The EU's Russia sanctions
With Russia's invasion of Ukraine in February 2022, the European Union was forced to act. Reactions were not long in coming and took the form of a variety of sanctions. To date, the EU member states have agreed on the adoption of a total of seven sanctions packages aimed at specifically weakening the Russian economy. The measures relate in particular to the defence, financial, energy, transport and industrial sectors and target various individuals and entities individually in a restrictive manner. The EU member states are not the only countries to condemn Russia's actions. Western partners such as the US, Canada and the UK have also adopted numerous similar sanctions, but the details differ.
The majority of the sanctions adopted directly by the EU against Russia are based on two basic regulations, which have been amended several times within the framework of the sanctions packages: Regulation (EU) 833/2014 refers to sectoral restrictions, Regulation (EU) 269/2014 to individual persons and entities. The member states already adopted these regulations in 2014 in connection with the annexation of Crimea. Furthermore, also in this context, Regulation (EU) 692/2014 was adopted to explicitly restrict trade in goods originating in Crimea. Another legal act relevant to this article is Regulation (EU) 263/2022, which the EU adopted in response to the recognition of the independence of the Donetsk and Luhansk regions in February 2022.
This article will provide an overview of the existing sanctions and address the question of what direct tasks and obligations follow from them for companies. In a further contribution, the practical effects of the sanctions will be examined in more detail.
B. Individual Sanctions Packages
I. First Sanctions Package (23.02.2022)
On 23.02.2022, two days after Russia recognised the self-proclaimed Lugansk and Donetsk People's Republics as independent and deployed troops to these territories, the EU published its first sanctions package.
First, further measures were added to Regulation (EU) 833/2014. In principle, the 2014 regulation provided for a ban on the sale, supply, transfer or export of dual-use goods and technology to Russia if these goods are or may be intended, in their entirety or in part, for military use or for a military end-user (Art. 2). The same applied to certain technologies that may be used in the oil industry (Art. 3). Trade in various financial instruments in Russia was also prohibited (Art. 5). Within the framework of the amending regulation, the existing measures were extended to further areas. Thus, the EU adopted a ban on the purchase of Russian government bonds and a ban on lending to Russia or its central bank (Art. 5a).
Secondly, there was an extension of Regulation (EU) 269/2014. The amending regulation provided for the inclusion in the sanctions list in Annex I of Regulation (EU) 269/2014 of all members of the Russian parliament who had voted for Russian recognition of the Luhansk and Donetsk regions as independent states. All funds and economic resources of the listed persons are frozen and financial resources may not be made available to them.
Thirdly, the EU issued Regulation (EU) 263/2022, which imposes massive restrictions on trade with Donetsk and Luhansk Oblasts. For example, the import of goods from these regions and the export of certain goods (including iron, steel, motors and engines, mineral oils and many others) are prohibited. There are also trade and investment restrictions in certain economic sectors and a ban on providing tourist services.
II. second sanctions package (25.02.2022)
1. trade restrictions
Only two days after the adoption of the first sanctions package (and one day after the start of the armed conflict), the EU announced further measures. Regulation (EU) 833/2014 was expanded to include that the prohibition on the sale, supply, transfer or export of dual-use items no longer covers only those items that can be associated with a military purpose. Instead, the amended regulation contains a general ban on the transfer of such so-called "dual-use" goods with individual explicitly regulated exceptions. In practice, this is of considerable relevance. While a corresponding transaction was previously still permissible in principle, this new restriction represents a reversal of this from a systematic point of view and standardises a prohibition as the rule. The existence of an exception must therefore be demonstrated accordingly. This may be the case, for example, if goods can be used for humanitarian or medical purposes or in the context of technical assistance. In other cases not explicitly regulated, the transaction may be authorised individually if military use is excluded (for example, in the context of intergovernmental cooperation, intergovernmental cooperation in space programmes, maritime security and in other cases, also in the context of old contracts within certain limits, cf. Art. 2a para. 4f. of Regulation (EU) 833/2014).
The amended regulation also contains sector-specific restrictions. For example, there is an export ban on aircraft and spacecraft and parts thereof. In this context, the overhaul, repair, inspection, replacement, modification or removal of defects of an aircraft or a component thereof is also prohibited. Aircraft manufacturers that are important (also) for Russia, such as Boeing and Airbus, had to stop their deliveries of the corresponding goods.
Further restrictions are also provided for in the energy sector: the direct or indirect sale, supply, transfer or export of certain goods and technology (listed in Annex X of the Regulation) suitable for use in petroleum refining is prohibited. This applies to natural or legal persons, entities or bodies in Russia or for use in Russia. Only the execution of old contracts is exempt from the ban until 27.05.2022. Further exemptions subject to authorisation are provided for, for example, in the case of emergencies for human health and the safety of the environment.
