumed conditions such as ‘destabilizing Ukraine’ and ‘the context which was known to that person’ would then become a thing of the past. Should a restrictive measure falls under the scope of a trade embargo, as stated by Rosneft: ‘the measures at issue are not sanctions in the usual form of targeted asset-freezing measures, but rather a partial trade embargo’98 such a case would be able to be brought to the designated competent court under the provisions of the EU-Russia Partnership Agreement or to the WTO dispute settlement body. Such a solution would prevent political decisions from interfering with international trade agreements.
95 Eckes, supra n. 32, at 126.
96 Art. 4(4) (a) Directive 1371/2017 ‘a Union official or a national official, including any national official of
another Member State and any national official of a third country.’
97 Case C-245/15 Klymenko, para. 81. 98
