EU companies owned by Russia-related persons will report transfers exceeding €100,000 out of the Union

EU companies owned by Russia-related persons will report transfers exceeding €100,000 out of the Union

As of 1 May 2024, EU companies with Russian ownership interest will be required to report quarterly any transfers of their funds exceeding €100,000 outside the EU. This measure was introduced in addition to the current EU sanctions legislation. 

New requirements for EU companies 

According to article 5r of Council Regulation (EU) No. 833/2014 of 31 July 2014 (as amended), legal persons, entities and bodies established in the European Union whose proprietary rights are directly or indirectly owned for more than 40 per cent by:

  1. a legal person, entity or body established in Russia;
  2. a Russian national; or
  3. a natural person residing in Russia,

shall, as of 1 May 2024, report to the competent authority of the Member State where they are established, within two weeks of the end of each quarter, any transfer of funds exceeding EUR100,000 out of the Union that they made during that quarter, directly or indirectly, in one or several operations.

A similar obligation is introduced for EU credit and financial institutions servicing the accounts of such Russia-related companies. Starting from 1 July 2024, banks must report to the competent authority of their EU country all transfers outside the EU of funds over €100,000 that they made for the entities mentioned above within six months. Banks will provide information within two weeks after the end of each half-year. It is stated explicitly that financial institutions must transfer such data regardless of applicable confidentiality and professional secrecy rules.

Currently, only a recommended reporting form has been prepared by the European Commission. Reporting entities may but are not obliged to use this template. The report is submitted to the competent authority of the relevant EU country responsible for the implementation of sanctions (links to the competent authorities of all Member States are given in Annex I to the Regulation). 

Reporting periods

Reporting quarterReporting deadlines
1 January to 31 March 2024Within two weeks starting from 1 May 2024
1 April to 30 June 2024Before 15 July 2024
1 July to 30 September 2024Before 15 October 2024
1 October to 31 December 2024Before 15 January 2025

Details worth noting

  • When calculating a 40% ownership interest of Russia-related persons, the cumulative interest is considered. For example, a Russian citizen and a Russian company are among the members of an EU company. Each of them possesses less than 40%, but together they form more than 40%. In that case, the EU company will be required to report its transfers out of the EU. 
  • The definition of reporting entities refers only to participation interest, direct or indirect (that is, through one or more intermediaries). The concept of “control” over a legal entity by other means does not apply in this case. 
  • The term “funds” covers not only cash but also other kinds of financial assets. It includes deposits, securities, debt instruments, claims, the right of set-off, income generated from financial assets, and others.
  • A “direct” transfer occurs when funds are transferred from an entity established in the EU to a recipient outside the EU. An “indirect” transfer occurs when the funds go from an EU sender to one or more EU recipients and finally to a recipient outside the EU.  

Objectives of the reporting 

The measure in question is embodied in Council Regulation 833/2014, which prohibits the EU companies from directly or indirectly selling, supplying, transferring or exporting dual-use goods and technologies to any natural or legal person in Russia. 

The Regulation obliges the Member States to assess the information received through the reporting “to identify transactions, entities and business sectors that indicate a serious risk of breaches or circumvention” of the said Regulation, or use of funds for purposes incompatible with it. Member States will regularly inform each other and the Commission of their findings.

The new requirement reportedly will not disturb the business of companies that are (partly) Russian-owned and operating legitimately in the EU. However, in light of current sanctions regulations, it will provide greater transparency of the cash flows of such companies out of the EU. 

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