In the area of technology, the EU enacted a wide range of restrictions. Annex VII of the amended regulation lists numerous goods and technologies that are not to be supplied to Russia either directly or indirectly. Covered are, for example, software, computers, telecommunications equipment, equipment and software especially for information security, sensors and lasers as well as maritime systems or equipment. Exceptions are also provided for here, for example in the area of humanitarian or medical aid. Likewise, exports are to be authorised by the competent authority on a case-by-case basis, if possible, provided they are intended for non-military purposes.
2 Restrictions on the financial market
The EU has also taken various measures in the financial sector. These include the prohibition of providing funding or financial assistance for dual-use goods. Similarly, the provision of public financing or financial assistance for trade with or investment in Russia is prohibited (with the exception of certain old liabilities).
It is prohibited to accept deposits from Russian nationals and companies with a total value of €100,000 or more and to sell securities to Russian customers. In addition, shares in Russian state-owned companies may no longer be traded, and various Russian banks (such as those that are more than 50 per cent publicly owned or play a significant role in supporting Russia's activities) may no longer borrow or lend money in the EU.
3. visa and travel restrictions
Pursuant to Decision No. 2022/333, the EU-Russia agreement on the facilitation of the issuance of visas to citizens of the EU and the Russian Federation is partially suspended as of 28 February 2022. The agreement contained various facilitations for the issuance of visas, such as the possibility of issuing such visas for multiple entries or the setting of a maximum fee for the visa application and its duration. Such simplifications now no longer apply to members of Russia's national and regional governments and parliaments, Russia's Constitutional Court and Russia's Supreme Court, members of official Russian delegations, and business people and representatives of trade associations. Also suspended is a provision under which Russian nationals holding valid diplomatic passports could enter, transit through or leave the EU without visas.
4 New listings and asset freezes
Furthermore, the EU has also extended Regulation (EU) 269/2014. Numerous Russian politicians and members of the Belarusian armed forces were added to the list of persons to be sanctioned. Included in this amendment are, for example, President Putin, Foreign Minister Lavrov, Prime Minister Mishustin, Interior Minister Kolokoltsev, Deputy Chairman of the National Security Council Medvedev, and high-ranking members of the Russian administration.
All funds and economic resources owned, held or controlled by the listed persons are frozen. No funds or economic resources shall be made available to or for the benefit of them, directly or indirectly.
III Third Sanctions Package (28.02.2022)
1 Further listings
Within the framework of the third sanctions package, further persons and companies were added to the sanctions list of Regulation (EU) 269/2014. The gas industry insurance company Sogaz and persons such as Igor Sechin (Chairman of the Board of Rosneft), Nikolai Tokarev (Chairman of the Board of Transneft), Mikhail Fridman (founder of Alfa Group), Alisher Usmanov, Petr Aven, Sergei Rodulgin, Gennady Timchenko (all of whom have close ties to President Putin), Dmitry Peskov (President Putin's press secretary), other high-ranking politicians, various journalists who supported the aggression against Ukraine, and some high-ranking members of the military.
2. sanctions in the aviation and maritime sectors
The EU has also adopted further sanctions in the aviation sector. Regulation (EU) 833/2014 now provides that all aircraft operated by Russian air carriers, all aircraft registered in Russia and all aircraft not registered in Russia but controlled by Russian natural or legal persons, entities or bodies are prohibited from landing on, taking off from or overflying the territory of the Union. Only emergency landings or overflights are exempted from this prohibition. Furthermore, exceptions are possible for humanitarian purposes with the appropriate authorisation.
In addition, certain maritime goods and technologies may not be delivered to or exported from Russia. In addition, restrictions on financing have been extended to the maritime sector.
3. restrictions on the financial market
Far-reaching restrictions were also imposed in the financial sector. For example, it is prohibited to trade in transferable securities and money market instruments after 09.03.2022 if they have been issued by Russia and its government, by the Central Bank of Russia or by an institution acting on the instructions of the aforementioned (Art. 5a para. 1).
With the newly inserted Art. 5h of Regulation (EU) 833/2014, several banks are also excluded from the SWIFT payment services system. SWIFT is the internationally dominant messaging network through which international payments are processed. The exclusion concerns Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, Vnesheconombank (VEB) and VTB Bank. Sberbank (Russia's largest bank) and Gazprom Bank (Russia's third largest bank) were not initially listed because they are important for processing payments for natural gas and oil imports.
