Mr. Sanctions

Category: European Commission (EU)

  • The EU sings in perfect (ahem) harmony on sanctions enforcement

    I asked Claude to explain the EU Harmomization Directive with respect to sanctions enforcement:

    The formal name is Directive (EU) 2024/1226 — “on the definition of criminal offences and penalties for the violation of Union restrictive measures, and amending Directive (EU) 2018/1673.” “Harmonization Directive” isn’t its official title, but it’s a fair and widely used shorthand; several firms (White & Case, Gleiss Lutz) use “harmonized” or “harmonised” in their own headlines for it, so I’ll treat that as the subject and flag the naming distinction for your readers up front.

    Where it comes from

    Sanctions violations weren’t always something the EU could legislate criminal minimums for. Article 83(1) TFEU limits that competence to a defined list of “euro-crimes” (terrorism, trafficking, corruption, money laundering, and similar). Council Decision (EU) 2022/2332 of 28 November 2022 added violation of Union restrictive measures to that list, which cleared the way for a directive. The Commission proposed the text in December 2022, Parliament and Council reached provisional agreement in December 2023, Parliament adopted it on 12 March 2024, and Council gave final approval on 12 April 2024. It was published in the Official Journal on 29 April 2024, entered into force 19 May 2024, and set a transposition deadline of 20 May 2025.

    What conduct it criminalizes (Article 3)

    Member states must treat the following as criminal offenses when committed intentionally in breach of an EU restrictive measure (or a national provision implementing one):

    • Making funds or economic resources available to a designated person, or failing to freeze assets belonging to or controlled by one
    • Enabling a designated person to enter or transit through a member state’s territory
    • Entering into or continuing transactions with a sanctioned third country, or bodies and entities owned or controlled by it, including public or concession contracts
    • Trading, importing, exporting, or providing brokering or technical assistance in breach of trade-control measures
    • Providing financial services or carrying out financial activities in violation of restrictive measures
    • Providing other services in violation of restrictive measures — legal advisory, trust, PR, accounting, auditing, tax consulting, business or management consulting, IT consulting, architectural and engineering services are all named
    • Supplying false or misleading information to conceal that a designated person is the true owner or beneficiary of funds or resources
    • Failing to meet a reporting obligation owed to competent administrative authorities
    • Breaching conditions attached to an authorization or license issued by a competent authority

    Article 4 extends liability to incitement, aiding and abetting, and attempt. Notably, for the trade-control offense involving items on the EU Common Military List or dual-use goods under Annex I/IV of Regulation (EU) 2021/821, member states must also criminalize conduct amounting to serious negligence, not just intent — a real departure from the intent-only baseline elsewhere in the directive.

    Threshold and exemptions: member states generally aren’t obligated to criminalize conduct involving less than €10,000 in funds, resources, goods, services, or transactions, though a series of linked acts by the same offender can be aggregated to meet that figure. The threshold doesn’t apply to travel-ban violations. Two exemptions exist: legal professional privilege for advice given in the course of ascertaining a client’s legal position or representing them in proceedings (this falls away if the lawyer knowingly participates in or facilitates the violation), and humanitarian assistance delivered in line with the principles of impartiality, humanity, neutrality, and independence.

    Penalties for natural persons (Article 5)

    Maximum prison terms scale by offense type and value. Assuming the €100,000 threshold is met — which can also be reached by aggregating linked offenses — maximum terms run from at least one year up to at least five years, calibrated by which category of Article 3(1) conduct is involved. Where the offense involves Common Military List items or Annex I/IV dual-use goods, the maximum must be at least five years regardless of value. Accessory penalties can include disqualification from leadership positions, withdrawal of permits and authorizations, and temporary bans from public office.

    Corporate liability and penalties for legal persons (Articles 6-7)

    A legal person can be held liable where an offense is committed for its benefit by someone in a leading position, or where a lack of supervision by such a person allowed a subordinate to commit it. Fines are tiered by offense severity: most offenses carry a maximum of at least 5% of total worldwide turnover or €40 million (member states choose the calculation method); two lesser reporting-related offenses carry a maximum of at least 1% of turnover or €8 million. Non-criminal measures can include exclusion from public funding and tenders, judicial supervision, withdrawal of permits, and judicial winding-up.

    Aggravating and mitigating circumstances (Articles 8-9)

    Aggravating factors include use of false or forged documents, commission by a professional service provider in breach of their professional obligations, and destroying evidence or intimidating witnesses. These push penalties up without changing the underlying offense definitions.

    Other structural elements

    • Freezing and confiscation (Article 10): member states must be able to freeze and confiscate instrumentalities and proceeds of these offenses, plus the sanctioned funds or resources themselves.
    • Limitation periods (Article 11): generally at least five years for offenses carrying a five-year maximum sentence, with a floor of three years permitted in narrower circumstances.
    • Jurisdiction (Article 12): territoriality-based, with room to extend to habitual residents, officials acting in an official capacity, and conduct benefiting a locally established legal person.
    • Investigative tools (Article 13): member states must make organized-crime-style investigative tools available for these cases.
    • Whistleblower protection (Article 14): ties reporting persons back to the protections in the EU Whistleblower Directive (2019/1937).
    • Cooperation (Articles 15-16): each member state designates a coordinating unit domestically, and the directive builds in cooperation channels with the Commission, Europol, Eurojust, and the European Public Prosecutor’s Office. It stops short of centralizing enforcement — expanding EPPO’s own mandate to cover these offenses would require a separate unanimous Council decision under Article 86 TFEU, which hasn’t happened.
    • Statistics (Article 17): member states report prosecution data to the Commission annually.
    • AML predicate offense: the directive amends Directive (EU) 2018/1673 so that violating Union restrictive measures is now itself a predicate offense for money laundering.

    Commission reporting obligations run forward: an implementation report is due by 20 May 2027, and a fuller effectiveness evaluation by 20 May 2030.

