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EU Sanctions Debrief - 11th -13th Packages


The European Union (EU) continues to adopt further packages of economic sanctions against Russia due to the continuance of its military aggression against Ukraine, the latest of which are summarised below. The relevant legal framework is EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (“Regulation 269”) and EU Regulation 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine (“Regulation 833”) (hereinafter collectively referred to as the “EU Sanctions”).

 

Note: The position is constantly evolving. Additional sanctions may be introduced in the coming days and these will be the subject of future articles.

 

This information is:

 

·       of a general nature only and is not intended to address the specific circumstances of any particular individual or entity;

·       not necessarily comprehensive, complete, or up to date;

·       not professional or legal advice (if you need specific advice, you may consult us).

 

 

11th SANCTIONS PACKAGE

 

 

The 11th package contains, among others, the following measures:

 

1.      OIL IMPORT RESTRICTIONS & OIL TRANSPORT SERVICES:

 

Ø  The EU agreed to ban the direct or indirect purchase, import, or transfer into the EU of crude oil or petroleum products originating in Russia or being exported from Russia, subject to long transitional periods. The list of prohibited petroleum products is contained in Annex XXV and consists of goods falling under CN Codes 2709 00 (“Petroleum oils and oils obtained from bituminous minerals, crude”) and 2710 (“Petroleum oils and oils obtained from bituminous minerals, other than crude.

 

Ø  The prohibition does not apply to the purchase, transfer or import of seaborne crude oil and petroleum products if they are only being loaded, departing from or transiting Russia, provided that the origin and owner of goods are non-Russian.

 

Ø  As regards petroleum products, the prohibitions did not apply until 5 February 2023 to one-off transactions for near-term delivery, concluded and executed before that date, or the execution of contracts for the purchase, import, or transfer of goods falling under the relevant EU petroleum goods classification code, or of ancillary contracts necessary for the execution of those contracts. In each case, the relevant EU Member States must have notified the relevant contracts to the EU Commission by 24 June 2022, and one-off transactions for near-term delivery must be notified by the relevant EU Member States to the EU Commission within 10 days of their completion.

 

Ø  The EU restrictions do not prohibit gas imports.

 

Ø  Due to its specific geographical exposure, a special temporary derogation until the end of 2024 has been agreed for Bulgaria which will be able to continue to import crude oil and petroleum products via maritime transport. In addition, Croatia was able to authorise until the end of 2023 the import of Russian vacuum gas oil which was needed for the functioning of its refinery.

 

Ø  After a wind down period of 6 months, EU operators will be prohibited from insuring and financing the transport, in particular through maritime routes, of oil to third countries.

 

2.      FINANCIAL & BUSINESS RELATED MEASURES:

 

Ø  The EU has extended the existing prohibition on the provision of specialized financial messaging services (SWIFT) to three additional Russian credit institutions and one Belarussian was removed from SWIFT as of 14 June 2022. The SWIFT removal will also apply to any legal person, entity, or body established in Russia whose proprietary rights are directly or indirectly owned for more than 50% by any of the abovementioned entities.

 

Ø  The provision of certain business-relevant services - directly or indirectly – such as accounting, auditing, statutory audit, bookkeeping and tax consulting services, business and management consulting, and public relations services to the Russian government, as well as to legal persons, entities or bodies established in Russia are now prohibited.

 

3.      CRIMINALISATION OF BREACHES:

 

Ø  The EU now requires EU Member States to implement criminal penalties for breaches. Previously, the obligation on EU Member States was to provide for effective, proportionate, and dissuasive penalties, meaning that EU Member States were notionally permitted to classify sanctions violations as leading only to civil or administrative liability. There is also a new obligation to provide for appropriate measures to confiscate the proceeds of violations of sanctions rules.

 

Ø  In Cyprus there already has been a criminalisation of breaches of sanctions since 2016 through the law of Provisions of the United Nations Security Council Resolutions or Decisions (Sanctions) and the European Union Council's Decisions and Regulations (Restrictive Measures) Law 58(I)/2016.

 

4.      OTHER PROHIBITIONS & SANCTIONED ACTIVITIES:

 

Ø  The broadcasting activities of another three Russian State outlets – Rossiya RTR/RTR Planeta, Rossiya 24/Russia 24, and TV Centre International – have been suspended. They are among the most important pro-Kremlin disinformation outlets targeting audiences in Ukraine and the EU and disseminating propaganda in support of Russia's aggression against Ukraine.

