The EU has updated best practices on sanctions and, in particular, clarified the definition of control.
The EU has clarified the ownership criterion as follows: ownership of a company occurs if the sanctioned person owns 50% or more of the capital. The previous version of the EU Best Practices referred to ownership of more than 50 %.
In addition, the document now explicitly states the principle that the interests of several sanctioned persons in an entity should be aggregated when determining whether such an entity is owned by sanctioned persons.
In particular, the EU Best Practices provide the following example: if an organisation is 30% owned by one sanctioned person and 25% by another, such an organisation is considered to be owned by sanctioned persons.
The EU Best Practices have also been expanded to include examples of what may be indicative of control by a sanctioned individual or organisation over another organisation.
a) Majority shareholding A designated person is the largest shareholder of a company compared to other shareholders. For instance, the designated person has 40%, whereas the other shareholders each have 10%. Such situation may warrant further analysis whether the designated person fulfils any of the abovementioned control criteria (for instance, the power to appoint the majority of directors in the management board).
b) Buyback option. A management buyout took place, whereby the designated previous owner can buy back the company under favourable conditions. Especially where these conditions could easily be invoked, this may warrant further analysis whether the designated previous owner has control.
c) Transfer of shares at a time close to the designation. A transfer of a relevant number of shares in the non-designated entity to a new owner shortly before or after (if allowed for by the relevant Council Regulations) a person has been designated may also suggest retained control by the designated person and could trigger further investigation as to the previous owner’s influence over the new owner. A “relevant” number of shares is not only a large number thereof, but also smaller numbers which enable the listed seller, for instance, to fall below the ownership threshold.
d) Use of front persons A new owner is closely connected to the designated previous owner, e.g. a family member or former employee/business partner, and, possibly, the sale price was too low or otherwise abnormal, or The entity has an advisor (or a board of advisors) with ultimate decision power over the activity of the entity, even though from the title or function this does not seem self-evident, or There is a written agreement from which it is clear that a non-shareholder or a shareholder with minor shareholdings is given the authority to solely decide on the business of the entity, or The persons who are supposed to be in charge of an entity have their decisions made by designated persons.
e) Use of trusts, shell companies and limited liability companies An entity is part of a needlessly complex corporate structure, potentially involving entities such as shell companies, limited liability companies and/or trusts linked to a designated person. Some of these entities were set up or changed their identity shortly before or after (if allowed by the relevant Council Regulations) the adoption of the sanctions regime or the person’s designation, and/or have no credible business activity.One or several trusts are used as receiver(s) of assets from an entity owned or controlled by a designated person. The management of the trusts involves professionals from the jurisdiction where the trusts was/were formed.
Source here.
Atbilst team
