Our previous briefing reported on the EU's planned expansion of its sanctions in respect of the situation in Ukraine. The EU regulations implementing these measures have now been published and this briefing therefore provides further guidance on the following restrictions:
- • Restrictions on certain Russian banks' access to EU capital markets;
- • Trade restrictions relating to the Russian energy and defence industries;
- • Trade restrictions on Crimea and Sevastopol; and
- • Additional individuals and entities designated under the EU asset freezing provisions.
Please see our blog for further background information on Ukraine-related sanctions.
1. Restrictions on Russian banks' access to EU capital markets
The EU published Council Decision 2014/512/CFSP and Regulation 833/2014 on 31 July 2014. These instruments set out the "tier 3" sanctions that the EU previously announced that it would impose on Russia.
The first, and potentially most significant, of these measures is a prohibition on EU persons from (directly or indirectly) purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with "transferable securities and money-market instruments" with a maturity exceeding 90 days that are issued after 1 August 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 Regulation 833/2014: 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.
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 or giving rise to a cash settlement; 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.
The recitals to Regulation 833/2014 make clear that other financial services such as deposit business, payment services and loans to or from listed banks and associated entities are not covered by this prohibition. Transactions involving "old" (ie pre-1 August 2014) transferable securities and money-market instruments are also permitted.
These measures take effect on 1 August 2014.
2. Trade restrictions relating to the Russian energy and defence industries
Regulation 833/2014 also introduces certain trade restrictions. As with the financial sector restrictions referred to above, these come into force on 1 August 2014.
EU persons now require prior authorisation for the sale, supply, transfer or export of the goods listed in Annex II to Regulation 833/2014 to any person, entity or body in Russia, or in any other country for use in Russia. These are goods relevant to the oil industry, for use in deep water oil exploration and production, Arctic oil exploration and production or shale oil projects ("Prohibited Projects"). Authorisation will not be granted in circumstances where the competent authority of the relevant EU member state (BIS in the UK) has reasonable grounds to determine that the sale, supply, transfer or export is for a Prohibited Project. Authorities may annul, suspend, modify or revoke previously granted authorisations on the same basis. Authorisation may be granted in respect of exports which concern the execution of an obligation arising from a contract or an agreement concluded before 1 August 2014.
There is also a related requirement for EU persons to seek authorisation to provide technical assistance or brokering services relating to goods listed in Annex II or to the provision, manufacture, maintenance and use of such items. Further, EU persons require authorisation to provide financing or financial assistance related to Annex II goods, including in particular grants, loans and export credit insurance for any sale, supply, transfer or export of these items, or for any provision of related technical assistance. Authorisation of the provision of such assistance appears to be subject to the same conditions outlined above in relation to the supply of listed equipment, namely that authorisation will be refused where the transaction relates to a Prohibited Project and that authorisation may be granted in respect of pre-existing contractual obligations (there is some incorrect cross-referencing in the paragraph numbers in Regulation 833/2014 but it appears reasonably clear that this is the intent).
The final restrictions imposed by Regulation 833/2014 relate to Russia's military sector. EU persons are prohibited from selling, supplying, transferring or exporting (directly or indirectly) dual-use goods and technology to any person, entity or body in Russia or for use in Russia, if those items are or may be intended for military use or for a military end-user. Where the end-user is the Russian military, dual-use goods or technology are deemed to be for military use.
The list of restricted items is defined by reference to EU Regulation 428/2009 (the "Dual-use Regulation") which contains a list of dual-use items and technology in Annex I. This list is extensive and relatively technical in nature and so, if relevant, should be checked closely to assess whether dual-use goods or technology are intended to be used in projects in Russia. Member State competent authorities may grant authorisation for exports of dual-use items in accordance with the Dual-use Regulation but will not authorise any exports to persons, entities or bodies in Russia or for use in Russia if they have reasonable grounds to believe that the end-user might be a military end-user or that the goods might have a military end-use. Authorisation may be granted in respect of exports concerning the execution of an obligation arising from a contract or agreement concluded before 1 August 2014.
Regulation 833/2014 also contains associated prohibitions on the provision of technical assistance, brokering services, financing or financial assistance relating to dual-use goods or technology. EU persons are also prohibited from providing technical assistance or financing or financial assistance in relation to goods and technology on the EU's Common Military List to any person, entity or body in Russia or for use in Russia. These prohibitions are subject to an exemption for obligations arising from contracts/agreements entered into before 1 August 2014 and to the provision of assistance necessary to the maintenance and safety of existing capabilities within the EU.
3. Trade restrictions on Crimea and Sevastopol
EU Regulation 825/2014 was published on 30 July 2014 and amends Regulation 692/2014 (discussed in our previous briefing) to impose restrictions on investment in Crimea and Sevastopol and on the provision of certain key equipment to these areas.
The investment prohibitions are similar in form to those in force in respect of certain sectors in Syria and Iran and prohibit:
- The granting of any financial loan or credit specifically relating to (a) the creation, acquisition or development of infrastructure in the areas of transport, telecommunications or energy in Crimea or Sevastopol or (b) the exploitation of oil, gas or mineral resources in Crimea or Sevastopol;
- The acquisition or extension of a participation, including the acquisition in full and the acquisition of shares and securities of a participating nature, in enterprises established in Crimea or Sevastopol that are engaged in (a) or (b) above; and
- The creation of any joint venture relating to (a) or (b) above.
It is also prohibited to provide, directly or indirectly, technical assistance or brokering services related to these investment activities.
The investment prohibitions came into force on 31 July 2014 but do not apply to transactions required by an agreement or contract concluded before 30 July 2014, provided the competent authority of the relevant EU Member State is informed at least 10 working days in advance.
Regulation 825/2014 also introduces 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 Annex III to Regulation 825/2014.
It is also prohibited to provide (directly or indirectly) technical assistance or brokering services relating to the listed equipment and technology or to the provision, manufacture, maintenance and use of listed items. There is also a prohibition on the provision of financial or financial assistance relating to the listed equipment.
These prohibitions also came into force on 31 July 2014. As with the investment provisions above, the regulation contains "grandfathering" provisions permitting the execution of contracts entered into before 30 July 2014. However, this exemption is only available until 28 October 2014.
4. Additional EU designations
EU Regulation 826/2014 (also published on 30 July) designates a further eight individuals and three entities as subject to the EU asset freeze.
The designated entities are Joint-Stock Company Concern Almaz-Antey (a Russian state-owned company involved in the manufacture of anti-aircraft weaponry), Dobrolet (a subsidiary of a Russian state-owned airline which has been operating flights between Moscow and Simferopol in Crimea) and Russian National Commercial Bank which has become fully owned by the Republic of Crimea. The eight individuals are associates of President Putin and leading members of separatist groups. HM Treasury has issued a notice in respect of these new designations.
All funds and economic resources belonging to, owned, held or controlled by the listed persons must be frozen and no funds or economic resources may be made available, directly or indirectly, to them or for their benefit.
These measures represent a significant expansion of the previous EU sanctions relating to Ukraine.
The new financial sector restrictions have not been seen before in other EU sanctions regimes. There may therefore be an initial period of uncertainty as to whether particular transactions fall within the prohibitions although it may be that the EU and/or individual Member State competent authorities issue further guidance in due course. Companies should also be aware that, although the prohibitions are in a similar form to those issued by the US in July (see our briefing for further details), the two sets of restrictions are not identical. They apply to a slightly different set of financial institutions and to different types of debt and equity. Whilst companies can of course adopt the strictest standards of both regimes, they should not assume at this stage that transactions permitted by one regime will automatically be permitted by the other in the absence of formal guidance or licences.