Over a dozen EU countries led a pushback against proposed fines for failing to meet reporting obligations on the whereabouts of Russian state assets, forcing the European Commission to drop its plan for the penalties.
The proposal is part of the EU’s 10th sanctions package against the Kremlin, which the Commission is trying to get approved to mark the first anniversary of Russia’s all-out invasion of Ukraine, falling on Friday. Unanimous backing from the bloc’s countries would be needed.
The Commission’s goal is to map Russia’s frozen assets, including what portion of the nearly $300 billion in Russian foreign reserves that are frozen in G7 and EU countries is held in the bloc, where, and by whom.
This mapping exercise would be the first step in ongoing discussions on how to leverage these assets to pay for Ukraine’s reconstruction.
The Commission proposed introducing sweeping obligations on “natural and legal persons, entities and bodies” to report on the whereabouts, market value and type of funds belonging to sanctioned entities, including the Central Bank of Russia, which have been frozen by national authorities. It would also cover those who should have been frozen but haven’t been, and funds that were “subject to any move, transfer, alteration, use of, access to” in the two weeks prior to their listing, according to draft sanction proposals seen by POLITICO.
Failure to do so could result in hefty fines of up to 10 percent of global annual turnover for legal entities and €50,000 for individuals who willingly or negligently fail to report this information. The Commission would also like to impose daily fines of 10 percent of daily global turnover or €5,000 in case of individuals to compel asset holders to cooperate.
Legal clarifications
A group of 13 countries — including Austria, Germany, Belgium, the Czech Republic, France, Italy, Latvia, Malta and Portugal — raised objection to the proposal during a meeting on Tuesday, according to several EU diplomats and officials.
These countries had cited the need for legal clarifications “which cannot be solved simply by reviewing a package of sanctions in a few days,” one diplomat said.
A number of them suggested taking the whole issue out of the 10th sanctions package, holding technical discussions, and returning to the issue in the future. No one is opposing the aim of having more clarity on these assets, diplomats said
“We say ok, sure, but not now, we just need more clarity,” said another diplomat.
The diplomats requested anonymity due to the sensitivity of the talks.
In the new drafts circulated ahead of Wednesday’s meeting of EU ambassadors, seen by POLITICO, two paragraphs related to the fines have been stricken out.
Discussions on the new sanctions will continue on Thursday.
The fines were a particularly contentious point with several EU countries, who questioned the Commission’s power to impose them, since sanction implementation is a national competence, in what is a classic fear among member states of a Commission’s power grab. Others talked in more general terms of the risk of administrative burdens.
The Commission insisted on the need to map frozen Russian state assets but agreed to take out fines from the sanctions package under discussion, according to four diplomats and officials. Discussions will continue on Thursday.
The fines were a key component of a package that has already left out some controversial items, such as diamonds and the nuclear industry. The ambition of the Commission is to get the package agreed in time for the war anniversary and in coordination with the G7.
This time constraint has prevailed over ambition, one of the diplomats said.
During a meeting on Tuesday however, the Commission said that work with the G7 relating to diamonds is continuing and that a statement is expected, according to one official familiar with the discussion.
As for nuclear, the EU’s executive said it was willing to look into individuals in middle management positions at Rosatom, the Russian nuclear energy company, but Hungary reiterated its objection at the same meeting.
Some other countries supported the Commission’s proposal, including the suggestion of using fines.
“Reporting assets is an obligation for the EU member states,” said one diplomat from this group. “The [European Commission] needs to use all available tools.”
