HANFA - Frequently Asked Questions Regarding Restrictive Measures and the Situation in Ukraine

HANFA – FREQUENTLY ASKED QUESTIONS REGARDING RESTRICTIVE MEASURES AND THE SITUATION IN UKRAINE

Notes: This document provides a general overview of relevant questions raised with HANFA since the outbreak of this crisis. The document will be updated regularly as needed.
Update Date: 15.3.2022

INTERNATIONAL RESTRICTIVE MEASURES

1. What is HANFA's role in relation to international restrictive measures?
   Regarding international restrictive measures, HANFA's role is to timely transmit restrictive measures adopted at the political level and published by the Ministry of Foreign and European Affairs, thereby ensuring that entities supervised by HANFA are correctly and timely informed.

HANFA's role also ensures that supervised entities comply with their legal obligations within HANFA's competence, including the obligation to monitor and directly apply restrictive measures.

However, it is necessary to note that the Ministry of Foreign and European Affairs is responsible for the overall coordination of international restrictive measures. Those obligated to implement restrictive measures must immediately notify the Ministry of Foreign and European Affairs about the implementation of any restrictive measure taken against a state, natural or legal person, entity, or specific group.

2. What actions has HANFA taken to inform supervised entities about current developments regarding international restrictive measures?
   In March 2022, HANFA sent a circular to all entities under HANFA's supervision, in which it essentially:

• reminds supervised entities of the restrictive measures decided by the European Union to be applied in this context.
• reminds of the mandatory nature and direct application of these regulations.
• reminds of the obligation to notify the Ministry of Foreign and European Affairs.
• provides more detailed information on new restrictive measures, particularly regarding the introduction of new types of sanctions.
• reminds of the obligation for continuous monitoring.
• provides more detailed information on where such information will be available (the Ministry of Foreign and European Affairs' website).

HANFA instructed supervised entities that due to the situation in Ukraine, existing restrictive measures may be amended and new ones adopted, and therefore it is necessary to carefully monitor publications in the Official Journal of the European Union.

HANFA has also published a set of the latest available information regarding adopted restrictive measures on its website, available at the following link: International Restrictive Measures.

3. What actions has HANFA taken to ensure that supervised entities apply the introduced sanctions?
   In addition to sending the aforementioned circular to all supervised entities, HANFA has also directed to all its supervised entities:

• ad hoc inquiries regarding the application of restrictive measures,
• a structured Questionnaire on direct and indirect exposures related to actions destabilizing the situation in Ukraine by Russia, through which HANFA collects more detailed information on the impact assessment of the current situation on HANFA's supervised entities individually, as well as on the non-banking financial sector collectively, including exposures to cyber risks and incidents.
• a structured Questionnaire on the application of restrictive measures, which focuses more specifically on the application of restrictive measures related to sanction lists and the implementation of provisions of the Act on the Prevention of Money Laundering and Financing of Terrorism.

HANFA has also directed a customized Questionnaire on the application of restrictive measures to persons engaged in the activity of providing virtual and fiduciary currency exchange services and/or wallet custodial services, given that HANFA supervises these entities only in the context of the provisions of the Act on the Prevention of Money Laundering and Financing of Terrorism.

Information that HANFA receives from supervised entities based on the aforementioned structured questionnaires, along with data already available to HANFA, will inform HANFA's future supervisory activities and focus in this area.

4. What actions does HANFA intend to take to ensure that supervised entities apply the introduced sanctions?
   Regarding HANFA's supervisory actions in this context, HANFA is in close contact with supervised entities, and in the future period, depending on how the situation develops, HANFA will focus on those entities that are potentially most exposed to new restrictive measures imposed in the context of the Russian-Ukrainian crisis.

Furthermore, HANFA will conduct targeted supervisory activities using a risk-based approach to ensure that sanction screening mechanisms established within supervised entities function correctly and are used appropriately.

5. What are the consequences for supervised entities in case of non-compliance with international restrictive measures?
   HANFA reminds that violation of restrictive measures can cause criminal and misdemeanor liability, supervisory measures, as well as significant reputational problems for supervised entities.

For non-compliance with the provisions of the Act on International Restrictive Measures, criminal and misdemeanor provisions are prescribed that also apply to HANFA's supervised entities:

Criminal Provisions (Art. 15 of the Act on International Restrictive Measures):

• For non-compliance with a regulation determining restrictive measures (provision of services): a fine or imprisonment from 6 months to 5 years (if committed through negligence, then a fine or imprisonment up to 6 months).

