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Latest EU sanctions on Russia target circumvention and high-value sectors


After delay caused by disagreement among EU member states, the Council of the European Commission has adopted its 14th Russia sanctions package targeting high-value sectors of the Russian economy.

The package targets energy, finance and trade and introduces measures intended to “make it ever more difficult to circumvent EU sanctions”.

Stacy Keen, sanctions and export control expert at Pinsent Masons, said: “EU parent companies must use their best efforts to ensure that their non-EU third-party subsidiaries do not take part in any activities resulting in an outcome that the sanctions seek to prevent. The example given of such an outcome is a recipient in Russia obtaining goods or services that fall within the scope of the EU Russian sanctions restrictions. The degree of effective control that a parent entity has over its subsidiary is a relevant factor in assessing what constitutes best efforts, with the recitals to the 14th package referring specifically to the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively.”

The ‘test’ for circumvention has also been lowered. Prior to the new package, the EU circumvention restriction was triggered only where an EU operator engaged in activities knowing and intending that the object or effect of such was to ‘get around’ the sanction.

EU circumvention can now be triggered where there is awareness that the activity may have such an object or effect.  This is coupled with confirmation in the recitals that EU operators will not be able to rely on a “no knowledge or reasonable cause to suspect” defence to allegations of EU sanctions infringement unless they have carried out appropriate due diligence.

Andreas Haak, EU trade law sanctions expert at Pinsent Masons, said: “The wider amendments focused on anti-circumvention relate to due diligence and contractual controls. EU operators selling so called common high priority items, for example battlefield goods, to third countries will need to implement due diligence mechanisms capable of identifying and assessing risks of re-exportation to Russia, and mitigating them. Additionally, EU operators transferring intellectual property rights to third-country commercial counterparts must include contractual provisions to ensure that such know-how will not be used for manufacturing common high priority goods destined to Russia.  This builds on the “no-Russia clause”  introduced by the 13th Sanctions package and is intended to help combat the re-exportation of CHP goods to Russia.”

The EU 14th Russian sanctions package continues the approach of targeting sectors important to the Russian economy. The new sectoral measures targeting energy, finance and trade include rules on new investment, provision of goods, technology. The measures impact services for completion of liquified natural gas (LNG) projects under construction including Arctic LNG 2 and Murmansk LNG. Further import restrictions have also been imposed on Russian LNG through EU terminals not connected to the natural gas system.

The measures also prohibit the reloading of Russian LNG in the EU territory for transshipment to a third country, although import to the EU is not affected. The use of the System for Transfer of Financial Messages, a specialised financial messaging service to exchange financial data developed by the Central Bank of Russia in response to certain Russian banks being cut off from the SWIFT messaging system, is included in the sanctions.

Transactions with targeted credit and financial institutions and crypto assets providers established outside of the EU, when these entities facilitate transactions that support Russia’s defence-industrial base, are prohibited.

Further restrictions have also been introduced on the export of goods including manganese ores, plastics, excavating machinery etc, as well as further restrictions on import of helium.

Outside of these sectors, restrictions have been introduced relating to the funding of political parties and other organisations from the Russian State and its proxies, bans on port access and provision of services to specific vessels, widening of transport related and application for IP rights by Russian nationals and companies.

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