Euro SIFMANet CPH Report

In late March 2024, the Centre for Finance and Security (CFS) at RUSI, with the support of Copenhagen-based policy centre Think Tank EUROPA, hosted a roundtable in Copenhagen. The roundtable, along with a series of one-on-one meetings, discussed the state of sanctions implementation and enforcement in Denmark. None of the discussions in the event are attributable.

The gatherings included representatives from national authorities with sanctions-related competences, as well as sanctions and compliance experts from financial institutions and Danish industrial groups, compliance experts from leading law firms, representatives from the industry group Danish Shipping, and other advisers. These included, among others, representatives from the Danish Ministry of Industry, Business and Financial Affairs; the Danish Customs Agency (DCA); the Ministry of Foreign Affairs of Denmark (MFA); the Danish Financial Supervisory Authority; the National Special Crime Unit; and other relevant agencies. This event is part of the in-country engagements conducted by the CFS-led European Sanctions and the Illicit Finance Monitoring and Analysis Network (SIFMANet), supported by the National Endowment for Democracy.

Denmark’s Decentralised Sanctions Implementation

The roundtable began with a discussion of the division of authority and responsibility for sanctions in Denmark, and the significant adaptations required since 2022.

The conversation considered Denmark’s preparedness for the Russia sanctions following the Financial Action Task Force’s (FATF) fourth round of mutual evaluations, the scope of which included implementation of targeted financial sanctions. Denmark’s mutual evaluation report was concluded in 2017 and its subsequent follow-up process ended in 2021, which a government representative at the roundtable said had helped the country to prepare for expanded sanctions. They noted that Denmark was evaluated as “partially compliant” for Recommendation 7 related to targeted financial sanctions for proliferation financing, but was upgraded to “largely compliant” in the follow-up report in 2021. Addressing these gaps had, a representative said, helped the country’s preparations, but it had not been possible to prepare fully for the sanctioning of a country with which the EU as a whole had such significant economic ties, compared to jurisdictions that are subject to sanctions regimes covered by the FATF Standards and have been for a long time.

Denmark has more than 25 authorities with some role in or oversight of sanctions responsibility – relatively higher than other member states where SIFMANet has held similar roundtables. The MFA is the authority with overall responsibility for coordinating the sanctions policy of the Danish government. Since 2022, the Danish “EU-Special Committee on Sanctions” and taskforces have expanded to include additional government bodies, ranging from utilities to cultural ministries. Government representatives highlighted the enhanced coordination that had been put into practice in Denmark. Steps included the establishment of a central sanctions coordinator team, vested in a newly established economic security unit in the MFA, and new intra-governmental procedures, as well as a governmental taskforce to counter circumvention, with participation from relevant national Danish authorities.

Although government representatives said that this coordination between a wider group had improved effectiveness, dividing responsibility for implementation and guidance across numerous national competent authorities may also increase the risk of fragmentation in approach. This was underscored by comments from private sector participants, who said that there had been “inter-agency problems on who’s responsible for what”. One participant said that some questions had “circled for some time” as a result.

Lacking National Guidance on EU Regulations

One source of frustration expressed by private sector participants at the roundtable was the Danish government’s reluctance to interpret European law and regulations or provide answers to specific questions, given that the debate had taken place in Brussels. One participant said that while interpretation of Danish law would take into account written remarks about the law, no such written remarks are provided for EU law and, they said, “we can only look at what the law says”. This representative also said the Danish government’s role was to provide guidance, “not counselling”. Other government representatives said they had provided as much guidance as possible, but that the scale of requests had been unprecedented.

Private sector participants were frustrated with this position. They agreed that they found the EU FAQs helpful, but insisted these should be expanded further. While they appreciated the guidance that had been shared by the Danish government, they said it was both too limited and too slow. One representative of a Danish maritime industry group said that they had sent 75 to 100 requests to Danish authorities and had not yet received a clear response. Another participant, from a law firm, said the process was time-consuming and that it “can be difficult to get answers”.

In addition to this, some participants said that, over time, they had stopped seeking formal clarification on the sanctions, because of concerns about privacy in the event of freedom of information requests being made to the government. One participant said they preferred to liaise through informal discussions. A business association representative also said companies had stopped seeking clarification on other matters for fear of receiving an answer that blocked a particular transaction. Overall, some private sector participants expressed their frustration that their community continued to have more experience and expertise in sanctions implementation than the public sector.

