Practical Applications of International Sanctions and Export Controls in France

Sources, definition and scope of restrictive measures on trade in France

Sources of trade sanctions in France

International economic sanctions, defined as institutionalised mechanisms aimed at modifying reprehensible behaviour in the international sphere by means of partial or complete restrictions in trade and financial matters,^[2] in France are mainly an application of international instruments adopted by the United Nations and the European Union.^[3] However, France has also adopted similar national retaliatory mechanisms in its own legislation.^[4]

These international sanctions can be of a commercial nature, aimed at restricting trading, import and export activities with a given country or entity,^[5] or of a financial nature, corresponding to those restrictions linked to the access and continuation of financial, banking or stock market activities.^[6]

Sanctions can also target a specific individual, territory or country or be limited to a specific economic sector. When a sanction targets an individual, it is generally materialised by the blocking of the target’s accounts or financial products, which are included in sanctions lists. Sectoral sanctions are restrictions of trade or the rendering of certain services. For instance, recent EU sanctions against entities from the Russian Federation were imposed to restrict trade related to energy production and the aviation sector.^[7] Similarly, the European sectoral sanctions concern access to the provision of credit and investment services on the European market for certain Russian banks.^[8]

Economic sanctions applicable in France can take three forms:

• economic sanctions adopted by resolutions of the United Nations Security Council, which can be adopted by both the European Union and by the French state through a transposition;
• economic sanctions dictated by Common Foreign and Security Policy (CFSP) decisions of the European Union and the corresponding regulations, which are immediately applicable in the French jurisdiction; and
• measures adopted by means of national legislation or administrative acts on monetary and financial matters, customs or even national defence.

This chapter focuses on national provisions and France’s approach to international sanctions.

Sanctions applied in France on a domestic basis

Under French law, the French government may put in place different asset freezing mechanisms at the national level.

Article L151-2 of the Financial Code allows the French government to restrict French investments and financial relations in foreign countries to protect national interests.^[9] Historically, this was the main legal process used to apply sanctions before they were covered through the EU CFSP and other international instruments.^[10]

Article L562-2 of the Financial Code also provides that, through the minister in charge of the economy, the French government can order the freezing of assets of persons related to terrorist cases. This measure can also be extended to those legal persons or entities detained, controlled or managed by the targeted person.^[11]

Article L562-3 of the Financial Code provides that the French government may, for a renewable term of six months, decree the freezing of assets of entities or persons sanctioned by the United Nations and the European Union. In addition, this measure can be extended to those legal persons or entities detained, controlled or managed by a sanctioned person.^[12] This system reinforces the effectiveness of internationally adopted measures in the event of any delays that may occur in implementation.^[13]

It is possible to file an appeal or litigation against a decision to freeze the assets of a person.^[14] French law also provides the possibility for a partial release of sums of money intended to cover, within the limits of the available funds, basic living expenses and required legal costs, justified in advance.^[15]

Consequences for non-sanctioned actors under French law

Sanctions also involve challenges for non-sanctioned economic actors who must ensure that they do not violate the rules regarding sanctions as an asset freeze prohibits making available economic resources to listed entities or persons.^[16]

For easy access to information related to sanctions, the implementation of these sanctions mechanisms is based on the use of lists of entities subject to an asset freeze, made available to the public by the Directorate General of the Treasury. Via the publicly available National Registry of Frozen Assets, it is possible to determine whether a person is subject to both domestic and international sanctions, without prejudice to the lists adopted at a European level.^[17]

Furthermore, financial institutions are required to have a detection system that allows the filtering of persons and entities included in the asset freeze list.^[18] Financial institutions must refuse to provide any services or authorise any transactions as soon as the sanction comes into force, without the need for confirmation by the authorities.^[19]

Violations of the asset freeze regime by financial institutions may result in disciplinary sanctions imposed by the French regulator of the financial, banking and financial sector, the Authority of Prudential Control of Resolution (ACPR) as well as criminal liability.^[20] Other common challenges when an asset freeze is ordered may include cases of non-sanctioned persons who are affected even if they are not the subject of the asset freeze^[21] as well as cases of homonymy.^[22] Complying with the export regulations is an additional challenge.

