AUSTRIA Trends and Developments Contributed by: Anna Zeitlinger, Gabriel Lansky, Philip Goeth and Konstantin Oppolzer, Lansky Ganzger Goeth + Partner Rechtsanwälte GmbH
outside the EU generally cannot circumvent sanctions for they do not apply to it in the first place. Thus, through the best-efforts obligation, the Europe - an Union aims to curb the “undermining” of sanctions in lieu of the “circumventing” of sanctions. EU sanc - tions are undermined if one participates in activities that result in an effect that the restrictive measures seek to prevent. For example, goods that cannot be imported to Russia under Regulation 833/2014 are supplied to Russia by the third-country subsidiary of an EU parent company. Moreover, entering into trans - actions with designated persons is also deemed an “undermining” of sanctions by the third-country sub - sidiary (eg, maintaining a bank account with a desig - nated bank and paying to such bank account fees). Actions that would be exempt from an applicable sanctions regulation should not be deemed to “under - mine” sanctions. For example, if a Turkish subsidiary exports to Russia products subject to an EU export restriction, the applicable export restriction is not undermined by the Turkish subsidiary if the respective EU restriction sets forth an exception and the export at issue would fall under such exception (eg, products used for medical or pharmaceutical purposes). If the action concerned could be carried out after having obtained a derogation from the competent authority, the EU parent entity can apply on behalf of its third-country subsidiary for such derogation. For example, if the Indian subsidiary of an EU parent entity provides IT services to the Russian subsidiary of the EU parent entity, the EU parent entity could apply for a derogation which would allow the provision of these services by the Indian subsidiary to the Russian sub - sidiary. Should the authority in the place of incorpora - tion of the EU parent entity refuse such derogation due to lack of competence, the provision of such services to the Russian group company ought not to be viewed as “undermining” sanctions. Necessary and suitable measures The EU entity must use its best efforts to ensure that its third-country subsidiary does not participate in activities that undermine EU sanctions. Pursuant to the recitals of the EU regulation that introduced the best-efforts obligation to the EU sanctions on Rus -
sia, best efforts should be understood as comprising all actions that are suitable and necessary to achieve the result of preventing the undermining of the restric - tive measures in Regulation (EU) No 833/2014. Those actions can include, for example, the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively, considering fac - tors such as the third country of establishment, the business sector and the type of activity of the legal person, entity or body that is owned or controlled by the European Union operator. The exact actions must be assessed on a case-by- case basis. Factors like the nature and size of the business, the extent of control over the subsidiary, the location of the subsidiary and potential repercussions for the subsidiary or its directors must be considered. Actions to be taken by the EU entity involve the issu - ance of a shareholder instruction to cease certain actions or to terminate certain contracts, cancelling a licence to re-sell certain products and exchanging the subsidiary’s directors. However, prior to taking any actions, the EU entity must become aware of the subsidiary’s business scope and partners. Hence, “awareness” is key and a first step in complying with the best-efforts obligation. Consequently, the relevant subsidiaries ought to be included in a compliance pro - gram and be informed on recent relevant sanctions developments. Actions must be “feasible” In addition to actions being necessary and suitable, the actions must also be feasible. The recitals state that actions must be feasible for the European Union operator in view of its nature, its size and the relevant factual circumstances, in particular the degree of effective control over the legal person, entity or body established outside the EU. Moreover, an action may not be feasible if the EU entity has lost control over its subsidiary (see in more detail below). The feasibility-threshold is critical in the assessment of the actions to be taken by the EU entity vis-à-vis its third-country subsidiary. Suppose the EU enti - ty instructs its subsidiary to cancel three contracts because the performance of such contracts under - mines sanctions. The termination of the first contract
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