    Where transposition actually stands (as of August 2026)

    This is the part worth flagging for readers who assume “harmonization” means it’s already harmonized. It isn’t, in practice. Almost no member state met the 20 May 2025 deadline — the Institute of Legislative Ideas’ transposition study found only Estonia and Finland fully compliant on time, with Lithuania, Latvia, and Sweden close behind. On 24 July 2025 the Commission opened infringement proceedings (letters of formal notice) against 18 member states. By the Commission’s June 2026 infringements package, that had progressed for at least three of them — Spain, France, and Austria received reasoned opinions, the next escalation step before a possible referral to the Court of Justice. Germany, meanwhile, got a separate formal notice over a narrower gap (a residence requirement specific to North Rhine-Westphalia) despite having transposed the bulk of the directive through its Sanctions Act published 5 February 2026. France was still working through its domestic legislative process as of March 2026. So national approaches remain visibly uneven well over a year past the deadline, which somewhat undercuts the “harmonization” framing in the near term even as the underlying legal architecture is genuinely unified at the EU level.

    Verification notes

    Article-level detail (offense categories, penalty tiers, article numbers for aggravating/mitigating factors, jurisdiction, and cooperation provisions) is cross-checked against the EUR-Lex text itself alongside multiple independent law-firm summaries (Clyde & Co, White & Case, Gleiss Lutz, DLA Piper, Paul Hastings), which converge closely on the figures. The one area I’d flag as an assumption rather than a verified fact: I wasn’t able to pull a complete letter-by-letter mapping of which specific Article 3(1) sub-points carry which exact imprisonment tier from the raw text — the secondary sources agree on the general 1-to-5-year structure and the €100,000/military-goods triggers, but I’m not fully confident in a precise point-by-point table, so I’ve described the structure rather than asserting an exhaustive breakdown. If you want that level of granularity for the piece, it’s worth pulling the full Article 5 text directly before publishing.

    Sources

    Primary legislative text

    Substantive analysis

    • eucrim (Max Planck Institute for the Study of Crime, Security and Law), “New Directive Criminalises Violation/Circumvention of EU Restrictive Measures,” 9 July 2024
    • Clyde & Co, “EU Sanctions Update: criminal offences and penalties (Directive EU 2024/1226),” 2 May 2024
    • White & Case, “EU establishes harmonized enforcement and penalties for sanctions violations”
    • Gleiss Lutz, “EU introduces stricter, harmonised rules for criminal prosecution of sanctions violations”
    • European Studies Unit (University of Liège), “Publication of Directive (UE) 2024/1226…”

    Current implementation status

    • Paul Hastings, “Addressing Gaps and Inconsistencies in the EU Sanctions’ Enforcement: The Commission Urges Member States to Transpose Directive (EU) 2024/1226”
    • National Law Review, “EU Launches Infringement Actions on Sanctions Directive 2024/1226”
    • EUbusiness.com, “June 2026 EU infringements package: key decisions,” 4 June 2026
    • Gleiss Lutz, “Stricter criminal sanctions law: Germany’s transposition of the EU Sanctions Directive”
    • Lexology (White & Case), “EU: France advances first steps to transpose the EU Sanctions Enforcement Directive”
    • Institute of Legislative Ideas, “Transposition of EU Directive 2024/1226 by EU Member States”

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  • August 7, 2026: Burning Question: Has the EU plugged up the holes in the dike?

    So, I’m a beta tester for ACSS‘ CSS-EU certification exam, and I’ve been studying. In the midst of it, I came across the following “non-paper” issued by the Dutch government in February 2023 about sanctions enforcement:

    non-paper-on-russia-sanctions-circumventionDownload

    and I was curious – how much of this actually got promulgated by the EU? So, I asked Claude – here’s the response:

    Quick note on dating: the paper’s reference to the 9 February 2023 European Council conclusions places it right around the EU’s 10th sanctions package. Everything below covers what’s happened across the roughly eleven packages adopted since (11th through 21st, the last landing July 23, 2026).

    Context

    The paper came from the Dutch government in the run-up to what it called “the year of success in countering circumvention.” It made five clusters of asks. Here’s each one, and where it actually stands 3.5 years on.

    1. Strengthen the feedback loop between national enforcement and EU-level policy

    Proposed: Better cooperation between customs, tax authorities, prosecutors, intelligence services, and statistics agencies at the national level, with that intelligence routed up to Brussels so loopholes in the sanctions text itself could get closed.

    What happened: The concrete deliverable here is Directive (EU) 2024/1226, adopted April 24, 2024, which harmonizes the definition of criminal offenses and penalties for sanctions violations across Member States and builds a formal cooperation channel among national authorities, the Commission, Europol, Eurojust, and the European Public Prosecutor’s Office though it stops short of a single EU-level entry point for reporting breaches that span multiple Member States. Transposition was due by May 20, 2025. The Commission opened infringement proceedings against 18 Member States in July 2025 for failing to fully transpose it. As of early 2026, practitioner commentary is still describing EU sanctions enforcement as structurally fragmented, with divergent penalty regimes and investigative approaches across Member States encouraging forum shopping by operators seeking softer enforcement jurisdictions, and a mid-2026 industry survey went so far as to call fragmentation, not designation volume, the defining sanctions challenge of the year, with regulators now moving in different directions rather than the relative coordination seen earlier in the war.

    Verdict: Real legislative architecture exists now that didn’t in February 2023. But this is the one proposal area where the paper’s own diagnosis (uneven application among Member States) is, by the EU’s own admission via infringement actions, still an open problem.

    2. Strengthen the EU point of contact for circumvention

    Proposed: A safe channel for Member States to share circumvention intelligence in Brussels, a platform for common analysis, and explicit use of the incoming Anti-Money Laundering Authority (AMLA, cited at 500 FTE) for this purpose.

