On June 24, 2024, the EU adopted its 14th Russia sanctions package, including by amending Council Regulation (EU) 833/2014 (the “EU Russia Sanctions“), effective from June 25, 2024. The amending regulation is accessible here. The 14th package introduced several additional restrictions across different sectors, including:
- Enhanced anti-circumvention measures, including certain obligations on EU companies to undertake steps relating to their non-EU subsidiaries and counterparties to ensure compliance with EU sanctions;
- Enhancements to the requirements to prohibit the re-export of certain items to Russia (including a further “No Russia” clause requirement relating to intellectual property rights);
- Amendments to the EU services ban, including an extension of the existing exemption for services to EU- and partner country-owned Russian subsidiaries until 30 September 2024;
- Financial sanctions targeting SPFS (Russia’s equivalent to SWIFT);
- Recognition of voluntary self-disclosure of sanctions infringements as a factor potentially mitigating penalties;
- Widening of the EU restriction on “circumvention”;
- Further extension of Russia divestment licensing grounds until 31 December 2024;
- Introduction of rights for EU parties to recover damages in litigation incurred due to the expropriation of assets in Russia or due to claims in third countries relating to contracts impacted by EU sanctions;
- Restrictions on registration in the EU of intellectual property rights for Russian entities/persons;
- Sanctions targeting Russian liquified natural gas (“LNG”);
- Further sanctions targeting aviation, shipping and transport; and
- Significant further additions to the list of EU Designated Persons (via a separate amending regulation) and to the annexes of goods and technology subject to export- and import-related restrictions.
The strengthening of measures designed to prevent the circumvention of EU sanctions is likely to be particularly wide-ranging, impacting businesses outside Russia with indirect exposure to Russia and placing certain obligations on EU companies to conduct due diligence and to implement controls relating to the activities of their third-country subsidiaries and counterparties.
Given the continued extension of EU and international sanctions against Russia, it is important for companies to assess their risk exposure and consider enhancements to existing sanctions compliance policies and procedures.
Please see further details below on the latest measures and as always please contact your usual contacts in the Baker McKenzie international trade compliance team for support as needed.
Anti-Circumvention Measures
The EU has further strengthened its anti-circumvention measures in seeking to ensure EU sanctions are not undermined by activities of parties outside the EU. These include the following in particular:
- An obligation for EU persons to “undertake their best efforts” to ensure that their owned or controlled subsidiaries in third countries do not engage in activities that “undermine” the EU Russia Sanctions (notably, to prevent the supply of restricted goods, technology, financing or services). Although related guidance emphasises that EU sanctions are not extraterritorial, this expansion of the sanctions is likely to have extraterritorial effect and it remains to be seen how these provisions are implemented and enforced in practice. In particular, this obligation places the onus on EU persons to consider their risk exposure and take “suitable and necessary” steps relating to their owned or controlled subsidiaries in third countries. The kinds of steps that are feasible in practice will depend on the nature of the company and industry, including the level of ownership or control the EU company has over its third-country subsidiaries, as well as relevant local laws.
- The scope of “circumvention” has been broadened to include participation in activities without deliberately seeking to circumvent sanctions, but being aware that participation may have that purpose or effect and accepting that possibility.
- EU operators selling goods on the list of common high priority items (listed in Annex XL) to third countries are required to implement due diligence mechanisms capable of identifying and mitigating risks of re-exportation to Russia.
New Intellectual Property Rights-Related Restrictions
- Effective December 26, 2024, and in addition to the existing “No Russia” clause requirements, a new Article 12ga requires EU persons selling, licensing, transferring, or granting rights to use intellectual property rights to third-country counterparts in relation to common high priority items (listed in Annex XL), to contractually prohibit the use of such rights in connection with the sale of common high priority items to Russia or for use in Russia. Flow down to possible sublicensees is also required.
- The 14th package also restricts the acceptance by competent Member State authorities of new applications for intellectual property rights by persons associated with Russia. Similar restrictions apply to Member States acting as Contracting States to the European Patent Office and the World Intellectual Property Organization.
