On 23 April 2024, the European Commission hosted a full-day seminar on the topic of “EU sanctions” at the Pullman Hotel KLCC. Both Malaysian companies operating in Germany and German companies in Malaysia are affected by this.
Sanctions are part of the EU’s foreign and security policy program and serve to prevent conflicts and defend human rights in response to current crises. They relate either to specific individuals and entities – typically in the form of asset freezes or travel bans – or to specific sectors and are aimed at changing disapproved behavior. This article will focus in particular on the latter, sectoral sanctions, which are primarily expressed in import and export restrictions.
There are currently 46 sanctions regimes in force, the majority of which are autonomous EU sanctions. There are also UN sanctions and sanctions imposed by both institutions in cooperation. An overview of all sanctions can be found at www.sanctionsmap.eu. Particular attention should be paid to the sanctions against Russia and related sanctions against Belarus and Iran, as these are extremely far-reaching and therefore difficult to keep track of. These sanctions are based on EU Regulation 833/2014.
If the respective sanctions regimes are implemented in the form of an EU Commission regulation, they are generally aimed at all natural and legal persons subject to the jurisdiction of the EU. This naturally also includes Malaysian companies operating on European territory. Far-reaching import and export restrictions must be observed for these companies. The aim of these sanctions is to restrict Russia’s ability to wage war. To this end, the Russian economy is not only to be weakened in general, but also to be deprived of goods that can be used for both military and civilian purposes (dual-use goods). A list of these dual-use goods can be found in Annex I to EU Regulation 821/2021.
However, if a German company in Malaysia does not only operate a Regional Office or a Branch Office, which is also addressed by the sanctions program due to the close legal link to the parent company, the question arises as to what extent companies based here come into contact with the sanctions regulations at all. The European Commission points out in this respect: “EU sanctions are not extraterritorial, but it is necessary to conduct due-diligence to avoid being drawn into circumvention schemes.”
Apart from an obvious circumvention by putting a legally independent company – typically a Sdn. Bhd. – in place of the European parent company, infringements are particularly conceivable in the case of re-export to Russia.
An analysis of Malaysia’s export statistics for the past few years suggests that the local economy has been used for circumventing trade: Both imports from the EU and exports to Russia have increased significantly since the start of the Russian war of aggression. Since 20.03.2024, persons and companies under the EU jurisdiction have therefore been obliged under Article 12g (1) of Regulation 833/2014 to contractually prohibit the re-export of certain goods to Russia and for use in Russia. If the clause is missing from the contract, the European company will be punished in accordance with the law of the respective Member state. It is not necessary to act intentionally; a negligent breach of the obligation is sufficient. In this respect, Malaysian partners are advised to point out existing risks in the interest of maintaining a strong business relationship if those risks are obvious but have only been recognized unilaterally. If the European partner does not insist on the inclusion of the contractual clause in obvious cases, this clearly indicates its general relationship to law and order. To ensure the effectiveness of this measure, the clause must contain adequate remedies which are reasonably strong and aim to deter non-EU operators from any breaches. In order to prevent the establishment of certain “circumvention states”, Article 12f of EU Regulation 833/2014 makes it possible to ban the export of certain goods to countries yet to be named. This tool, which is regarded as a last resort, has not yet been used. However, it should be in the interest of Malaysian partners not to cut off the European market in this way.