Export of dual-use items and licence export applications in France

France enforces Regulation (EU) 2021/821, setting up a European Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items. Dual-use items are those that, while produced and marketed for civilian purposes may also benefit military activities, in contravention of international material control or restriction provisions.^[23]

As such, this implies that the exporter must be granted a licence prior to exporting a dual-use item. To be lawful, the export requires the licence to be granted before the dual-use item is exported. A licence granted after the export is made does not render it lawful a posteriori.^[24] Likewise, the state exercises control over dual-use goods via a series of obligations related to the final recipient and the ultimate destination of the items.^[25]

Although dual-use goods and licences are mainly determined by the aforementioned European regulations, the French government, through the French Export Control Office on Dual-Use Goods (SBDU) can grant, suspend, modify, withdraw or revoke licences under national regulations.^[26]

The SBDU also elaborates on governmental positions regarding dual-use item exports and participates in the corresponding European-level negotiations.^[27]

More importantly, through the use of off-licence requests, exporters may request guidance from the SBDU regarding whether the item intended for export is a dual-use item and to which category it belongs pursuant to the Annexes of EU Regulation 2021/821.^[28]

Indeed, licences delivered in France by the SBDU may take different forms, depending on their scope and specific application:

• individual licence: this is granted for one or several identified dual-use goods of the same nature, intended for a particular person within a given limit and value.^[29] In that regard, exporters should attach an end-user certificate to facilitate the licence application process;^[30]
• global licence: this allows exporters to export items in the same category of dual-use goods and may refer to one or several end users as well as to one or several countries.^[31] To obtain a global licence, an exporter that carries out activity through a regular flow of supply abroad of dual-use goods as defined by the applicable regulations^[32] is required to have a monitoring programme in place to control the end users to whom it is exporting on a regular basis. The exporter must be able to indicate the internal procedures adopted for the purpose of internally verifying the nature of the goods, the list of internal persons in charge of monitoring compliance with the principles governing the matter, and the definition of an audit programme. The exporter is also required to implement a due diligence procedure to identify clients that may not comply with export controls, to implement a training programme for employees and to set up a registration and archiving system;^[33]
• national general licence: this covers agreed licences for export without limit in quantity or value for certain categories to certain specified destinations;^[34] and
• European general authorisation: Council Regulation 2021/821 provides general authorisations for exporters who fulfil specific monitoring and traceability conditions in their exports.^[35]

The SBDU can also issue international import certificates and delivery verification certificates to allow the importer to justify to a supplier and the national authorities the final destination of the dual-use goods concerned.^[36]

Applications are generally made digitally through the SBDU website.^[37] From a practical standpoint, the SBDU encourages companies to adopt review methods and internal controls to ensure the accuracy of the information provided and mitigate the risks associated with exports of dual-use items. For example, to obtain a licence and to avoid customs delays, the service draws attention to the need to have the latest version of the relevant forms, especially the end-user certificate.^[38]

Attention is also drawn to the declared value of the goods, nomenclature codes and other specifications requested in the application form.^[39] Finally, the SBDU advises exporters to include a context letter to enable it to fully understand the scope of the export operation contemplated.^[40]

Although the SBDU grants licences for the export of dual-use items, some products may require further authorisations for the export to be lawful; for example, dual-use software that integrates cryptography or cryptology functions^[41] and that is classified as a dual-use item requires an authorisation from the French National Agency of Security and Information Systems, which is attached to the Ministry of the Interior.^[42]

Non-compliance with these formalities may lead to the failure of the export but may also lead to penalties, as discussed below. It is therefore essential for exporters to be equipped with effective verification and compliance systems. This will allow them to gain a full understanding of regulations and to adapt their activities accordingly.

Main export licence of military equipment in France

France has adopted a political doctrine in which the export of military equipment is seen as a key component of its sovereignty and security. The general principle is thus that the export of military equipment and weapons is prohibited by law.^[43] However, there are some exceptions, and exports of military equipment must be expressly authorised through the granting of a licence. In that regard, the logic is similar to the licence application process for dual-use items.