In the same breath, the insertion of Art. 5i prohibited the sale, delivery, transfer or export of euro-denominated banknotes to Russia or to natural or legal persons in Russia or for use in Russia. Exceptions apply only for the personal use of natural persons travelling to Russia or for official purposes of diplomatic missions, consular posts or international organisations.
4 Further restrictions
Lastly, it should be mentioned that under this round of sanctions, broadcasters have been banned from broadcasting in the EU or enabling, facilitating or otherwise contributing to the broadcast of Russia Today and Sputnik content.
IV. Fourth Sanctions Package (15.03.2022)
With the adoption of the fourth sanctions package, the EU expanded its list of persons and entities to be sanctioned in Regulation (EU) 269/2014. It also adopted further sanctions as part of the expansion of Regulation (EU) 833/2014:
1. trade restrictions
Once again, this package of sanctions includes extended trade restrictions, which are laid down in Articles 3, 3a, 3e, 3g and 3h of Regulation (EU) 833/2014. Specifically, it was agreed to ban the export of certain equipment, technologies and services relating to the energy sector (for example, line pipes, rock or earth drilling tools). In addition, an investment ban was imposed in the energy sector. The acquisition of stakes in Russian energy companies and the establishment of joint ventures are also covered.
In addition, with the introduction of Art. 3g, there is an import ban on certain iron and steel products (a list of products can be found in Annex XVII of the regulation).
Further massive restrictions can be found in the newly introduced Art. 3h of the Regulation.
According to this, there are comprehensive export restrictions on luxury goods. The sale, supply, transfer or export of such goods (specified in Annex XVIII) to persons in Russia or for use in Russia is not permitted. Annex XVIII covers a wide range of products, including various foodstuffs, clothing, jewellery, electronic items and vehicles. According to the European Commission, this ban is intended to affect Russian elites in particular. In principle, the ban on luxury goods applies to the goods listed in the annex above a value of 300 euros per item. Decisive in the assessment of this value is - according to the interpretation of the Federal Ministry of Economics and Climate Protection - the price paid by the importer (cf. FAQ BMWK, https://www.bmwk.de/Redaktion/DE/FAQ/Sanktionen-Russland/faq-russland-sanktionen.html, retrieved on 24.08.2022). The ban also extends to vehicles if they are intended for the transport of persons and exceed a value of 50,000 euros, as well as to accessories and spare parts (according to the BMWK without regard to value). It is also noteworthy that category 17 of the Annex goes beyond the intended objective of prohibiting the export of luxury goods and also covers, for example, railway locomotives and tramcars.
2. restrictions on the financial market
Furthermore, this sanctions package includes amendments to Art. 5 of Regulation (EU) 833/2014. According to Art. 5aa, any transactions with companies listed in Annex XIX are prohibited. This prohibition goes beyond the usual prohibitions on the provision of funds or economic resources already issued. State-owned companies such as Rosneft, Transneft, Gazprom Neft, United Aircraft Corporation, Kamaz and OPK Oboronprom are primarily affected. Transactions with subsidiaries and companies majority-owned by the listed companies are also covered if they are located outside the EU. The same applies to joint ventures with such groups, which consequently have to be dissolved. Exceptions are only provided for to a limited extent in connection with old contracts and with the import of fossil fuels, metals and with certain energy projects outside Russia.
V. Fifth Sanctions Package (08.04.2022)
After it became public that the Russian army had committed serious war crimes in Ukraine, the EU reacted by adopting sanctions package number five. This provided for an extension of existing sanctions and the creation of new trade restrictions.
1. new listings
With the Implementing Regulation (EU) 2022/581, more than 200 additional natural persons as well as various companies have been added to the sanctions list in Regulation (EU) 269/2014. Of particular note is the listing of Russia's second largest bank (VTB Bank) as well as Sovcombank, Novikombank and Otkritie FC Bank.
2. trade restrictions
Regulation (EU) 833/2014 was also comprehensively amended as part of this sanctions package. For example, it was agreed to ban the import of coal from Russia (Art. 3j), unless it concerns the fulfilment of contracts concluded before 09.04.2022 (in which case the ban will only apply from 11.08.2022). Further import bans can be found in Art. 3i, which refers to Annex XXI. This covers goods such as cement, phosphates, wood and wood products, silver, fertilisers, seafood, caviar, etc. Exceptions apply within limits for old contracts.
