UPDATE ON EU SANCTIONS ON RUSSIA
In response to Russia's actions in Ukraine and its annexation of Crimea and the city of Sevastopol during 2014, the European Council has implemented an increasingly severe suite of sanctions against Russian businesses, individuals and entities.
This update gives an overview of the EU sanctions that have since been applied to Russian people and entities. It should be noted that, while they are not the focus of this update, there are also US sanctions in place in respect of Russian citizens and entities and care should be taken not to contravene those sanctions, especially where they differ from EU sanctions.
The EU sanctions regime against Russia is principally contained in Council Regulations (EU) 208/2014, 269/2014, 692/2014 and 833/2014, each as amended. Each of the Regulations applies:
- within the territory of the EU, including its airspace;
- on board any aircraft or any vessel under the jurisdiction of an EU Member State;
- to any person inside or outside the territory of the EU who is a national of an EU Member State;
- to any legal person, entity or body, inside or outside the territory of the EU, which is incorporated or constituted under the law of an EU Member State;
- to any legal person, entity or body in respect of any business done in whole or in part within the EU.
The EU Regulations will therefore also apply to any European subsidiary of a nonEU entity, or any other entity or employee "in respect of any business done in whole or in part within the EU", as well as to any EU nationals employed by an entity.
Penalties for breach of any of the EU Regulations are imposed under the national law of the member states, and must be "effective, proportionate and dissuasive".
Restrictions on the oil industry, finance and military sector
Council Regulation (EU) 833/2014, as amended by Regulations 960/2014 and 1290/2014, imposes the following prohibitions and restrictions:
- Oil Industry: The sale, supply, transfer or export, directly or indirectly, of certain technology (listed in Annex II to the Regulation) for the oil industry in Russia without prior authorisation (unless urgent action is required to avoid a serious impact on human health and safety or the environment), including the provision of services for oil exploration and production in deep water, in the Arctic or for shale oil projects. Further, the purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with "transferable securities and money-market instruments" with a maturity exceeding 30 days that are issued after 12 September 2014, by people or entities established in Russia with: i) over 50% public ownership and control; ii) estimated total assets of over 1 trillion Russian Roubles; and iii) at least 50% of their revenues coming from the sale or transportation of petroleum products, as listed in Annex VI to the Regulation, namely: Rosneft, Transneft and Gazpromneft.
- Finance: The purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with "transferable securities and moneymarket instruments" with a maturity exceeding 30 days that are issued after 12 September 2014, by certain Russian banks. The measures apply to major credit institutions established in Russia with over 50% public ownership and control, as listed in Annex III to the Regulation, namely: Sberbank, VTB Bank, Gazprombank, VEB and Rosselkhozbank. The restrictions also apply to transferable securities and money market instruments issued by non-EU entities that are more than 50% owned by the listed banks or entities or bodies acting on behalf of, or at the direction of, a listed bank or non-EU subsidiary. To directly or indirectly make, or participate in any arrangement to make, new loans or credit with a maturity exceeding 30 day, to any of the people or entities caught by this prohibition, after 12 September 2014. This prohibition does not apply to loans or credit which:
- provide financing for non-prohibited imports and exports of goods and nonfinancial services between the EU and a third state; or
- provide emergency funding to meet solvency and liquidity criteria for EU people and entities who are more than 50% owned by any of the Annex III credit institutions.
- Military Sector: The sale, supply, transfer or export, directly or indirectly, of any goods or technology to any person or entity in, or for use in, Russia, related to: i) military equipment; and/or ii) 'dual-use' goods and technology where they are, or may be, intended for military use or a military end-user. It is also prohibited to provide technical assistance or financing or financial assistance related to the above goods and technology, either directly or indirectly, to any person or entity listed in Annex IV to the Regulation. Similarly, the purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with "transferable securities and money-market instruments" with a maturity exceeding 30 days that are issued after 12 September 2014, by people or entities in Russia engaged with the production of military equipment or services, as listed at Annex V to the Regulation, namely: OPK Oboronprom, United Aircraft Corporation and Uralvagonzavod. This excludes people or entities active in either the space or the nuclear energy sectors.
The terms "transferable securities" and "money-market instruments" are defined in articles 1(f) and 1(g) of Regulation 833/2014. The definitions cover:
- shares in companies and other securities equivalent to shares in companies, partnerships or other entities;
- depositary receipts in respect of shares;
- bonds or other forms of securitised debt, including depositary receipts in respect of such securities;
- any other securities giving the right to acquire or sell any such transferable securities; and
- classes of instruments which are normally dealt on the money market such as treasury bills, certificates of deposit and commercial papers, excluding instruments of payment.
Crimea and Sevastopol
Council Regulations (EU) 692/2014, 825/2014 and 1351/2014 place restrictions on investment in Crimea and Sevastopol and the import and export of certain goods to and from Crimea and Sevastopol, in response to Russia's annexation of those regions.
The investment restrictions prohibit a broad range of investment in Crimea or Sevastopol, including buying real estate in the region, acquiring or extending an interest in local companies, financing local companies, creating joint ventures, or supplying investment services in relation to such activities.
These restrictions apply to an "entity in Crimea or Sevastopol", which is defined to mean "any entity having its registered office, central administration or principal place of business in Crimea or Sevastopol, its subsidiaries or affiliates under its control in Crimea or Sevastopol, as well as branches and other entities operating in Crimea or Sevastopol".
There is a carve-out for the execution of obligations arising from contracts concluded prior to 20 December 2014, or ancillary contracts, subject to prior notification to the relevant EU competent authority.
The Regulations also introduce restrictions on the provision of certain equipment and technology to any person in Crimea or Sevastopol or for use in these areas. EU persons are prohibited from selling, supplying, transferring or exporting (directly or indirectly) equipment and technology related to the creation, acquisition or development of infrastructure in the areas of transport, telecommunications, energy or the exploration of oil, gas and mineral reserves. The restricted equipment is listed in the Annexes to the Regulations.
Restrictions have also been imposed on the provision of technical assistance, brokering services, financing and financial assistance relating to such goods to any person in Crimea or Sevastopol or for use in Crimea or Sevastopol. More unusually, the provision of brokering, construction or engineering services relating to infrastructure in the same key sectors is also prohibited. The concept of "construction or engineering services" is not defined.
Both the equipment-related and investment-related restrictions are subject to the ability of the competent authorities to license otherwise restricted activities for certain specified purposes, such as projects relating to hospitals, public health, or civilian education establishments and certain activities relating to health and safety. There is also a carve-out from the advance licensing requirement for certain emergency activities to mitigate events likely to have a serious and significant impact on human health and safety.
EU operators are also prohibited from offering services relating to tourism activities in Crimea and Sevastopol. In particular, European cruise ships (ships owned or controlled by an EU ship-owner, flying the flag of an EU Member state, or under the overall responsibility of an EU operator) are prohibited from calling at seven listed ports in the Crimean peninsula (unless in an emergency).
The EU has created an increasingly severe sanctions regime against Russia, in response to its actions in Ukraine, Crimea and Sevastopol. The sanctions on Russian individuals and entities may well be extended in the absence of a resolution to the conflict in Ukraine. On 5 March 2015, for example, Council Regulation (EU) 357/2015 extended sanctions applicable to the list of prohibited people and entities under Council Regulation (EU) 208/2014. Attention should therefore be given to any further amendments to the EU (and US) sanctions regimes and especially to the lists of prohibited people and entities.