 

12th SANCTIONS PACKAGE

 

On December 18, 2023, the European Union ("EU") adopted its 12th sanctions package against Russia amending EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine and Regulation 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine

 

 

 

The 12th package broadly:

-        introduces additional asset freeze measures, together with amendments to the EU asset freeze framework targeting Russia, including new grounds for designation and derogations, extended derogations and reinforced asset tracing provisions.

-        reinforces trade control measures through (i) new import-related restrictions on diamonds, liquefied petroleum gas ("LPG") and metal goods; (ii) amendments to import-related restrictions on iron and steel products; and (iii) enhanced export-related restrictions on dual-use, advanced technology and industrial items.

-        introduces important restrictions on the provision of enterprise management software and design-related software.

-        introduces anti-circumvention measures, tightening the oil price cap and requiring so-called "No Russia" clauses to be contractually agreed in contracts with non-Russian parties involving sensitive items; and

-        establishes notification requirements with respect to fund transfers out of the EU made by Russian-owned entities established in the EU.


When did it come into effect?

New asset freeze designations entered into force immediately upon publication on December 18, 2023, while the remaining measures entered into force at midnight on December 19, 2023. However, various exemptions, derogations and transition periods are outlined under the adopted texts.


I. ASSET FREEZE MEASURES

Various amendments were made to Council Regulation (EU) No 269/2014 ("Regulation 269/2014") applicable to asset freeze measures which we describe briefly below:


A. Additional Listings

140 persons (61 individuals and 86 entities) in the military, defense, private military, IT, media, aviation, industrial and economic sectors were added to the list of individuals and entities subject to EU asset freeze measures. Notably, the 12th Package targets (i) several telecommunications companies, such as LLC MirTelecom, LLC Miranda Media, LLC Shipping Company Lyukstrans, JSC Krymtelecom; (ii) AlfaStrakhovanie Group (Alfa Insurance), one of the biggest insurance groups in Russia; and (iii) Rosfinmonitoring.


B. Stricter Asset Freeze Obligations: New listing criteria have been established to freeze assets of persons benefiting from the forced transfer of ownership or control over Russian subsidiaries of EU companies. This measure aims to prevent individuals from profiting when EU companies face forced acquisitions by Russian owners or management. The following individuals and entities can now be made subject to asset freeze measures:

- Russian entities previously owned/controlled by EU entities, where their ownership or control has been compulsorily transferred by the Russian government;

- Individuals and entities that benefitted from such transfer;

- Individuals appointed to the governing bodies of these entities without the consent of the EU entity that previously owned or controlled it.


C. New and Extended Grounds for Authorization to Deviate from Asset Freeze Measures

New derogations: The EU introduced five new derogations from asset freeze measures including (i) Deprivation by Member States of sanctioned parties' funds/economic resources in the public interest: authorizations can be obtained for judicial or administrative decisions by an EU Member State, under conditions provided by law, to deprive in the public interest a sanctioned person of funds or economic resources belonging to, owned or controlled by such person, provided the compensation paid for such deprivation is frozen and (ii) Derogation linked to forced transfer of ownership: authorizations can be obtained for funds/economic resources necessary (i) for the sale or use of shares in, or assets of, Russian entities designated under the new forced ownership transfer criterion, (ii) in order to enable the payment of the consideration agreed by the parties or for the compensation decided in the context of the compulsory transfer of ownership or control.


II. RESTRICTIONS ON SERVICES


The 12th Package introduces new and reinforces existing import-related and export-related control measures imposed under Council Regulation (EU) No 833/2014 ("Regulation 833/2014"), while also extending or phasing-out existing exemptions and derogations.

The most important ones are the (a) new measures on software for the management of enterprises and software for industrial design and manufacture (Annex XXXIX of Regulation 833/2014) and (b) the additional prohibitions on related services under Article 5 (n).


Scope of prohibitions – New prohibitions were introduced in relation to the:

(a) Sale, supply, transfer, export or provision of enterprises management and design-related software to the Government of Russia or entities in Russia;

(b) The provision of related services (technical assistance, brokering services, other services, financing or financial assistance) to the Government of Russia or entities in Russia.