    What happened: The Sanctions Coordinators Forum, chaired by the EU Sanctions Envoy, has become the closest thing to the coordination venue described. By its seventh meeting in 2026 it was gathering high-level representatives from all Member States plus the US, UK, Canada, Japan, South Korea, Liechtenstein, New Zealand, Norway, and Switzerland, with Ukraine joining for dedicated sessions. That’s broader (and more diplomatic in character) than the narrower Brussels analysis cell the paper described.

    AMLA itself did get built, though its link to circumvention specifically is thinner than the paper implied. It was formed June 26, 2024, headquartered in Frankfurt, and took up operations July 1, 2025. It absorbed the European Banking Authority’s AML/CFT mandates on January 1, 2026, and direct supervision of roughly 40 selected high-risk entities is scheduled to begin in 2028. Its core mandate is money laundering and terrorist financing; sanctions-compliance monitoring by obliged entities sits within that broader remit rather than as a dedicated anti-circumvention function, and its staffing trajectory (roughly 430 by end-2027) is smaller than the 500 FTE figure the paper cited.

    Verdict: A coordination venue exists and meets regularly, and AMLA exists roughly on schedule. But I couldn’t find evidence of a discrete, named “circumvention information-sharing platform” as such. What exists instead is a layered patchwork: the Forum, the Europol/Eurojust/EPPO channel created by the 2024 Directive, and AMLA on the financial-intelligence side, which is a looser outcome than a single point of contact.

    3. Diplomatic outreach

    Proposed: A Special Envoy, EU démarches, letters from EU institutions, coordination with G7-plus partners.

    What happened: This is the proposal that landed most cleanly, largely because it was already in motion. David O’Sullivan took up the role of International Special Envoy for the Implementation of EU Sanctions in January 2023, essentially contemporaneous with the paper itself. He’s since made the outreach role highly visible: in February 2026 he traveled to Kyrgyzstan and told reporters that trade data showed goods being imported there for the specific purpose of re-export to Russia, singling out radio equipment and machine tools; he’s made joint trips to Kazakhstan and Kyrgyzstan with his UK counterpart; and in June 2026 he told Euronews that China remained a “very big problem” for circumvention, with no sign of it abating.

    Verdict: The most fully and durably realized of the five clusters.

    4. Expand the EU toolbox

    This proposal had several distinct sub-parts, worth taking one at a time.

    Guidance for companies: The Commission published practical guidance for EU operators on September 7, 2023, setting out enhanced due-diligence expectations for strategic risk assessment and best practices for screening business partners, transactions, and goods, plus a list of circumvention red flags. It’s been refreshed since in coordination with G7 partners as part of joint industry guidance on preventing sanctions evasion. Realized, and fast.

    Contractual end-use obligations: The “no-Russia clause” under Article 12g of Regulation 833/2014 was introduced in the 12th package in December 2023, requiring exporters to contractually prohibit re-export to Russia, and was later extended to Belarus. Realized.

    Trade toolbox against a non-cooperative state: The anti-circumvention tool, Article 12f of Regulation 833/2014, was introduced as an “exceptional and last resort measure” in the 11th package in June 2023. It then sat unused for nearly three years. It was first activated in the 20th package, imposing targeted export restrictions on Kyrgyzstan in response to systemic evasion, specifically covering CNC machine tools and telecommunications equipment being diverted to Russia for drone and missile manufacturing. Realized, though the multi-year gap between creation and first use suggests Member States found it politically harder to invoke than the paper anticipated.

    Watch list / published suspicions: The closest analog is the Common High Priority List, a jointly maintained EU-US-UK-Japan list of dual-use and advanced-technology items found on the battlefield or critical to Russian weapons production, first published in 2023 and expanded since. That’s a goods list, though, not the entity-level “watch list” or publication of unproven “suspicions” the paper floated as a way to enable due diligence short of formal listing. I didn’t find evidence the EU adopted that softer mechanism; where it had sufficient evidence, it moved straight to formal designation rather than a public warning step.

    Verdict: Substantially realized across three of four sub-elements, with the “publish suspicions” idea appearing to be the one that wasn’t taken up.

    5. Expand listing capacities

    Proposed: Broaden the ability to list third-country persons and entities beyond the narrow original criteria, which required proving a link to circumvention by an EU actor, and cover a wider category of components tied to weapons production.

    What happened: The 11th package amended Regulation 269/2014’s listing criteria to add persons and entities that “significantly frustrate” EU sanctions. Since then, successive packages have repeatedly added third-country entities under Annex IV of Regulation 833/2014, language in the Council’s own 2026 texts describes entities “in third countries other than Russia that indirectly contribute to Russia’s military and technological enhancement thereby enabling the circumvention of Union restrictive measures or frustrating their purpose”, which tracks the non-paper’s ask almost verbatim. The 19th package, in late 2025, specifically designated non-Russian operators in the UAE and China producing or supplying military and dual-use goods to Russia, and the EU’s asset-freeze list by that point already included entities established in the UK, China, Hong Kong, the UAE, and Kyrgyzstan.

    Verdict: The second most fully realized cluster, with a clear and repeated pattern of use across nearly a dozen packages rather than a one-off change.

    Bottom line

    Ranked by how faithfully the EU followed through: diplomatic outreach and expanded listing capacity were both substantially delivered and are still actively used today. Toolbox expansion was mostly delivered, guidance, the no-Russia clause, and the anti-circumvention tool are all real and in force, with the softer “publish suspicions” idea being the exception. The feedback-loop proposal produced genuine legislation in Directive 2024/1226, but its central goal (unified application) remains, by the Commission’s own infringement actions, unfinished. And the “point of contact” proposal exists in a more diffuse form (Forum plus Europol/Eurojust/EPPO plus AMLA) than the single Brussels platform the paper described.

    Worth flagging something the non-paper didn’t address at all: unanimity. Every package still needs all 27 Council votes, and that friction has visibly shaped recent outcomes, the 20th package had to clear a Hungarian veto threat before adoption, and the 21st package in July 2026 emerged narrower than the Commission’s original June proposal after Member States pushed back on scope. None of the five proposals touch that structural constraint, and it’s arguably the single biggest brake on how fast anti-circumvention policy can move regardless of how well the other five workstreams perform.

