EU adopts 14th sanctions package

28 Jun 2024, 33 mins ago

On 24 June 2024, EU adopted its 14th package of restrictive measures against Russia, affecting different sectors of the economy. The EU added 116 new names to its sanctions list, of which 69 individuals are subject to asset freeze and travel bans, and 47 entities are subject to only asset freezes.  It also imposed export restrictions on 61 entities located in third countries, including China, Kazakhstan, Kyrgyzstan, Turkey and the UAE.

The Council Regulations 2024/1739; 2024/1745, 2024/1746, 2024/1776 and Council Decisions 2024/1738, 2024/1744 which form the 14th sanctions package is a mix of norms introducing new restrictions on businesses operating in the EU, Russia and/or third countries and providing new derogations to the earlier imposed prohibitions.

One of the new derogations introduced by the EU on 24 June 2024, relate to the funds of non-designated individuals and entities which got frozen due to the involvement of a sanctioned intermediary bank. The EU Decision 2024/1738 now allows the release of funds that were frozen due to the involvement of a sanctioned intermediary bank in their transfer, provided that the transfer is between two non-sanctioned individuals or entities and is carried out using accounts at non-listed credit institutions. The same Decision also introduced a derogation allowing the release of funds that were frozen due to the involvement of a sanctioned issuing bank in their transfer under the condition that the transfer is between two non-designated individuals, entities or bodies.

This derogation would not apply to frozen funds or economic resources held by Central securities depositories, meaning that those affected by the freeze of funds held by Euroclear could not rely on this derogation.

It is also important to note that the beneficiaries of a transfer shall only be an EU citizens or citizens of EEA countries or Switzerland, or natural persons having a temporary or permanent residence permit in those countries. Only one authorisation per applicant may be granted and the EU state that grant this authorisation shall inform other EU member states and the EU Commission of any authorisation granted within one week.

Furthermore, the EU Decision 2024/1744 creates an exemption from the provision of services, otherwise prohibited by article 1k of the Council Decision 2014/512/CFSP of 31 July 2014, and involving accounting, auditing, including statutory audit, bookkeeping or tax consulting services, or business and management consulting or public relations services; architectural, engineering, legal advisory and IT consultancy services, by EU nationals who are Russian residents and were so before 24 February 2022 to legal persons, entities or bodies established in Russia that are owned by, or solely or jointly controlled by, a legal person, entity or body which is incorporated or constituted under the law of an EU state, an EEA country member, Switzerland or a partner country which includes the UK, who are their employers and under condition that such services are intended for the exclusive use of those legal persons, entities and bodies. Put simply, if you are an EU national residing in Russia since at least 23 February 2022 and work for a Russian based company owned by or solely or jointly controlled by a company incorporated under the UK law, you can provide otherwise prohibited services to your employer.

The new sanctions restrictions allow EU companies to claim compensation from the Russian individuals and entities that caused damages to them either in relation with a contract or a transaction affected by the EU restrictive measures or by a decision of the Russian Government to put certain foreign companies located in Russia under a temporary administration. EU Regulation 2024/1745 state that “Compensation can be obtained provided that such a decision is illegal under international customary law or under a bilateral investment treaty entered into between a Member State and Russia. In either case, the compensation could be claimed under the condition that the Member State national or company concerned does not have effective access to remedies, for example under the relevant bilateral investment treaty”. Such compensation may be claimed before EU member state courts in accordance with the relevant EU and member states legal provisions regarding jurisdiction and court procedures in civil and commercial matters, including those concerning possible interim relief procedures.

The EU prohibits to engage in any transaction with an entity that lodged a claim before a Russian court against an individual or an EU entity to obtain an injunction, order, relief, judgment or other Court decision pursuant to Article 248 of the Russian Arbitration Procedure Code or equivalent Russian legislation, in connection with any contract or transaction the performance of which has been affected, directly or indirectly, by the EU restrictive measures.

This prohibition is subject to derogations and would not apply to transactions that are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in EU member state as well as for the recognition or enforcement of a judgment or an arbitration award rendered in a member state, provided that those transactions are consistent with objectives of EU Russia sanctions regulations.

The 14th package also introduced various other measures, briefly outlined below:

  • Financial sector measures
  • Energy-related measures
  • Anti-circumvention measures
  • Trade related measures
  • Transport measures
  • Other measures

Financial sector measures

Financial sector measures include a prohibition of transactions using the System for Transfer of Financial Measures (SPFS), a specialised financial messaging service developed by the Central Bank of Russia for exchange of financial data. SPFS is the equivalent of SWIFT. EU entities, operating outside of Russia are prohibited from connecting to the SPFS directly. Furthermore, the 14th package imposes a transaction ban on EU operators with specifically listed entities using SPFS system outside Russia. The financial sector measures do not concern entities established and operating in Russia, including subsidiaries of EU companies.

