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Russia’s invasion of Ukraine: sanctions and trade restrictions overview
02/03/2022

In response to Russia’s invasion of Ukraine, the EU has progressively adopted a series of new sanctions and trade restrictions targeted at Russia, Belarus, and the non-government controlled areas of Donetsk and Luhansk in Ukraine. These sanctions greatly expand the existing EU sanction regime against Russia. Below, we first set out the applicable sanctions and restrictions and explain their functioning. In doing so we will distinguish between EU sanctions on the one hand and US and UK sanctions on the other. In addition, we also provide an overview of Russian counter measures. Subsequently, we provide general recommendations on how to deal with these new sanctions and restrictions and, finally, we include an overview of the EU sanctions framework.

1. EU sanctions and restrictions

Since Russia’s recognition of the areas of Donetsk and Luhansk oblasts as independent entities, and the ensuing Russian invasion of Ukraine, the EU has adopted several ‘sanctions packages’. The first package mainly targets individuals and entities and imposes financial and economic restrictions directly related to the areas of Donetsk and Luhansk. The second package targets more individuals and entities, but imposes economic, financial, and sector-specific sanctions on Russia as a whole. In addition to these two packages, more sanctions and restrictions have been imposed (i.e., a flight ban and a prohibition to make transactions with the Central Bank of Russia) and announced (i.e., excluding certain Russian banks from SWIFT and new EU sanctions regimes targeting corruption and the spreading of fake news).

1.1 Listing of individuals and entities

Within the existing framework of sanctions against Russia, the EU has listed a number of high-profile individuals (including President Vladimir Putin, Minister of Foreign Affairs Sergey Lavrov, other prominent members of the Russian government and parliament (Duma), senior military officers and business persons/oligarchs supporting financially or materially the Russian military operations in Ukraine and certain state-affiliated entities (several banks and a company responsible for leading the disinformation war).

It should be noted that the current EU legal framework now allows the EU Commission to quickly update the list of sanctioned individuals and entities to target any person or entity that would support or benefit from the military intervention by Russia in Ukraine (i.e., Russian oligarchs).

Listed entities are subject to an asset freeze, a prohibition to make funds available and possibly a travel ban. Because the prohibition to make funds available includes the prohibition to make available, directly or indirectly, very broadly defined ‘economic resources’ for the benefit of a listed person or entity, any direct business dealings with such persons or entities are in fact prohibited. It should be noted that, in addition, any such dealings with non-listed entities that are directly or indirectly ‘owned’ or ‘controlled’ by a listed person or entity are equally prohibited.*

The criterion to be taken into account when assessing whether a legal person or entity is owned by a listed person or entity is the possession by the listed person or entity of more than 50% of the proprietary rights of an entity or having a majority interest in it.

*When assessing whether a non-listed subsidiary is controlled by a listed person or entity, alone or pursuant to an agreement with another shareholder or other third party, it is required to carry out a factual assessment of the organizational, structural and economic links between the listed person or entity and non-listed entities. The determining factor is whether the listed person or entity is able to and effectively asserts a decisive influence over the conduct of the non-listed subsidiary in question. Decisive influence can be for example (i) having the right or exercising the power to appoint or remove a majority of the members of the administrative, management or supervisory body of such legal person or entity, (ii) having the right to use all or part of the assets of a legal person or entity, or (iii) sharing jointly and severally the financial liabilities of a legal person or entity or guaranteeing them.

1.2 Energy sector

It is prohibited to sell, supply, transfer or export to Russia specific goods and technologies for use in oil refining as listed in Annex X to EU Regulation 833/2014 (mainly goods classified under Chapter 84 and 85 of the Combined Nomenclature). Providing technical assistance, brokering services, financing or financial assistance with respect to these goods or technologies is also prohibited.

The restriction is subject to two exemptions:

Already existing contracts: the prohibition does not apply to the execution until 27 May 2022 of contracts concluded before 26 February 2022, or ancillary contracts necessary for the execution of such contracts.
Preventing or mitigating events likely to have a serious impact on human health and safety or the environment: Member States may authorize the export of goods and/or the provision of related services as described above, if they determine that this is necessary for the urgent prevention or mitigation of an event likely to have a serious impact on human health and safety or the environment. In duly justified cases, the export may proceed without prior authorization, provided that the exporter notifies the competent authority within five working days and gives reasons for the export without prior authorization.

