Russia sanctions should remain a priority for Spain’s EU presidency

With the recently adopted eleventh package of sanctions on Russia and Spain’s new EU presidency, Madrid should prioritise Ukraine, according to Gonzalo Saiz Erausquin.

Gonzalo Saiz Erausquin is research analyst at the Centre for Financial Crime and Security Studies at Royal United Services Institute (RUSI).

The recent eleventh package of sanctions against Russia is the latest effort from the EU to keep pressure on the aggressor after its brutal invasion of Ukraine.

Seeking to target Russia’s political elite and key economic sectors sustaining its war machine, the continuous expansion of the packages served to achieve a more comprehensive sanctions regime.

However, the effectiveness and impact of sanctions have been undermined by several implementation challenges and circumvention through third countries.

The European Commission has decided to tackle these two challenges with its eleventh sanctions package.

However, with Spain taking over the presidency of the Council of the EU on 1 July, questions arise – how will sanctions against Russia fit the new president’s priorities?

How will the sanctions regime evolve with Spain at the helm of the Council?

Madrid’s interest in sanctions

In his recent visit to Kyiv, on the first day of the Spanish EU presidency, Prime Minister Pedro Sanchez was vocal about Spain’s and the EU’s support for Ukraine. Furthermore, Spain has pledged €38 million in humanitarian aid, and 164,000 Ukrainians currently reside in Spain under temporary protection.

Still, sanctions do not seem to be among the priorities of the country’s upcoming EU presidency, focusing more on Latin America and less on the East. Spain has not been a proactive player on sanctions at the international level so far, with little visible leadership and having proposed no sanctions designations on its own. Yet, Spain is in an excellent position to leverage its role in maintaining the momentum.

Spain has a good track record on anti-money laundering controls that facilitate the implementation of sanctions, and the country’s financial sector has not been the target of fines over sanctions breaches, as in other European states.

Spanish banks have ample experience complying with past sanctions regimes and are currently leveraging that expertise. However, the ‘unprecedented’ scale of the sanctions has increased the burden of monitoring compliance, with many banks lacking the resources to monitor all Russia-related transactions.

Meanwhile, the lack of support from the EU in mapping entities under the ownership and ‘control’ of sanctioned individuals further complicates the task.

Faced with an overwhelming workload and complicated rules, private businesses fear being held accountable for weak implementation in terms of regulatory and reputational consequences. This leads businesses to de-risk and over-compliance by refusing all Russia-related activities.

In addition, Russia continues to divert its activities to sustain itself through third countries, circumventing sanctions. What can the Spanish presidency do to help maintain the momentum in the EU and support sanctions enforcement?

Sanctions way forward

The Spanish presidency should not lose sight of the importance of keeping pressure on Russia through sanctions. Spanish public officials and business representatives involved in implementing sanctions expressed to our European Sanctions and Illicit Finance Monitoring and Analysis Network (SIFMANet) their interest in continuing to improve the EU’s sanctions framework. What measures should be taken?

Sanctions need maintenance.

Spain should bear in mind that national authorities and businesses implementing sanctions face multiple challenges for which they require support. Certain measures with low effectiveness and high difficulties should be revisited, such as the unclear and changing criteria on ‘control’ over entities by designated individuals.

Another such measure is the limit on deposits over €100,000 which can be easily circumvented and overcomplicates payment processes.

Sanctions require commitment. Spain should promote the centralisation of the mapping of assets linked to sanctioned individuals and, most importantly, ensure their harmonised enforcement across member states to avoid loopholes within the EU.

Once an entity is sanctioned, Spanish authorities expressed an interest in increasing the use of ‘firewalls’. Firewalls allow entities trading in agricultural and food products controlled by a designated individual to continue operating under supervision while the sanctioned assets are frozen.

This facilitates implementation and makes sanctions more sustainable, as it can prevent the closing of businesses and their complete devaluation, which is not beneficial for either the state or the business.

Further afield, third countries remain an Achilles heel. As the eleventh package reflects, the effectiveness of the sanctions regime against Russia will only be successful if the EU tackles circumvention through third countries.

Spain will be involved in the diplomatic efforts of the EU to encourage the alignment of third countries with allied sanctions and offer attractive alternatives to relations with Russia.

The new anti-circumvention tool announced in the latest package and the upcoming directive criminalising sanctions violations aim to overcome these challenges, but they will require great attention from the Spanish presidency.

Sanctions are here to stay. Building on the increasing sanctions efforts of the European Commission, the presidency should engage more on this front. With the eleventh package having been adopted recently, the Spanish presidency is responsible for keeping the pressure on Russia. It’s Spain’s turn to lead on rallying countries in the EU and beyond to continue supporting Ukraine.