(a) Software covered – The following software are covered:

- Software for the management of enterprises: enterprise resource planning (ERP), customer relationship management (CRM), business intelligence (BI), supply chain management (SCM), enterprise data warehouse (EDW), computerized maintenance management system (CMMS), project management, product lifecycle management (PLM) software and typical components of these suites, including software for accounting, fleet management, logistics and human resources;

- Design and manufacturing software: building information modelling (BIM), computer aided design (CAD), computer-aided manufacturing (CAM), engineer to order (ETO) and typical components of these suites.


Exemption and derogation – The following exemptions are foreseen:

- Wind-down by March 20, 2024, of contracts concluded before December 19, 2023, and ancillary contracts;

- Until June 20, 2024, services that are for the exclusive use of Russian entities that are owned or controlled by entities in the EU, EEA, Switzerland or a partner country.

It is therefore crucial to note that that the sale, supply, transfer, export or provision, directly or indirectly, of software for the management of enterprises and software for industrial design and manufacture (e.g. ERP-systems, CRM-systems, BI-systems, etc.), has been added to the list of prohibited services, which already encompasses e.g. business management and consulting services, auditing, PR-services, legal services and IT-consultancy.  This is highly relevant for EU parent companies providing any of these services to their Russian subsidiaries. 


(b) Extension of restrictions to related services – The EU completed services restrictions by additional prohibitions on related services. In addition to (i) accounting, auditing, including statutory audit, bookkeeping or tax consulting services, or business and management consulting or public relations services, (ii) architectural and engineering services, legal advisory services and IT consultancy services, (iii) market research and public opinion polling services, technical testing and analysis services and advertising services, it is now prohibited to provide the following related services:

- Technical assistance, brokering services or other services;

- Financing or financial assistance.


Although there is no definition for financing or financial assistance, the new prohibitions make it clear that not of the existing 5n services can be carried out directly or indirectly.


Phased-in replacement of exemption for Russian subsidiaries by a derogation – The exemption for Russian entities that are owned or controlled by entities in the EU, EEA, Switzerland or a partner country will stop applying as from June 20, 2024. This means that an authorization from the competent authority will be required to continue to provide controlled business services to Russian subsidiaries of companies headquartered in the EU or other partner countries. 


III. TRANSFER OF FUNDS OUT OF THE EU BY RUSSIAN-OWNED ENTITIES 


The notification of transfers of funds exceeding EUR 100 000 out of the EU by EU entities directly or indirectly owned by more than 40% by Russians or entities established in Russia has now been introduced with the addition of article 5r in the Council Regulation (EU) 833/2014 which is as follows:

As of May 1, 2024, EU entities that are Russian-owned will have to report every quarter on any transfer of funds out of the EU exceeding EUR 100 000, in one or several operations;

As of July 1, 2024, EU credit and financial institutions will have to report every semester on transfers of funds out of the EU that they initiated for the aforementioned EU entities where their cumulative amount exceeds EUR 100 000 during that semester.

Further guidance via the Frequently Asked Questions of the EU Commission was issued on the 12th of April 2024 in relation to the exact form of the notification/report that should be submitted to the competent authorities of the EU Member States. This reporting must be done through an excel template form indicating in detail the type of transactions and the required information to be completed and reported by the EU Entities and Credit/Financial Institutions. The information will be used by Member States to assess breaches of EU sanctions and circumvention risks.

The template for Cyprus issued by the Ministry of Finance on 9th of May 2024 can be found here: guidancedocumentarticle5r-09-05-24.docx (live.com)


IV. OTHER AMENDMENTS TO EXISTING EXEMPTIONS OR DEROGATIONS


A. Restrictions on (re-)financing

The EU implemented new notification requirements for the use of exemptions relating to loans/credits for entities subject to (re-)financing restrictions under Articles 5 and 5a of Regulation 833/2014. The use of exemptions for (i) non-prohibited trade financing loans/credits, (ii) emergency funding loans/credits and (iii) drawdown or disbursements on pre-sanctions contracts must now be notified to national competent authorities.