Amendments to the EU Services Ban
- The 14th package introduces a new exception to the existing prohibition on providing certain services restricted under Article 5n of the EU Russia Sanctions to Russian entities. EU nationals who are residents of Russia and were so before February 24, 2022, can provide services restricted under Article 5n to their Russian employer if the Russian employer is owned or controlled by an EU- or partner country-incorporated entity.
- Additionally, the exemption for providing services and software restricted under Article 5n of the EU Russia Sanctions to Russian entities owned or controlled by an EU- or partner country-incorporated entity, initially set to expire on June 20, 2024, was extended to September 30, 2024. After this date, authorisation from the relevant competent authority will be required to continue providing these services and software.
Formal Recognition of Voluntary Self-Disclosure as a Mitigating Factor
The 14th package formally allows Member States to consider voluntary self-disclosure of infringements as a mitigating factor when assessing fines or penalties for sanctions violations.
Sanctions Relating to SPFS and the Financial Sector
- EU banks located outside Russia are prohibited from using SPFS, the Russian equivalent of SWIFT. Additionally, the EU can draw up a list of third country (non-Russian) banks connected to the SPFS system, and such banks will be banned from engaging in transactions with EU operators.
- A new Article 5ad prohibits any transaction with non-EU credit and financial institutions and crypto providers that facilitate the export, sale, supply, transfer, or transport to Russia of certain sanctioned goods supporting Russia’s defence-industrial base.
Extension of Article 12b Divestment Licensing Grounds
The deadlines related to the licensing grounds for the sale, supply, licensing, or transfer of controlled items and the provision of controlled business services necessary for divestment from Russia or wind down have been extended to December 31, 2024.
Amendments Related to Litigation and Satisfaction of Claims
EU operators may not satisfy claims made by Russian persons or entities in connection with a transaction, the performance of which has been affected by the EU Russia Sanctions. The 14th package provides that parties filing claims in Russian courts against EU operators in this regard may be listed and subject to a transaction ban. In addition, the package includes a new licensing ground until December 31, 2024 for the satisfaction of claims by Russian persons strictly necessary to divest from Russia or wind down.
The 14th package also introduces certain rights for EU parties to recover damages in EU courts, where such damages are caused by persons that benefitted as a result of the expropriation of assets under relevant Russian law.
Expansion of List with Banned Items for Export or Import in the EU Russia Regulation
The 14th package further extended the lists of items subject to export or import restrictions, including:
- Export restrictions relating to specific machinery, vehicles, advanced technology items, and other goods contributing to Russia’s military and technological enhancement, as well as products contributing to Russia’s overall industrial capacity, such as chemicals, plastics, and electrical equipment.
- New import restrictions on helium, a significant source of revenue for Russia, as well as clarifications to the import restrictions relating to diamonds.
New Listings Targeting Individuals and Entities
The EU has added 116 more individuals and entities to its sanctions list, subjecting them to asset freezes and travel bans. The implementing regulation is accessible here.
Sanctions Targeting Russian LNG
For the first time, the EU is targeting Russian LNG, focussing on three key aspects of Russia’s LNG trade:
- Transhipment of Russian LNG: EU ports are prohibited from handling the transfer of Russian LNG to third countries, with an exception for transhipments to EU Member States. This prohibition includes both ship-to-ship and ship-to-shore transfers and re-loading operations, along with ancillary services. However, there is a nine-month transitional period during which EU ports can continue transferring Russian LNG.
- Investment in Russian LNG Projects: The sanctions prohibit new investments and the provision of goods, technology, and services for the completion of Russian LNG projects, effectively halting further funding for ongoing Russian LNG projects.
- Import of Russian LNG: Restrictions have been placed on importing Russian LNG into EU LNG terminals not linked to the interconnected natural gas system. This measure specifically targets certain facilities and projects within certain EU Member States.
Other Measures
The EU adopted several additional measures with this package of sanctions, including:
- a tightening of the flight ban;
- an expansion of the road transport ban;
- further sanctions targeting the shipping sector (including a ban on listed vessels accessing EU ports and services, with an initial 27 vessels targeted);
- restrictions on the trade of unlawfully removed Ukrainian cultural property goods; and
- restrictions on accepting financing from the Russian state and its proxies by political parties, NGOs and media service providers in the EU.
The authors acknowledge the assistance of Bibi Badcock-Scruton in the preparation of this post.