• For non-compliance with a regulation determining restrictive measures (disposal of property): a fine or imprisonment up to 3 years (if committed through negligence, then a fine or imprisonment up to 6 months; an attempt to commit this criminal offense will also be punished).

Misdemeanor Provisions (Art. 16 of the Act on International Restrictive Measures):

• If the MVEP is not notified about the application of restrictive measures (Art. 10 para. 1 of the Act) and if data from the Database is not provided to the MVEP upon request (Art. 10 para. 2 of the Act), the following will be fined:
  o Responsible legal person: 150,000 to 1,000,000 kuna, o Board member or other responsible person: 15,000 to 50,000 kuna, o Natural person: 15,000 to 50,000 kuna, o Natural person committing this misdemeanor in the course of permanent activity: 50,000 to 500,000 kuna.

6. What new restrictive measures have been introduced regarding Russia's actions destabilizing the situation in Ukraine (sectoral sanctions)?
   Within the existing sanction framework regarding Russia's actions destabilizing the situation in Ukraine, established in 2014, additional restrictive measures have been introduced in various sectors, as follows:

• Additional restrictions on the export of dual-use goods and technology and the provision of related services, as well as restrictions on the export of certain goods and technology that could contribute to the technological advancement of Russia's defense and security sector. Restrictions on the provision of related services have also been introduced. Limited exceptions are provided for legitimate and predetermined needs. On March 15, 2022, the list of persons connected with Russia's defense and industrial base was expanded, imposing stricter export restrictions on dual-use goods and technology and goods and technology that could contribute to strengthening Russia's defense and security sector.

• Financial Sector: Existing financial restrictions are further expanded, particularly restrictions on access to capital markets for certain Russian entities. The listing of shares of Russian state-owned entities on EU trading venues and the provision of related services are prohibited. Furthermore, new measures are introduced that significantly restrict the inflow of financial funds from Russia to the EU by prohibiting the acceptance of deposits from Russian citizens or residents above certain values (100,000 euros), maintaining accounts of Russian clients in central securities depositories in the EU, and selling euro-denominated securities to clients from Russia. This also applies to crypto-assets. Furthermore, the sale, supply, transfer, or export of euro-denominated banknotes to Belarus or Russia to any legal or natural person, entity, or body for use in Belarus or Russia is prohibited. An exception exists for the needs of diplomatic and consular missions and the daily needs of natural persons traveling to Russia or Belarus and members of their immediate families traveling with them. Transactions related to the management of reserves and assets of the Central Bank of Russia are also prohibited, including transactions with any legal person, entity, or body acting on behalf of or under the instructions of the Central Bank of Russia, such as the Russian National Wealth Fund. On March 15, 2022, all transactions with certain state-owned trading companies already subject to refinancing restrictions were prohibited.

The provision of credit rating-related services is also prohibited, and Russian clients are prohibited from accessing all subscription services related to credit rating activities.

• Energy Sector: The sale, supply, transfer, or export to Russia of certain goods and technology for oil refineries is prohibited, with restrictions on the provision of related services. Bans on new investments in the Russian energy sector and comprehensive export restrictions on equipment, technology, and services for the energy industry in Russia have been introduced, with the exception of the nuclear industry and the sector of applied activities for energy transmission.

• Transport Sector: The export of goods and technology suitable for use in the aviation and space industries is prohibited, as well as the direct or indirect sale, supply, transfer, or export of goods and technology for maritime navigation listed in Annex XVI of Regulation 2022/394 to any person, entity, or body in Russia, for use in Russia or for installation on a vessel flying the Russian flag. The provision of insurance, reinsurance, maintenance, and repair services related to such goods and technology is also prohibited.

• Further trade restrictions are introduced regarding iron and steel and luxury goods.

Legal acts prescribing the measures are (a complete list of all Council Decisions is not included here):
a) Council Decision (CFSP) 2022/329 of 25 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in view of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine b) Council Regulation (EU) 2022/328 of 25 February 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine c) Council Regulation (EU) 2022/330 of 25 February 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. d) Council Decision (CFSP) 2022/331 of 25 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in view of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine e) Council Implementing Regulation (EU) 2022/332 of 25 February 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine f) Council Regulation (EU) 2022/334 of 28 February 2022 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine g) Council Regulation 2022/345 of 1 March 2022 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine h) Council Regulation (EU) 2022/394 of 9 March 2022 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine i) Council Decision (CFSP) 2022/395 of 9 March 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine j) Council Regulation (EU) 2022/398 of 9 March 2022 amending Regulation (EC) No 765/2006 concerning restrictive measures in view of the situation in Belarus and Belarus's involvement in Russia's aggression against Ukraine k) Council Regulation (EU) 2022/428 of 15 March 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine

These Decisions and Regulations entered into force on the day following their publication in the Official Journal of the European Union and are binding in all Member States. For more detailed information on the aforementioned restrictions, HANFA refers supervised entities to the aforementioned legal acts.