B. Facilitating the Exit of Entities Subject to a Transaction Ban (Annex XIX of Regulation 833/2014)

The EU extended exemption for wind-down of joint ventures ("JVs") with entities subject to a transaction ban. As a result, transactions strictly necessary for the wind-down of a JV concluded before March 16, 2022, involving an Annex XIX target can take place by December 31, 2024 (instead of December 31, 2023).

Further, the derogation for divestment and withdrawal from EU entities of entities subject to a transaction ban (Annex XIX of Regulation 833/2014) have been extended. Transactions relating to the divestment and withdrawal by Annex XIX target from an EU entity can now be authorized until December 31, 2024 (instead of December 31, 2023).


C. Facilitating the Divestment or Wind-Down from Russia

The availability of derogations relating to export-related, import-related and services restrictions, permitting to obtain authorizations to carry out otherwise prohibited transactions in the context of a divestment or wind-down from Russia, has been extended until June 30, 2024, for trade control restrictions and July 31, 2024, for services restrictions (instead of, respectively, December 31, 2023, and March 31, 2024).

The EU also extended the derogation to divest from an EU JV involving Russian entities and operating a gas pipeline infrastructure between Russia and third countries. This specific derogation, which concerns restrictions on items listed in Annex II of Regulation 833/2014, has been extended until September 30, 2024 (instead of March 31, 2024).

 

13th SANCTIONS PACKAGE

 

On February 23, 2024, the European Union ("EU") adopted its 13th sanctions package (the “New package”) against Russia amending Regulation 269 and Regulation 833 as follows. The measures aim at “further limiting Russia's access to military technologies” and to “drain the Russian war machine of its revenue sources and key goods and technology”.


The New package:

-         Added 106 individuals and 88 entities to its restricted parties list through Council Implementing Regulation 2024/753. The newly-listed entities include Russian companies active in the military and aviation sectors, especially those manufacturing missiles, drones, and high-tech components for weapons, companies and individuals supporting the provisions of armaments in Russia, as well as companies and individuals involved in the forced transfer and in deportation of Ukrainian children.

 

-        sectoral measures, including new export restrictions on exports of goods which contribute in particular to the enhancement of Russian industrial capabilities, such as electrical transformers.

 

-        further expands the list of restricted items that could contribute to the technological enhancement of Russia’s defence and security sector by adding components for the development and production of unmanned aerial vehicles (UAV).

When does it come into effect?

New measures entered into force at midnight on 23rd February 2023. However, various exemptions are outlined under the adopted texts.

I. ASSET FREEZE MEASURES

Various additions were made to Council Regulation (EU) No 269/2014 ("Regulation 269/2014") applicable to asset freeze measures which we describe briefly below:

A. Additional Listings

106 individuals and 88 entities in the military, aviation, industrial and economic sectors were added to the list of individuals and entities subject to EU asset freeze measures. Notably, the New Package targeted (i) several telecommunications companies, such as LLC MirTelecom, LLC Miranda Media, LLC Shipping Company Lyukstrans, JSC Krymtelecom; (ii) AlfaStrakhovanie.

In total, as of today, 2144 individuals and entities have been placed on the EU restricted parties list under the Russian program in respect of actions undermining or threatening the territorial integrity, sovereignty, and independence of Ukraine.


II. RESTRICTIONS ON SERVICES

The New package introduces new and reinforces existing import-related and export-related control measures imposed under Council Regulation (EU) No 833/2014 ("Regulation 833/2014"), while also extending or phasing-out existing exemptions and derogations.


Dual-use (Annex I of Regulation 2021/821) and advanced technology items (Annex VII of Regulation 833/2014)


Extension of the list of entities subject to enhanced restrictions in relation to dual-use and advanced technology items to cover an additional 17 new Russian companies and 10 non-Russian entities (Annex IV of Regulation 833/2014).  Among the non-Russian entities, all trading in the area of electronic components, four companies are registered in the People’s Republic of China (RG Solutions Limited, Guangzhou Ausay Technology Co Limited, Shenzhen Biguang Trading Co. Ltd and Yilufa Electronics Ltd.) and one each registered in Kazakhstan (TOO Elem Group), India (Si2 Microsystems Pvt Ltd), Serbia (Conex Doo Beograd-Stari Grad), Thailand (Thai IT Hardware Co. Ltd), Sri Lanka (Euro Asia Cargo (Private) Ltd.), and Turkey (Yildiz Çip Teknoloji Elektronik Elektrik Bilgisayar Malzemeleri Ticaret Sanayi Limited Sirketi).


