The EU has today published new legislation expanding its existing sanctions against Russia in light of the situation in Ukraine. In summary, the new measures provide for:
- an expansion of the restrictions on dealing in transferable securities issued by listed Russian banks;
- the application of these restrictions to listed Russian companies in the military and oil sectors;
- additional trade restrictions, including in relation to dual use goods and certain services necessary for particular oil projects; and
- an expansion of the existing asset freeze.
Our briefing also summarises recent UK legislation criminalising breach of certain EU trade sanctions against Russia and provides an overview of recent developments in Australia. Finally, we consider possible future developments in this area.
Please see our blog for further background information on Ukraine-related sanctions.
1. Expansion of restrictions on Russian banks' access to EU capital markets
As mentioned in our previous briefing, the EU passed legislation on 31 July restricting EU persons from various dealings relating to "transferable securities and money market instruments" with a maturity exceeding 90 days issued by certain state-owned Russian banks after 1 August 2014. These measures apply to Sberbank, VTB Bank, Gazprombank, VEB and Rosselkhozbank, their non-EU subsidiaries and persons acting on their behalf.
On 12 September, the EU published Council Decision 2014/259/CFSP and Regulation 960/2014 which expand these measures to cover transferable securities and money market instruments with a maturity exceeding 30 days issued after 12 September 2014 by the listed banks. The restriction on dealing in transferable securities issued after 1 August continues to apply only to those with a maturity exceeding 90 days.
Regulation 960/2014 makes some slight amendments to the wording of the restrictions. When originally enacted, the relevant article prohibited "purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with" affected securities. "Brokering" has now been replaced by "providing investment services". "Investment services" are, however, defined in the same way as "brokering" under the previous Regulation and so there should be no practical change in the activities that are subject to this restriction.
There has also been a slight amendment to the definition of "transferable securities". The original definition covered: "those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (i) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; (ii) bonds or other forms of securities debt, including depositary receipts in respect of such securities, (iii) any other securities giving the right to acquire and sell any such transferable securities or giving rise to a cash settlement." The new definition excludes the words "such as" and the reference to cash settlement.
The listed banks are also subject to the lending restrictions summarised below.
As with all EU sanctions, these measures apply to any act done within the territory of the EU (by anyone) and to acts done anywhere in the world by EU-incorporated companies and nationals of EU Member States.
2. New restrictions on Russian military and oil companies
The restrictions described above have also been extended to cover two new categories of Russian company: (a) entities engaged with major activities in the conception, production, sales or export of military equipment or services, and (b) entities established in Russia with over 50% public ownership, estimated assets over 1 trillion Russian roubles and estimated revenues originating for at least 50% from the sale or transportation of crude oil or petroleum products. The companies listed in respect of (a) above are: OPK Oboronprom, United Aircraft Corporation and Uralvagonzavod and the companies listed in respect of (b) are Rosneft, Transneft and Gazprom Neft.
As with the restrictions on banks, these restrictions apply to the listed companies, non-EU majority owned subsidiaries of those companies and to any entities acting on behalf of or at the direction of the banks and their subsidiaries.
The restrictions only apply to post-12 September instruments with a maturity exceeding 30 days and not to post-1 August instruments with a maturity exceeding 90 days as is the case with listed banks. As with the bank sanctions, the restrictions are limited in scope, targeting access by these companies to the capital markets, and do not amount to an asset freeze.
3. Lending restrictions
The final capital markets restriction imposed by Regulation 960/2014 relate to the granting of loans to listed entities.
From 12 September, EU persons are prohibited from directly or indirectly making or being part of any arrangement to make new loans or credit with a maturity exceeding 30 days available to any of the listed banks, military companies or oil companies, including their majority-owned non-EU subsidiaries and entities acting on their behalf or at their direction. According to the recitals of Regulation 960/2014, loans are only to be considered new loans if they are drawn after 12 September.
There is an exemption in respect of loans or credit that have a specific or documented objective to (a) provide financing for non-prohibited imports or exports of goods and non-financial services between the EU and Russia or (b) provide emergency funding to meet solvency and liquidity criteria for legal persons established in the EU, who are majority owned by listed banks.
The recitals also confirm that other financial services, such as deposit services, payment services, insurance services, loans from the relevant institutions, and derivatives used for hedging purposes in the energy market are not intended to be covered by these new restrictions.
4. Expansion of trade restrictions
Regulation 960/2014 also expands the previously announced trade restrictions relating to Russia.
Regulation 833/2014 (which imposed the previous trade sanctions and which is amended by Regulation 960/2014) imposed a prohibition on the sale, supply, transfer or export of dual-use goods and technology to any Russian person or for use in Russia where those items are or may be intended for military use or a military end-user. This prohibition has been expanded to also cover the sale etc. of dual-use goods to a set of listed Russian companies: JSC Kalashnikov, JSC Sirius, OJSC Stankoinstrument, OAO JSC Chemcomposite, JSC Tula Arms Plant, NPK Technologii Maschinostrojenija, OAO Wysokototschnye Kompleksi, OAO NPO Bazalt and OAO Almaz Antey. It is also prohibited to provide technical assistance, brokering services, or other services related to dual-use goods or financing or financial assistance relating to such goods, to the listed persons. There are exemptions allowing:
- the execution of contracts or agreements concluded before 12 September 2014;
- the provision of assistance necessary for the maintenance and safety of existing capabilities within the EU;
- the sale etc. of goods intended for the aeronautics and space industry, or the related provision of technical and financial assistance for non-military use and for a non-military user; and
- the provision of technical and financial assistance for maintenance and safety of existing civil nuclear capabilities within the EU, for non-military use and for a non-military user.