Military equipment licences are granted by the Defence Ministry through the General Directorate of the Army (DGA) and the General Secretariat of Defence and National Security.^[44]

There are four main types of military equipment licence:

• individual licences: these refer to a given operation, limited in price and quantity, with an identified recipient, and are valid for three years;^[45]
• global licences: these are granted to an applicant for one or several operations with no price or quantity limit. They are valid for a specific period and can be automatically renewed;^[46]
• general licences: these are defined by an administrative decision published in the official gazette, and allow exports without price or quantity limits to one or several categories of recipients;^[47] and
• transfer licences: these take the form of one of the three previous categories. Transfer licences refer to authorisations required for the export of defence-related material to other Members of the European Union.^[48] Such is the case, for example, for the export of aerospace-related material such as satellites, launching systems, space rockets or telecommunication materials.^[49]

In the case of individual or global licences, the application may be made electronically through the online export licence information, management and administration system.^[50] Exporters may be required to produce certificates of non-re-exportation of the goods, issued by the holders of the goods, which guarantee that it is not a triangular operation or a form of circumvention of the regulations.^[51]

There is also an obligation to submit a semi-annual accountability report on licensed operations. This report must include the orders and shipments made and the certificates of non-re-exportation, among other technical specifications of the operations.^[52]

In the post-licensing stage, the exporter must keep a record of all the necessary justifications to establish that there was no misuse of the material exported during the operation.^[53] In the case of inconsistencies found in the verification by the DGA, a report and the established verbal proceedings may be sent to a ministerial committee for follow up.^[54] In addition, if a criminal offence is suspected, the DGA may inform the French prosecutors, after informing the French Ministry of Defence.

Trade sanctions violations and enforcement defence in France

The international economic sanctions regime at the European Union or United Nations level does not have a direct sanction mechanisms in the event of a violation. Indeed, it is up to the different states, in their enforcement mission, to define the penalties applicable in case of violation of different international regimes and to sanction the corresponding infractions.

French provisions on violations of restrictive measures on trade

The violation of an economic sanctions regime can also be a key element in determining criminal liability in cases where the commission of more complex offences is alleged.

Article 459 of the Customs Code states that it is a criminal offence for a person to breach international economic restrictive measures adopted by the European Union or through an international treaty. The infringement, circumvention or fraud of these sanctions carries a maximum sentence of five years’ imprisonment and a fine of double the proceeds of the offence. Exporting dual-use items or military equipment without a licence also carries a similar sentence.^[55]

Article L547-3 of the Financial Code provides for the same penalties in the case of violation of sanctions adopted by the French government at national level.^[56]

As far as asset freezes are concerned, the ACPR exercises its control through the imposition of civil sanctions in the financial, banking and insurance sectors.^[57] For instance, a €50 million penalty was imposed on French bank, La Banque Postale, in 2018 due to the absence of an adequate detection system to identify whether beneficiaries of transactions by the bank are subject to an asset freeze.^[58] The French Supreme Court for administrative matters later confirmed the sanction.^[59] Similarly, on 30 November 2021, the ACPR sanctioned MMA IARD, a French insurance company, with a €4 million penalty, holding that it had shortcomings in the implementation of asset freeze obligations.^[60]

In addition, Article L2339-2 of the French Defence Code provides for a maximum sentence of seven years of imprisonment and a fine of €100,000 for any person who produces and markets war materials, arms and ammunition without respecting the corresponding licensing and authorisation obligations.^[61] Pursuant to Article L2339-14 of the Code, the penalty is set at 15 years of criminal imprisonment and a fine of €1.5 million if the materials are biological weapons or weapons of mass destruction.

Sanctions or restrictive measures violations linked to other crimes

In addition to the offences described above, recent events show that violation of the sanctions regime may also be used as evidence of other violations.