These measures add to or further restrict the already existing license requirements for oil exploration and requirements and a prohibition for the export of certain technologies for deep-water oil exploration and production, arctic oil exploration and production or shale oil projects in Russia.

1.3 Transport sector

An export ban applies to all goods and technology suited for use in aviation and the space industry as listed in Annex XI to Regulation 833/2014 (this includes all items listed under Chapter 88 of the Combined Nomenclature: Aircraft, spacecraft and parts thereof) The provision of insurance and reinsurance and maintenance services in relation to those goods and technology is also prohibited, together with the provision of technical assistance and other related services as well as financing and financial assistance in relation to these goods and technologies.

Please note that the aforementioned prohibitions shall not apply to the execution until 28 March 2022 of contracts concluded before 26 February 2022, or ancillary contracts necessary for the execution of such contracts.

In addition, the EU prohibits landing in, taking off from, or overflying, the territory of the Union for all Russian air carriers, Russian-registered aircraft and any non-Russian-registered aircraft which are owned or controlled by a Russian entity or individual.

1.4 Export of dual use items (goods and technology)

Under the updated sanctions regime, the EU has now imposed a strict prohibition on exports of dual-use goods and technology listed in Annex I to EU Dual-use Regulation 2021/821 and on the provision of related services to any natural or legal person, entity or body in Russia or for use in Russia. Related services include a prohibition to provide financing, technical and financial assistance, brokering services and other services related to dual use items.

As Annex I of the Dual-use Regulation includes a wide range of goods and technologies this measure is considered as a very far-reaching prohibition with only limited exceptions:

The prohibition shall not apply to the sale, supply, transfer or export of dual-use goods and technology or to the related provision of technical and financial assistance, for non-military use and for a non-military end-user, intended for: 

(a) humanitarian purposes, health emergencies, the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment or as a response to natural disasters;

(b) medical or pharmaceutical purposes;

(c) temporary export of items for use by news media;

(d) software updates; (e) use as consumer communication devices;

(f) ensuring cyber-security and information security for natural and legal persons, entities and bodies in Russia except for its government and undertakings directly or indirectly controlled by that government; or

(g) personal use of natural persons travelling to Russia or members of their immediate families travelling with them, and limited to personal effects, household effects, vehicles or tools of trade owned by those individuals and not intended for sale.

The exporter shall declare in the customs declaration that the items are being exported under the relevant exception set out above and shall notify the competent authority of the Member State where the exporter is resident or established of the first use of the relevant exception within 30 days from the date when the first export took place.
 

By way of derogation and without prejudice to the authorization requirements pursuant to Regulation 2021/821, the competent authorities may authorize transactions of items, for non-military use and for a non-military end-user, after having determined that such goods or technology or the related technical or financial assistance are:

(a) intended for cooperation between the Union, the governments of Member States and the government of Russia in purely civilian matters;

(b) intended for intergovernmental cooperation in space programmes;

(c) intended for the operation, maintenance, fuel retreatment and safety of civil nuclear capabilities, as well as civil nuclear cooperation, in particular in the field of research and development;

(d) intended for maritime safety;

(e) intended for civilian telecommunications networks, including the provision of internet services;

(f) intended for the exclusive use of entities owned, or solely or jointly controlled by a legal person, entity or body which is incorporated or constituted under the law of a Member State or of a partner country;

(g) intended for the diplomatic representations of the Union, Member States and partner countries, including delegations, embassies and missions.
 

By way of derogation, and without prejudice to the authorization requirements pursuant to Regulation (EU) 2021/821, the competent authorities may authorize, transactions of items for non-military use and for a non-military end-user, after having determined that such goods or technology or the related technical or financial assistance are due under contracts concluded before 26 February 2022, or ancillary contracts necessary for the execution of such a contract, provided that the authorization is requested before 1 May 2022.

When deciding on requests for authorizations, the competent authorities shall not grant an authorization if they have reasonable grounds to believe that:

  • the end-user might be a military end-user, a natural or legal person, entity or body in Annex IV or that the goods might have a military end-use; or
  • the sale, supply, transfer or export of goods and technology is intended for aviation or the space industry.