    Self-check

    High confidence, multiple independent sources: O’Sullivan’s appointment and role, the anti-circumvention tool’s creation and first (Kyrgyzstan) use, the no-Russia clause, Directive 2024/1226 and its transposition shortfall, the AMLA timeline, the September 2023 Commission guidance, and the pattern of third-country Annex IV listings.

    Lower confidence: I could not confirm or rule out whether the EU seriously considered and rejected a formal “publish suspicions short of listing” mechanism, versus simply never taking it up, my read is an absence of evidence in press and legal-alert coverage, which isn’t the same as proof it doesn’t exist. Similarly, “no discrete circumvention information-sharing platform” is an inference from silence rather than a confirmed negative, worth a targeted follow-up search if it matters for the piece.

    Sources

    It’s nice to see “asks” become real, don’t you think?

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  • Burning Questions; My Dinner with Claude – When Does Money Actually Belong to Someone? A Payment-Law Detour

    My prompt:

    let’s go back to Scenario A: there has to be, in order to effectuate the instruction, an account relationship of some kind, doesn’t there? So why is that case different? You’ve got assets being allocated for a sanctioned party – the only difference is that, in Scenario A, it’s being taken from an existing pooled asset. Or am I missing something?

    Claude responded:

    You’re not missing something, and it’s a sharp catch — there genuinely is an “account relationship” and something IS being drawn from a pooled asset. But the question is whether that operational fact amounts to a legal interest for the designated person, and here payment law itself already draws the line you’re looking for, independent of sanctions law entirely.

    A wire transfer isn’t one asset moving through a pipe — it’s a chain of separate obligations

    Under the commercial law that actually governs funds transfers (UCC Article 4A in the US; the EU’s Settlement Finality Directive and the payment-services framework in Europe), a beneficiary acquires zero legal claim against their own bank until that bank “accepts” the payment order — the beneficiary’s bank is only obliged to pay the beneficiary once it accepts the order, and acceptance itself is defined narrowly: the earliest of the bank paying the beneficiary, notifying them of receipt, or receiving settlement for the order. Before that moment, nothing has legally reached the beneficiary — the money belongs to the recipient, free of any strings, only once finality is reached. This isn’t a sanctions-specific fiction. It’s the ordinary rule that governs every wire transfer on earth, sanctions or not — it’s what determines, say, whose money it is if a bank fails mid-transfer, or if a payment gets mis-keyed to the wrong account.

    So what is actually happening at your end when you debit Customer A?

    Bank A debiting Customer A’s account and sending a payment message isn’t Bank A moving the designated person’s property — it’s Bank A discharging (or beginning to discharge) its own contractual obligation to Customer A, funded out of Bank A’s own balance sheet and correspondent liquidity. That pooled asset is Bank A’s, being drawn down pursuant to A’s instruction; the designated person is a total stranger to that relationship until their own bank actually accepts the order on their behalf. If you refuse at that point, nothing reverses because nothing left — Customer A’s account was never debited (or is simply uncredited if it briefly was), and there’s no moment where the designated person held anything that now has to be “returned.” That’s precisely why refusal doesn’t require a licence the way unwinding a completed freeze does: there’s nothing to unwind.

    Why “belonging to/held/controlled by” tracks this, and why OFAC doesn’t

    The EU-family test (belonging to, owned, held, or controlled by) is simply importing the ordinary payment-law vesting point rather than inventing its own. OFAC’s blocking regime is the outlier specifically because its “interest of any nature whatsoever, direct or indirect” definition is deliberately written to reach behind that ordinary vesting rule — US commercial law (the same UCC 4A) agrees with the EU-family approach that the beneficiary has no claim pre-acceptance, but OFAC’s sanctions regulations override that for blocking purposes, treating mere intended-beneficiary status as sufficient. So the divergence being described here isn’t a difference in what property law says happens to a payment in flight — both systems’ underlying commercial law agrees on that. It’s that only one of them layers a sanctions-specific rule on top that disregards it.

    This also explains the countermand test from the UK “trapped payments” guidance covered previously — asking whether a designated bank still had the right to recall the funds is just asking whether finality/irrevocability had occurred yet. Same doctrinal line, applied to figure out whether the freeze duty travels with the money through a correspondent chain. And it’s why an intermediary bank in the EU-family model typically has nothing of the designated person’s to freeze mid-chain at all: under this same logic, none of the intervening correspondent legs constitute the beneficiary holding anything either, right up until the final beneficiary’s bank accepts.

    One thing worth keeping separate: this settles whether the Scenario A/B line is legally real rather than cosmetic — it doesn’t reopen the policy question of whether refuse is a strong enough response on its own. Those are different questions.

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  • Burning Questions; My Dinner with Claude – Is ‘Just Say No’ a Cop-Out? The Politics Behind Freeze vs. Refuse

    My prompt:

    By refusing or rejecting a transaction, isn’t the regulator copping out? After all, the transaction could be accomplished somewhere else – say, in China or Turkey

    Claude responded:

    It’s a fair gut reaction, but it conflates two different questions: “does this stop the sanctioned party from ever getting the money” and “what happens to the specific transaction sitting in front of this specific firm.” Those aren’t the same question, and once you separate them, block doesn’t actually beat reject on the first one.

    The workaround problem is real, but it’s not a reject-specific problem

    If a UK bank refuses to send the payment, sure, the customer can try Beijing, Istanbul, or Dubai. But if a US bank blocks the payment instead, the designated person’s next attempt at financing can just as easily route through those same channels — blocking one wire doesn’t inoculate the rest of their commercial life. This is a well documented, general limitation of unilateral and even coordinated multilateral sanctions: research on sanctions evasion has tracked how Chinese and Russian arms have continued flowing to embargoed destinations for decades through non-dollar channels that sit outside any single regime’s reach. So “they’ll just go elsewhere” is a real critique of sanctions regimes in general — it applies to block just as much as reject. Neither mechanism solves global circumvention; both only capture what happens to already be within a given firm’s grasp at a given moment.

