We have seen drafts of the new EU sanctions package that is set to introduce further restrictions on (i) exports of certain dual-use goods and technology (regardless of the end-use of these items), (ii) certain services related to the supply of arms and military equipment, (iii) exports of, and the provision of related services regarding hydrocracking and desulphurisation technologies or equipment, (iv) access to the capital market for certain financial institutions, and (v) dealings with certain new designated persons, (the “Draft Regulation“). These restrictions would be introduced by way of amendments to Council Decision 2014/512/CFSP, and to Council Regulation (EU) No 833/2014 (“Reg. 833/2014″), which we reported on in our previous blog post. Whilst it is understood that the text has been agreed, we understand that the EU is currently assessing the stability of the cease fire implemented over the weekend before formally adopting the amendments.
The drafts we have seen have resulted in measures that have not yet entered into force and, whilst we discuss all of these draft measures in more detail below, the scope of these restrictions as included in the drafts may differ from the final text that will finally get published in the Official Journal.
1. Product controls
a. Dual-use goods and technology
The current controls regarding dual-use goods and technology only apply insofar as these were sold, supplied, transferred or exported (directly or indirectly) to, or for use, in Russia if those items were intended for military use or to a military end-user. The Draft Regulation removes the “end use” qualification in respect of certain dual-use goods and technology. In other words, any sale, supply, transfer or export (directly or indirectly) of certain dual-use goods and technology to any person in Russia or for use in Russia is prohibited.
This complete ban would apply to any listed dual-use goods or technology whether or not it is originating from the EU (provided, of course, that the jurisdictional threshold set out in Reg. 833/2014 is met). The restriction is subject to a grand-fathering provision. Therefore, an authorisation may be obtained in respect of the execution of legal obligations entered into before the date of the amended regulation.
The Draft Regulation lists the products to which this prohibition is set to apply – below we have included a short reference to the categories of dual-use goods and technology although the description used in Annex I to Regulation (EC) No 428/2009 should be used for a full review.
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Code |
Dual-use goods / technology |
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1A002 |
Composite structures and laminates that consist of organic, metal or carbon “matrixes”
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1B001 |
Equipment for the production or inspection of the above “or of fibrous or filamentary materials” specified in 1C010, and specifically designed components and accessories therefor
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1C007 |
Ceramic base materials, non-“composite” ceramic and ceramic-“matrix” composite materials and precursor materials
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1C008 |
Non-fluorinated polymeric substances
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1C009 |
Unprocessed fluorinated compounds
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2B001 |
Machine tools and any combination thereof, for removing or cutting metals, ceramics or “composites”, which, according to the manufacturer’s technical specification, can be equipped with electronic devices for “numerical control”, and specially designed components
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3E001 |
Technology for the production or development of equipment or materials specified in Categories 3A, 3B and 3C of the Dual Use Regulation
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3E002 |
Technology other than 3E001 for the development or production of a microprocessor microcircuit, microcomputer microcircuits, or microcontroller microcircuit core |
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3E003 |
Other technology for the development or production of items such as vacuum microelectronic devices, hetero-structure semiconductor devices, “superconductive” electronic devices, some electronic vacuum tubes, and substrates of films of diamond, silicon-on-insulator, and silicon carbide.
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4A004 |
“Systolic array computers”, neural computers and optical computers, and specially designed related equipment, “electronic assemblies” and components therefor.
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4A101 |
Certain computers designed or modified for use in space launch vehicles or rockets.
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4E001 |
Technology for the production or development of items listed in categories 4A or 4D and certain other technology
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5A002 |
Information security systems in the form of goods (but not software) that employ cryptography.
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5E001 |
Technology for the production or development of certain telecommunications systems |
b. Hydrocracking and desulphurisation technologies or equipment
The drafts we have seen appeared to introduce a ban on the sale, supply, transfer or export (directly or indirectly) of, and the provision of related services (including technical assistance, brokering services, or financial assistance) regarding, certain hydrocracking and desulphurisation technologies or equipment, as listed in a new Annex V. Grand-fathering provisions apply to legal obligations arising out of contracts concluded before the date of the amended regulation. It is unclear how the latter will play out, and whether the competent authorities will require proof that the contracts benefit from this exemption.
It is our current understanding that this provision, and those related services set out below, may not be in the amended regulation due to pressures from one or more Member State(s)).
2. Controls regarding the provision of services
a. Services in relation to projects regarding deep water oil exploration and production,
arctic oil exploration and production, or shale oil projects in Russia
Whilst the current services restrictions regarding the projects listed in the heading only cover the provision of technical assistance or brokering services related to certain listed technologies, the Draft Regulation currently includes a much wider prohibition on the direct or indirect provision of services associated to such projects. The Draft Regulation includes (a non-exhaustive list of) these type of services: seizmic campaign-related services, drilling, well testing, logging and completion services and the supply of floating vessels.
Again, grand-fathering provisions (and the related uncertainties) would apply in this context.
As noted, it is our current understanding that this provision may not be in the amended regulation due to pressures from one or more Member State(s)).
b. Services related to goods and technology listed in the Common Military List
The Draft Regulation expands the prohibition included in Reg. 833/2014 to cover the provision of insurance and reinsurance services for the sale, supply, transfer or exports of goods and technology listed in the Common Military List.
c. Access to capital markets
Stricter restrictions on access to capital markets are introduced by the Draft Regulation in respect of transferable securities and money-market instruments with a maturity exceeding 30 days, issued after the amended regulation by the same state-owned banks as set out in Art. 5 of Reg. 833/2014 and, inter alia, by legal persons (i) providing military equipment or services, or (ii) publicly controlled or with over 50% public ownership, with estimated total assets of over 1 trillion Roubles and its estimated revenues originating for at least 50% from the sale or transportation of crude oil or petroleum products. The press has been reporting that Rosneft, Gazpromneft and Transneft would meet this criteria. In addition, no new (syndicated) loans can be made directly or indirectly to such persons.
It is worth noting that in addition to these additional investment restrictions, the Draft Regulation also replaces the term “brokering” with “investment services” (the previous definition of “brokering” being now applicable to “investment services”) and the definition of “transferable securities” is further refined (i.e., it is clarified that (i)-(iii) of Art. 1(f) of Reg. 833/2014 provide for an exhaustive list of classes of securities which are negotiable on the capital market).
It is likely that the amended regulation will also include new additions to the designated party list, however we have not yet seen the names of these new persons.
The amendments to Reg. 833/2014 are yet to be published and we will update our blog as and when this happens.