For completeness’ sake it should be noted that since 2014, it was already prohibited to export arms and related material to Russia, or to provide related technical or financial assistance and services. Conversely, it is prohibited to import, purchase or transport arms and related material from Russia. These restrictions remain unchanged.

Several Member States (including the export control agencies in Belgium and Luxembourg) have meanwhile informed operators of the new restrictions while stating that all existing licenses for the export of dual use items have been suspended. Operators are requested to contact their competent agency to determine whether one of the aforementioned exceptions could apply for their exports.    

At the same time operators are also reminded to consider the catch-all provision of article 4 of the Dual-use Regulation 2021/821 which targets dual-use items not listed in Annex I if destined for certain end-use(r)s. See for example Sancties Rusland - Departement Buitenlandse Zaken (fdfa.be)

Please note, that the Belgian customs authorities have also provided notice that all export declarations whereby goods are destined for Russia, Ukraine or Belarus will be checked. A physical inspection of the goods will be carried out if deemed necessary.

In the Netherlands, no official notice of the Central Service for Import and Export, the competent authorities for export controls, has been forthcoming to date. The Service has indicated, however, that dual-use shipments destined for Russia will be stopped by Dutch customs and that guidance with respect to inter alia the status of existing export licences for dual-use items will be issued.
 

1.5 Semiconductors, cutting edge technologies and other goods for the defense sector

Apart from military and dual use items, the updated sanctions also prohibit the exports of certain items (goods and technology – see Annex VII) which might contribute to Russia’s technological and military enhancement or the development of its defense and security sector. It covers a wide range of equipment and technologies including semiconductors and cutting-edge technologies listed across various categories (electronics, computers, telecommunications, information security, sensors & lasers, navigation & avionics, marine and aerospace and propulsion).

This prohibition extents to financing, technical and financial assistance, brokering and other services related to these items and is subject to the same exceptions as described above in point 1.4. for dual-use items.

1.6 Trading with Donets and Luhansk regions

The EU has imposed restrictions on dealing with Donetsk and Luhansk. The restrictions resemble the restrictions the EU has already imposed on Crimea and Sevastopol and include:

  • a general import ban on any goods originating in Donetsk and Luhansk.
  • financing or financial support, insurance or reinsurance relating to the import of such goods is equally prohibited.
  • an export ban of certain listed goods from the sectors transport, telecommunications, energy or the prospecting, exploration and production of oil, gas and mineral resources to the regions of Donetsk and Luhansk.
  • technical assistance, brokering or financing or financial assistance regarding these goods are equally prohibited.
  • investment restrictions including the acquisition of real estate, (shares of) companies or regarding the creation of joint ventures, providing financial and investment services and tourism services in the regions of Donetsk and Luhansk.

1.7 Access to capital and financial markets and other financial restrictions

In addition to the already existing restrictions under Regulation 833/2014 the following additional measures will amongst others be imposed:

Prohibition on dealing with any transferable security and money market instrument issued after 12 April 2022 for entities that were already listed under Annex III (certain credit institutions), Annex V(defense companies), Annex VI (state owned oil companies), Annex XII (newly listed credit institutions) and Annex XIII (newly listed state owned entities);

Prohibition to directly or indirectly make or be part of any new arrangement to make any new loans or credit to any party listed in Annex III, V, VI, XII & XIII;

The prohibition relating to loans and credit will not apply for:

  • loans or credit that have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the Union and any third State, including the expenditure for goods and services from another third State that is necessary for executing the export or import contracts;
  • loans that have a specific and documented objective to provide emergency funding to meet solvency and liquidity criteria for legal persons established in the Union, whose proprietary rights are owned for more than 50 % by any entity referred to in Annex III;
  • drawdown or disbursements made under a contract concluded before 26 February 2022 provided that certain conditions are met.

The prohibitions mentioned under 1) and 2) also apply to non-EU subsidiaries of the entities listed in Annex III, V, VI, XII & XIII to the extent that these are owned for 50% or more or are under the control of the latter (see also Section  1.1 above). 

