On 6 December 2014, Council Regulation (EU) No 1290/2014 entered into force. This regulation is the latest in a series of regulations regarding "sectoral sanctions" against Russia.
The "sectoral sanctions" against Russia were introduced on 1 August 2014 by Regulation 833/2014 (see our Legal Insight) and amended on 12 September 2014 by Regulation 960/2014 (see our Legal Insight). In contrast to these previous regulations, the newest regulation 1290/2014 does not impose additional sanctions, but rather aims to eliminate uncertainty as to the interpretation of existing ones. This development is highly welcome, especially since the existing provision on the restriction on new loans and credit was ambiguous and had created uncertainty on capital markets:
1 Amendments related to the restrictions on financial market access
1.1 Restriction to make new loans or credit
Article 5 para 3 of Regulation 833/2014 as amended by Regulation 960/2014 states that "it shall be prohibited to directly or indirectly make or be part of any arrangement to make new loans or credit with a maturity exceeding 30 days" to any sanctioned Russian bank or entity, after 12 September 2014.
1.2 Clarification of the term "new loans and credit"
As reported in our last Legal Insights on the sanctions, the wording of Article 5 para 3 indicated that the restriction would, inter alia, apply to utilizations under revolving credit facility agreements that had been concluded prior to the sanctions, since these would arguably constitute new loans. Therefore, the interpretation of the term "new loan or credit" had created ambiguity and uncertainty, especially on the lending markets.
Regulation 1290/2014 clarifies this ambiguity, by stating that drawdowns or disbursements made under a contract concluded before 12 September 2014 are not restricted provided that (i) all the "terms and conditions" of such drawdowns or disbursements (including the relevant interest periods at the end of which a revolving facility is to be repaid) were agreed to before 12 September 2014 and have not been modified on or after that date, and (ii) before 12 September 2014, a contractual maturity date had 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.
2 Further amendments introduced by Regulation 1290/2014
- Regulation 1290/2014 further amends Article 5 para 3 as to the scope of the exception for loans or credit to provide financing for non-prohibited imports or exports of goods and non-financial services between the Union and Russia. This exception now covers not only Russia, but "any third State" and further includes "the expenditure for goods and services from another third State that is necessary for executing the export or import contracts." However, while trying to clarify this exception, the European Council has introduced another ambiguity as it remains unclear what is to be considered "necessary for execution".
- The scope for the grandfathering provisions in Article 2 para 2, Article 2a para 3 and Article 3 para 5 for contracts concluded before 1 August 2014 has been revised and now allows for performance under "ancillary contracts necessary for the execution of such a contract". The performance of such ancillary contracts is subject to authorization by the competent authorities.
- The term "technologies" used in Article 3 is being replaced by the term "items", since not all of the items listed in Annex II are technologies.
- The scope in which Russian access to sensitive technologies (as listed in Annex II of the Regulation) is restricted has been revised and now includes Russia's "Exclusive Economic Zone and Continental Shelf".
- Furthermore, Regulation 1290/2014 clarifies the types of prohibited exploration and production projects, which are (i) oil exploration and production in waters deeper than 150 metres; (ii) oil exploration and production in the offshore area north of the Arctic Circle; or (iii) projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing. Exploration and production through shale formations to locate or extract oil from non-shale reservoirs are explicitly excluded from this prohibition.
- Article 3 now provides exceptions for the sale, supply, transfer or export of the items included in Annex II for safety and environmental reasons.
All in all, Regulation 1290/2014 provides highly welcome clarification as to certain restrictions. However, an official guideline or FAQ list such as the one published by the US Commerce Department's Bureau of Industry and Security with regard to US sanctions against Russia would still be desirable for future reference.