EU: 'Best Efforts' Due Diligence Requirement Should Apply Beyond Russia Sanctions
The EU last week issued new guidance on a requirement created in 2024 that calls on EU parent companies to make “best efforts” to ensure that their third-country subsidiaries aren’t enabling sanctions evasion (see 2411220014 and 2406240024). Although this “legal obligation applies only in the context of sanctions on Russia and Belarus,” the European Commission said it’s encouraging all EU parent companies “to seek to ensure that all entities they own or control do not undermine EU sanctions anywhere in the world.”
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While the commission noted that many European businesses already require their foreign affiliates to comply with EU sanctions as a “matter of policy," it said parent companies should prepare for the bloc to potentially extend the “best efforts” requirement to other sanctions programs.
“Plan ahead -- ‘best efforts’ requirements currently affect activity targeted under Russia and Belarus sanctions,” it said. “If such requirements are adopted in respect to other countries in the future, what do you need to do now to protect your business?”
Undertaking "best efforts" means a “high degree of effort,” the guidance said, adding that it’s a “higher standard than ‘reasonable efforts.’” But it also said “best efforts” is “very situation-specific” and depends on the type of business.
“When authorities assess whether or not best efforts have been made, they will take a close look at your business and the third-country affiliate, including their size, business sector, and the type of activity undertaken,” the guidance said. “As with any aspect of a sanctions compliance programme, your best efforts need to be calibrated to the sanctions risk your business is exposed to. The higher your risk or the larger your business, the more you are expected to do.”
The guidance includes several recommendations for EU parent companies, saying they should carry out a risk assessment of any businesses they own and put in place a sanctions compliance program “that addresses these risks as much as you can.” That may include sharing compliance information with the subsidiary, providing training, imposing reporting obligations or keeping “control of sanctions matters” at the head office in the EU.