The European Union has imposed a new round of sanctions in light of the political situation in Ukraine. The sanctions relate to dual-use goods and technology, arms, the oil and gas and banking sectors. European companies engaging with entities in these sectors may well be affected. They should avoid any risk of violating the sanctions, which have been amended in quick succession in recent months and may be amended again soon. It is therefore important to keep a close eye on the sanctions imposed and any potential changes.

EU sanction framework

In March 2014, the EU – and other countries including the US and Canada – imposed Ukraine-related sanctions directed against certain individuals and entities. The EU sanctions included the freezing of funds and other assets belonging to the sanctioned parties. The EU recently decided to expand the sanctions in view of the unstable political situation in Ukraine, and adopted a regulation setting out “Stage 3″ sanctions with regard to the arms industry, dual-use goods and technologies, the oil and gas industry, and capital markets. These additional sanctions have implications for companies that are seated in one or more EU member states.

Prohibited activities

Under the energy sector restrictions, prior authorisation is required for the direct or indirect sale, supply, transfer or export of equipment or technologies  – listed in Annex II to the regulation – to a natural or legal person, entity or body in Russia, or in another country if the equipment or technology is for use in Russia. These restrictions apply irrespective of whether the items concerned originate in the EU. The equipment or technologies listed in Annex II include technologies suited to the oil industry in deep water oil exploration and production, arctic oil exploration and production, or share oil projects in Russia. The Regulation stipulates that the competent authorities may grant authorisation if the export concerns the execution of a contraction concluded before 1 August 2014.

A second important restriction is aimed at Russia’s banking industry. It is prohibited – directly or indirectly – to purchase, sell, provide brokering or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments with a maturity exceeding 90 days, if these have been issued:

  • after 1 August 2014
  • by a group of “major credit institutions” established in Russia and with over 50% public ownership or control as of 1 August 2014, as listed in Annex III to the regulation.

Annex III lists the following institutions: Sberbank, VTB Bank, Gazprombank,  Vnesheconombank (VEB) and Rosselkhozbank.

  • The prohibition also applies if the securities or instruments are issued by:
  • a legal person, entity or body established outside the EU and whose proprietary rights are owned for more than 50% by one of the Annex III entities, or
  • a legal person, entity or body acting on behalf or at the direction of such entity outside the EU or an Annex III entity.

What these sanctions mean and how to respond

European companies should avoid acting in breach of these EU regulations, which have been amended in quick succession in recent months and may be amended again in the near future. Companies should carefully review business operations and transactions that could involve any sanctioned party and take appropriate measures to manage their risks.