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Announcement of Ministry of Finance regarding Article 5aa of EU Council Regulation 428/2022 of 15 March 2022 amending Regulation (EU) No. 833/2022 concerning restrictive measures against Russia

Following public announcements and Opinions and answers to specific questions received from European Commission, regarding the Article 5aa of EU Council Regulation 428/2022, the Ministry of Finance discloses the following:

-   This provision prohibits the conclusion of new contracts after 16 March 2022 with the legal persons contained in the Annex. The prohibition also applies to the execution of existing ones after 15 May 2022 or to the provision of any sort of economically valuable benefit (such as services or payments), even in the absence of such contractual relationship. The article does not prescribe the consequences that the prohibition should have on any ongoing contractual relations; an EU operator should take the measures necessary in light of its specific situation to halt its dealings by the end of the wind-down period on 15 May 2022. 

  • Can a Cyprus company, which is affected by Article 5aa of the EU Regulation 833/2014 since it belongs to a group of companies listed in Annex, receive funds in its bank account maintained in Cyprus from an affiliated company or own bank accounts maintained either in a non-EU country or an EU country, for the purpose of paying the salaries of employees and other administrative expenses and taxes (rent, social insurance, income tax deducted at source)? 

-  The prohibition under Article 5aa prohibits to engage directly or indirectly in any transactions with the entities named in Annex XIX but transactions with these entities’ subsidiaries do not necessarily imply de facto indirect engagement, nor do relations with a subsidiary need to be halted in a blanket manner. The prohibition is conditional upon the involvement, albeit indirect, of such an entity.

-  Any salary payments or administrative expenses paid directly by the subsidiary with its own funds, and provided these payments do not have as an object or effect to circumvent prohibitions in the Regulation, would not amount to indirect transactions with the entities named in Annex XIX. 

  • Can the Cyprus company appoint a legal advisor who will provide legal advice in relation to compliance with the EU Regulations, labour law matters which have arisen as a result of the implementation of the above Regulations and Decisions, wound up procedures, appointment of liquidator etc? 

-  Any provision of legal services to the subsidiary or the appointment of a court-ordered administrator for the subsidiary and any payments for these services by the subsidiary with its own funds and provided these payments do not have as an object or effect to circumvent prohibitions in the Regulation, would not amount to indirect transactions with the entities named in Annex. 

  • Can the company continue to appoint a legal advisor to represent it in legal cases pending in Cyprus courts which were filed in 2020? Does the company needs to obtain the prior approval of the Cypriot competent authority prior to the execution of the abovementioned transactions? 

-  Generally, with regards to the provision of legal services, note that Article 5aa should be interpreted in light of the fundamental rights protected under the Charter, in particular the right of defence. Accordingly, the transaction ban should not affect the provision of services that are strictly necessary for the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy. This is not subject to a derogation by the national competent authorities.

- The wind-down period runs until 15 May 2022 (which was granted for 3 months) hence all operations should be finalised by that date, without exception. 

  • How should one interpret the scope of the expression “a legal person, entity or body acting on behalf or at the direction of...” in the context of their connection with entities subject to sanctions under Article 5 of Council Regulation (EU) No 833/2014? Should this term be interpreted only in the context of a share in the shareholding of listed companies belonging to the entities subject to sanctions and if so, in which scope (direct or indirect) and on what level (more than 50% or less)? Should other circumstances be taken into account? 

-  The entities listed under Article 5 of Council Regulation (EU) No 833/2014 can be found in the corresponding Annexes. On the determination of whether an entity is acting on behalf of or at the direction of one of these entities, we recommend consulting the Commission opinion of 17 October 2019 as various considarations are taken into account.

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