EC Lays Out Conditions on Character Changes for Frozen Assets, Transferring Frozen Bank Accounts

The European Commission in a May 27 opinion clarified two questions on national competent authorities (NCAs) requirements regarding assets frozen under various sanctions. One question asked whether it's legal under the EU's Libyan sanctions to liquidate an EU investment fund compartment that holds a listed entity's shares if the proceeds are then immediately frozen in a segregated EU bank account. The second involves whether it is possible under the Syrian sanctions to transfer a frozen bank account from an EU-based branch to the United Kingdom parent bank. In answering both, the commission focused on ensuring no one could use the assets.

It is up to the NCA to verify that a change in character of funds would not result in enabling the use of the funds, the opinion said with regard to the first question. “The immediate freezing of the resulting proceeds is necessary to ensure that this condition is fulfilled,” the opinion said, allowing the change in character to proceed with the proper NCA oversight.

The swap from an EU branch to the U.K. parent bank would be allowed only if the listed party is also designated under the U.K.'s sanctions regime, which is now separate from the EU's due to Brexit. “The EU branch must verify that the holder of the account is also subject to an asset freeze in the UK,” the opinion said. “If this is not the case, the change of the location of the frozen account to the UK would immediately be tantamount to breaching Article 14(1) of the Syria Regulation.” As with the first question, the NCA is obligated to verify whether the change in location of the frozen account would enable the use of funds.

The opinion also said that EU operators are “required to inform 'immediately' the NCA and the Commission about changes affecting accounts and amounts frozen and to cooperate with the NCA in the verification of such information.”