Sanctions on Russia and Polish Sanctions Law
Polish Law on Sanctions to Counteract Supporting Aggression against Ukraine and to Protect National Security, commonly referred to as the “Polish Sanctions Law“, came into force on 16 April 2022, causing an avalanche of doubts among Polish entrepreneurs doing business with a foreign factor.
Sanctions on Russian and EU and Polish sanction regulations
The Sanctions Act complements and implements the sanctions regulations in force in the UE, providing for:
- the freezing of all funds and economic resources owned, held, effectively possessed or controlled by sanctioned persons and entities,
- a ban on the sale, supply, transfer and export of goods and technology of dual civil and military use to the territories of the Russian Federation and Belarus and to the breakaway republics within occupied Ukraine.
Polish list of persons subject to sanction on Russia
Polish Law also provides for its own solutions in the form of a list of persons and entities against whom sanctioning measures are applied, maintained by the Minister of Internal Affairs and Administration. It is worth noting that this list includes persons other than those included in the EU lists, and may include entities:
- who directly or indirectly support the aggression of the Russian Federation against Ukraine, serious human rights violations or repression of civil society and democratic opposition, or whose activities pose other serious threats to democracy or the rule of law in the Russian Federation or Belarus,
- directly or indirectly linked to the entities referred to above, in particular by personal, organizational, economic or financial links or the likelihood of such funds, resources or economic resources being used for such purposes.
What is indirect relationship in view Sanctions Law
Importantly, both the EU Sanctions Regulations and the Sanctions Law of Poland prohibit the making available of funds or economic resources not only to listed persons and entities, but also to entities which – even indirectly – are controlled by a sanctioned person. The criterion of “indirect control” raises particular doubts in the case of commercial companies. It is often the case that commercial relations are established with a daughter company, or even a granddaughter of a company whose shareholder or partner, even a minority shareholder, is a sanctioned entity. This gives rise to doubts among entrepreneurs as to what criteria should be applied when assessing whether a given entity is controlled and how far-reaching are the obligations in verifying counterparties?
Indirect control – subsidiary sanction criteria
Although neither the Polish Sanctions Law nor the EU Sanction Regulations provide direct answers to these questions, in practice certain criteria have developed that can be taken into account when assessing whether an entity is subject to indirect control by an entity on the sanctions list. These include:
- influence over the corporate structure of the entity in question and influence over the determination of the entity’s financial, business, personnel, legal policies and directions,
- the right to appoint or dismiss a majority of the members of the entity’s management, supervisory or administrative body,
- Joint and several liability for the financial obligations of the entity or as a guarantor of such obligations,
- the possibility of monitoring the entity’s activities,
- appointment, on the sole basis of the exercise of its voting rights, of the majority of the members of the administrative, management or supervisory bodies of a legal person or entity
- exclusively controlling, pursuant to an agreement concluded with other shareholders or members of the legal person or entity, a majority of shareholders’ or members’ voting rights in that legal person or entity
- 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 pursuant to a provision in its memorandum or articles of association, where the law governing that legal person or entity permits it to be subject to such agreement or provision
- having the right to use all or part of the assets of the legal person or entity.
Due diligence and KYC in view of Sanctions Law
However, this is not a closed catalog, and each situation should be assessed individually. It should be emphasized that in order to assess whether a given entrepreneur has infringed any of the statutory or EU prohibitions, a measure of due diligence is applied, i.e. de facto an entrepreneur conducts an appropriate research of its potential business partners. The recommended actions include, for example:
- carrying out an analysis of publicly available registers of a given business partner and at least directly related companies, (e.g. Central Register of Actual Beneficiaries), information from the National Court Register, CEiDG or equivalents from other countries, analysis of financial statements or articles of association of companies,
- obtaining a declaration from the business partner that there are no grounds that, in the light of the Regulations or the Law may render the cooperation prohibited as infringing the established prohibitions,
- introduction into concluded agreements of guarantee clauses, obliging the counterparty to inform about any events, which may potentially make the cooperation with a given entity contrary to the Law or Regulations,
- to contact a law firm specialized in the law applicable to the area of activity of the business partner or related entities, in order to determine the actual mechanisms of control exercised by the entity subject to sanctions on entities in the given chain of relations.
Penalties and infringement of sanctions on Russia regulation
Polish Sanctions Law provides for severe penalties for violations of its provisions or EU sanctions regulations. These include, among others:
- a fine of up to PLN 20,000,000,
- ban on participation in public procurement procedures or a competition
Lawyers and attorneys specialized in regulations regarding sanction against Russia
We would like to remind you that DKP has a team of lawyers specializing in administrative law, risk assessment and due diligence of contractors in light of the Polish and EU sanctions regulations.