On 18 December 2023, the EU published its 12th package of sanctions targeting Russia via Regulation (EU) 2023/2878 and Regulation (EU) 2023/2875, amending Regulation (EU) 833/2014 and Regulation (EU) 269/2014, respectively (collectively, “12th EU Russia Sanctions Package“). The amendments to Regulation (EU) 269/2014 (related to Designated Persons (“DPs”)) are effective immediately while the amendments to Regulation (EU) 833/2014 become effective today, 19 December 2023. These amendments have a material impact on all businesses with a continued or residual presence in Russia, including those seeking to exit and divest from Russia. Moreover, all companies (even if not trading directly with Russia) should be mindful of the increased focus on targeting circumvention risks.
All legislation introduced by the EU in relation to the 12th EU Russia Sanctions Package can be found here.
By way of summary, the 12th EU Russia Sanctions Package includes, but is not limited to, the following measures:
- Expansion of controlled business services covered under Article 5n -The existing prohibition on the provision of certain services to the Government of Russia or Russian entities (e.g., accounting, auditing, bookkeeping or tax consulting services, business and management consulting or public relations services, advertising services, architectural and engineering services, legal advisory services, IT consultancy, market research and public opinion poll services and technical testing and analysis services) was expanded to prohibit the sale, supply, transfer, export, or provision of software for the management of enterprises and software for industrial design and manufacture used in the areas of architecture, engineering, construction, manufacturing, media, education and entertainment.
- This new prohibition could have a material impact on the operation of Russian subsidiaries of Western companies dependent on ERP and other types of business software. The software items covered by this prohibition are listed in new Annex XXXIX to Regulation (EU) 833/204 as follows:
- enterprise resource planning (ERP), customer relationship management (CRM), business intelligence (BI), supply chain management (SCM), enterprise data warehouse (EDW), computerized maintenance management system (CMMS), project management software, product lifecycle management (PLM), and typical components of the above-mentioned suites, including software for accounting, fleet management, logistics and human resource; and
- building information modelling (BIM), computer aided design (CAD), computer-aided manufacturing (CAM), engineer to order (ETO), and typical components of above-mentioned suites.
- Wind down of the “partner country” exemption for controlled business services under Article 5n7 – The EU will eliminate, following a six-month wind-down period expiring on 20 June 2024, the exemption for the provision of controlled business services to Russian subsidiaries of companies headquartered in the EU or other partner countries. This means that an authorization from the competent authority will be required to continue to provide controlled business services to Russian subsidiaries of companies headquartered in the EU or other partner countries. The list of partner countries for these purposes currently includes US, Japan, UK, South Korea, Australia, Canada, New Zealand, Norway and Switzerland.
- Extension of Article 12b divestment licensing grounds – The deadlines for the licensing grounds for the sale, supply, licensing, import or transfer of controlled items and the provision of controlled business services where necessary for the purposes of divestment from Russia have been extended to 30 June 2024, 31 July 2024, or 30 September 2024, depending on the relevant sanction.
- Ban on Russian diamonds – Inclusion of a new Article 3p to ban the purchase, import, or transfer of diamonds and products, like jewelry and watches, incorporating diamonds originating in or exported from Russia or diamonds of any origin transiting Russia. This is in addition to a ban on imports of Russian diamonds when they are processed (cut and polished) in third countries (such as India) that will be phased in. In particular, measures include a phased import ban (i) on diamonds and jewellery made from Russian diamonds as from 1 January 2024, (ii) on Russian diamonds of certain higher weight processed in third countries as from 1 March 2024 (based on a G7-coordinated traceability mechanism) and (iii) on smaller Russian stones processed in third countries as from 1 September 2024. To implement these measures, new traceability-based evidence will be required from importers.
- Additional import bans – Import bans on items which generate significant revenues for Russia (listed in a re-issued Annex XXI to Regulation (EU) 833/2014), such as pig iron and spiegeleisen, copper wires, aluminium wires, foil, tubes and pipes. In addition, a new import ban on liquefied propane (LPG) was introduced with a 12-month transitional period.