Prohibition to accept deposits: it is prohibited to accept deposits exceeding EUR 100.000 from Russian nationals or residents or legal persons established in Russia;

Prohibition to hold accounts of Russian clients with the EU Central Securities Depositories for Russian clients, as well as to sell euro-denominated securities to Russian clients;

Prohibition to provide public financing or financial assistance for trade with, or investment in, Russia.

This has a rather broad application and is only restricted by the fact that it should concern public financing or financial assistance.

The prohibition will, however, not apply for:  

  • binding financing or financial assistance commitments established prior to 26 February 2022;
  • the provision of public financing or financial assistance up to the total value of 10 000 000 EUR per project to small and medium-sized enterprises established in the Union; or
  • the provision of public financing or financial assistance for trade in food, and for agricultural, medical or humanitarian purposes.

1.8 More sanctions (announced)

As announced on 26 February by the EU it was agreed to remove certain Russian banks from the SWIFT messaging system and to impose restrictive measures to prevent the Central Bank of Russia from deploying its international reserves. On 2 March 2022 the EU ambassadors agreed on the following list of banks that will be disconnected: It concerns VTB, VEB, Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank and Sovcombank.

In a statement on 27 February 2022, the EU High Representative Josep Borrell also announced that the EU is advancing work on sanction regimes targeting corruption specifically as well as foreign information manipulation and interference.

1.9 Belarus

On top of the already existing extensive sanctions against Belarus (see sanctionsmap.eu) the EU has added new individuals who are considered to have facilitated the Russian invasion of Ukraine from Belarus.

2. US & UK sanctions and restrictions

Both the US and the UK have adopted sanctions and restrictions targeting Russia and Belarus in coordination with the EU.

On 24 February 2022, the US imposed new sanctions (a third tranche) and additional export controls targeting Russia. The third tranche of US sanctions (U.S. Treasury Announces Unprecedented & Expansive Sanctions Against Russia, Imposing Swift and Severe Economic Costs | U.S. Department of the Treasury) includes full blocking sanctions, correspondent and payable-through account (CAPTA) sanctions, and restrictions on transactions involving new debt and equity. Compared to earlier tranches, this third tranche covers more industries, although the focus is still largely on financial institutions. The US also imposed sanctions on entities and individuals in Belarus that are connected to the defense and financial sectors.

The new export control measures published by the US Commerce Department’s Bureau of Industry and Security (BIS) primarily target the defense, aerospace, and maritime sectors of Russia. Although the new measures will not be published in the Federal Register until 3 March 2022, they took effect on 24 February and are accessible in unpublished form at: Federal Register: Public Inspection: Export Administration Regulations: Implementation of Sanctions against Russia. These new measures include, but are not limited to, licence requirements on exports and reexports to all Export Control Classification Numbers in Categories 3 through 9 of the Commerce Control List; an expansion of existing controls for military end-use and military end-users in Russia applying to all items subject to the Export Administration Rules EAR), including EAR99 items, and two new Foreign Direct Product Rules, one applying to all of Russia (the Russia FDP Rule) and the other specifically targeting Russian military end-users (Russia MEU FDP Rule).

The UK imposed asset freezes on a number of Russian banks and on individuals with close ties to Russian President Vladimir Putin on 22 and 24 February 2022. On 25 February, asset freezes were also imposed on President Putin and Russian Minister of Foreign Affairs, Sergey Lavrov. The UK asset freezes in principle have the same effect as the EU asset freezes, including the prohibition to make available economic resources. Similar to the EU asset freezes, any entity owned for more than 50% or controlled, directly or indirectly, by a designated person, is also subject to such asset freezes.

On 24 February, the UK also announced forthcoming legislation (expected to be considered on 1 March 2022) authorizing additional sanctions covering, among other restrictions: asset freezes against all Russian financial institutions; restrictions on sovereign Russian debt; a prohibition from accessing Sterling and clearing payments through the UK; and a prohibition of exports of high-end and critical technical equipment and components in sectors such as electronics, telecommunications, and aerospace. This was followed on 28 February by an announcement of the intention to take further restrictive measures targeting the Central Bank of Russia. The UK Sanctions List is accessible at: The UK Sanctions List - GOV.UK (www.gov.uk).

