Financial Sanctions – FAQ

Financial sanctions are restrictions put in place by the UN and/or the EU to achieve a specific foreign policy aim e.g. to prevent conflict or respond to emerging or current crises. Financial sanctions are imposed on individuals, companies and governments in an effort to curtail their activities and to exert pressure and influence on them.

Financial sanctions:

• Limit the provision of certain financial services and/or

• Restrict access to financial markets¹, funds² and economic resources³.

  <sub>1. Financial markets refers to limiting the Russian government’s and sanctioned entities’ and individuals’ ability to raise capital on the EU’s financial markets.
  2. Funds includes any financial assets and benefits of any kind e.g. cash, cheques, payments instruments, deposits, securities, including assets in the form of crypto assets.
  3. Economic resources means assets of any kind which are not funds and may be used to obtain funds, goods or services including crypto assets.</sub>

Since March 2014, the EU has progressively imposed restrictive measures (sanctions) against Russia, initially in response to the illegal annexation of Crimea and Sevastopol and the deliberate destabilisation of Ukraine. On 23 February 2022, the EU expanded the sanctions in response to the recognition of the non-government-controlled areas of the Donetsk and Luhansk oblasts of Ukraine and the ordering of Russian armed forces into those areas. After 24 February 2022, in response to Russia’s military aggression against Ukraine, the EU massively expanded the sanctions. It added a significant number of persons and entities to the sanctions list, and adopted unprecedented measures with the aim of significantly weakening Russia's economic base, depriving it of critical technologies and markets, and significantly curtailing its ability to wage war.

In parallel, the EU sanctions regime concerning Belarus has been expanded in response to that country’s involvement in Russia’s aggression against Ukraine and in addition to the sanctions already in place in view of the situation in Belarus. This sanctions regime consists of an array of financial, economic and trade measures.

The EU sanctions are designed to:

• Cripple the Kremlin’s ability to finance the war
• Impose clear economic and political costs on Russia’s political elite responsible for the invasion and
• Diminish Russia’s economic base.

The Central Bank of Ireland is one of three competent authorities in Ireland for EU sanctions and is responsible for the administration and enforcement of financial sanctions. Other types of sanctions include bans on travel and certain imports/exports, the Central Bank has no role with respect to such sanctions.

The other two Irish competent authorities for EU Restrictive Measures are:

• Department of Enterprise, Trade and Employment
• Department of Foreign Affairs

Where an individual or entity suspects that a breach of the sanctions has or will occur it must report this to An Garda Síochána. You can also bring this to the attention of the European Commission anonymously via the EU Sanctions Whistleblower Tool.

All EU citizens (both natural and legal persons) are required to comply with EU sanctions. This means that if you live in Ireland or are a firm based in Ireland, you are prohibited from carrying out certain activities or behaving in a certain way in respect of a person/entity that is subject to a financial sanction.

It is a criminal offence to breach a financial sanction.

If you are in possession or control of funds or economic resources of a person/entity that is subject to a financial sanction you are legally obliged to:

• Freeze the funds or economic resources
• Not deal with or release the funds or economic resources to the sanctioned person, unless there is an available exemption and you have obtained the required authorisation from the Central Bank of Ireland
• Report the freezing¹ of the funds or economic resources to the Central Bank using the Sanctions Return Form.

_{1. An asset freeze is the most common form of financial sanction. Where a financial sanction is an asset freeze, it is prohibited to:}

• Deal with the funds or economic resources, belonging to or owned, held or controlled by a person/entity that is subject to the financial sanction asset freeze.
• Make funds or economic resources available, directly or indirectly to, or for the benefit of the person/entity that is subject to the financial sanction asset freeze.

Up-to-date lists of those subject to financial sanctions are maintained by the EU and the UN. Consolidated lists are available here:

• EU Consolidated lists
• UN Sanctions Committees list relating to terrorism(PDF, HTML, XML)

It is important to note that while the names on sanctions lists are those that are directly sanctioned, the application of the sanctions also extends to any individuals/entities that are owned or controlled by those directly sanctioned. Therefore in assessing individuals/entities with whom you are transacting you must take steps to identify individuals/entities who make use of corporate vehicles to obscure ownership or source of funds.

