Poland's Sanctions against Russia and Belarus | Global Annual Report 2024 - FRAUD FRONTIERS: EMERGING THREATS & INNOVATIVE SOLUTIONS IN FRAUD & ASSET RECOVERY

2024

Author: JOANNA BOGDAŃSKA - Attorney at law, Partner

Introduction

In this paper, Joanna Bogdańska offers current perspectives from Poland on its legal frameworks relating to sanctions, with particular reference to the impact and scope of the Polish Sanctions Act. The aim of the article is to present Polish solutions that expand the sanctions list and introduce restrictions on additional products. The author also discusses the practical aspects and approach to respecting sanctions in Poland. Poland's sanctions against Russia and Belarus represent a critical component of the international response to the Ukraine conflict. While they are part of a broader European Union (‘EU’) strategy, Poland’s measures reflect its unique position and historical experiences. The combination of EU-wide and national sanctions aims, at least in theory, to maximize economic and political pressure on Russia and Belarus, contributing to the international effort to restore peace and stability in the region. The coordination between national and EU sanctions ensures a comprehensive and multifaceted approach to countering aggression and supporting Ukraine. As a rule, Poland, as a member of the EU, applies all sanctions imposed by EU regulations. At the same time, Poland also decided to introduce its own solutions, largely based on EU ones. The Polish Sanctions Act creates a national sanctions list, i.e. a list of persons and entities subject to sanctions, and establishes a new restrictive measure in the form of excluding sanctioned entities from public procurement procedures. International sanctions were additionally supplemented with an immediate ban on the import of coal from Russia or Belarus.

Poland's Sanctions against Russia and Belarus

Polish list of Sanctioned Entities

The decision on entry on the list is made by the Minister of Interior and Administration . The decision may be made towards people directly or indirectly supporting aggression of the Russian Federation against Ukraine launched on February 24, 2022; serious violation of human rights or repression of civil society and democratic position and activities that constitute another serious threat to democracy or the rule of law in the Russian Federation or Belarus. The decision on entry may also apply to persons and entities directly related to the abovementioned persons or entities, in particular due to personal, organizational, economic or financial connections, or who are likely to use their financial and economic resources or funds for this purpose. The following sanctions apply to persons entered on the sanctions list:

• freezing all funds and economic resources owned, held or under their control;

• prohibition on making funds or economic resources available directly or indirectly;

• prohibition of intentional and conscious participation in activities aimed at circumventing prohibitions.

Exclusion from Public Procurement Proceedings

The Polish Sanction Act also introduces bans on participation in public tenders organized on the basis of the Polish Public Procurement Act. This prohibition applies to:

• contractors and competition participants appearing on the EU’s sanctions lists adopted against Russia and Belarus (Regulation 765/2006 and Regulation 269/2014);

• contractors and participants of competitions appearing on the sanction list of the Ministry of Interior and Administration;

• contractors and participants of competitions whose real beneficiary is a person appearing on one of these sanction lists;

• contractors and competition participants whose parent company is an entity appearing on one of these sanction lists.

Prohibition of Import of Coal

The Polish Sanctions Act prohibits the import of coal from Russia or Belarus to Poland and prohibits its movement through the territory of Poland between third countries or its import into Poland from the territory of another EU member state. Importers of coal are obliged to reliably document its origin (statement of coal origin) and the date of introduction or 1 List of sanctioned entities is available here: https://www.gov.pl/web/mswia/lista-osob-i-podmiotowobjetych-sankcjami (accessed 17 May 2024) 62 movement into the territory of Poland. This information forms the documentation that importers are obliged to present to the competent control authorities upon request. Under the Polish Sanctions Act, each coal trade transaction must be accompanied by a declaration from the seller regarding its origin and the date of introduction into the territory of Poland or the date of purchase from a Polish mine. It is the responsibility of the parties to the transaction to store issued and received declarations and their copies for a period of 5 years from the date of their issuance.

The Polish Sanctions Act, by encouraging entrepreneurs to thoroughly verify their contractors, directly involves them in the implementation of the common economic policy of the EU. At the same time, entities banned from importing or transiting coal and coke to Poland will be entitled to compensation for actual damages.

Liability for Failure to Comply with Restrictive Measures

A parallel regime of administrative and criminal liability is provided for violations of the provisions of the Polish Sanctions Act and sanctions regulations of the EU. In terms of fines imposed in administrative procedure, the Polish Sanctions Act provides the following:

• for failure to fulfil obligations or violation of prohibitions regarding freezing and failure to make funds available to sanctioned persons - up to PLN 20 million;

• for applying for a public contract or admission to a competition or participation in the above-mentioned procedures contrary to exclusion - up to PLN 20 million;

• for violation of the ban on importing or moving coal from Russia or Belarus into the territory of Poland - up to PLN 20 million;

• for failure to fulfil obligations regarding documentation of the origin of coal or providing purchasers with declarations regarding the origin of coal - up to PLN 10 million. Moreover, the Polish Sanctions Act provides for criminal liability of natural persons for:

• violation of sanctions adopted by the EU against Russia and Belarus, among others, regarding the prohibition of supplying or purchasing the products and technologies specified therein;

• participation in activities whose purpose or effect is to violate EU sanctions as above;

• violation of the coal embargo under the Act. All of the above acts are punishable by imprisonment for a period of not less than 3 years.

The Institution of Compulsory Administration

However, the most frequently used measure in Poland is the establishment of compulsory management in sanctioned companies. Its introduction to companies from the list is intended to enable disposal of financial resources, funds or economic resources or taking over for the State Treasury the ownership of financial resources, funds or economic resources. In accordance with the Polish Sanctions Act, the main purpose of this institution is to:

• maintaining jobs in this enterprise or;

• maintaining the provision of public utility services or performing other public tasks within the scope of the enterprise's activities, or;

• protection of the economic interest of the state. However, it is expected that the establishment of this compulsory management may also aim to take over the ownership of such a company. Such takeover is to be carried out against compensation corresponding to the market value of the financial resources, funds or economic resources subject to takeover, determined on the basis of a current valuation prepared by an independent external entity with a recognized position on the market. As of today, the government has decided to introduce compulsory management in several companies that are sanctioned or clearly associated with sanctioned entities. At this moment, however, the government has not decided to take over any of the properties.

Assessment of the impact of the Polish Sanctions Act on Operations in Poland

Based on a report prepared by EY in February 20242 , 74 percent surveyed enterprises declare that they have taken additional actions in the context of sanction risk management. Despite this, a third of them (31%) was exposed to the risk of unintentional violation of sanctions, and a sixth (16%) admits that they have violated them. Further, out of over two hundred companies surveyed, in 2022 as many as 47 percent imported or exported goods or services to Russia and Belarus. According to the same data, although after the outbreak of the war, exports to Russia dropped by 33%. At the same time, exports increased by 57% in the countries of the Eurasian Economic Community and Turkey. On the one hand it might be the result of looking for other markets. However, a large part of this turnover – which is the conclusion of EY analysts – can be re-exported from Asian countries to Russia without sanctions. Trading volume increasing by 400% to countries with such small markets as Kyrgyzstan or Armenia must raise suspicions.

Future of the Polish Sanctions Act

Those in power also seem to notice the lack of effectiveness of the introduced regulations. Work is currently underway on the amendment of the Polish Sanctions Act, which is not only intended to take into account subsequent packages of EU sanctions, but above all is intended to introduce a coherent national system of penalizing violations and circumvention of EU sanctions. Risk related to economic sanctions. We await with interest the changes and mechanisms that will be used to tighten the sanctions system.