    So is releasing that specific transaction really nothing?

    Not quite. A rejected payment still comes with a mandatory report to the competent authority in every jurisdiction covered so far — so even though the money moves on, the attempt gets logged: who tried to pay whom, through which counterparties, on what pretext. That’s raw material for future listings, for identifying facilitators, and for building the kind of evidentiary record these regimes’ own courts increasingly demand. It’s a much thinner form of “action” than seizing the money, and it isn’t honest to pretend otherwise — but it isn’t nothing either.

    The real reason isn’t laziness, it’s legal exposure

    Here’s the part that actually answers the question. The EU, UK, Switzerland, Canada, and Australia are all legal systems where courts have been genuinely aggressive about policing sanctions listings on due-process and property-rights grounds — and the cleanest illustration is that the same person, Mr. Kadi, brought parallel challenges in EU and US courts over the same asset freeze, and the EU courts ruled the listing process lacked fundamental protections while the US courts rejected the equivalent constitutional claims. If that’s how exacting these courts are about freezing a person who has actually been designated, extending that seizure power further — to a non-designated customer’s own money, based solely on their stated intent to pay someone else — would be a considerably bigger and more legally exposed step, one these systems have chosen not to take. The US, operating under IEEPA’s far more executive-deferential tradition, doesn’t face the same internal constraint, which is a large part of why it’s comfortable blocking property whose ownership hasn’t fully vested yet.

    There’s a structural reason layered on top of the legal one. The US can afford to cast that wide a net because so much of world trade has no way to avoid touching dollar clearing — roughly 88 percent of foreign-exchange transactions involve the dollar, and the correspondent banking system that actually moves the money concentrates through a small number of banks in New York and London. Blocking a dollar payment captures real marginal value precisely because rerouting around the dollar is genuinely hard. A rejected euro, pound, franc, Canadian, or Australian dollar payment is comparatively easy to complete elsewhere without touching that currency’s clearing system at all, so the deterrent value of seizing a non-designated customer’s funds is lower relative to the legal and political cost of doing it — this half of the explanation is an original synthesis of the two facts above, not something any regulator has stated as its rationale.

    And this isn’t a “the EU goes soft” story — the freeze side still bites, hard

    Worth remembering: none of this caution applies once a resource actually belongs to the designated party. The clearest proof is sitting in Belgium right now — roughly €210 billion of Russian Central Bank reserves are frozen in Europe, most of it at the Euroclear depository, and that’s a Scenario B freeze, not a reject outcome, because those securities already belonged to the CBR the moment it was designated. And the EU’s own hesitation about going one step further — from freezing that money to actually using it for a reparations loan — is itself a live demonstration of the exact caution just described: Belgium has resisted precisely on expropriation grounds, warning other reserve holders might flee European custody, and Russia’s central bank has already sued Euroclear for roughly $230 billion over the freeze itself. That’s not a regime being casual about property rights; if anything it’s the same instinct that keeps the reject rule in place for in-flight payments, now playing out at nation-state scale.

    Self-check

    • Kadi I/II outcomes and the EU/US divergence: confirmed across multiple sources including a direct comparison piece and the CJEU’s own case summary.
    • Dollar/FX and correspondent-concentration figures: from a 2026 explainer drawing on the Farrell & Newman “weaponized interdependence” literature — solid secondary sourcing, not a primary BIS/Fed data pull.
    • Euroclear/CBR figures (~€210bn, ~€193bn at Euroclear, Belgium’s objections, the Russian lawsuit): converging figures across CFR, CEPR, Squire Patton Boggs, and AP reporting from November 2025–January 2026 — figures move slightly by source and date, so treat the exact number as “roughly €200–210bn” rather than a fixed figure if publishing this.
    • The causal argument connecting legal-rights culture and dollar centrality to the reject/block design choice is original synthesis — no regulator has published that rationale in those terms.

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  • Burning Questions; My Dinner with Claude – Six Countries, Two Wires: A Sanctions Compliance Cheat Sheet

    My prompt:

    ok… let’s open the aperture a bit. Explain what a compliant firm is supposed to do, for the US, UK, EU, Canada, Australia and Switzerland, in the following 2 scenarios – assuming we’re talking blocking/freezing sanctions only: Scenario A: You receive instructions to make a payment that involved a sanctioned party. Scenario B: You receive funds that involve a sanctioned party. For each scenario, also denote whether the answer is different in the case you are the beneficiary bank or an intermediary bank. Phrase this for a sanctions novice, but feel free to quote text (not full regulatory sections) – like “make economic resources available”, for example. Assume that my goal is to eventually, once I refine the response, make a “Burning Questions” post out of this

    Claude responded:

    This is exactly the kind of question that makes a good Burning Questions piece, because the honest answer isn’t “six jurisdictions, six rules” — it’s one rule almost everyone agrees on, and one narrow but consequential place where the US breaks from the rest.

    Two moves, and two roles, defined simply

    A compliant firm facing a sanctioned party has two different levers available, and confusing them is the single most common mistake:

    • Freeze/block: take the resource into your own custody, lock it away from everyone — including the customer who originally owned it — and report it. Nobody gets it until a regulator says otherwise.
    • Refuse/reject: simply decline to carry out the instruction. The money never leaves the paying customer’s account, so there’s nothing to freeze.

    And two roles matter for how this plays out:

    • Beneficiary bank: the bank holding the account of the person or entity who’s supposed to end up with the money.
    • Intermediary (correspondent) bank: a bank in the middle of the chain, routing the payment onward, with no account relationship to either the sender or the ultimate recipient.

    Scenario A: you receive instructions to make a payment that involves a sanctioned party

    Picture a customer who isn’t sanctioned asking you to send money to someone who is.