Regulation 833/2014 introduced a licensing requirement for the sale, supply, transfer or export of certain goods and technology used in the oil industry and provided that licences would not be granted in relation to deep water oil exploration and production, Arctic oil exploration and production or shale oil projects in Russia ("Prohibited Projects"). Regulation 960/2014 prohibits the provision of certain services necessary for Prohibited Projects, namely: drilling, well testing, logging and completion services and the supply of specialised floating vessels. There are exceptions in respect of the execution of contracts or framework agreements concluded before 12 September 2014 and services that are necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.
Finally, the EU has expanded the existing prohibition on providing financing or financial assistance in relation to items on the Common Military List to include the provision of insurance or reinsurance.
In the UK, the Export Control Organisation has issued a Notice to Exporters summarising these developments.
All the restrictions in Regulation 960/2014 came into force immediately upon publication in the EU Official Journal on 12 September 2014.
5. Additional asset freeze designations
The EU published further measures on 12 September 2014, relating to the existing asset freeze in respect of Ukraine. Council Decision 2014/658/CFSP announces an expansion of the existing asset freeze (originally enacted by Council Decision 201/145/CFSP and Regulation 269/2014), expanding the grounds for designation to cover "natural or legal persons, entities or bodies conducting transactions with the separatist groups in the Donbass region of Ukraine". This expansion was implemented in Regulation 959/2014.
Council Decision 2014/658/CFSP goes on to name an additional 24 individuals as subject to the EU asset freeze. These individuals are also listed in Regulation 961/2014 and include leading figures in separatist groups, Crimean and Russian officials and Russian military figures. The named individuals are also subject to an EU travel ban.
As with the sectoral sanctions referred to above, these measures came into effect on publication in the EU Official Journal on 12 September 2014.
6. New UK Export Control Order
Further to our previous briefing, the UK has made it a criminal offence for UK persons to breach the "tier 3" EU trade sanctions in respect of Russia and Crimea that were announced in July. The Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014 (the "2014 Order") comes into force on 26 September 2014 and imposes criminal penalties for breach of Regulation 833/2014 (the "Russia Sanctions Regulation") and Regulation 692/2014 (as amended by Regulation No 825/2014) (the “Crimea and Sevastopol Regulation”).
With regard to the Russian Sanctions Regulation, it is a criminal offence to:
- sell, supply etc. dual-use goods or technology to Russia for military end use or provide related technical, brokering or financial assistance (without a licence);
- sell, supply etc. Annex II (oil and gas industry) goods to Russia or provide related technical, brokering or financial assistance (without a licence); and
- provide technical, brokering or financial assistance related to goods and technology on the Common Military List.
The 2014 Order has not yet criminalised breach of the latest trade sanctions under Regulation 960/2014. The Export Control Organisation has indicated that it is considering what amendments are necessary to the 2014 Order in light of these new sanctions.
With regard to the Crimea and Sevastopol Regulation, it is a criminal offence to:
- provide financing/financial assistance/insurance/reinsurance related to the import of goods originating in Crimea or Sevastopol;
- provide financing/financial assistance for infrastructure in the areas of transport, telecommunications or energy or the exploitation of oil, gas or mineral reserves in Crimea or Sevastopol;
- create a joint venture relating to the above sectors in Crimea or Sevastopol; and
- sell etc. equipment and technology related to the creation, acquisition or development of infrastructure in Crimea or Sevastopol or provide related technical or financial assistance.
The 2014 Order also creates an offence of knowingly and intentionally participating in activities to circumvent the various EU prohibitions or to enable or facilitate such contravention.
The penalties for breaching the above provisions are subject to a maximum sentence of up to two years in respect of the various prohibitions on financing and the investment prohibitions relating to Crimea/Sevastopol and up to 10 years in respect of the other trade restrictions.
7. Australia announces new sanctions
Prime Minister Abbott issued a press statement on 1 September 2014 indicating that Australia plans to introduce further sanctions on Russia. These were said to include restrictions on arms exports, Russian state-owned banks' access to Australian capital markets, on Australian trade and investment in Crimea, and the export of goods and services for use in Russia's oil exploration or production, together with additional designations under the existing asset freeze.
The Autonomous Sanctions (Designated Persons and Entities and Declared Persons – Ukraine) Amendment List 2014 came into force on 2 September 2014. This provided for an expansion of the existing asset freeze measures: a total of 113 persons and 32 entities have now been named as "designated" persons and entities by Australia and are subject to targeted financial sanctions and travel bans. The names of the designated persons are available via the DFAT Consolidated List.
Legislation has not yet been implemented in respect of the other measures announced by Prime Minister Abbott.
8. Future developments
The new EU measures were in fact approved on 8 September 2014 but the EU agreed to delay their implementation for a number of days to consider the impact of the current ceasefire in Ukraine. Although the sanctions have been adopted and are now in force, it remains possible that they will be suspended after a relatively short period, should the current ceasefire hold.
On 11 September, President Van Rompuy made a statement confirming that the Permanent Representatives Committee of the EU will carry out a comprehensive review of the implementation of the Ukraine/Russia peace plan on the basis of an assessment carried out by the European External Action Service (the "EEAS"). In light of this review, and if the situation so warrants, the Commission and the EEAS will be invited to put forward proposals to amend, suspend or repeal the EU sanctions against Russia currently in force (in whole or in part).
At the time of writing this briefing, the US had also announced an intention to expand its sanctions against Russia, with further announcements expected later on 12 September. We will issue a further briefing on US developments once this additional information is available.