In response to the developments related to the conflict in Ukraine, the expected amendment to Act No. 69/2006 Coll., on Carrying Out of International Sanctions, as amended (the “Amendment”), came into effect on 1 September 2022. The Amendment was adopted to enable a more flexible response to situations threatening the principles of the functioning of international security and the fight against terrorism. It also introduced a number of practical innovations that will, among other things, facilitate the enforcement of international sanctions.
At the same time, the Amendment creates the cornerstone for the currently discussed draft of the “Magnitsky Act” or the Act on Restrictive Measures against Certain Serious Acts in International Relations (“Sanctions Act”). Below is an overview of the main changes included in the Amendment.
Subsidies and investment incentives
Although the restrictions and sanctions in the area of subsidies adopted at the European level are directly applicable without the need for their transposition into national law, the Amendment introduces restrictions or a complete ban for providers of investment incentives, subsidies or other funds from the public budget on the provision of such funds to any person or entity subject to the international sanctions regime. For providers of public funds, this means not only checking whether the applicant for a subsidy or investment incentive, for example, is not on sanctions lists but also, if a sanctioned person or entity is detected, prohibiting the provision of funds to such a person and the obligation to report this fact to the Financial Analytical Office (“FAÚ”) without undue delay. The ownership structure of the applicant on sanctions lists must also be checked. One of the tools of verification may be, for example, information available from the register of beneficial owners.
There has also been a tightening in the area of public procurement. A ban on awarding public contracts where this would violate international sanctions has been introduced. The contracting authority must exclude or replace a tenderer or selected supplier if it is subject to international sanctions. In the case of a subcontractor, the contracting authority may require the tenderer to provide a substitute. In addition, the contracting authority may also withdraw from the contract if it becomes aware that its supplier or subcontractor is on a sanctions list. The participation of sanctioned persons or entities in the procurement procedure can be avoided, for example, by reflecting international sanctions in the procurement conditions. In practice, for example, a supplier may be required to submit an official statement that it is not an entity subject to international sanctions, or contractual clauses limiting the choice of subcontractors may be implemented in contracts. In our opinion, contracting authorities should not rely on any statements by the supplier but should actively check whether the potential supplier (subcontractor) is not subject to international sanctions, e.g. by means of a comprehensive sanctions screening.
Another addition is the authorisation of the Customs Administration of the Czech Republic to “freeze” assets that are reasonably assumed to be subject to international sanctions, even without regard to the rights of third parties. Such property may be, for example, a business plant, money or real estate. In addition, the vehicle transporting the property in question may also be seized. In the public interest or, for example, in order to protect the sanctioned property from devaluation, the FAÚ may also decide to sell it. Otherwise, the Amendment introduces an obligation for the sanctioned person or entity whose property is managed during the period of seizure to pay a fee for such management. The fee amounts to 3% of the value of the seized property. The proceeds from the fee are transferred by the administrator to the state budget.
Last but not least, the Amendment should also improve information about the “frozen” assets of sanctioned persons or entities through “register seals”. The Amendment introduces the obligation to enter restrictions or prohibitions on the disposal of sanctioned assets in public registers or other public lists on the basis of a notification by the FAÚ. Legal inspections should, therefore, not be the only instance where it should not be neglected to check the Land Registry, for example, to see whether there is a register seal on a particular property restricting disposition due to a sanction imposed or whether the Commercial Register prohibits the disposal of a partner’s business share that is to be transferred.
Violation of international sanctions as a criminal offence?
In the future, according to the proposed wording of the forthcoming Sanctions Act, the competence of the Ministry of Foreign Affairs is to be extended by the power to include a person or entity on the national sanctions list. Thus, in order to effectively enforce national sanctions, the Amendment has already extended the offence of violation of international sanctions under Section 410 of the Criminal Code to include violations of sanctions introduced by the Sanctions Act once it is adopted. Therefore, in order to avoid criminal liability, it may be advisable, at the very least, to check carefully whether a business partner, client or other entity is on the sanctions lists, whether there has been a restriction or complete ban on trade on its part, or whether the subject of the transaction involves goods under the sanctions regime. Any significant violation of an order, prohibition or restriction arising from binding EU legislation or sanctions law, and therefore circumvention of such legislation, would then be considered a criminal offence.
How we can help:
- Sanction screening of third parties and goods;
- Regular sanction monitoring;
- Representation before the Financial Analytical Office and customs authorities;
- Review of supplier-customer contracts;
- Preparation and implementation of contractual clauses.