    JurisdictionWhat you doBeneficiary vs. intermediary bank
    US (OFAC)Block. Take the funds into a blocked, interest-bearing account. Don’t send them, and don’t hand them back to the customer either.No difference in principle — blocking applies regardless of whether it is the originating or intermediary bank in the chain. A purely blind intermediary with no account relationship to a non-listed related party gets a narrow pass on investigating what it has no way of knowing, but the moment it knows or should know a designated person is involved, it blocks too.
    UK (OFSI)Refuse. Don’t execute the payment; the customer’s own funds are untouched.Same principle for any bank in the chain — but correspondent banks caught mid-chain have created a genuine practical headache here (see below).
    EURefuse — going ahead would mean making economic resources available to the designated person, which every EU regulation prohibits directly or indirectly.Same in principle for whoever in the chain is asked to move the money.
    Switzerland (SECO)Refuse, for the same reason — Swiss ordinances closely mirror the EU wording, prohibiting third parties from making economic resources available to a listed person.Same in principle.
    CanadaRefuse — completing the payment would breach the ban on making any goods available to a designated person, or providing services to their benefit.Same in principle, though published Canadian guidance addressing intermediary banks specifically the way the US and UK have could not be located.
    Australia (DFAT/ASO)Refuse — a person commits an offence if they make assets available to a designated person or entity.Same in principle.

    The one country that flips the answer is the US, and it’s worth pausing on why. OFAC treats a designated person’s status as intended beneficiary of a payment as itself an “interest” in the funds, so the moment the firm has possession or control of the money for the purpose of sending it their way, it’s already blockable property — even though it started out as the customer’s own money and never actually reached anyone. Everyone else in this table requires the resource to actually belong to, or be held or controlled by, the designated person before the freeze duty exists — and a payment instruction that hasn’t been executed yet doesn’t meet that bar. So the divergence isn’t really about freeze versus reject as competing philosophies; it’s about how early each regime decides a sanctioned party has acquired an interest in money that hasn’t arrived yet.

    Scenario B: you receive funds that involve a sanctioned party

    Now flip it: money has actually arrived, or is already sitting in an account, where a designated person has a real, present interest — as the account holder, or as the completed beneficiary of an inbound transfer.

    JurisdictionWhat you doBeneficiary vs. intermediary bank
    US (OFAC)Block, and report within 10 business days.No difference — whoever’s possession or control the funds come within, blocks, subject to the same narrow intermediary safe harbor as above.
    UK (OFSI)Freeze, and report.The beneficiary bank freezes without question. An intermediary bank is generally fine to keep routing a payment onward provided the funds aren’t owned, held, or controlled by a designated person at the point it’s dealing with them — which gets complicated fast if a designated bank sat somewhere upstream (see below).
    EUFreeze, and report to the national competent authority. Notably, a bank is explicitly permitted to credit an incoming third-party payment into a frozen account without needing prior authorization for that specific act — the funds simply join the frozen pool once they land.Same logic as the UK: a true intermediary that never holds the designated person’s resources has nothing to freeze; a beneficiary bank freezes on receipt.
    SwitzerlandFreeze, and report to SECO.Same principle as the EU.
    CanadaFreeze (functionally, by disclosing the property to the RCMP and being barred from dealing with it) — firms must report property in their possession or control that is owned or controlled by designated persons and freeze such property.Same principle, applied to whoever holds it.
    AustraliaFreeze, and notify the Australian Federal Police.Same principle for whoever is holding the asset.

    This is really the headline finding: on receipt, all six jurisdictions land in the same place. The freeze duty is nearly universal once a designated person actually has a stake in the resource — the interesting divergence lives entirely in Scenario A, where the US alone extends that duty backward to cover an unexecuted instruction.

    Two wrinkles worth knowing for intermediary banks specifically

    US: OFAC’s own guidance draws the safe-harbor line precisely. An intermediary bank with no account relationship to a non-listed party referenced in a wire, and no actual or constructive knowledge of a blocking issue, isn’t expected to go digging — but the instant it has information suggesting blocked status, the duty to block attaches regardless of its position in the chain.

    UK: because the UK (unlike the EU generally) has designated entire banks, correspondent banks kept finding themselves holding payments that had passed through a now-designated bank somewhere upstream, with no clean way to either complete or return them — the industry calls these “trapped payments.” OFSI’s analysis turned on whether the designated bank still had a right of countermand over the funds at that point in the chain: if it had already discharged its role and lost any right to pull the funds back, the funds were no longer considered owned, held, or controlled by that designated bank, so the freeze duty didn’t travel downstream with it. That general licence has since been superseded by later amendments, so it’s an illustration of the reasoning rather than current operative guidance — worth pulling OFSI’s live Russia guidance before citing the mechanism itself.

    Self-check

    • US: OFAC FAQ 36 (reject example), FAQ 116 (intermediary safe harbor), and 31 CFR 501.603 (blocked-property reporting) pulled directly from ofac.treasury.gov.
    • EU: Regulation 36/2012 Article 14 template and the Council’s July 2024 Best Practices document, both previously verified.
    • UK: OFSI’s general guidance and reporting pages (gov.uk, ofsi.blog.gov.uk) plus the Trapped Payments general licence publication notice — flagged above as superseded, useful for the reasoning, not for current citation.
    • Canada: Global Affairs Canada’s own “Dealings prohibition and asset freeze” and disclosure pages — solid primary sourcing, but nothing found specific to intermediary-bank treatment; that’s a gap in published guidance, not a claim made by extension.
    • Australia: DFAT/Australian Sanctions Office guidance notes, all primary and current (2024–2025 dated).
    • Switzerland: sourced mainly through a Swiss press account describing the ordinance language rather than a direct ordinance or SECO FAQ pull — worth swapping in the exact ordinance article, and worth checking whether SECO’s FAQs address this reject/freeze point directly before publishing.
    • The “when does an interest attach” framing that ties the whole piece together is an original synthesis of the sourced material above, not a line any one source states outright.

