On December 4, 2014, the European Union published Council Regulation (EU) No 1290/2014, amending Council Regulation (EU) No 833/2014 and Council Regulation (EU) No 960/2014. The Regulation took effect as of December 6, 2014.

Council Regulation (EU) No 1290/2014 does not impose any new sanctions on Russia.  Rather, its purpose is to clarify the scope and application of previous regulations imposing sanctions on Russia.

Clarification of Terminology

A few notable amendments have been made to the key terms found in Council Regulation (EU) No 833/2014.

Firstly, references to “Russia” have been expanded to “Russia, including its Exclusive Economic Zone and Continental Shelf."  This is in accord with the definition adopted by the US Commerce Department, Bureau of Industry (BIS) and Security in recently published Frequently Asked Questions guidance, and marks an expansive view, as the exclusive economic zone extends 200 nautical miles off the Russian coast.  See our previous advisory regarding the BIS guidance.

Secondly, the terms “deep water,” “Arctic,” and “shale oil projects” have been substituted with new descriptions specifically related to “exploration and production projects”:

  • “Deep water” : “Oil exploration and production in waters deeper than 150 meters.”  This roughly equates to the “greater than 500 feet” formulation found in US sanctions against Russia.
  • “Arctic” : “Oil exploration and production in the offshore area north of the Arctic Circle.” This definition is significant, as the United States has not yet advanced its own definition of “Arctic” for sanctions purposes.  It is possible that the United States will follow suit with a similar definition in the near future.
  • “Shale oil projects” : “Projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing.”  The definition does not apply to exploration and production through shale formations to reach non-shale reservoirs.  This is in accord with the definition of shale projects advanced by BIS and the US Treasury Department, Office of Foreign Assets Control.  See our previous advisory.

Expansion of Scope of Exceptions to Annex II

Under Articles 2(2) and 2a(3) of Council Regulation (EU) No 833/2014, authorization for the sale, supply, transfer, or export of Annex II equipment and technology may be granted in cases where a “contract” has been concluded before August 1, 2014.  This has been expanded to include “ancillary contracts necessary for the execution of such a contract.

Furthermore, an exemption has been included in Council Regulation (EU) No 1290/2014, which allows the competent authorities to grant authorization for the sale, supply, transfer, or export, of Annex II equipment and technology in Russia.  This exemption applies where it is “necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.”  In cases of emergency, an exporter may proceed without receiving prior notification.  However, the exporter is obligated to notify the competent authority within five working days of any such activity and must provide justification for any such action taken without prior authorization.

Clarification and Amendment Related to Associated Services

Council Regulation (EU) No 1290/2014 clarifies that “associated services” under Article 3(a) of Council Regulation (EU) No 833/2014 apply to “exploration and production projects in Russia” (see the definitions discussed above).

Furthermore, Council Regulation (EU) No 1290/2014 includes a new notification requirement under the exemption found in Article 3(a).  This allows for the provision of services which are “necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.”  In such cases, the service provider is obligated to notify the competent authority within five working days of any such activity and provide justification for any such action taken.

Clarification of Capital Market Restrictions

The text of Article 5(3) of Council Regulation (EU) No 833/2014 has been replaced, making it clear that new loans or credit with maturity exceeding 30 days after September 12, 2014 are prohibited, except in certain circumstances.

One of the exemptions has been amended by Council Regulation (EU) No 1290/2014: the prohibition will not apply to “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 Stateincluding the expenditure for goods and services from another third State that is necessary for executing the export or import contracts” (emphasis added).  Previously, the exemption applied to non-prohibited trade between the European Union and Russia.  This revision to Article 5(3) means that in order to benefit from the exemption, the trade has to either originate in the EU or ultimately end up in the EU.  The trade can go via other countries, including Russia.  Therefore, trade financing between third countries that does not originate, pass through or end up in the EU, is not exempt under Article 5(3).

Furthermore, Council Regulation (EU) No 1290/2014 contains a new paragraph, clarifying what is deemed to be a “new” loan or credit.  Article 5(4) states that the prohibition does not apply to “drawdowns or disbursements” made under a contract concluded before September 12, 2014 provided that certain conditions are met.  These conditions are:

  • All the terms and conditions of such drawdowns or disbursements:
    • Were agreed before September 12, 2014; and
    • Have not been modified on or after that date; and
  • Before September 12, 2014 a contractual maturity date has been fixed for the repayment in full of all funds made available and for the cancellation of all the commitments, rights and obligations under the contract.

Clarification of Scope of Items Covered Under Annex II

Council Regulation (EU) No 1290/2014 clarifies the scope of five items listed in Annex II as follows:

  • CN codes ex 8413 50 and ex 8413 60 have been modified to specify the maximum flow rate and outlet pressure of covered items, and further to note that covered items must be “specially designed to pump drilling muds and/or cement into oil wells”; and
  • CN codes ex 8431 39 00; ex 8431 43 00; and ex 8431 49 have been modified to specify their use with certain “oil field machinery.”

Conclusion

Council Regulation (EU) No 1290/2014 provides for important clarifications with regard to EU sanctions against Russia, including the definitions of “Russia,” “deep water,” “Arctic,” and “shale”; the scope of certain categories of items covered under Annex II; and the scope of certain exemptions.