Furthermore, the EU has issued a large number of export bans (cf. Art. 3k). A list of other goods that may no longer be exported can be found in Annex XXIII of the regulation. Listed are, for example, industrial robots, electrically driven railway locomotives, steam turbines, certain pipes, cables, hoses and many other goods. Also prohibited is the provision of related technical assistance, brokering services or other services, and the provision of financing or financial assistance. Also within the scope of the export bans, Annex VII of the Ordinance has been expanded to include other goods such as quantum computers, microscopes or machine tools.
3. transport restrictions
In addition, as part of this sanctions package, it will no longer be permitted to grant access to EU ports to ships registered under the Russian flag from 16.04.2022 in accordance with Art. 3ea. In order to prevent circumvention of this regulation, the ban also extends to ships registered under the Russian flag until 24.02.2022.
In addition, a ban was issued on Russian-based road hauliers transporting goods by road to the EU after 09.04.2022 (Art. 3l).
4 Exclusion from the award of public contracts
With the enactment of Art. 5k of the Regulation, Russian companies and individuals, as well as non-Russian companies majority-owned by Russian companies or individuals or acting on behalf or at the direction of Russian companies or individuals, are excluded from public procurement procedures covered by the EU Public Procurement Directives, as well as for most procurement procedures to which exemptions from these Directives apply. This prohibition applies not only to contractors, but also to subcontractors, suppliers or to the company whose capacities within the meaning of the Public Procurement Directive are used and represent more than 10% of the contract value. It is noteworthy that this prohibition even applies to Russian nationals residing in the EU.
Furthermore, existing public contracts with covered companies may not be continued, but can be terminated immediately. Permission to award or continue the performance of existing contracts may nevertheless be granted in certain cases, such as in the context of intergovernmental cooperation on space programmes or the provision of essential goods or services (the Federal Ministry of Economics and Climate Protection has commented extensively on the prohibition under Art. 5k, cf. FAQ, https://www.bmwk.de/Redaktion/DE/FAQ/Sanktionen-Russland/faq-russland-sanktionen.html, accessed 24.08.2022).
5 Restrictions in the financial sector
With the insertion of Art. 5l, it is prohibited to support legal persons, organisations or institutions based in Russia, which are more than 50% publicly owned or controlled. This includes the provision of funding and financial assistance or other benefits under a European Union programme, the Euratom programme, a national programme of a Member State or under contracts within the meaning of Regulation (EU, Euratom) 2018/1046.
In addition, the existing prohibition on accepting deposits with an aggregate value of more than €100,000 from Russian persons or entities was expanded to include services related to the provision of crypto-wallets, crypto-accounts or crypto-custody (above a value of €10,000 per wallet, account or custodian) (Article 5b(2) of Regulation (EU) 833/2014).
In addition, with the introduction of Art. 5m, the EU prohibited the registration of a trust or similar legal arrangement, or the provision of a registered office, business or administrative address or administrative services for it, if the settlor or beneficiary is a Russian or Russian resident natural or legal person.
VI. Sixth Sanctions Package (03.06.2022)
On 03.06.2022, the EU adopted the sixth sanctions package. This includes new restrictions on goods and persons.
1. new listings
Within the framework of this sanctions package, the sanctions were extended to further persons and organisations. Those responsible for Russian atrocities in Butchah and Mariupol, personalities supporting the war, leading businessmen and family members of oligarchs and Kremlin officials who are already sanctioned, as well as defence-related companies have been added to the sanctions list. In addition, Russia's largest securities collection bank has been added to the list of companies to be sanctioned that provide material or financial support to the Russian government.
The list of companies to be banned from exporting goods and technologies that could contribute to Russia's military or technological build-up has also been expanded.
2. import ban on Russian oil
With the introduction of Art. 3m in Regulation (EU) 833/2014, the EU decided to ban the purchase, import or transfer of crude oil and certain petroleum products from Russia to the EU by sea. This ban is to be phased in over a timeframe of six to eight months. The import of petroleum via pipelines will continue to be allowed. For imports to EU member states that are particularly dependent on supplies from Russia and have no alternatives (Bulgaria, Croatia, Czech Republic), exceptions are initially envisaged (cf. also Commission FAQ of. 03.06.2022, https://ec.europa.eu/commission/presscorner/detail/de/qanda_22_2823, retrieved 24.08.2022) on the oil embargo and sixth sanctions package as a whole).
3 Further restrictions
Furthermore, the list of goods and technologies affected by the export ban was extended to include various chemical substances that can be used for the production of chemical weapons.
The EU has also decided to ban the provision of auditing, accounting and tax consultancy services as well as business and public relations consultancy services to Russia.
In the financial sector, more credit institutions were excluded from SWIFT, notably Russia's largest bank (Sberbank).