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  • Burning Questions; My Dinner with Claude – Block vs. Refuse: Why the US and EU Handle the Same Wire Differently

    My prompt:

    so, let’s assume my customer A is neither listed nor implicated by ownership and control sanctions. It’s my understanding, therefore, if he instructs me to transfer some funds to a sanctioned part, in the EU, I can refuse the instruction. However, in the US, I am obligated to take the funds and freeze them. Am I mistaken?

    Claude responded:

    You’re not mistaken about the pattern, but the accurate version of it hinges on which US list the counterparty is on, so let’s walk through both sides properly.

    EU: refuse, don’t freeze A’s funds

    This is the “making available” half of the earlier discussion. Customer A isn’t designated and the money is still A’s property, so it never meets Article 2(1)’s trigger (belonging to, owned, held, or controlled by a designated person). Executing A’s instruction would be the firm making resources available to the designated person, which Article 2(2) flatly prohibits absent a derogation. So the firm declines to execute, and A’s account is untouched, not frozen. There is one obligation people miss here: the Council’s Best Practices guidance is explicit that firms must report attempted transactions, including customer attempts to make funds or economic resources available to a designated person without authorization, to their national competent authority. So “refuse” is the transaction-level answer, but it comes bundled with a reporting duty, not a freeze.

    US: block, don’t reject, don’t return to A

    This is where the mechanics genuinely diverge, and the reason is definitional. OFAC’s blocking obligation attaches to property or interests in property that are within the United States or come within the possession or control of a U.S. person, and “interest” is defined expansively as an interest of any nature whatsoever, direct or indirect, present, future, or contingent. A designated person named as the intended beneficiary of a payment has exactly that kind of interest in the funds the moment the firm, a U.S. person, has possession or control of them for the purpose of completing the transfer, even though the money started out as A’s and A was never designated. OFAC’s own FAQ on this is unambiguous: once property is blocked, title remains with the blocked person, and the exercise of ownership powers is suspended absent OFAC authorization; the funds must be frozen, not seized, and reported. And the obligation to block, rather than reject, applies regardless of whether the designated person is the originator or the intended recipient of the funds. So the firm takes custody of A’s payment, places it in a blocked, interest-bearing account, files the initial blocked-property report within 10 business days under 31 CFR 501.603, and then includes it in the comprehensive Annual Report of Blocked Property due every September 30 for anything still blocked as of the prior June 30. The money does not go back to A.

    The contrast, side by side

    EU (Art. 2(1)/(2) template)US (OFAC blocking programs)
    TriggerResource already belongs to/owned/held/controlled by the designated personAny interest of any nature — including a contingent interest as intended beneficiary — once the property is within a U.S. person’s possession or control
    What happens to A’s fundsNothing; instruction is simply not executed, funds stay in A’s ordinary accountRemoved from A’s ordinary account and placed in a blocked, interest-bearing account; A no longer has free use of them
    OwnershipA retains full ownership throughoutTitle is treated as passing to/vesting in the blocked person once blocked
    ReportingAttempted “making available” reported to the national competent authorityInitial blocked-property report within 10 business days (31 CFR 501.603), then annual reporting each September 30 while still blocked

    Where this framing needs a caveat

    This only holds for a US counterparty that’s a blocked person, meaning someone on the SDN list or otherwise subject to OFAC’s blocking authority (including via the 50 percent rule). If the “sanctioned party” is instead someone subject only to OFAC’s narrower sectoral-style restrictions, such as the Sectoral Sanctions Identifications List under the Russia/Ukraine directives, there’s no blockable interest at all: OFAC’s own FAQ 36 example is exactly this case, an underlying dealing that’s prohibited but has no SDN or blocked-government interest in it, and the answer there is reject, or don’t process and return to the originator, reported under the separate rejected-transaction regime at 31 CFR 501.604. So the real dividing line isn’t “EU versus US” as such, it’s whether the applicable regime treats the counterparty as subject to a full asset freeze/blocking designation (EU Annex listing, OFAC SDN) or a narrower restriction on specific dealings (OFAC SSI, and arguably the EU’s own sectoral trade and financial restrictions on Russia that don’t run through personal designation). Matched apples to apples, both EU and OFAC would tell you to reject; it’s specifically the blocked-person case where OFAC’s answer flips to block while the EU’s stays at refuse.

    Self-check

    • OFAC FAQ 9 (blocking definition, title/possession language) and FAQ 36 (reject vs. block, with the Iran third-country example) pulled directly from ofac.treasury.gov.
    • 31 CFR 501.603 (blocked-property reports, 10-business-day initial report, September 30 annual report) and 501.604 (rejected-transaction reports) confirmed against Cornell/GovInfo CFR text and a recent OFAC annual-report reminder.
    • The “regardless of originator or recipient” framing and the broad “interest of any nature whatsoever” phrasing came from secondary sources (a law-firm compliance blog and a client alert) rather than a direct CFR pull of that exact clause — both are standard, uncontroversial restatements of OFAC’s general definitions section, but if citing the definition itself for publication, pull the exact text from the specific program’s CFR part (the phrasing is boilerplate but repeated part by part, e.g. 31 CFR 594.311, 515.312, etc., rather than centralized in one place).
    • The claim that a blocked person’s title is treated as attaching to an unexecuted, in-process payment is a synthesis of FAQ 9’s title language plus the broad interest definition, not something one source states in that combined form — flagged as inference, not a verified single-source claim.

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  • Burning Questions; My Dinner with Claude – Freeze or Refuse? Decoding the EU’s Two-Limb Sanctions Template

    My prompt:

    EU sanctions say you can’t make economic resources available to a Designated Person. Does that mean you freeze the resources, or do you refuse the transaction? Show your work

    Claude responded:

    Neither, cleanly — and the question itself flags where people go wrong, because EU sanctions regulations don’t treat “freeze” and “make available” as two labels for the same act. They’re two separate obligations, and which one governs a given fact pattern turns on a single question: do you already have the resource in your possession, custody, or control, or would you be the one handing it over?

