On 3 June 2022, the EU adopted the sixth package of restrictive measures against Russia because of the continuing conflict with Ukraine. In unison with the five previous packages adopted in 2022, the recent sanctions are designed to exert increasing economic pressure on Russia and impair its economic and financial ability to sustain its war efforts.

The sanctions packages adopted in 2022 flow from a framework established in 2014 in response to the annexation of Crimea by Russia, which resulted in Council Regulation No 269/2014 and Council Regulation No 833/2014. The sixth package of restrictive measures, therefore, builds on and expands the earlier measures providing for an increasingly deeper and broader set of restrictive measures by the EU. The six packages of sanctions adopted to date against Russia include targeted individual measures against natural persons/entities (travel bans and asset freezes) and significant economic sanctions comprising a number of import and export restrictions on Russia.

Similarly, due to the incremental nature of the sanctions process, the banking restrictions have also continued to increase, with the sanctions adopted on 03 June 2022 confirming the disconnection of Russia's largest bank Sberbank from the SWIFT international payment system.

Application of EU Sanctions

Whilst EU sanctions are applicable only within EU jurisdiction, they may also be binding on non-EU companies and individuals depending on their activities within the EU. Individual member states are responsible for implementing (e.g. in Ireland, by statutory instrument) and enforcing sanctions. Potential penalties for non-compliance include fines and/or imprisonment.

The Insurance Context

Sanctions Packages One to Five: Key Insurance Points

The first package of sanctions (adopted on 23 February 2022) included an import ban on goods from the non-government regions of Donetsk and Luhansk, and an export ban for certain goods and technologies. The provision, directly or indirectly, of insurance and reinsurance related to the import of such goods (except goods having a certificate of origin from the Ukrainian government) was also prohibited.

The second package of sanctions (adopted on 25 February 2022) further restricted the provision of additional goods and technology exports contributing to Russia's defence or security industry. Similarly, the sanctions specifically prohibited the provision of insurance and reinsurance in relation to such goods. Furthermore, Article 1(o) of Regulation 2022/328 clarified that 'financial or financial assistance' included all insurance and reinsurance, including export credit insurance.

The fourth and fifth packages of sanctions (adopted on 15 March 2022 and 08 April 2022, respectively) further increased restrictions on additional imports and exports of goods such as iron, steel, luxury goods and certain technologies as listed in Annex II of the Regulation 2022/428. Again, insurance and reinsurance for such goods were prohibited. Regulation 2022/428 provided an exemption for the provision of coal, oil and natural gas from or through Russia into the EU in certain circumstances. It similarly included an exemption for providing insurance and reinsurance in such instances.

Sixth Sanctions Package: 03 June 2022: Key Insurance Points

Oil Embargo

EU Regulation 2022/879, adopted on 03 June 2022, contains an EU ban on importing crude oil from Russia with a transitory period of six months for existing contracts and spot transactions to allow global markets to adjust. A similar prohibition will apply to petroleum products after a transitory period of eight months. Member States with pipeline dependencies will be exempt from the embargo indefinitely. At the same time, a derogation has been granted to Bulgaria, Croatia and Czechia for a limited period due to specific dependencies to allow for the development of alternative supply routes.

Insurance Ban

The new EU prohibition on insuring and reinsuring ships carrying Russian crude oil or petroleum products to third countries is relevant to the Insurance industry. This prohibition has immediate effect with new insurance contracts banned immediately and existing ones being phased out over six months as and from 03 June 2022.

The insurance ban has been widely reported as one of the toughest moves yet in relation to restricting Russian exports. The European view is that it is likely to be extremely effective as tankers without insurance are prohibited from entering most major ports, and shipowners will be reluctant to move Russian cargo that cannot be insured/reinsured. It will therefore be particularly difficult for Russia to continue exporting its crude oil and petroleum products globally as the shipping insurance market is predominantly EU and UK based. The recent restrictions have been coordinated with international partners, with the UK introducing similar measures on 23 June 2022. The new restrictions present challenges for the insurance sector, and the complexity of the underlying detail has been noted. The measures contain several caveats, and timelines for implementation are also staged with different requirements attached to different EU countries. Legal clarity for insurers may be difficult to obtain depending on a particular set of circumstances and logistical realities. For example, difficulties will remain with identifying ships carrying Russian cargo and where certain transports may be coming from a Russian port but carrying cargo from an unsanctioned nation such as Kazakhstan. Concerns have also been expressed about the effective use of insurance as an enforcement mechanism, as insurers' knowledge of detailed logistics and ultimate cargo destination may be limited.

The sixth set of sanctions also prohibits the provision of certain financial and business services to Russian entities. This restriction applies indirectly or directly to bookkeeping, audit, tax advice, accounting services, and business management consulting.

Next Steps

In relation to interpreting restrictions, it is important to note that the restrictive measures are broadly drafted to ensure a prohibition on a wide array of activities. Article 12 of Council Regulation (EU) No 833/2014 specifically sets out that it is prohibited to knowingly or intentionally participate in activities to circumvent the Regulations' prohibitions.

Furthermore, all EU sanctions are subject to regular change and revision. Reports have also emerged relating to the possibility of capping Russian oil prices by restricting insurance and shipping mechanisms. This would only allow oil and petroleum products to be transported below an agreed threshold. This issue was discussed at the G7 Summit from 22 June 2022 – 28 June 2022.