Restrictive measures have also been adopted regarding the areas of Donetsk and Luhansk concerning imports and exports. On 23 February 2022, Council Regulation (EU) 2022/263 of 23 February 2022 on restrictive measures in respect of actions undermining the territorial integrity, sovereignty and independence of Ukraine was published, which:

• Prohibits the import into the EU of goods originating in the Ukrainian areas of Donetsk and Luhansk not under government control. Import bans do not apply to:
  (a) the execution until 24 May 2022 of trade contracts concluded before 23 February 2022 or auxiliary contracts necessary for the execution of such contracts, provided that the natural or legal person, entity or body wishing to execute the contract has notified the competent authority of the Member State where it has its place of business at least 10 working days in advance of the activity or transaction; (b) goods originating from certain areas made available to Ukrainian authorities for verification, for which it has been verified that the conditions for obtaining preferential origin are met and for which a certificate of origin has been issued in accordance with the Association Agreement between the EU and Ukraine.
• Prohibits the sale, supply, transfer or export of goods and technology listed in Annex II of Council Regulation (EU) 2022/263. Pursuant to Article 4, this ban applies to all natural or legal persons, entities or bodies in certain areas or for use in certain areas. These bans do not affect the execution until 24 August 2022 of obligations arising from contracts concluded before 23 February 2022 or from auxiliary contracts necessary for the execution of such contracts, provided that the competent authority has been notified at least five working days in advance.

For more detailed information on the aforementioned restrictions and goods subject to prohibitions, please consult the Regulation, respectively Annex II thereof. The Regulation entered into force on 24 February 2022 and is binding in all Member States.

7. With which documents should supervised entities be familiar to effectively fulfill their legal obligations regarding the Act on International Restrictive Measures?
   The Act on International Restrictive Measures (hereinafter: ZMMO, NN, nos. 139/2008, 41/2014 and 63/2019) regulates the procedure for the introduction, application and abolition of international restrictive measures that the Republic of Croatia introduces, applies and abolishes in accordance with legal acts and decisions accepted within the framework of international organizations with the aim of establishing and/or preserving international peace and security, respecting human rights and fundamental freedoms, developing and strengthening democracy and the rule of law, and other goals consistent with international law.

Restrictive measures may include the severance of diplomatic relations, complete or partial severance of economic relations, complete or partial restrictions on imports, exports, transit, provision of services, as well as transport, postal and other communications, arms embargo, entry restrictions, restrictions on the disposal of property, and other measures in accordance with international law.

International restrictive measures are further regulated by the Decision on the Method of Implementing International Restrictive Measures on the Disposal of Property (hereinafter: Decision on Property; NN, no. 78/2011.). The Ministry of Foreign and European Affairs maintains a database according to the Decision on the Method of Maintaining a Database on International Restrictive Measures, Natural and Legal Persons and Other Entities to Which Restrictive Measures Apply (NN, no. 78/2011.).

Guidelines and best practices for the implementation of restrictive measures are available on the Council's pages. For a specific jurisdiction or entity under some form of sanctions, several decisions have been adopted, therefore the Interactive Map of Countries under UN and EU Sanction Regimes is very useful. An interactive map of all valid sanctions is available at the link: https://www.sanctionsmap.eu/#/main.

Sectoral measures against Russia and listings of Russian companies are under the Russia regime, and listings of persons are under the Ukraine – territorial integrity regime. Other currently relevant regimes are Belarus; Ukraine – Crimea and Ukraine – Donetsk and Luhansk.

These documents are available on the website of the Ministry of Foreign and European Affairs at the following link:
https://mvep.gov.hr/vanjska-politika/medjunarodne-mjere-ogranicavanja/22955

In addition to these documents, the following documents are key for the practical application of the ZMMO:

• EU Guidelines on the effective implementation of restrictive measures (note that the currently available version is from 2018, and an update of this document is expected). This document provides key information on how certain sanctions should be applied, as well as information/interpretations on how the criterion of control and connection with persons on sanction lists is applied.
• Existing Q&A of the European Commission regarding restrictive measures and their application (this document is also being updated). We specifically refer to questions 1-8 (which relate to what can be considered "financial assistance" within the meaning of the prohibitions in Articles 2a and 4 of Council Regulation (EU) No 833/2014 (sanctions against Russia), which includes, among other things, insurance, loans, and investment services. We also refer to questions 35-48 which relate to prohibitions in the capital markets area.
• Commission Opinion on the application of exceptions to the obligation to freeze funds and economic resources and the prohibition of making funds and economic resources available to certain persons and entities, dated 29 August 2019.
• Commission Opinion on Article 5(1) of Council Regulation (EU) No 833/2014 (sectoral sanctions against Russia), dated 17 October 2019.
• Commission Opinion on the application of Article 2 of Council Regulation (EU) 269/2014 (restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine), dated 19 June 2020.
• Commission Opinion on the interpretation of Article 2(2) of Council Regulation (EU) 269/2014 (restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine), dated 8 June 2021.

A brief informal overview of these documents is given in the following table:

Document Name	Date of Adoption	Brief Overview
EU Guidelines on the effective implementation of restrictive measures	04/05/2018	Update of EU best practices for the effective implementation of restrictive measures: designation and identification of persons and entities subject to restrictive measures; financial restrictive measures; prohibitions on the provision of goods and coordination and cooperation. Best practices are an exhaustive list of general recommendations for the effective implementation of restrictive measures in accordance with the Union's and national legislation. They are not legally binding and should not be interpreted as a recommendation for any activity that is not in accordance with the Union's or national legislation, including regulations related to data protection.
Existing EC Q&A regarding restrictive measures and their application	25/08/2017	Guidelines for the application of certain provisions of Regulation (EU) No 833/2014 relating to the package of restrictive measures aimed at sectoral cooperation and exchanges with the Russian Federation. The package consists of measures aimed at restricting access to EU capital markets for Russian state-owned financial institutions, an arms trade embargo, an export ban on dual-use goods for military end-use and end-users, and restrictions on access to certain sensitive technologies, particularly in the oil sector. The guideline was prepared in the form of EC answers to specific questions.
Commission Opinion on the application of exceptions to the obligation to freeze funds and the prohibition of making funds and economic resources available to certain persons and entities	29/08/2019	Derogations are intended to allow certain persons to meet certain needs and obligations and are a clear expression of the targeted nature of EU restrictive measures and respect for the principle of proportionality. They follow strict conditions that national competent authorities must verify. Regarding the specific query, the EC considers that, in principle, preparing annual financial reports, accounting, tax reporting, and ensuring administrative management of the company, as well as paying due taxes, constitute activities that could be considered basic needs of the company to the extent necessary in accordance with the legal obligations applicable to it. These activities could support a request for approval in accordance with the derogation contained in the relevant Council Regulation.
Commission Opinion on Article 5(1) of Council Regulation (EU) No 833/2014 (sectoral sanctions against Russia)	17/10/2019	Question regarding the applicability and implementation of Article 5(1) of Council Regulation (EU) No 833/2014 in the case where certain types of transferable securities and/or money market instruments are issued by an EU entity that is owned or controlled by a subject listed in Annex III of the Regulation. The EC considers that Art. 5(1)(c) of Council Regulation (EU) No 833/2014 applies, among others, to an EU entity that is owned or controlled by a subject listed in Annex III of the Regulation, if the national competent authority, based on all information available to them and based on all relevant circumstances assessed on a case-by-case basis, determines that the entity acted on behalf of or under the instructions of the latter when issuing financial securities and/or instruments.
Commission Opinion on the application of Article 2 of Council Regulation (EU) 269/2014 (restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine)	19/06/2020	Regarding specific queries from MS, the EC considers:
(1) The national competent authority is empowered to determine, taking into account all elements available to them and the specific circumstances of the case, whether the designated person controls the entity. If the designated person establishes control over an entity, then:
(2) the entity's funds must be frozen. The entity may obtain the lifting of the freezing of some or all of its assets by proving that the listed person does not actually "control" them. The way to do this depends on national rules.
(3) Payments from the frozen bank accounts of the entity are prohibited, unless the NCA has approved one of the derogations provided for in the Regulation. Payments from non-frozen accounts of the entity are permitted.
(4) Providing services to the entity or working for it may be considered indirect making available of economic resources to designated persons. It is for the NCA to make an assessment. Additionally:
(5) the applicability of the derogation in Art. 4(1)(c) of the Regulation is limited to fees or charges for services that would ensure the routine maintenance of existing frozen funds.
Commission Opinion on the interpretation of Article 2(2) of Council Regulation (EU) 269/2014 (restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine)	08/06/2021	In accordance with Art. 2(2) of the Regulation