Amendment of the notion of ‘ownership’ for the purposes of the application of sanctions and asset freezing measures
The EU Council updated the EU Best Practices for the effective implementation of restrictive measures.
The EU Best Practices contain guidelines for the interpretation and application by EU authorities and operators of sanctions imposed by the EU against natural and legal persons. They provide clarification on the designation and the de facto identification of designated subjects, as well as on the application of asset freezing measures.
Asset freezing measures apply to designated entities, but also to companies that are ‘owned’ by them or under their ‘control’. The EU Best Practices contain the definitions of ‘ownership’ and ‘control’ necessary to determine whether an entity, even if not expressly designated, should still be considered sanctioned.
With the update of the EU Best Practices, the EU Council changed the notion of ‘ownership’.
Until 3 July 2024, in fact, for the purposes of sanctions, a company was to be considered ‘owned’ by a natural or legal person when the latter owned more than 50 per cent of the former:
The criterion to be taken into account when assessing whether a legal person or entity is owned by another person or entity is the possession of more than 50% of the proprietary rights of an entity or having majority interest in it.
Differently, according to the new definition of ownership, owning 50 per cent or more of the shares is enough to integrate the concept of ‘ownership’ for the purposes of the application of sanctions:
The criterion to be taken into account when assessing whether a legal person or entity is owned by another person or entity is the possession of 50% or more of the proprietary rights of an entity or having majority interest in it.
As a result of this amendment, the number of companies to be considered sanctioned, and to which the asset-freezing measures will be extended, will increase.
On the other hand, no changes have been made to the notion of ‘control’ and the criteria to be used to assess whether or not a company is ‘controlled’ by a sanctioned natural or legal person:
The criteria to be taken into account when assessing whether a legal person or entity is controlled by another person or entity, alone or pursuant to an agreement with another shareholder or other third party, could include, inter alia: (a) having the right or exercising the power to appoint or remove a majority of the members of the administrative, management or supervisory body of such legal person or entity; (b) having appointed solely as a result of the exercise of one's voting rights a majority of the members of the administrative, management or supervisory bodies of a legal person or entity who have held office during the present and previous financial year; (c) controlling alone, pursuant to an agreement with other shareholders in or members of a legal person or entity, a majority of shareholders' or members' voting rights in that legal person or entity; (d) having the right to exercise a dominant influence over a legal person or entity, pursuant to an agreement entered into with that legal person or entity, or to a provision in its Memorandum or Articles of Association, where the law governing that legal person or entity permits its being subject to such agreement or provision; (e) having the power to exercise the right to exercise a dominant influence referred to in point (d), without being the holder of that right; (f) having the right to use all or part of the assets of a legal person or entity; (g) managing the business of a legal person or entity on a unified basis, while publishing consolidated accounts; (h) sharing jointly and severally the financial liabilities of a legal person or entity, or guaranteeing them.
If any of these criteria are satisfied, it is considered that the legal person or entity is controlled by another person or entity, unless the contrary can be established on a case by case basis.
The fulfilment of the above criteria of ownership or control may be refuted on a case by case basis.