EU sanctions against Russia and potential implications for Irish pension schemes
Does your Irish occupational pension scheme have Russian pensioners, Russian deferred members or Russian participating employers?
If so and you are an Irish pension scheme trustee then you have a potential issue to manage from 10 May 2022.
The EU has adopted a new round of sanctions against Russia which take effect on 10 May 2022. EU Council Regulation 2022/576 of 8 April 2022 amends Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (the “Regulation”). From 10 May 2022, the new sanctions prohibit EU persons from acting as a trustee for a Russian trust or any similar legal arrangement. The Regulation prohibits the administration of a trust or any similar legal arrangement having as a settlor or a beneficiary, amongst others:
a) Russian nationals or natural persons residing in Russia;
b) legal persons, entities or bodies established in Russia;
There are exemptions for humanitarian trusts and for Russians who have a temporary or permanent permit to reside in an EU Member State.
While the regulation is intended to address oligarch funds and the use of trusts to move and hide money the breadth of the language used captures other trusts such as occupational pension schemes in what is most likely an unintended consequence.
Technically an Irish pension scheme which has Russian pensioners or deferred members who had permits to reside while accruing benefits but who have since left the EU is likely to be a trust which has Russian nationals as beneficiaries. The Regulation would also catch an Irish scheme for overseas employees which provides accrual for Irish citizens currently residing in Russia.
Action required by the Regulation
If a trust falls within the scope of the Regulation there are no consequences for the scheme or the member as such – the impact is that EU persons are committing offences if they continue to act as a trustee. In effect the trustee is required to cease acting. As the Regulation overrides Irish law, in principle at least the obligations under it override local law requirements such as that the last trustee continues in office until replaced.
The potential exposure
Member States are obliged to lay down the rules on penalties applicable to infringements of the provisions of the Regulation and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive.
S.I. No. 177/2022 – EU (Restrictive Measures concerning Ukraine) (No. 10) Regulations 2022 provides that a person who is guilty of an offence shall be liable: (a) on summary conviction, to a class A fine [currently €5,000] or to imprisonment for a term not exceeding 12 months or both; or (b) on conviction on indictment, to a fine not exceeding €500,000 or to imprisonment for a term not exceeding 3 years or both.
Implementation of this Regulation is the responsibility of the Central Bank of Ireland (the “CBI”).
- Identify whether (a) Russian nationals are members of the scheme; (b) any Russian entity participates in the scheme; or (c) any members or beneficiaries are resident in Russia.
- If so, consider what actions to take (given that the scheme must continue to function for the remainder/majority of the membership) and how to engage with the CBI and Pensions Authority in connection with the proposed course of action in light of any issue identified.