Private Sector Information Sharing

Despite these obstacles, a business association representative said there was an overall positive public–private dialogue, and a general perception that Danish business wants to do right thing. Participants from both public and private sectors reiterated several times the importance of trust in the business environment, and a government representative said they were highly aware of companies’ willingness to comply, as well as the public support for their doing so.

Another positive aspect highlighted was sharing information within the private sector, with more experienced companies sharing tools and information with smaller businesses, in order to support their compliance with the regulations. This was seen as an important support for business, given the “huge gap in compliance readiness” that a business association representative noticed among smaller companies. One participant from a multinational company said this information-sharing practice had been much more widespread in Denmark than in other European member states, an assertion supported by SIFMANet visits to other EU member states.

Government-led efforts include not only the establishment of sanctions taskforces among authorities, but also substantial outreach to the private sector. This outreach included a notification that Danish authorities sent to over 1,500 companies containing information on their sanctions obligations and encouraging them to get in touch and ask for support. In addition, the Danish Business Authority has sent out targeted letters in relation to circumvention, including compliance guidance, to approximately 200 economic operators. Danish authorities had an existing relationship with obliged entities, but the government decided to engage with all companies, given the expansive nature of the Russia sanctions regime.

Misalignment Between Banks and Corporates

Representatives from the corporate sector, including industrial and shipping companies, expressed frustration with the banking sector, which they said had taken an overly narrow approach to allowing certain transactions – beyond what was required by the law. One participant said it was as if “every taxi driver had to ask clients what they were doing before accepting their fare”. A bank representative said the requirement to comply on the product side had fundamentally changed how financial institutions approach sanctions risk, while another participant said that they now viewed certain types of business activities as high risk, where these would not have been before 2022.

Another participant, from a business association, said that several of their members had completed all compliance steps required for a certain transaction, but the banks had still refused to allow it. However, a representative from a bank said that non-US companies “need to step up”. They referred to the risks highlighted in the December 2023 amendments to US Executive Order 14024, which strengthened the US’ ability to sanction financial institutions facilitating and funding supplies to the Russian military–industrial complex.

At the same time, representatives from corporates also acknowledged that there was a lack of regulation of that sector, compared to the financial industry. There is no specific “know your customer” requirement for much of Danish industry, which meant that it was challenging to convince boards to allocate resources to sanctions compliance. Meanwhile, banks now demand more compliance procedures, and have higher standards for their corporate clients.

Additionally, participants from both banks and corporates cited a perception that the strictness of their compliance was harming their competitiveness compared to their European peers. They said this was a “significant” concern. Representatives of the shipping industry said that the country as a whole was now a “risk-poor environment”, with many shipping companies taking overly conservative approaches to international business, resulting in a negative impact on both that industry and the business environment overall.

One area that was highlighted several times was product classification. Given the dominance of the shipping and trade sectors in Denmark, classification was a significant issue, with participants highlighting the difficulties of getting a classification on tariff codes from customs and a dual-use designation decision. Some participants agreed that there continued to be public sector resourcing issues relating to the EU sanctions over the critical goods and technologies listed under Annex VII of Council Regulation (EU) 833/2014. However, another participant mentioned that the DCA can provide Binding Tariff Information decisions.

Enforcement and the Shadow of the Dan-Bunkering Case

The discussion then turned to the topic of enforcement, and numerous participants referred to the case of Dan-Bunkering, which was prosecuted in Denmark in 2021 for shipping $101 million in jet fuel to Syria from Kaliningrad. This case was seen by several participants as a model of enforcement. However, a representative of a business association said this represented a specific case, in which a business “wilfully turned a blind eye” to government guidance. In this way, they said, the Dan-Bunkering case was not representative of Danish business practices. Nevertheless, the experience clearly cast a shadow across public and private sector alike.

Procedural questions of how investigations were initiated were also discussed, with prosecutors highlighting that many cases began with administrative infractions, escalating into cooperation between police and competent authorities. This procedure, another government representative said, had been set up after the Dan-Bunkering case, which had provided many opportunities to clarify procedures.