- Additional export bans – Banning the sale, supply, transfer and export of additional items which contribute to Russia’s military and technological enhancement (listed in a re-issued Annex VII to Regulation (EU) 833/2014), such as chemicals, lithium batteries, thermostats, as well as motors and servomotors for drones that Russia uses for military production; and certain industrial items (listed in a re-issued Annex XXIII to Regulation (EU) 833/2014), for instance machinery and parts.
In addition, the EU added 29 entities to the list of those directly supporting Russia’s military and industrial complex in its war of aggression against Ukraine (listed in a re-issued Annex IV to Regulation (EU) 833/2014). These entities will be subject to tighter export restrictions concerning dual use items, as well as items which might contribute to the technological enhancement of Russia’s defence and security sector.
- Expansion of the transit ban – The transit ban that currently applies to dual use items exported from the EU to third countries via the territory of Russia was extended to certain industrial items listed in new Annex XXXVII to Regulation (EU) 833/2014.
- Additional measures to enforce the oil price cap – In order to further support the implementation of, and compliance with, the price cap mechanism, the EU introduced a strengthened information sharing mechanism requiring businesses to share price information for ancillary costs, such as insurance and freight, upon request throughout the supply chain of Russian oil trade. The EU has also introduced notification rules for the sale of tankers to any third country in order to make more transparent their sale and export, in particular in the case of second-hand carriers that could be used to evade the import ban on Russian crude or petroleum products and the G7 Price Cap.
- “No Russia” clause – The EU has imposed a requirement on EU exporters to insert contractual clauses prohibiting re-exports to Russia and re-exports for use in Russia of particularly sensitive items, when selling, supplying, transferring or exporting to any third country, with the exception of partner countries in Annex VIII to Regulation (EU) 833/2014. The scope of this clause is currently limited to items used in Russian military systems or critical to the development, production or use of those Russian military systems, as well as aviation items and weapons. The requirement to introduce the “No Russia” export clause also applies retrospectively to all agreements concluded before 19 December 2023, subject to a transition period (i.e., the earlier of 20 December 2024 or their expiry date).
- Iron and steel – The EU included a new Annex XXXVI to Regulation (EU) 833/2014 to list partner countries which apply a set of restrictive measures on imports of iron and steel from Russia, and a set of import control measures that are substantially equivalent to those of the EU (for now, just limited to Switzerland and Norway). This means that importers are not required to provide evidence of the country of origin of the iron and steel inputs for the processing of products when such products originate in these countries. In addition, the EU has also extended the wind-down periods for the import of specific steel products.
- Personal use exemption for sanctioned products – The EU introduced exemptions to import restrictions concerning personal use items, such as personal hygiene items, or clothing worn by travelers or contained in their luggage, and for cars that have a diplomatic vehicle registration plates to enter the EU. Additionally, in order to facilitate the entry into the EU of EU citizens living in Russia, Member States can authorize the entry of their cars provided that they are not for sale and are driven strictly for personal use.
- Reporting obligations on EU transfers over EUR 100,000 – The 12th EU Russia Sanctions Package also introduced certain reporting requirements for the transfer of funds out of the Union, exceeding EUR 100,000, by entities owned directly or indirectly more than 40% by entities established in Russia, by Russian nationals, or by natural persons residing in Russia.
- Ban on Russian nationals to own, control or hold posts in the governing bodies of entities providing crypto-asset wallet, account or custody services – In order to limit the circumvention of the prohibition on the provision of crypto-asset wallet, account or custody services to Russian persons and residents, the 12th EU Russia Sanctions Package includes a ban on Russian nationals or natural persons residing in Russia from owning or controlling, or holding any posts on the governing bodies of, the legal persons, entities or bodies providing such services.
- Additional DP Designations – The 12th EU Russia Sanctions Package designates an additional of 61 individuals and 86 entities in the military, defence, IT and other important economic sectors, including a direct listing of AlfaStrakhovanie Group, a large Russian insurance company.