    The architecture

    Nearly every EU sanctions regulation runs the identical two-paragraph template. Regulation 36/2012 (Syria) is a clean illustration: Article 14(1) freezes all funds and economic resources belonging to, owned, held, or controlled by listed persons, while Article 14(2) separately prohibits making funds or economic resources available, directly or indirectly, to or for the benefit of those persons. The Council’s own compliance guidance confirms this isn’t a Syria quirk: financial restrictive measures under EU regulations consist of freezing the funds and economic resources of designated persons, plus a separate prohibition on making funds and economic resources available to them. Regulation 269/2014 (Russia/Ukraine) uses the same two-limb split at Article 2(1)-(2), just with different article numbering.

    Freeze applies to what’s already theirs and already in your hands

    “Freezing” is defined as a status, not a transaction. For funds, the operative CJEU language is that freezing prevents any move, transfer, alteration, use of, access to, or dealing with funds in any way that would change their volume, amount, location, ownership, possession, character, or destination — and a March 2026 CJEU ruling on Regulation 269/2014 reads that as applying absolutely and unconditionally, extending even to ancillary rights like voting attached to frozen securities. Economic resources get the parallel treatment: freezing prevents their use to obtain funds, goods, or services. Critically, freezing doesn’t change who owns the thing and doesn’t require you to divest yourself of it: financial restrictive measures do not involve a change in ownership of frozen funds and economic resources and are not punitive, and a person who already holds or controls a designated person’s funds or economic resources is not required to give them up or seek authorization merely to continue holding them. What requires authorization is any new dealing with them.

    Making available applies to what would newly become theirs

    This is where “refuse the transaction” comes in. The CJEU (Möllendorf, C-117/06) reads “making available” broadly: rather than a specific legal category of act, it covers whatever acts are necessary under the applicable national law for a person to obtain full power of disposal over the resource, and it applies regardless of whether adequate consideration is paid. There’s nothing to freeze here, because you’re not yet holding anything that belongs to the designated person — you’re holding your own funds, goods, or services and about to transfer disposal of them. So the compliance action isn’t a freezing decision, it’s a straight refusal: don’t complete the transaction absent a derogation from the competent authority.

    Why the same wire can trigger both obligations at once

    A frozen account receiving an incoming payment shows both rules operating on a single transaction from opposite sides. On the receiving end, a financial institution that receives funds transferred by a third party into a customer’s frozen account is permitted to credit those funds without prior authorization — Regulation 269/2014 builds this in explicitly, stating the making-available prohibition does not prevent crediting of frozen accounts by institutions that receive funds transferred by third parties onto a listed person’s account. But on the sending end, the remitting party needed authorization before initiating that transfer, because from their side, routing funds to a designated person’s account is exactly the act Article 2(2) prohibits. The receiving bank freezes (accepts the credit, then locks it down as part of the frozen balance); the remitter should have refused to send it in the first place.

    The trap worth flagging: indirect making available

    The refusal duty doesn’t stop at the listed name. Making resources available to a non-listed entity that is owned or controlled by a listed person is, in principle, treated as indirectly making them available to the listed person, unless a case-by-case assessment shows the resources won’t be used by or for that person’s benefit — this is the same ownership/control test (50%+ or the control indicators) that comes up again and again in this area.

    Self-check

    • Reg 36/2012 Art 14 and the Reg 269/2014 Art 2 language are confirmed against primary/near-primary text (Wikisource reproduction cross-checked against a March 2026 CJEU judgment quoting the operative articles directly).
    • The two-limb “freeze plus prohibition on making available” framing and the paragraph 30/44/57/59/68 content come from the Council’s July 2024 “EU Best Practices for the effective implementation of restrictive measures” (doc 11623/24) — non-binding Council guidance, not itself the law, and originally LIMITE-marked but retrievable from the public Consilium document register.
    • The CJEU case cited on “absolutely and unconditionally” (C-465/24, judgment of 12 March 2026) postdates my reliable knowledge and was pulled from a secondary reproduction (financialcrime.lu), not EUR-Lex/InfoCuria directly — worth a direct EUR-Lex pull before citing the CELEX number anywhere public.
    • Article numbering (2(1)-(2) vs. 14(1)-(2), etc.) varies by regulation even though the substantive template is uniform; derogation categories and exact definitions also live in each regulation’s own Article 1 and derogation articles, so don’t assume identical wording across regimes without checking.

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  • For Non-Lawyers: Practitioners Thematic Guides

    Here’s Claude’s EU Practitioners Guide:

    EU_Sanctions_Practitioners_GuideDownload

    and its UK Guide:

    UK_Sanctions_Practitioners_GuideDownload

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  • In Plain Language: Thematic Guides to Sanctions Across the Pond

    See what you think of the guides Claude assembled to European Union:

    EU_Sanctions_Plain_Language_GuideDownload

    and United Kingdom sanctions:

    UK_Sanctions_Plain_Language_GuideDownload

    Do you find these useful? Let me know in the comments…

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  • This Old Blog: Born in the USA, but…

    I decided to take a break from OFAC sanctions guides, so I asked Claude to evaluate the breadth, depth and sophistication of sanctions in the UK, EU, Switzerland, Singapore, New Zealand, Canada and Australia. It recommended that the EU and UK were most worthy, with Canada and Australia being the next tier of regulatory output.

    So, now the Resources pages now have the following Practitioners and Plain Language guides for both the EU and UK:

    • A thematic guide to how all the sanctions programs are organized, with overviews of each sanctions program, and
    • A specialized guide for Russian sanctions

    I will post the thematic guides, since they’re a different kind of animal from the others we’ve posted. If you want the Russia guides, well… click on that Resources page link and go get it, OK?

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