For instance, the French-Swiss company Lafarge is currently being prosecuted in France for various offences, including for funding terrorism in Syria.^[62] The company is alleged to have decided to continue its activities in territory controlled by the Islamic State.^[63] Not only did inherent economic sanctions risks in Syria materialise, but French authorities are currently seeking^[64] criminal liability for the company.^[65]

Another relevant case in France concerns the link between the violation of international economic sanctions and the characterisation of the crime of corruption. This case relates to the criminal liability of Total, in the framework of the United Nations oil-for-food programme, which entailed a considerable diversion of funds.^[66] Total, as a company participating in the programme, was sanctioned for its participation in fraudulent schemes that not only allowed a violation of the embargoes but constituted acts of corruption.^[67]

Exporters are also at risk of liability in cases of misuse of equipment. This is especially relevant in terms of dual-use items and military equipment. These exports carry a significant legal risk for companies that operate on a global scale. In that regard, under French law, not only can companies be criminally liable, but the French Supreme Court recently confirmed that in the case of a merger or acquisition, an absorbing company can, under certain conditions, be convicted for offences committed by the absorbed company prior to the merger.^[68]

Examples of challenges for entities operating in France facing allegations of international sanction violations

Aside from regulatory and legal risks, sanctions violations expose corporations to reputational issues, market consequences^[69] and scrutiny from non-governmental organisations (NGOs) and civil society.^[70]

This may be illustrated by public criticism of the decision of certain French companies to continue activities in sanctioned countries.

Such is the case, for example, of the French energy group TotalEnergies, which decided to continue operations in Myanmar, despite the impositions of economic sanctions following the military coup that took place on 1 February 2021.^[71] While the media and NGOs questioned the presence of TotalEnergies in the country because the company would be financing those state structures responsible for the repression,^[72] TotalEnergies claimed that it did not contribute either directly or indirectly to the violation of human rights in Myanmar and that its motives for maintaining its operations were humanitarian in nature.^[73] Despite the decision to continue operations, pressure by NGOs and the threat of judiciary actions against the company led to its decision to withdraw in 2022.^[74]

The reasoning behind this case is particularly useful, as it reveals the complexities of the regulations and the risk of sanctions, as well as the seriousness of the violation, resulting in the intensification of the risks, even at a preparatory stage. Effectively, they illustrate the balancing act involved in complying with international sanction regimes and the challenges for companies in doing so.

Exporters have also increasingly been held liable for the misuse of their products. For instance, reports show that French companies and their executives have recently been prosecuted as accomplices for providing mass surveillance technology to repressive regimes in Libya and Egypt.^[75]

Regarding the export of military equipment, the latest French parliamentary report on export licences of weapons underlines that an increasing number of NGOs have started filing criminal complaints against private weapons manufacturer and exporters in France.^[76]

Despite compliance with the requirements for this type of export, the responsibility of the producer and exporter after the export may involve complex elements in terms of penalties. In that regard, it should be noted that the granting of a licence by France does not shield exporters from liability arising from misuse of their products.

This is explained by the fact that, although French export regulations may require exporters to maintain control and surveillance of the final use of certain goods marketed by their customers, it is difficult to assess the scope of this obligation once the export transaction has been concluded.

Managing the risk of violations of international sanctions

Compliance with regulations or licences granted by the state is necessary to protect company interests but would most likely not be sufficient to mount an effective enforcement defence in the case of judicial and administrative prosecution for alleged violation of the provisions regarding EU or UN regulations that are applied by the French state.

An effective compliance system may enable the anticipation and overcome the legal challenges posed by enforcement of international restrictive measures on trade.

It is therefore necessary to establish risk management mechanisms and compliance policies in this area. Companies should have teams trained in these issues and, if necessary, seek external assistance in forecasting and reacting to the adoption of international restrictions regardless of their origins. Support in decision-making is essential to manage the risks of sanctions and prosecution in this area and to adopt a global view on these matters.

There is no ‘standard’ compliance system applicable to all types of companies or a central authority issuing general recommendations. It is therefore necessary to consider the specificities of the activity and the geographical location to define adequate procedures and rules.

It is also necessary to consider the regulations on international economic sanctions in commercial relations with third parties. In this sense, guarantee clauses in accordance with the regulations (mandatory, for example, in the matter of prohibition of re-export) should be generalised in entities that have specific exposure. Likewise, an analysis of beneficial owners should be made to verify whether the structure of suppliers, customers or contractors includes or may benefit persons subjects to international sanctions.

Another important aspect, in addition to prevention, concerns the definition of procedures for detecting violations of international sanctions regimes, audits and controls. Although the French authorities do not verify the existence of sanctions compliance systems, when it comes to enforcement actions, active cooperation may result in less severe treatment.

Footnotes