Published in the Official Journal today are the anticipated amendments to Council Regulation (EU) No 833/2014, as amended, together with a corrigendum to the Notice for persons designated as subject to asset freezes under Council Regulation (EU) No 269/2014.

The amendments to Regulation 833/2014 do not introduce any new restrictions but are instead primarily intended to clarify the scope and application of the prohibitions and the restrictions already imposed on trade in certain items and services involving Russia and the capital market restrictions imposed on listed Russian entities.

  • Council Decision 2014/872/CFSP of 4 December 2014 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, and Decision 2014/659/CFSP amending Decision 2014/512/CFSP
  • Council Regulation (EU) No 1290/2014 of 4 December 2014 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, and amending Regulation (EU) No 960/2014 amending Regulation (EU) No 833/2014

The preambles of the new Decision and Regulation are both very brief, revealing only that “The Council considers it necessary to clarify certain provisions.”

Her Majesty’s Treasury in the UK has published a Notice on the effect of the new measures, revealing that the EU is separately publishing, in due course, advice on the application of sanctions under Regulation 833.

Clarifications of the scope of trade restrictions

The “grandfathering” carve-outs which already existed for any contract concluded before the entry into force of the relevant restrictions (1 August 2014) now also apply to “ancillary contracts necessary for the execution of such a contract.” These provisions no longer refer to “agreements”, only to contracts.

Of equally general application, references to Russia have been amended to also include “its Exclusive Economic Zone and Continental Shelf“.

The previously undefined terms of “deep water”, “Arctic” and “shale oil projects” have now been substituted with new descriptions of “exploration and production projects“, as follows:

Please click here to view table.

The interpretation of the previous terminology had been left to the competent authorities of the Member States, resulting in guidance which varied in both scope and content.

In the UK, guidance on the interpretation of the relevant provisions was provided by the Secretary of State for Business, Innovation and Skills in the form of “Frequently Asked Questions” – a first version published in August 2014, supplemented by a further version in September 2014. The new substitute language is largely consistent with the UK guidance, which had defined “Arctic” to mean the area north of the Arctic Circle. It did not, however, have any definition of the term “deep water” pending discussions with the EU Commission and other Member States but referred in the meantime to the US definition (“greater than 500 feet”). The new reference to “oil exploration and production in waters deeper than 150 metres” corresponds roughly to the metric conversion of the US definition. As for “shale projects”, for the purposes of the US sanctions the US guidance indicates that the term applies to projects that had the potential to produce oil from resources located in shale formations. The new reference to “projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing” is even more specific.

A new carve-out has also been added restrictions on trade in Annex II items so as to permit authorisations where “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, the sale, supply, transfer or export may proceed without prior authorisation provided that the exporter notifies the competent authority within five working days thereafter.

Clarifications of the scope of capital market restrictions

New carve-outs have been introduced for any drawdown or disbursements made under a contract concluded before 12 September 2014 subject to the following conditions:

  1. that all the terms and conditions of such drawdown or disbursements (including provisions concerning the length of the repayment period, the interest rate applied or the interest rate calculation method and the maximum amount) were agreed before 12 September 2014, and were not modified on or after that date; and
  2. that a contractual maturity date has been fixed, before 12 September 2014, for the repayment in full of all funds made available and for the cancellation of all the commitments, rights and obligations under the contract.

The previous carve out from the prohibition on making or participating in loans or credit for the purpose of financing non-prohibited imports or exports has also been extended so that it applies not only to trade between the Union and Russia but also to trade between the Union and any third State. This new scope expressly includes “expenditure for goods and services from another third State that is necessary for executing the export or import contracts“.

These clarifications do not extend as far as the US guidance contained on the corresponding US capital market restrictions, in General Licences and Frequently Asked Questions issued by the US Department of the Treasury, Office of Foreign Assets Control (OFAC).

Assessment

The clarifications address some, but not all, of the issues that have arisen in the interpretation and application of the provisions in Regulation 833/2014, as amended. The new terminology might reduce the scope for challenging the validity of the EU measures and any Member State secondary legislation giving effect to them, at least on the basis of a lack of legal certainty.