EU sanctions are enacted as Regulations (for Russia, e.g. Council Regulation (EU) 269/2014, Council Regulation (EU) 833/2014, both as amended), having immediate effect in all member states as soon as they are published in the Official Journal of the EU.
This means that any citizens of EU member states, any legal entities and national authorities as well as any EU institutions are required to comply with them. Because of the effet utile, EU Regulations (including sanctions Regulations) rank higher than national laws. EU legislation concerning sanctions (also known as restrictive measures) is fully applicable in Cyprus and Cyprus authorities are bound to comply with the respective EU legislation that has been passed as a result of the actions taken by the Russian Federation in Ukraine.
In view of the extraordinary circumstances that arose, Cyprus put together a working committee, which is mandated to co-ordinate the processes for the implementation of the restrictive measures, providing guidance to financial institutions which require such guidance. This working committee includes representatives of the Legal Service, the Cyprus Central Bank, the Ministry of Foreign Affairs, the Ministry of Finance, the Ministry of Interior, the Ministry of Energy, Commerce and Industry, the Cyprus Securities Commission and the Insurance Services Monitoring Committee. This working committee addresses questions which require clarifications and guidance and, in general, addresses and manages the extraordinary circumstances through exchange of views, dissemination of information and clarifications of any issues that arise from financial stakeholders for the proper interpretation and implementation of the relevant EU regulations, being the bridge between the Cyprus authorities and the European Commission. This working committee does not provide legal advice to institutions or individuals and does not substitute the functions of the other committees which operate under the auspices of the Ministry of Finance on matters of sanctions, i.e. the Advisory Body on Economic Sanctions (SEOK) and the Unit for the Implementation of Sanctions in the Financial Sector (MEK).
The first unit, SEOK, considers motions from financial institutions (for their clients, being physical or legal persons) which have been designated in Annex I of EU Regulation 269/2014 of the EU Council as well as other recent EU Regulations which amend the said regulation, for exemptions and unfreezing of specific frozen resources or capital, subject to certain conditions, if this is deemed appropriate on grounds which mainly relate to:
- Necessities for covering basic needs of the physical and legal persons, entities or institutions which are designated in Annex I and their family dependents, including payments for alimony, rent or mortgaged loan, pharmaceutical products and items of medical treatment, taxes, insurance premium and any levies for utilities.
- Amounts which shall be exclusively used for the payment of reasonable professional fees or the coverage of expenses which relate to legal fees.
- Amounts which shall be exclusively used for the payment of taxes or encumbrances for services related to the ordinary keeping or custody of frozen funds or economic resources.
- Amounts which are necessary for extraordinary expenses, provided that the relevant competent authority has notified other member states and the EU Commission in relation to the grounds which it judges that a relevant license shall be provided at least two weeks prior to the license been granted.
Motions made to SEOK are advanced from the financial institutions in which the relevant accounts are maintained through email.
On the other hand, MEK considers motions submitted by interested parties (e.g. Cypriot citizens, Cyprus companies, law firms or audit firms, financial institutions etc.) in relation to authorisations/approvals which are provided by the relevant resolutions of the Security Council of the United Nations and the relevant EU Regulations and which related to financial and credit matters. Motions made to MEK are advanced through email and a special form needs to be completed and submitted, together with supporting documents. MEK prepares a suggestion for the approval or dismissal of the motions and the final decision is taken collectively (either unanimously or by majority) from the Ministers of Finance, Foreign Affairs and Energy/Commerce/Industry or their representatives.
The Cyprus Ministry of Finance has also issued some guidance in relation to a number of issues which seem to be unclear in relation to the implementation of the EU sanctions regime. The guidance is subject to any further guidance that may be issued in the future by the competent EU authorities.
The first issue concerns the interpretation of the term "legal persons, entities or bodies established in Russia", which is set out in Article 5 of the Council Regulation (EU) 2022/328 of 25.2.3022, amending the existing Council Regulation (EU) 318/2014 of 27.3.2014. The said prohibition relates to investment services and related transactions. The view of the Cyprus Ministry of Finance (the CMoF) is that the definition of entities established in Russia refers only to entities incorporated or registered under the laws of Russia including their branches. Therefore, legal persons, entities or bodies incorporated or registered in any other country other than Russia are not captured by the said Article of the Regulation. The latter includes companies, for example, registered or incorporated in Cyprus under Cyprus Law operating from Cyprus internationally, irrespective of the fact that a company might be of a Russian interest. Of course, this does not apply to sanctioned physical and legal persons or entities.
In relation to the prohibition of accepting deposits from Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia, more that 100K per person per credit institution, the view of the CMoF is that the prohibition of accepting deposits more than 100K per person per credit institution should not apply in the cases that the amounts are intended for the repayment of own liabilities (e.g. loans, current accounts).
In relation to services provided to sanctioned persons/entities, the view of the CMoF is that the provision of services to a sanctioned entity can and only be allowed when these services are strictly limited to what is absolutely necessary to continue to exist and strictly limited to essential activities without which the person/entity would not be able to function legally. The opinion of European Commission of 29.8.2019 confirms that essential services include drawing up of annual accounts, bookkeeping, declaring taxes, ensuring the administrative management (strictly limited to what is necessary to continue to exist) of a company, the payment of taxes. It is the view of the CMoF that the essential services can be provided as if they are strictly of the nature aforementioned. It is noted that, if these services, later are not recognised as essential by the competent authority when examining the authorisation of payment of these services, the competent authority will not authorise the payment of the service.
In relation to general authorisation of specific payments from sanctioned persons/entities, the view of the CMoF is that the release of frozen funds by a credit institution, for the payment of amounts due to public authorities namely (i) tax, (ii) social insurance; (iii) Company Registrar fees; and (iv) public utilities charges, is deemed as authorised. The general authorisation of specific payments is provided only for payments to public authorities in order to ensure that no funds will be made available to sanctioned persons with no authorisation.
Cyprus credit institutions are responsible to ensure that these amounts are paid to the public services, the amounts are reasonable and the release of funds is only allowed by way of transfer or direct debit from the account of the sanctioned person to the public authority. Cyprus credit institutions are further responsible to disclose to the competent authority the amounts released from sanctioned entities with the relevant evidence under this general authorisation at the end of each month. Any other amount released by the Cyprus credit institution will be considered as making funds available to the designated person without authorisation. For any other exemptions of frozen funds that might be allowed according to the Council Regulation EU 269/2014 of 14.3.2014 the credit institutions should apply to the competent authority, SEOK, following the existing procedures. For any other applications for exemptions to the prohibitions related with the financial sector the interested persons should apply to the competent authority, MEK, following the existing procedures.
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