Where you identify that a sanctioned individual or entity owns or controls the individual/entity with whom you are transacting, you should fully assess the impact of this ownership or control. When conducting this assessment you should refer to the European Union's guidance on guidance on Best Practices. A simple illustrative example is shown below.

Example

If X is a directly sanctioned individual and they own Company A the sanctions also apply to Company A as a linked entity. The extension of sanctions to linked entities goes beyond ownership to also include situations where a directly sanctioned individual/entity exerts control over another individual/entity. The purpose of extending the sanctions in this way is to ensure that directly sanctioned individuals/entities cannot easily circumvent the sanctions.

In certain specific circumstances (which are set out in the relevant legislation), an individual or entity may be authorised to unfreeze assets or make funds or economic resources available to a directly sanctioned individual/entity or linked entity.  However, prior authorisation from the Central Bank of Ireland is required before an individual or entity can do this. Applications for an authorisation must be submitted to the Central Bank of Ireland.

Where an individual or entity suspects that a breach of the sanctions has or will occur it must report this to An Garda Síochána. If you are aware of possible violations of any EU sanctions, you can also bring this to the attention of the European Commission anonymously via the EU Sanctions Whistleblower Tool. This information can relate, for example, to facts concerning sanctions violations, their circumstances and the individuals, companies and third countries involved. These can be facts that are not publicly known, but are known to you and can cover past, ongoing or planned sanctions violations, as well as attempts to circumvent EU sanctions.

This FAQ deals specifically with sanctions relating to financial services and/or access to financial markets, funds and economic resources. However, the EU has also imposed various types of other sanctions as part of its Russian sanctions regime including:

• Individual restrictive measures, e.g. travel bans
• Economic sanctions, e.g. restricted access to financial markets, SWIFT ban for certain Russian and Belarusian banks
• Diplomatic measures, e.g. suspension of visa facilitation provisions for Russian diplomats/officials
• Restrictions on media, e.g. suspension of broadcasting activities by Sputnik and Russia Today
• Restrictions on economic relations with Crimea and Sevastopol, and with the non-government-controlled areas of Donetsk and Luhansk, e.g., import/export bans
• Restrictions on economic cooperation, e.g. no new lending to Russia from certain banks.

It is important to note that further waves of sanctions may be imposed by the EU as the situation in Ukraine evolves. See full details of the up-to-date sanctions.

Further information on financial sanctions can be found at the following sources:

Central Bank of Ireland website

• International Financial Sanctions
• Financial Sanctions Updates 2022
• Changes to the Russia-Ukraine Regulations

European Commission

• Sanctions adopted following Russia’s military aggression against Ukraine
• FAQs

In applying a risk-based approach to their AML/CFT obligation, credit and financial institutions should be cognisant of the importance and benefits of financial inclusion.  The purpose of the Central Bank of Ireland’s Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector is to assist credit and financial institutions in understanding their AML/CFT obligations under Part 4 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010.  The Central Bank’s AML Guidelines set out the expectations of the Central Bank regarding the factors that credit and financial institutions should take into account when identifying, assessing and managing ML/TF risks. In particular, credit and financial institutions should have regard to the sections of the Central Bank’s AML Guidelines dealing with the issue of ‘de-risking’.

In addition, the European Banking Authority plays an important role in taking steps to ensure that competent authorities and credit and financial institutions apply European AML/CFT legislation effectively and consistently.  As the Central Bank’s AML Guidelines do not replace the guidance published by the EBA (and any guidance relevant to AML/CFT published by the ESAs) and FATF, credit and financial institutions should ensure that they are familiar with and have regard to the guidance published by these bodies.

In particular, in the context of Ukraine, credit and financial institutions should have regard to the following:

• EBA Opinion on the application of customer due diligence measures to customers who are asylum seekers from higher-risk third countries or territories
• EBA Statement calling on financial institutions to ensure compliance with sanctions against Russia following the invasion of Ukraine and to facilitate access to basic payment accounts for refugees 
• EBA Statement on financial inclusion in the context of the invasion of Ukraine