What are the sanctions? Why are they necessary? Sanctions are a means of exerting international political pressure. Their purpose is to induce a country, by means of trade and personal measures, to adopt the diplomatic and international behaviour expected by the country applying the sanctions.
Among the sanctions, those on Russia, Belarus and Ukraine have the greatest impact in Hungary, but sanctions are applied to many countries around the world, partly by other states and partly by associations of other states.
Within the EU, one should pay attention to the sanctions applied by the EU, but EU Member States also apply these instruments independently, over and above EU sanctions.
What are the types of sanctions?
Sanctions may target natural persons, legal persons, recognised or unrecognised entities or bodies, but there are also examples of goods, persons or services from a particular geographical area being targeted.
Hungary does not apply its own sanctions, the relevant domestic rules are applied to enforce sanctions by the UN Security Council and the European Union, which, although not a product of Hungarian legislation, are directly applicable in Hungary. Of the two organisations, the EU sanctions regime is much broader and wider in scope.
Based on the legislation applicable in Hungary, three main types of economic and commercial sanctions can be distinguished:
a) Financial (and asset) restrictive measures targeting certain natural persons and their interests, typically consisting of freezing the assets of, and prohibiting economic contacts with, listed persons (and other persons associated with them), as a form of personal pressure;
b) Measures intended to “bring the economy of the targeted state to its knees", typically consisting of export and import trade bans on certain categories of goods or industries of importance to the sanctioned state, with the clear aim of reducing the revenues and economic resources generated in the sanctioned state and exerting pressure on the society of the target state through this means;
c) Sanctions that are designed to weaken the military and security capabilities of the sanctioned state, including bans on goods that can be used for military or law enforcement purposes, restrictions and prohibitions on propaganda and cyber warfare, with the most recent measures aimed at reducing the so-called hybrid threat mainly aimed at strengthening the security of internal institutions of the countries (or the EU) imposing sanctions.
An important aspect of sanctions legislation is that it also seeks to tackle the tactics and technologies that are used to circumvent them, and will therefore from time to time expand this area of law with measures aimed at preventing circumvention of sanctions, either by taking action against specific known techniques or by introducing general prohibitions.
If the sanctions do not have the desired effect, they will be extended and tightened. This can be seen in the EU sanctions against Russia, where the 17th package of sanctions will be adopted in May 2025, and the number of individuals subject to financial sanctions is also increasing.
How can we avoid committing a sanctionable infringement?
In everyday commercial practice, we often do not even think that we may be in breach of any sanctions, but unfortunately, often inattention is enough to cause serious damage.
The first step is to assess the company's commercial practices and identify the circumstances that could pose a risk from a sanctions perspective. Once the risks have been identified, the next task is to minimise the possibility of an actual sanction infringement.
When assessing risk factors, in particular the following questions are worth asking and, depending on the answers, the following should be considered.
- Is our business linked to a geographical area to which higher risks are attached? Do we have a business relationship with a partner from or linked to a country or territory for which sanctions are in force?
If a geographical risk is identified, it should be clarified whether sanctions in force in the area identified as a risk area may affect our activities. For example, for EU operators, it is prohibited to provide engineering consultancy services to companies based in Russian-occupied areas of Ukraine.
- Do our business activities involve goods or services that are subject to sanctions?
Given that a very wide (and often surprising) range of goods are currently subject to trade restrictions, caution is always advised. In the EU the sanction rules define the scope of goods subject to restrictions using the customs nomenclature (CN codes), so that a relatively simple search of the CN code can determine whether the goods in question are at risk of a sanction infringement.
For services, the situation is a little more complicated, because you need to consider the restrictions currently in force for a given geographical area or trading partner.
- Do we know the activities and owners of all our business partners? Are they likely to be engaged in activities to evade sanctions or controlled by a person on a sanctions list?
As discussed above, doing business with persons subject to financial restrictive measures and persons under their control, as well as other persons closely associated with them, is severely restricted by law, and assets owned by such persons are frozen by the authorities. It is therefore worth looking up the names of the owners of our trading partners on the relevant sanctions lists to ensure that our activities do not contravene the law.
Comprehensive information on how to understand and apply the sanctions is available on the European Union's website (https://www.sanctionsmap.eu), and the Budapest City Government Office and the Hungarian Tax Authority (NAV) have also published lots of information, which can help you find your way around if you are unsure how to proceed.