3. Countermeasures by the Russian Federation

As part of a reaction against the various sanctions imposed by foreign countries, President Putin issued on 28 February 2022 a presidential decree which amongst others foresees the following measures:

Russian residents that participate in foreign trade activity shall mandatory sell 80% of currency funds received on the Russian bank accounts since January 1 2022 under the foreign trade contracts with non-residents that provides transfer of goods, services, works or IP rights to non-residents

It will be prohibited for Russian residents as from 1 March 2022:

to engage in loan agreements related to the provision of foreign currency by residents in favor of non-residents;
crediting foreign currency to accounts (deposits) opened in banks and other financial market organizations located outside the territory of the Russian Federation, as well as making money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers.

It should also be noted that in media reports prominent politicians close to the President of Russia have made declarations that Russia intends to seize foreign assets. It is not possible, at the time, to accurately assess the scope and impact of such measures if Russia were to persist.

4. What can businesses do?

Screening

Considering the high number of new listings, a screening of existing and potential new counterparties is strongly recommended. If a counterparty is in any way linked to a listed individual or entity, an in-depth assessment of potential applicable sanctions or restrictions is required.
In addition, a general check of your business against the applicable sector specific sanctions is recommended when dealing with Russia, Belarus or Ukraine.

Review of financing and other commercial arrangements

Companies doing business in Russia, Belarus and Ukraine should review their financial and commercial contractual arrangements to see if these include specific restrictions in light of the imposed sanctions.  

Pre-payment

If it is established that current or new dealings with Russian or Belarusian counterparties do not fall within scope of the current sanctions and restrictions, it is recommended to demand a pre-payment for new transactions or to include a pre-payment clause in the existing contractual agreements to guarantee payment in case of new sanctions or restrictions.

Winding down business

Insofar as current activities or business falls within the scope of the applicable sanctions and/or restrictions, an immediate suspension is highly recommended to prevent a violation of the sanctions and restriction and the imposition of strict penalties (i.e., administrative and criminal fines, and prison sentences).

Subsequently, it should be verified whether the legal framework allows for a wind down of the activities or business and under which conditions (e.g., contracts concluded before the entry into force of the sanctions and restrictions).

5. Overview of EU legal framework

Council Regulation (EU) 2022/259 of 23 February 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Implementing Regulation (EU) 2022/260 of 23 February 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Implementing Regulation (EU) 2022/261 of 23 February 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Regulation (EU) 2022/262 of 23 February 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Regulation (EU) 2022/263 of 23 February 2022 concerning restrictive measures in response to the recognition of the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine and the ordering of Russian armed forces into those areas

Council Decision (CFSP) 2022/264 of 23 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Decision (CFSP) 2022/265 of 23 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Decision (CFSP) 2022/266 of 23 February 2022 concerning restrictive measures in response to the recognition of the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine and the ordering of Russian armed forces into those areas

Council Decision (CFSP) 2022/267 of 23 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Implementing Regulation (EU) 2022/300 of 24 February 2022 implementing Article 8a of Regulation (EC) No 765/2006 concerning restrictive measures in view of the situation in Belarus

Council Decision (CFSP) 2022/307 of 24 February 2022 amending Decision 2012/642/CFSP concerning restrictive measures in view of the situation in Belarus

Council Decision (CFSP) 2022/327 of 25 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Regulation (EU) 2022/328 of February 25, 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine.

Council Regulation (EU) 2022/330 of February 25, 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Implementing Regulation (EU) 2022/332 of February 25, 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Decision (CFSP) 2022/327 of February 25, 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine.

Council Decision (CFSP) 2022/329 of February 25, 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Decision (CFSP) 2022/331 of February 25, 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Decision (EU) 2022/333 of February 25, 2022 on the partial suspension of the application of the Agreement between the European Community and the Russian Federation on the facilitation of the issuance of visas to the citizens of the European Union and the Russian Federation.

Council Regulation (EU) 2022/334 of 28 February 2022 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Decision (CFSP) 2022/335 of 28 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Voir aussi : Loyens & Loeff Luxembourg S.à r.l.

[+ http://www.loyensloeff.com]


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