EU legislative bodies have voted to renew EU sanctions against Russia that were due to expire on June 23rd and July 31st. The sanctions targeting imports from and certain exports to Crimea were extended for one year and those on the Russian financial, defense and oil sectors will be extended for six months. Approval by the EU Foreign Affairs Council of the sectoral sanctions is expected as early as June 22nd. The Committee made no mention of terminating existing grandfather provisions that permit companies within the EU’s jurisdiction to continue to perform contracts that were concluded prior to the imposition of the original sanctions.
These grandfather provisions stand in stark contrast to U.S. sanctions, which contain no safe harbor for existing contracts. While the United States has issued some General Licenses to permit a wind-down of existing contracts, only two weeks were allowed for operations with the Russian financial, defense and oil sectors and only two months were given to wind-down all operations in Crimea.
The differences between EU and U.S. sanctions with respect to pre-existing contracts is what has permitted companies, such as BP and Shell, that are subject only to EU sanctions to continue existing operations with sanctioned entities in Russia, while U.S. companies like ExxonMobil remain blocked from participating in joint ventures that were in place at the time the sanctions were first imposed. The EU’s grandfather provisions are also what permit France to continue with sales of Mistral-class aircraft carriers to Russia pursuant to contracts that were concluded prior to the initial imposition of sanctions.
The EU’s grandfathering provisions provide something of a safety-valve for EU businesses that might otherwise have faced significant legal difficulties if they had to terminate existing deals. The Russians are inclined, for example, not to recognize the imposition of sanctions as an event of force majeure. The grandfathering provisions also allow EU businesses to maintain their relationships with Russian companies when others cannot. Grandfathering also ameliorates somewhat the internal political opposition EU Member States might otherwise have faced if pre-existing arrangements had been terminated. Companies subject to U.S. jurisdiction alas enjoy no such relief.