Scope of prohibitions – The list of advanced technology items in Annex VII of Regulation 833/2014 was extended to include “Aluminum electrolytic fixed electrical capacitors” (excluding power capacitors) which have military applications (CN Code 8532 22).


Goods which could contribute in particular to the enhancement of Russian industrial capacities (Annex XXIII of Regulation 833/2014)

Extension of the list of goods which could contribute in particular to the enhancement of Russian industrial capacities listed in Annex XXIII of Regulation 833/2014 to cover every item with the tariff position 8504, meaning all “Electrical transformers, static converters (for example, rectifiers) and inductors” instead of only the goods within CN Codes 850432, 850433 and 850434. This amendment is one of the measures to enhance air defence in Ukraine, as these items can be used as drone components.


New exemption - The EU introduced an exemption to article 3k of Council Regulation 833/2014, for the performance until 25 May 2024 of contracts concluded before 24 February 2024, or of ancillary contracts necessary for the performance of such contracts, as to export of the “Electrical transformers, static converters (for example, rectifiers) and inductors” falling under CN codes 850410, 850421, 850422, 850423, 850431, 850440, 850450 or 850490.

 Import-related restrictions


Iron and steel (Annex XXXVI of Regulation 833/2014)

Strengthening of international cooperation -The New package adds the United Kingdom to the list of partner countries excluded from the iron and steel imports restriction, in addition to Switzerland and Norway, by amending the Annex XXXVI of Regulation 833/2014.


III. OTHER POINTS TO NOTE


Decisions adopted by the Council

(i) The Council on 12th February 2024 adopted a decision and a regulation clarifying the obligations of Central Securities Depositories (CSD) holding assets and reserves of the Central Bank of Russia (CBR) that are immobilised as consequence of EU’s restrictive measures, which:

 

·       clarified the prohibition of those transactions as well as the legal status of the revenues generated by the CSDs in connection with holding of Russian immobilised assets and sets clear rules for the entities holding them. In addition, as indicated via this Decision CSDs should be prohibited from disposing of the ensuing net profits.

·       further clarified in view of risks and costs related to holding of the assets and reserves of the Central Bank of Russia, each central security depository might request its supervisory authority to authorise a release of a share of those net profits in view of complying with statutory capital and risk management requirements.

·       The Council also decided that CSDs holding more than €1 million of assets and reserves of the Central Bank of Russia (CBR) that were immobilised as consequence of EU’s restrictive measures, must set aside extraordinary cash balances accumulating due to EU restrictive measures, and may not dispose of the ensuing net profits.

 

(ii) Following on from this, the Council on the 21st of May 2024, adopted a set of legal acts ensuring that the net profits stemming from unexpected and extraordinary revenues accruing to central securities depositories (CSDs) in the EU, as a result of the implementation of the EU restrictive measures, will be used for further military support to Ukraine, as well as its defence industry capacities and reconstruction.

 

The amounts will be paid by the CSDs to the EU on a bi-annual basis, and will be used for further military support to Ukraine through the European Peace Facility, as well as with support to Ukraine’s defence industry capacities and reconstruction needs with EU programmes, according to the following key:

 

o   European Peace Facility 90%

o   EU programmes financed from the EU budget 10%

 

This allocation will be reviewed yearly, and for the first time before 1 January 2025.

 

CSDs will be allowed to provisionally retain a share of around 10% of the financial contribution to comply with statutory capital and risk management requirements in view of the impact due to the war in Ukraine, with regard to the assets held by CSDs.

 

(iii) The Commission also usefully released on the 19th of February 2024 an updated version of the Guidance for EU operators on the implementation of enhanced due diligence to shield against Russia sanctions circumvention.

 

Next Steps

 

MPC Legal monitors developments within the EU closely and expects that additional rounds of sanctions may be imposed as events unfold. Our dedicated sanctions team is available to advise clients on the legal and practical impacts of these measures.

 

_______

Authors

 

Marilou Pavlou Christodoulides | Partner

 

Stella Kagia | Senior Associate


EU Sanctions#sanctions compliance#Legal500#legal developments#11TH EU Sanctions package#12TH EU Sanctions package#13thTH EU Sanctions package








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