Prohibitions for corporate service providers following the imposed EU sanctions on Russia

On 28 April 2022, the House of Representatives of the Netherlands debated the bill of the Dutch Emergency Act (“Spoedwet”) concerning the prohibition on providing corporate services to Russian and Belarussian clients (“cliënten as defined per Wtt 2018”), object companies (“doelvennootschappen”), as well as their ultimate beneficent owners1. The explanatory notes to this bill describe the implications of this prohibition, as well as the related timelines, in further detail. Furthermore, the European Commission introduced new sanctions on the 9th of April, prohibiting providing registration, provision of a registered office, business or administrative address as well as management services to a corporate service provider or any similar legal arrangement of Russian companies and individuals.

Currently, the sixth sanctions package is under discussion within the European Commission. The proposal for the sixth package of sanctions addressed a prohibition on providing accounting and consultancy services to Russian companies, as well as excluding three additional banks from SWIFT.

This article provides an overview of the implications of the Dutch Emergency Act, as well as the requirements of the imposed related EU sanctions.

What does the Dutch Emergency Act entail?

The Dutch Emergency Act prohibits corporate service providers from providing corporate services to clients, object companies and their beneficial owners residing or established in Russia or Belarus. At the request of DNB 2, the explanatory notes to this Dutch Emergency Act have further clarified that it concerns persons residing in Russia or Belarus and therefore do not focus on their nationality. The country of establishment of a legal entity can be derived from its registered office, for example by consulting (local) chamber of commerce details.

With respect to the residency of individuals, the explanatory notes define that this should be established in the same manner as fiscal residency, to prevent that individuals will register in another country outside of Russia or Belarus 3.

It is worth noting that the prohibition under the Dutch Emergency Act does not apply to individuals who are EU citizens. This means that if an individuals is established in Russia or Belarus but has the nationality of a Member State of the European Union, a member of the European Economic Area or Switzerland, the prohibition of the Emergency Act does not apply.

EU sanctions on providing services to trusts

In April 2022, the EU introduced new sanctions on Russia, prohibiting the registration, provision of a registered office, business or administrative address as well as management services to, a trust or any similar legal arrangement having a trust or a beneficiary, in case of 4:

  1. Russian nationals or individuals residing in Russia;
  2. legal persons, entities or bodies established in Russia;
  3. legal persons, entities or bodies whose proprietary rights are directly or indirectly owned for more than 50% by a natural or legal person, entity or body referred to in points (a) or (b);
  4. legal persons, entities or bodies controlled by a natural or legal person, entity or body referred to in points (a), (b), or (c);
  5. a natural or legal person, entity or body acting on behalf or at the direction of a natural or legal person, entity or body referred to in points (a), (b), (c) or (d).

Furthermore, the sanctions’ regulation states that, from 10 May 2022 onwards, the provision of trustee or fiduciary services to trusts and similar structures connected with Russian nationals shall also be prohibited. It is imperative that corporate service providers analyze their client databases to identify those clients being trusts or similar, that are connected to Russia to safeguard their compliance with Article 5. Moreover, it is recommended that offices carry out enhanced due diligence to ensure that they are not acting on behalf of individuals or entities listed under Article 5(m)(1).

Article 5(m)(4) provides an exemption to paragraphs (1) and (2) for trustors and beneficiaries who are nationals of an EU Member State or have a temporary or permanent residence permit in a Member State. Moreover, competent authorities are permitted, under paragraph (5), to authorize the services referred to in paragraphs 1 and 2 under such conditions that they deem appropriate, when they determine that this is necessary for humanitarian purposes or civil society activities that directly promote democracy, human rights or the rule of law in Russia.

What does this mean?

Corporate service providers registered in the Netherlands, with a license of DNB, are subject to the Trust Office Supervision Act 2018 (Wet toezicht trustkantoren 2018), Money Laundering and Terrorist Financing Prevention Act (Wet ter voorkoming van witwassen en het financieren van terrorisme) and the Sanctions Act 1977. Therefore, corporate service providers are required to check which of their clients within the current portfolio fall within the scope of the Emergency Act, in other words, which clients, target companies or their beneficial owners are established or resident in Russia or Belarus.

Herewith, it is important that corporate service providers consider that they should establish the country of residence in line with the criteria of fiscal residency, and not only the country where the individual is living at that moment. In case a client, object company or their ultimate beneficiary is residing in Russia or Belarus, the corporate service provider must terminate the relationship.

After the Emergency Act enters into force, corporate service providers have four weeks to comply with the requirements of the Emergency Act. In view of the urgency of the bill, the bill states that the act will enter into force immediately on the day after its publication in the Official Gazette (“Staatsblad”).

Reputational considerations

As the Act will contain an exemption for individuals which also have the European nationality, we note that this may be an issue in case these individuals have a double nationality, for example by having a golden passport.

Moreover, even where corporate service providers comply with the Dutch Emergency Act and Article 5(m) of the EU Regulation or that the specific client is not subject to the requirements of the Dutch Emergency Act, reputational risks may still arise. Many multinationals are withdrawing from Russia, regardless of whether specific sanctions are applicable. Besides the financial risks arising due to difficulties companies may encounter in case of payments from Russia, the continuation of operating in Russia may impact the reputational risks. RSM NL can help these companies to assess and prepare for these risks and enable them to be proactive in assessing potential adverse media attention.

Going forward

Should you encounter any issues in relation to the upcoming Emergency Act, the determination of the place of residence of corporate entities and individuals or the sanctions introduced by the EU, as well as the arising integrity risks thereof, please contact [email protected]

1. Wijziging van de Wet toezicht trustkantoren 2018 in verband met een spoedmaatregel om trustdienstverlening aan cliënten in de Russische Federatie of de Republiek Belarus te verbieden, Kamerstukken II, 2021-2022 36080 nr. 2.
2. Memorie van Toelichting Spoedwet, Kamerstukken II, 2021-2022 36080 nr. 2, p. 6
3. Art. 4 Wet inzake Rijksbelastingen and Memorie van Toelichting Spoedwet, Kamerstukken II, 2021-2022 36080 nr. 2, p. 5.
4. Council Regulation (EU) No 833/2014 was amended to include Article 5(m)(1).

You can read our previous article on this subject here.