Sanctions-busting states could be next in Brussels’ crosshairs

European governments are drawing up plans to hit third countries with economic penalties if they fail to comply with Western sanctions or can’t explain a sudden rise in trade in banned goods, according to three EU diplomats briefed on the discussions.

Such a mechanism, which is being discussed as part of the EU’s next sanctions package against Russia over the Ukraine war, would be a first step toward so-called secondary or extraterritorial sanctions — a practice that is already used by the United States.

“This would be an important policy shift for the EU,” one of the diplomats said.

The idea illustrates the EU’s growing frustration over circumvention of Western sanctions against Russia by unscrupulous states and businesses.

After adopting 10 sanctions packages against Moscow, the EU has appointed David O’Sullivan as special envoy to make sure European sanctions are implemented and not open to evasion.

But O’Sullivan — a former secretary-general of the European Commission and EU ambassador to the United States — often lacks the leverage to convince third countries to get in line. Western sanctions imposed on Moscow over its invasion of Ukraine mean big business elsewhere in the former Soviet Union, as middlemen race to cash in on reselling unavailable goods to Russia.

The European Commission now hopes this new mechanism can be used as a threat to get other countries to comply. If they don’t, Brussels could also impose sanctions against those third countries, the diplomats said. The EU is looking for example at countries in Central Asia, such as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

The Commission has already discussed the measures with EU diplomats in private meetings, but has not formally proposed its new package to European capitals yet. The final decision on whether to go ahead with the plan lies with national governments.

Diplomats stressed a lot is still unclear on how the mechanism would work. For example, it’s unclear whether whole countries would be targeted, and if so which ones, or just individuals or entities operating in certain countries. “We’re not at a point where it is clear what that would look like,” a second diplomat said.

But it’s clear that the proposal is highly sensitive, the diplomats said, for example when it comes to addressing China. The second diplomat also said the EU has to be careful that the approach “doesn’t drive the countries we talk about into the arms of India, China or Russia” and that a balance would need to be found between cracking down on rogue trading and maintaining economic ties.

The mechanism may still not make the final draft of the EU’s 11th sanctions package. “It’s hard to predict because there is nothing on the table now,” the second diplomat said. “It’s too vague to get a reading of the room.”

EU ambassadors are set to discuss the plans at a meeting on May 10, although this timing may still change.