A representative from the Ministry of Industry, Business and Financial Affairs said many investigations began with the relevant Danish authority conducting a review of the news media for negative reports or requesting documents from exporters to identify suspicious information. This information was then evaluated for potential indications of misconduct before the authority decided whether to escalate the matter to police (and potentially onwards to prosecutors). Since 2022, Danish authorities have evaluated 140 potential breaches, they said, and there were around 40 open cases. So far, six matters had been reported to police. At the same time, a customs representative said there were other steps before any potential breaches were reported, including a hearing on customs declarations, and so there was “a lot of enforcement going on behind the scenes” before any case is reported.

Participants said these statistics highlighted the difficulty of comparing enforcement between different EU member states, with no centralised reporting of enforcement from the EU’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union. A participant from a business association said these figures were also likely to be much higher than the number of actual criminal cases, since many issues related to goods that were unintentionally misdeclared, due to the aforementioned classification difficulties, rather than deliberate evasion or circumvention.

To this point from the business association, the customs representative responded that, in the majority of cases relating to possible breaches of import and export prohibitions, the DCA will go through several steps ahead of any potential filing of a police report. This includes a consultation process with the responsible party (usually the declarer), in which they are informed that the customs declaration is in possible breach of sanctions. The party will then be able to provide documentation for potential misdeclarations, so that the declaration can be corrected. Only if the responsible party is unable or unwilling to provide sufficient documentation that their goods are not in violation of sanctions will a police report be filed. Therefore, they argued, the figure is unlikely to be inflated by “unintentional misdeclarations” and similar declaration-related mistakes.

Finally, participants discussed Denmark’s criminal enforcement regime for sanctions breaches, which requires proof of negligence or intent. Some participants found Denmark to have relatively high standards for criminal enforcement, and advocated for civil enforcement or other mechanisms with lower standards for deployment. Private sector representatives added that they would welcome a civil enforcement regime in Denmark, as this would allow voluntary self-disclosures and more dialogue between the public and private sectors, allowing companies to “come clean” if they have inadvertently breached sanctions.

However, other participants said that widening enforcement action could damage the collaborative and cooperative nature of the public–private dialogue as well as the dialogue between private sector actors. They instead urged the government to publish findings from its investigations and reviews, even those that do not reach the standards for a criminal prosecution, as these would allow companies to learn from issues other entities have faced.

Conclusion

Danish authorities and the private sector clearly reiterated their commitment to implementing and enforcing sanctions within Denmark at this roundtable. One particularly positive aspect of this was the commitment to information sharing in the private sector, both within business associations and between peers within industry. The roundtable discussions also demonstrated open and frank dialogue regarding the need for more guidance and support from the public sector, and authorities’ receptivity to these messages.

The government’s ability to provide guidance and clear responses to queries appeared to be hampered by the spread of sanctions implementation responsibility across a large number of national competent authorities, to the degree that private sector actors complained of questions “circling” among various agencies.

Further, the Danish authorities’ limitation on providing guidance on EU regulation, beyond what is stated in the wording and FAQs as adopted in Brussels, also poses practical difficulties and raised frustration within the private sector. Business representatives urged the government to share more information on its interpretations, including potentially on anonymised determinations by customs and other authorities in pre-enforcement investigations and analyses.

Discussions also highlighted the potential gap in enforcement for sanctions breaches that occur due to conduct that falls below Denmark’s criminal standard. This may create a gap between Danish enforcement practice and that of other member states. At the same time, Danish business perceived its own practice as overly compliant, in comparison to other EU member states, raising concerns about Denmark’s competitiveness. Further alignment with other member states would address such concerns.

In sum, like many EU member states, Denmark has discovered that the key to successful sanctions implementation starts with coordination across the wide range of agencies and departments that find themselves involved in the Russia sanctions regime. It has also discovered that investment in relations with the private sector – the frontline of implementation – is critical if the country is to play its part in restricting the funding, and particularly the resourcing, of Russia’s illegal war of aggression in Ukraine.

Olivia Allison is an Associate Fellow at RUSI and an independent consultant. She has more than 15 years’ experience carrying out complex international investigations and supporting the development of integrity and governance for state-owned companies, international companies and international financial institutions. She has a wide range of financial crime and asset-tracing experience from leadership roles held in London, Moscow, Kyiv and Kazakhstan.