This e­bulletin summarises recent developments in the EU's sanctions imposed against Russia. In particular, we provide an overview of (a) new measures relating to Crimea and Sevastopol and (b) new European Commission guidance on certain of the financial sector restrictions applied to listed Russian entities. For further background on these sanctions, please see our blog.

We will be issuing a separate briefing in relation to the US's Ukraine Freedom Support Act of 2014, which was signed into law by President Obama on 18 December 2014.

New sanctions relating to Crimea and Sevastopol

On 18 December, the Council of the European Union announced that it would be imposing "substantial" additional sanctions on investment, services and trade with Crimea and Sevastopol to reinforce the EU's policy of not recognising those territories.

The new Council Decision and Council Regulation were published in the Official Journal on 19 December, following the Conclusions of the European Council on 18 December.

The restrictions fall into three broad areas:

  • Investment restrictions

The new measures take effect from 20 December 2014 and prohibit a broad range of investment in Crimea or Sevastopol (previously, the investment restrictions were restricted to particular sectors of the economy).  From 20 December, EU nationals and EU incorporated companies are prohibited from buying real estate in the region, acquiring or extending an interest in local companies, financing local companies, creating joint ventures, or supplying investment services in relation to such activities.

The investment and lending restrictions apply to an "entity in Crimea or Sevastopol", which is defined to mean "any entity having its registered office, central administration or principal place of business in Crimea or Sevastopol, its subsidiaries or affiliates under its control in Crimea or Sevastopol, as well as branches and other entities operating in Crimea or Sevastopol".

There is a carve out for the execution of obligations arising from contracts concluded prior to 20 December 2014, or ancillary contracts, subject to prior notification to the relevant EU competent authority.

  • Tourism restrictions

EU operators are prohibited from offering services relating to tourism activities in Crimea and Sevastopol.  In particular, European cruise ships (ships owned or controlled by an EU shipowner, flying the flag of an EU Member state, or under the overall responsibility of an EU operator) are prohibited from calling at seven listed ports in the Crimean peninsula (unless in an emergency).

As with the investment restrictions, existing cruise contracts or ancillary contracts concluded before 20 December 2014 may be executed, subject to prior notification to a competent authority.

  • Restrictions relating to the supply of goods and ancillary services

Finally, it is prohibited to export certain listed goods or technology used in: (a) transport, (b) telecommunications, (c) energy, or (d) the prospection, exploration and production of oil, gas and mineral reserves to persons in Crimea or Sevastopol or for use in Crimea or Sevastopol. The nature of the restrictions on the supply of goods are similar to those already in place, but the listing of goods is much more extensive.

Restrictions have also been imposed on the provision of technical assistance, brokering services, financing and financial assistance relating to such goods to any person in Crimea or Sevastopol or for use in Crimea or Sevastopol. More unusually, the provision of brokering, construction or engineering services relating to infrastructure in the same key sectors is also prohibited. The concept of "construction or engineering services" is not defined.

Grandfathering applies for contracts concluded before 20 December 2014 and ancillary contracts, subject to prior notification to a competent authority.

Both the equipment­related and investment­related restrictions are subject to the ability of the competent authorities to license otherwise restricted activities for certain specified purposes, such as projects relating to hospitals, public health, or civilian education establishments and certain activities relating to health and safety. There is also a carve out from the advance licensing requirement for certain emergency activities to mitigate events likely to have a serious and signficant impact on human health and safety.

Finally, the circumvention prohibition has been amended so as to include indirect participation in circumvention activities, and now applies to all prohibitions in the Regulation.

Possibility of future sanctions

The European Council also published new conclusions on Ukraine on 18 December, confirming the decision to strengthen existing sanctions regarding Crimea and Sevastopol, indicating that the situation in the region remains of concern, and noting that the EU is ready to take further steps if necessary. No clarification was provided of the nature or timescale of any further steps.

European Commission guidance

Whilst it represents a clarification of existing measures rather than the imposition of new prohibitions, perhaps the most significant development this week has been the issuance of further clarification of the EU's sanctions against Russia in the form of a guidance note dated 16 December 2014 (the "Guidance").

This guidance follows recent amendments to the EU's sanctions against Russia (discussed in our previous briefing), which also provided additional clarity on some key areas of uncertainty.

The Guidance is not legally binding but provides the Commission's view (which we would expect to be followed by Member States) on a number of questions that have been brought to its attention since Regulation 833/2014 (the "Regulation") was introduced in July.  The Guidance covers the following areas:

  • interpretation of the scope of the restrictions on the provision of financial assistance in relation to restricted goods and technology (articles 2 and 4 of the Regulation);
  • scope of the trade finance exemption to the financial restrictions (article 5(3));
  • scope of the "emergency funding" application to the lending restrictions;
  • other queries relating to the prohibition on lending to listed entities;
  • confirmation of the types of derivatives that are covered by the article 5 restrictions;
  • the application of the article 5 restrictions to depositary receipts; and
  • other queries relating to the application of the article 5 restrictions to capital markets transactions.

Some of the key points in the Guidance which may be of particular interest to companies seeking to comply with the Regulation are set out below.

  • The Guidance offers some clarification of the arrangements that will be considered as falling within the restriction on providing new loans or credit to listed entities:
    • Payment terms or delayed payment for goods or services will not be considered loans or credit (although they must not be used for the purposes of circumventing the lending prohibitions).
    • EU persons are permitted to provide funds, including loans or credit, to non­listed entities where those funds pass through a listed entity (such as one of the listed Russian banks).
    • EU entities are not permitted to allow listed entities to take over loans extended prior to the imposition of lending restrictions on 12 September 2014.
  • In terms of the application of the Regulation to capital markets transactions, the Guidance confirms that derivatives which give the right to acquire or sell a transferable security or money market instrument covered by the Regulation (such as options, futures, forwards or warrants) are subject to the prohibition in article 5 of the Regulation, irrespective of whether they are traded on exchange or over­the­counter (OTC). However, other derivatives such as interest rate swaps, credit default swaps and cross currency swaps are not covered.  Additional guidance is also provided on (a) repos involving sanctioned securities as collateral, or sanctioned counterparties, and (b) depository receipts in respect of sanctioned securities, or where the custodian is a sanctioned bank.
  • The Guidance recognises that "new" equity (ie securities issued on or after 1 August or 12 September, as applicable) may be fungible with "old" equity which pre­dates the imposition of restrictions and emphasises that, although EU persons are permitted to enter into transactions involving "old' equity, the onus is on them to ensure that they are not trading in "new" instruments.


It is somewhat disappointing that it has taken that it has taken the EU nearly five months to issue guidance on the meaning of a novel sanctions regime – whilst in the meantime companies have had to form their own view or risk committing a criminal offence. Better later than never, however.  Whilst some issues remain unclear, the guidance on the scope of the carve outs to the lending restrictions, and the application of the capital markets restrictions to various forms of derivative instrument, will be particularly welcome.

As to the new sanctions against Crimea, whilst these are very restrictive their practical impact will be limited by the fact that many EU companies have reportedly withdrawn from Crimean business already. The question of whether the EU will impose additional sanctions against Russia is one of far greater significance.  At present, the EU's formal Conclusions provide few clues, and the US appears to be ploughing a some what lonely furrow with the passage of the Ukraine Freedom Support Act, which we will report on separately.