Finally, the EU suspended the broadcasting activities of three other Russian state-owned media (Rossiya RTR/RTR Planeta, Rossiya 24 and TV Centre International).
VII Seventh Sanctions Package (21.07.2022)
The current sanctions package was adopted by the EU on 21.07.2022. Existing economic sanctions were to be tightened, their implementation optimised and their effectiveness strengthened as a result (Package on "Maintenance and Adaptation", cf. Council of the EU press release of 21.07.2022, https://www.consilium.europa.eu/de/press/press-releases/2022/07/21/russia-s-aggression-against-ukraine-eu-adopts-maintenance-and-alignment-package/, accessed on 24.08.2022). Apart from a few new measures, the package therefore contains various changes and concretisations.
1. import ban on gold
Probably the most important new restriction in this package is the ban on the direct or indirect sale, import or transfer of Russian gold into the EU after 22.07.2022 (Art. 3o Regulation (EU) 833/2014). The ban only applies to gold listed in Annex XXVI of the Regulation, which covers, for example, gold in powder form or gold waste, as well as - according to the Commission, https://ec.europa.eu/commission/presscorner/detail/en/qanda_22_4643, retrieved 24.08.2022 - gold jewellery.
2 Extended export controls and exemptions
The list of items subject to export controls has been updated and Annexes VII, X and XXIII of the Regulation have been expanded to include additional items in this regard. For example, 50 new dual-use items are listed, including protective equipment, special materials, certain chemicals and various vaccines that can be used to develop biological weapons.
Further exemptions for certain export bans were also standardised. Whereas in some cases these were only intended for humanitarian purposes, exports can now also be approved for medical and pharmaceutical purposes.
3 Clarification of Existing Prohibitions
In addition, there are various concretisations in the ordinance, particularly with regard to the areas of public procurement, aviation and trade with listed companies.
With regard to public procurement, the EU made minor changes, such as the clarification that the prohibition to participate in the procurement procedure extends to any natural person resident in Russia. Furthermore, in the aerospace industry, technical assistance for the exchange of information for the purpose of establishing technical standards of the International Civil Aviation Organisation is to be allowed in future.
In addition, transaction prohibitions are not to apply to transactions involving the purchase, import or transport of pharmaceutical, medical, agricultural or food products. Particularly with regard to agricultural and food products, this exemption is intended to prevent global food insecurity.
4 Enhanced financial sanctions and reporting requirements
The EU has also added further natural and legal persons to the sanctions list of Regulation (EU) 269/2014 on the freezing of assets. According to this, Sberbank is also on this list for the first time.
In addition, as part of the adoption of this sanctions package, listed persons will be obliged to disclose their assets in the EU and report them to competent authorities. Furthermore, the reporting obligations for EU economic operators will be tightened. These would circumvent the asset freezing rules in case of non-reporting.
C. Practical implications
With the adoption of this multitude of sanctions, companies are faced with the question of what measures must be taken immediately to ensure compliance with the restrictions. Companies that (still) conduct business in Russia and Ukraine or with Russian companies or state institutions must ensure that the risk of sanctions violations is minimised. In concrete terms, this means for companies that new as well as existing business relationships must be comprehensively reviewed, for example within the framework of compliance screenings. The corresponding structure for such an audit and the definition of responsibilities for it should be created immediately, if not already in place.
If a business is directly or indirectly affected by sanctions, it is advisable to review the respective contracts. Irrespective of contractual agreements, an assessment should be made with regard to the legal institutions of impossibility and the defence of uncertainty. A breach of sanctions should not be risked, as penal consequences are possible.
II. Consequences of a breach
What penalties a company may face if it fails to comply with the sanctions is to be determined in each case according to national law. The EU regulations do not provide for any concrete measures for sanctions in the event of infringements and leave it to the member states to enact such measures. In the German legal system, corresponding provisions can be found in the Foreign Trade and Payments Act (AWG) and the Foreign Trade and Payments Ordinance (AWV). The catalogue of penalties contained therein provides for fines and imprisonment for intentional or negligent violations. Penal provisions are standardised in Section 18 AWG. For intentional violations of the offences standardised in the provision, prison sentences of three months to five years may be imposed. In certain cases, a minimum term of imprisonment of one year is provided for.
§ Section 19 AWG in turn contains various administrative offences. It should be mentioned in particular that even violations caused by negligence can be sanctioned with high fines. § Section 19 (6) AWG provides for fines of up to 500,000 euros. In order to be able to impose fines, the investigating authority does not necessarily have to prove intent. Therefore, companies and their respective responsible persons should be highly attentive and thoroughly check their processes in order not to risk fines for negligent violations.
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