EU imposed ban on reloading services on its territory for the purposes of transshipment operations where such services are used to transship Russian LNG and to ancillary services related to such transshipment. The ban does not apply in the case of such transhippments to EU states. The prohibition covers both, ship-to-ship transfers and ship-to-shore transfers and re-loading operations.

EU also prohibited new investments and the provisions of goods, technology and services for the completion of Russian LNG projects, Arctic LNG 2 and Murmansk LNG.

Anti-circumvention measures

The EU Regulation 2024/1745 reminds about importance of circumvention prevention. Companies should implement appropriate policies, controls and procedures to mitigate and manage risks effectively, taking into consideration countries of their establishment, the business sector and the type of activities.

EU entities are required to include a contract clause that ensure that an industrial know-how transferred to third countries is not used for goods sent to Russia.

The EU Regulation 2024/1745 also reminds how EU defines ownership and control. It states that “Ownership means being in possession of 50 % or more of the proprietary rights of the legal person, entity or body, or having a majority interest therein. Elements that indicate control include: the right or the power to appoint or remove a majority of the members of the administrative, management or supervisory body; the right to use all or part of the assets of the legal person, entity or body; managing the business of the legal person, entity or body on a unified basis, while publishing consolidated accounts; or the right to exercise a dominant influence over the legal person, entity or body”. If an EU company is able to exercise control over their subsidiaries and effectively asserts a decisive influence over the conduct of a legal person, entity or body established outside the EU, they may incur responsibility for actions of that legal person, entity or body that violate EU sanctions and use their influence to prevent this from happening.

The 14th package extends the Common High Priority list to include new codes for tools used for weapons production. It also imposes ban on the import of helium and amends its prohibition on import of Russian diamonds.

The EU clarified that diamonds import ban does not apply to diamonds that were located in either the EU or a third country (other than Russia), or were polished or manufactured in such third country, before the ban on Russian diamonds came into force (1 January 2024). The EU postpones by six months (until 1 March 2025) the introduction of a full traceability requirement for diamonds to ensure that they are not mined, processed or produced in Russia. It also allows the temporary import or export of jewellery for repairs, auctions and trade fairs.

The 14th sanctions package introduced new transport measures. Thus, it expands its EU flights ban by prohibiting non-scheduled flights if a Russian natural or legal person determines the place or time of its take-off or landing. For example, it is no longer possible for a Russian national to request to be transported to specific holidays destination or for a legal person to request the transportation of their employees to business meetings in the EU or their clients to tourist destinations. The ban however does not apply to a situation where a Russian person works as a pilot in a non-Russian airline and is without being able to determine the place or time for its take-off or landing. The prohibition also does not apply for certain aircraft when used for private, non-corporate flights carried out within EU’s territory and airspace for recreational or training purposes.

Under a new EU Regulation 2024/1745, competent authorities of EU member state of departure, destination or overflying can now request from the operators of non-scheduled flights, to provide information needed for the purpose of verifying compliance with the flight ban, including information about ownership of the aircraft and, where applicable, the natural or legal person, entity or body ultimately chartering the aircraft. Furthermore, where reasonable grounds to suspect circumvention of the flight ban exist, aircraft operators should provide information about passengers, including their full names, birth dates, birth places and nationalities.

EU also introduce a prohibition for EU companies owned by 25% or more by a Russian individual or entity from becoming a road transport undertaking or from transporting goods by road in the EU, including in transit. It is worth noting that this prohibition is not applicable to road transport undertakings owned by dual nationals or Russian nationals having a temporary or permanent residence permit in EU state. Upon the request of national competent authorities, road transport undertakings should disclose their ownership structure to them.

Other measures

EU prohibits political parties, NGOs and media service providers based in EU countries to accept financing from the Russian state and its proxies.

EU and its member states can no longer fund Russian entities; previously the ban only applied to the Russian state-owned entities, while a new ban extends to all Russian entities. This ban aligns with the restrictions on public procurement.

It is prohibited to purchase, import, transfer or export Ukrainian cultural property goods and other goods of archaeological, historical, cultural, rare scientific or religious importance, where there are reasonable grounds to suspect that they have been unlawfully removed from Ukraine.

EU restricts applications for the registration of certain IP rights by Russian individuals and entities in the EU.

One of the most important new norms introduced in the 14th package is the provision that the documents held by the Council, the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy (concerning the enforcement of the EU restrictive measures or concerning the prevention of the violation or circumvention of those measures, are subject to professional secrecy). It means that the EU bodies are no longer obliged to disclose certain information relating to sanctions and can refer to professional secrecy which may potentially affect the rights of those willing to challenge their designation in EU Court. The Council Decision (CFSP) 2024/1738 state that “that protection should also be ensured for proposals from the High Representative for the amendment of Decision 2014/145/CFSP and any related preparatory documents, as their disclosure might affect the effectiveness of the measures set out in that Decision or in Regulation (EU) No 269/2014 and the preparation of, and negotiation on the basis of, future proposals.”.

The EU 14th package contains numerous derogations from previously introduced bans and it is advisable for any reader of this post to consult lawyers for a legal advice.

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The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

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