On 4 August 2017, the EU added three natural persons and three entities to the Russia-Ukraine sanctions list (see below). These parties have been listed because of their alleged involvement in the illegal onward supply of gas turbines to parties in Crimea. That onward supply took place in spite of contractual arrangements. The question is whether such arrangements are now in fact enough to prevent violations of the sanctions regulations.
The gas turbines were produced by a joint venture of a European party and then supplied by that party to the Russian state-owned company Technopromexpert. Delivery took place subject to the condition that the turbines would not be used in Crimea and that energy generated with them would not be exported to Crimea. However, the state-owned company subsequently supplied the turbines, despite the contractual arrangements, for use in Crimea.
That onward supply is directly contrary to the EU sanctions, pursuant to which much of the trade with parties in Crimea and Sevastopol is prohibited. That includes the delivery (sale, transfer, etc.) of certain goods for infrastructure projects in the energy sector (or for the development of such projects). Moreover, the turbines are now being used to develop new power stations in Crimea, in order to create a power supply that is independent of Ukraine. According to the Council of the European Union in the sanctions regulation (Council Implementing Regulation (EU) No. 2017/1417 (Dutch/English), those actions thus support the separation of Crimea from Ukraine and undermines Ukraine’s territorial integrity, sovereignty, and independence. It was precisely this undermining that led to the imposition of the EU sanctions. In view of this, the Russian parties concerned in the onward supply were therefore included in Annex I to Council Regulation (EU) No. 269/2014 (Dutch/English). This means that all their assets and economic resources must be frozen and that no assets or resources may be made available to them. The parties concerned at the following:
Andrey Vladimirovich Cherezov (Vice-Minister for Energy of the Russian Federation);
Evgeniy Petrovich Grabchak (Head of Department in the Energy Ministry of the Russian Federation);
Sergey Anatolevich Topor-Gilka (Director General of OAO “VO TPE” until its insolvency, Director General of OOO “VO TPE”);
OAO “Vo Technopromexport” (OAO “VO TPE”) (also known as Open Joint Stock Company (OJSC) “Foreign Economic Association” “Technopromexport”);
OOO “VO Technopromexport” (OOO “VO TPE”) (also known as Limited Liability Company (LLC) “Foreign Economic Association” “Technopromexport”); and
Zao Interavtomatika (IA) (also known as 3AO, CJSC Interavtomatika).
This case also raises the question of whether one can and may rely on arrangements made with Russian (state-owned) companies regarding the non-use or onward supply of products or services in violation of the EU sanctions regulations. European parties are expected to investigate whether the supply of products (including software and technology!) or services is permitted under the sanctions regulations. They must also put in place as many measures as possible to prevent any unintended violation of those sanctions. They are expected, for example, to have internal sanction procedures, to investigate the end-use and the end-user, and to include arrangements in contracts regarding that end-use and that end-user (or to request an “end-use/end-user statement”). Moreover, the use of an intermediary does not release the other parties in the chain from their own responsibilities in this regard. In all cases, the higher the risk, the more investigation and measures are expected to be taken
But carrying out an investigation and requesting an end-use/end-user statement turn out, once again, not to be a panacea. If there are indications that a party – despite the agreements that have been made – will carry out onward delivery for use that is contrary to the EU sanctions regulations, then such a statement will not be sufficient and it is then questionable whether any trade at all can still be conducted with such a party (or intermediary). In the light of the above case, the European party concerned in fact decided not to supply any more power station products to state-owned Russian companies.
Major interests are at stake here, and not just as regards trade and reputation. There is also a risk of criminal liability due to contravention of the sanctions regulations.