Malta is among a group of EU member states that have quashed a plan that would have allowed the European Commission to directly impose fines for a failure to properly report Russian assets frozen due to sanctions.

While the group of countries is not opposed to the plan in principle, it is concerned at the way the Commission sought to implement it. 

The EU wants to create a register of frozen Russian assets, mapping their whereabouts across the EU, as a first step towards putting those billions to use in helping Ukraine's reconstruction.    

Its plan, presented as part of a new sanctions package timed to coincide with the one-year anniversary of Russia's invasion of Ukraine, was to introduce a requirement to report any such frozen assets to Brussels. 

The proposal would have imposed fines on citizens, companies and governments that failed to report on the whereabouts, amount and type of Russian state funds frozen by national authorities due to sanctions. Those in breach would have faced fines reaching up to 10 per cent of global daily turnover. 

But all mention of this proposal was struck from an updated text concerning the sanctions package presented on Wednesday, with Politico reporting that around a dozen EU member states had objected to the plan.

Malta was among the countries that raised concerns. Others included Austria, Germany, Belgium, the Czech Republic, France, Italy, Latvia and Portugal.  

Diplomatic sources told Times of Malta that while Malta is in favour of the proposal’s overall aim, it was concerned that the methodology proposed was rushed and open to legal challenges.

What are the objections to the plan?

EU-wide sanctions are issued through the EU’s Common Foreign and Security Policy, which explicitly makes individual member states responsible for implementing sanctions. Member states each have a national authority tasked with that role. In Malta’s case, sanctions are implemented by the Sanctions Monitoring Board.  

The proposal presented to member states by the European Commission made no reference to this already existing mechanism, diplomats said, and would have raised the prospect of entities or individuals being fined twice for the same breach.

“What would happen if an entity was fined by the national authority, and then again by the EU Commission? They would have an open-and-shut case to have that struck down if they took it to the European Court of Justice,” one diplomat familiar with negotiations told Times of Malta.

Politico reported that other member states objecting to the plan raised similar concerns. 

Maltese diplomatic sources continued: “We are in favour of having clear lines of communication and transparency with the EU about seized assets and the implementation of sanctions, but we need to make sure that any legal instruments we introduce are well-planned and do not cause more problems than they solve.”

One possibility is that the Commission will revise its proposal to allow it to issue fines through national sanctions bodies, rather than directly itself. 

EU pushing to put frozen assets to work

EU member states have frozen a combined total of €19 billion held by Russian oligarchs, with a further €300 billion in Russian Central Bank assets also locked by EU and G7 countries.

The EU has been gradually cranking up the pressure to make use of those frozen Russian assets, and in November the Commission proposed creating a mechanism that would allow it to invest those funds and use proceeds to help Ukraine.

Superyacht Amore Vero, owned by a company linked to Russian energy giant Rosneft CEO Igor Sechin, moored at La Ciotat shipyard, France in March 2022. Photo: AFP

EU member states have also backed a UN resolution calling for an international reparations mechanism to be used to calculate damages owed by Russia to Ukraine. Malta explicitly reiterated its support for that proposal in a speech to a UN emergency session on Wednesday.

In January, Reuters reported that Malta had frozen less than €150,000 in sanctions-impacted Russian assets – less than any other member state.

The government reacted by saying it had frozen €222,000 in such assets and provided information to other member states that led to them seizing “millions more” in Malta-registered assets that were located overseas. Sources said those were primarily Malta-registered yachts and boats.

“Furthermore, there have been a number of judgments by European Courts which related to assets registered in Malta and belonging to Maltese companies which were sold and the proceeds of such assets have been also frozen in bank accounts outside of Malta but within the European Union,” the government said.