The European Union has recently introduced new sanctions that affect how EU companies must manage their foreign subsidiaries. These sanctions, which target Russia and Belarus, require EU companies to make their best efforts to ensure that their non-EU subsidiaries do not engage in activities that go against EU sanctions. This means that EU parent companies can now be held accountable for the actions of their foreign subsidiaries if they fail to prevent them from violating EU sanctions.
The concept of “best efforts” is somewhat vague, but it essentially requires EU companies to take all suitable and necessary actions to prevent their foreign subsidiaries from undermining EU sanctions. This could involve implementing policies, controls, and procedures to manage risks effectively, taking into account the location and activities of the foreign subsidiary. The goal is for EU companies to assess the risks posed by their foreign subsidiaries and take steps to ensure compliance with EU sanctions.
In addition to the “best efforts” obligation, EU companies involved in specific activities related to Russia and Belarus must implement risk and compliance procedures by December 26, 2024. These procedures must also be adopted by their foreign subsidiaries engaged in these activities. While this measure is more narrow in scope, it demonstrates the EU’s commitment to promoting a culture of compliance with EU sanctions globally.
By requiring EU companies to influence their non-EU subsidiaries, the EU is indirectly expanding its regulatory reach beyond its borders. This signifies a shift towards closing jurisdictional gaps between EU parent companies and their foreign subsidiaries. The responsibility now lies with EU companies to assess the risks posed by their foreign subsidiaries and ensure compliance with EU sanctions.
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