Amendments to the law on International sanctions: the most relevant changes for business

On 19 April 2022, the Seimas of the Republic of Lithuania revised the model of implementation of sanctions in Lithuania and adopted a new version of the Law on the Implementation of Economic and Other International Sanctions aimed to streamline and ensure the proper application of, and compliance with, international sanctions including sanctions against the Russian Federation and the Republic of Belarus in response to the military aggression in Ukraine. Due to the variety of international sanctions imposed, the law has been renamed to the Law on International Sanctions.

The law introduces four major changes related to the model for implementing sanctions:

  1. The model for the implementation of sanctions has been supplemented with the institute of a temporary administrator.
  2. The implementation model has also been complemented by the disposal of frozen assets through conversion of one type of assets into another.
  3. The operation model of the institutions involved in the implementation of sanctions has been rearranged by modifying the division of competences.
  4. The Financial Crime Investigation Service will have a key role in ensuring the implementation of sanctions, in particular as regards the identification of beneficial owners and the natural and/or legal persons associated with them.

The first two changes as most relevant for business are discussed in more detail below:

The institute of a temporary administrator

Following the entry into force of extensive sanctions against Belarus and Russia, the implementation of the sanctions also affects large companies operating in the Republic of Lithuania, the activities and smooth operation of which must be ensured in the social, environmental and security interests of the society. Not only Lithuania but also other EU countries face similar problems and challenges. The European Commission has expressed the position that Member States may take various legal measures in accordance with their national regulatory framework to manage the risks. Some EU countries (e.g., Germany) have already put such measures in place.

Essential aspects of the temporary administrator institute:

  • Types of temporary administration:
  • Temporary administration of a legal person; and
    • Temporary administration of economic resources frozen in implementation of international sanctions in the Republic of Lithuania.
  • The temporary administrator is appointed when:
    • International sanctions are implemented in the Republic of Lithuania against a legal person, its owner or the person controlling it; and
    • Temporary administration is necessary to avoid negative social, economic, environmental, or other significant consequences for the society or the State and to ensure compliance with sanctions.
  • After being informed by the competent authorities of the need to appoint a temporary administrator, the latter is appointed by:
    • The Minister of Finance of the Republic of Lithuania; or
    • The Bank of Lithuania, when temporary administration is granted in respect of a financial market participant specified in paragraph 1 of Article 42 of the Law of the Republic of Lithuania on the Bank of Lithuania (bank, central credit union, insurance company, investment company, etc.).
  • The temporary administrator is appointed from a list of candidates drawn up by:
    • The public institution Governance Coordination Centre, when the temporary administrator is appointed by the Minister of Finance; or
    • The Bank of Lithuania, when the temporary administrator is appointed by the Bank of Lithuania.
  • Temporary administration is granted for a maximum period of one year with the possibility to extend it.
  • The fact of temporary administration is registered in the public registers of legal entities.
  • The decision appointing a temporary administrator sets out:
    • The duration of appointment of the temporary administrator;
    • Powers, functions and actions of the temporary administrator, which he may perform only with the prior consent of the appointing entity;
    • The decision to suspend or limit the authority of the governing bodies of the legal entity to which the temporary administrator is appointed (i.e., requirement for the approval of the temporary administrator for certain decisions of the governing bodies).
  • Once a temporary administrator has been appointed, the appointing entity and the administrator enters into an agreement which sets out:
    • The remuneration of the temporary administrator;
    • Other expenses (e.g., costs of services provided by other service providers hired by the temporary administrator – accounting, auditing, management consultants);
    • The procedure for payment of remuneration and other expenses;
    • Responsibility of the temporary administrator;
    • The procedure for resignation and revocation of the temporary administrator.
  • The position of the temporary administrator may be held by a natural or legal person who meets the following criteria:
    • Impeccable reputation;
    • Appropriate qualification and experience; and
    • Absence of a conflict of interest with the administered person and/or the Ministry of Finance.
  • The temporary administrator has the following rights:
    • To hire service providers at own discretion for the proper performance of his functions;
    • To open deposit accounts with financial institutions of the Republic of Lithuania, which would be used to ensure the continuity of activities of a legal entity (property claims of the legal entity’s participants who are subject to international sanctions may not be satisfied using the funds available in these accounts);
    • To dispose of the property of a legal person; and
    • Other rights set out in the decision on granting temporary administration.

Disposal of frozen economic resources in the implementation of international sanctions

In cases where a legal person’s perishable economic resources which may rapidly lose their commercial value, or where their storage, warehousing and/or maintenance costs may exceed their commercial value, have been frozen in the implementation of international sanctions, such economic resources may be disposed of, and the proceeds received may be kept in special deposit accounts. Such disposal of property is possible both with and without the appointment of a temporary administrator to a legal person.

It should be noted that the mentioned regulatory changes are highly important not only for sanctioned persons, but also for business entities that are in legal relationship with such persons – creditors, contractors, as non-compliance with sanctions may in some cases be qualified as an administrative or criminal offence.

The lawyers of Ellex Valiunas are always ready to provide comprehensive qualified legal assistance to manage your business risks, assess the action needed and the compliance of business practices with the mentioned regulation, and to address emerging legal issues and challenges.

Linked Experts

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Rūta Jasilionė
Associate Partner / Lithuania
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Eglė Kontautaitė
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Mindaugas Moskalionas
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