At Lithuania’s initiative, the CJEU shapes legal practice on the application of international sanctions

The Court of Justice of the European Union (CJEU) in March published a preliminary ruling in case C-84/24 EM System related to the application of sanctions against Belarus. The case addressed whether a legal entity’s funds should be frozen where exactly 50% of the company’s shares were held by a person listed in Annex I of EU Council Regulation No. 765/2006 concerning sanctions against Belarus. The annex lists the natural and legal persons to whom (or for whose benefit) it is prohibited to directly or indirectly make funds available in the EU.

Lawyers from Ellex Lithuania, who represented the financial institutions in the case, note that this preliminary ruling is significant because it will shape future judicial and market practice. This is one of the most significant CJEU clarifications of international sanctions law in recent years, and it will have a direct influence on both the practice of financial institutions and the decisions of national institutions throughout the EU.

The CJEU stated that 50% of the shares is sufficient to presume control, which means that the actions of the financial institutions in freezing the funds of the defendant – a client of the financial institutions – were lawful. Financial institutions had a duty to apply the freezing of funds if the 50% criterion is established.

“Until now, the “exactly 50% of shares” aspect was interpreted differently by EU member states when deciding on the implementation of sanctions for companies that are not included in the regulation of restrictive measures applied to Belarus. Germany, for example, relied on an interpretation that exactly 50% of a company’s shares is not enough to presume control of the company’s funds as well. The CJEU clarification put an end to such interpretations. The decision will provide greater legal certainty, reduce the risk of divergent interpretations, and prevent the circumvention of sanctions. We are glad that the CJEU supported the position formed by us,” comments Edvardas Racius, Associate Partner at Ellex Lithuania.

At the same time, the CJEU noted that this presumption of control is not absolute and can be contested. In the opinion of the lawyers of Ellex, the duty falls upon the company whose funds are frozen based on the 50% presumption to prove that holding 50% of the shares does not in itself constitute control of the company’s funds. Such a company would first have to prove this before a national institution, which in Lithuania’s case is currently the Financial Crime Investigation Service under The Ministry of the Interior of the Republic of Lithuania, and later – before a court.

The preliminary reference to the CJEU was initiated by the Supreme Court of Lithuania after uncertainty arose regarding the application of EU law in a national case, in which the defendants – the financial institutions – are represented by Ellex.

Attorneys at Ellex Lithuania Vilija Vaitkutė Pavan and Edvardas Racius, partner Neringa Mickevičiūtė, and associate Ieva Gruzdytė worked on the case. E. Racius and N. Mickevičiūtė also represented the financial institutions at the CJEU oral hearing in Luxembourg.