Council Regulation (EU) No 1351/2014 (the “New Regulation“) enters into force today, 20 December 2014, and introduces substantial sanctions against Crimea and Sevastopol as the EU looks to reinforce that it does not recognise their annexation to Russia and to strengthen existing measures against them targeting trade and investment in Crimea and Sevastopol. The EU’s existing sanctions against Crimea and Sevastopol are set out in Council Regulation (EU) No 692/2014 (as amended).
Previously, the EU’s sanctions against Crimea and Sevastopol encompassed: (1) a ban on the import into the EU of goods originating in Crimea and Sevastopol; (2) a prohibition on the provision, directly or indirectly, of related financing or financial assistance as well as insurance and reinsurance; (3) a ban on new investments related to infrastructure in (i) transport, (ii) telecommunications, (iii) energy and (iv) the exploitation of oil, gas and mineral resources in Crimea and Sevastopol; and (4) an export ban on key equipment and technology related to the creation, acquisition or development of infrastructure in the aforementioned sectors.
Whilst the import ban remains, the New Regulation replaces the trade and investment restrictions ((3) and (4)) with a broader ban on investment in Crimea and Sevastopol. According to the New Regulation, these new sanctions are not intended to apply to legitimate business conduct with entities outside Crimea and Sevastopol that operate within Crimea and Sevastopol as long as there are reasonable grounds to determine that the relevant goods or services, or related investments, are not destined to enterprises or any subsidiary or affiliate under their control in Crimea or Sevastopol.
We outline the key provisions of the New Regulation below.
1. Investment Ban
It is prohibited to:
a) Acquire new or extend any existing participation in ownership of real estate located in Crimea or Sevastopol;
b) Acquire new or extend any existing participation in ownership or control of an entity in Crimea or Sevastopol, including the acquisition of shares, and other securities of a participating nature of such entity;
c) Grant or be part of any arrangement to grant any loan or credit or otherwise provide financing, including equity capital, to an entity in Crimea or Sevastopol, or for the documented purpose of financing such entity;
d) Create any joint venture in Crimea or Sevastopol or with an entity in Crimea or Sevastopol; and
e) Provide investment services directly related to the activities referred to in (a) to (d).
These restrictions do not apply to the execution of obligations arising under contracts concluded before 20 December 2014, or ancillary contracts necessary for the execution of the same, provided that prior notification is made to the competent Member State authority at least five working days in advance of the same.
In certain cases, competent Member State authorities may authorise these activities, under such terms and conditions as they deem appropriate, where they are:
a) Necessary for official purposes of consular missions or international organisations enjoying immunities in accordance with international law located in Crimea or Sevastopol;
b) Related to projects exclusively in support of hospitals, or other public health institutions providing medical services or civilian education establishments located in Crimea or Sevastopol;
c) Appliances or equipment for medical use;
d) For maintenance in order to ensure the safety of existing infrastructure; or
e) Necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety, including the safety of existing infrastructure, or the environment.
f) These are referred to herein as “Exceptions (a), (b)” etc.
Only in “duly justified cases of emergency” may these activities proceed without authorisation as long as the exporter notifies the competent Member State authority within five working days with details of the relevant justification.
2. New Product Controls Target Key Sectors: Transport, Telecommunications, Energy and the Prospection, Exploration and Production of Oil, Gas and Mineral Resources
The New Regulation introduces controls on certain goods and technologies, listed in the new Annex II, that are suited for use in targeted sectors of the economy: (1) transport; (2) telecommunications; (3) energy; and (4) the prospection, exploration and production of oil, gas and mineral resources. As regards Annex II items, it is prohibited to:
a) Sell, supply, transfer, or export Annex II items to any person, entity or body in Crimea or Sevastopol, or for use in Crimea or Sevastopol; and
b) Provide, directly or indirectly, related technical assistance or brokering services, financing or financial assistance.
These restrictions do not apply to the execution until 21 March 2015 of obligations arising from contracts concluded before 20 December 2014, or by ancillary contracts necessary for the execution of the same, provided that prior notification is made to the competent Member State authority at least five working days in advance of the same.
Further, Exceptions (a) – (c) and (e) apply (but not (d)), and prior authorisation is not required for “duly justified cases of emergency” subject to the five working days notification requirement.
3. Ban on Certain Services Related to Key Sector Infrastructure
It is prohibited to provide technical assistance, brokering, construction or engineering services directly relating to infrastructure in Crimea or Sevastopol in the key sectors listed above as defined on the basis of Annex II is prohibited, independently of the origin of the goods and technology.
This restriction does not apply to the execution until 21 March 2015 of obligations arising from contracts concluded before 20 December 2014, or by ancillary contracts necessary for the execution of the same. There is no prior notification requirement.
Authorisation to provide such services can only be granted where it can be demonstrated to the competent Member State authority that such services are necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety, including the safety of existing infrastructure, or the environment (Exception (e)). Prior authorisation is not required for “duly justified cases of emergency” subject to the five working days notification requirement.
4. Ban on Services Relating to Tourism Activities
It is prohibited to provide services directly related to tourism activities in Crimea or Sevastopol is prohibited, which extends to ships falling within EU jurisdiction that provide cruise services. This include ships flying the flag of a Member State or any ship owned and under the operational control of an EU shipowner or any ship over which an EU operator assumed overall responsibility as regards its operation. Such ships may not enter into or call at the ports situated in the Crimean peninsula that are listed in the new Annex III, except in cases of emergency for maritime safety in which case prior notification must be made to the competent Member State authority within five working days of this. The targeted ports are: Sevastopol; Kerch; Yalta; Theodosia; Evpatoria; Chernomorsk; and Kamysh-Burun.
These restrictions do not apply to the execution of obligations arising under contracts concluded before 20 December 2014, or ancillary contracts necessary for the execution of the same, provided that prior notification is made to the competent Member State authority at least five working days in advance of the same.
