In summary, this briefing covers:

  • The EU's introduction of "phase 3" sanctions affecting key sectors of the Russian economy such as the banking and energy industries;
  • EU trade restrictions relating to Crimea and Sevastopol; and
  • Expansions to the EU's asset freeze.

1. EU introduces sectoral sanctions

On 29 July 2014 the EU announced that the Committee of Permanent Representatives ("Coreper") had reached agreement on additional Ukraine-related sanctions. This new round of sanctions comprises restrictions on Russian banking, military and energy sectors, as well as the export of dual use items. Whilst the detail of the prohibitions is not yet available, the announcement indicates that these will comprise:

  • Banking: In order to restrict Russia's access to EU capital markets, the new sanctions will prohibit EU nationals and companies from buying and selling new bonds, equity or similar financial instruments with a maturity exceeding 90 days, issued by major state-owned Russian banks, development banks, their subsidiaries and those acting on their behalf. In addition, any services related to the issuing of such financial instruments, e.g. brokering, will also be prohibited.
  • Military: The EU agreed an embargo on the import and export of arms and related material to and from Russia. This embargo covers all items on the EU common military list.
  • Dual use goods: Coreper also reached an agreement to prohibit exports of dual use goods and technology for military use in Russia or to Russian military end-users. This restriction includes all items in the EU list of dual use goods are included (the current dual use goods list can be found in the Annex to EU Regulation 428/2009).
  • Energy: The restrictions will also apply to the exports of certain energy-related equipment and technology to Russia. Relevant exports will be subject to prior authorisation by competent authorities of Member States. Export licences will be denied if products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia.

The EU has stated that these new restrictions will apply to new contracts, suggesting that the legislation will include "grandfathering" provisions exempting pre-existing contracts. Press reports indicate that the new sanctions will be introduced for an initial period of three months and that the position will be kept under review.

President Van Rompuy issued a statement explaining the rationale behind the new measures. In particular, he noted that: "The European Union remains ready to reverse its decisions and reengage with Russia when it starts contributing actively and without ambiguities to finding a solution to the Ukrainian crisis."

The legislation introducing these measures is scheduled to be published late on 31 July 2014, with the measures taking effect from the day following publication. We will issue a further briefing once this is available in order to provide more detailed analysis on how the new prohibitions are likely to apply in practice.

2. Trade restrictions applying to Crimea and Sevastopol

In addition to the new sector-specific sanctions outlined above, Coreper also agreed on trade and investment restrictions for Crimea and Sevastopol, as requested by the European Council on 16 July. These restrictions will include a ban on new investment in the following sectors in Crimea and Sevastopol: infrastructure projects in the transport, telecommunications and energy sectors and in relation to the exploitation of oil, gas and minerals. In addition, the new measures will provide that key equipment for the same six sectors may not be exported to Crimea and Sevastopol and that finance and insurance services related to such transactions must not be provided.

As with the sectoral sanctions referred to above, the details of these restrictions are not yet available, pending publication of a new EU Regulation. The legislation introducing these trade restrictions is scheduled to be published late on 30 July 2014.

3. EU expands asset freeze

On 25 July 2014 the EU published two new regulations. The first, Regulation 810/2014, added 15 new individuals and 18 new entities to the asset freeze list. The new additions include Russian officials, Ukraine rebels and the President of the Republic of Chechnya. The second new regulation published on 25 July 2014, Regulation 811/2014, expanded the grounds on which individuals or entities may be designated as subject to the asset freeze. In particular, the Regulation further developed the listing criteria to allow for the listing of 'natural or legal persons who actively provide material or financial support to, or are benefiting from, the Russian decision-makers responsible for the annexation of Crimea or the destabilisation of Eastern-Ukraine'.

The final announcement from the EU on 29 July was that Coreper has agreed to add a further 8 individuals and 3 entities to the list of those subject to an asset freeze and visa ban under this new basis for designation. The names of the sanctioned persons will be published in the Official Journal late on 30 July 2014.

This brings the total number of persons and entities under EU restrictions to 95 and 23 respectively.

4. US extends Ukraine-related sanctions and publishes further guidance

The US has also extended its sanctions relating to Ukraine by (a) designating United Shipbuilding Corporation as a Specially Designated National, subject to the US asset freeze and (b) adding three further Russian banks (Bank of Moscow, Russian Agricultural Bank and VTB Bank OAO) to its sectoral sanctions list.

OFAC also updated its FAQ on the Ukraine sanctions regime to give additional guidance on the application of the new sectoral sanctions.

We will issue a more detailed briefing on these updates shortly.

5. Conclusions

The new EU measures represent a significant escalation of the existing sanctions against Russia. Press reports indicate that further US measures may be announced as soon as this week, emphasising the speed with which the sanctions landscape is changing in relation to Ukraine and the need for companies to monitor the situation closely.