ARTICLE ON 14th and 15th EU SANCTIONS PACKAGES

Sanctions adopted following Russia’s military aggression against Ukraine.

The European Union (EU) continues to adopt further packages of economic sanctions against Russia due to the continuance of its military aggression against Ukraine, the latest of which are summarised below. The relevant legal framework is EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (“Regulation 269”) and EU Regulation 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (“Regulation 833”) (hereinafter collectively referred to as the “EU Sanctions”).

Note: The position is constantly evolving. Additional sanctions may be introduced in the coming days and these will be the subject of future articles.

This information is:

• of a general nature only and is not intended to address the specific circumstances of any particular individual or entity;
• not necessarily comprehensive, complete, or up to date;
• not professional or legal advice (if you need specific advice, you may consult us).

14th SANCTIONS PACKAGE

On June 24 2024, the European Union (“EU“) adopted its 14^th sanctions package )  (the “New package”) against Russia through Council Regulation (EU) 2024/1739 of June  24,2024 amending EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (“Regulation 269”) and through Council Regulation (EU) 2024/1745 of June 24,2024 amending EU Regulation 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (“Regulation 833”) respectively (hereinafter collectively referred to as the “EU Sanctions”). The New package aims to strengthen the measures for the prevention of EU sanctions circumvention and targets Russian economy’s high-value sectors such as trade, finance and energy.

The New package:

• Added 69 natural persons (individuals) and 47 entities to its restricted parties list. The newly listed individuals are also subject to travel ban measures.
• Enhances sectoral sanctions targeting Russia via the establishment of new tools to combat
  EU sanctions circumvention, introducing sanctions against Russian liquefied natural gas, reinforcing existing import and export related restrictions, increasing the scope of transport related sanctions and providing for specific restrictions in relation to intellectual property rights.
• Extends and inserts measures to facilitate EU operators’ compliance and recovery actions for damage and exit from Russia.
• Various exemptions / derogations that provided for wind-down periods that have expired have been deleted.

The EU Council’s press release regarding the adoption of the New package can be found here: 14th package of sanctions on Russia’s war of aggression against Ukraine: EU lists additional 69 individuals and 47 entities – Consilium (europa.eu)

When does it come into effect?

New asset freeze designations entered into force immediately upon publication on 24 June 2024, while the remaining measures entered into force at midnight on 25 June 2024.

1. NEW DEROGATION FOR TRANFER OF FUNDS OR PAYMENTS THROUGH ASSET FREEZE TARGETS (NOT APPLYING TO CENTRAL SECURITIES DEPOSITARIES)

Two newly introduced derogations now permit the authorization of (1) release of funds frozen due to the involvement of an asset freeze target acting as intermediary bank during the transfer of funds from Russia to EU if the transfer of funds will be carried out via accounts in credit institutions not being asset freeze targets and (2) release payments frozen due to the transfer from Russia to EU initiated through or from an asset freeze target as long as the beneficiary of the transfer is a national or resident of EU, Switzerland or European Economic Area.

1. FIGHTING CIRCUMVENTION THROUGH INCREASED LIABILITY AND COMPLIANCE REQUIREMENTS

(a) APPLICATION OF THE NO LIABILITY CLAUSE UNDER REGULATIONS 269 AND 833 SUBJECT TO DUE DILIGENCE REQUIREMENTS

Individuals or entities required to comply with EU sanctions (“EU operators”) should not be held liable (under the no liability clause) if they were not aware or had no reasonable grounds to suspect that their actions would infringe EU sanctions, provided that they have not failed to carry out appropriate due diligence checks and inspections.

(b) INTRODUCTION OF BEST-EFFORTS REQUIREMENTS TO ENSURE THAT NON-EU SUBSIDIARIES DO NOT UNDERMINE SANCTIONS SET FORTH IN REGULATION 833

EU operators must undertake their “best efforts” to ensure that non-EU entities they own[1] or control [2] (the “non-EU subsidiaries”) do not participate in activities that undermine the sanctions set forth in Regulation 833.

It was further clarified that circumvention includes participating in activities the object or effect of which is to circumvent EU sanctions without deliberately seeking that object or effect but being aware that the participation can result to that object or effect and accepting that possibility.

Points to note: If EU operators are able to and effectively assert a decisive influence over the conduct of their non-EU subsidiaries, they may incur responsibility for actions of that legal person, entity or body that undermine the restrictive measures and should use their influence to prevent those actions from occurring. Activities that would undermine the sanctions set forth in Regulation 833/2014 are those resulting in an effect that this Regulation seeks to prevent, such as where “a recipient in Russia obtains goods, technology, financing or services of a type that is subject to prohibitions under Regulation (EU) No 833/2014”.

Best efforts comprise all actions that are suitable and necessary to prevent undermining Regulation 833/2014, including “the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively, considering factors such as the third country of establishment, the business sector and the type of activity of the [non-EU subsidiary]”.

However, EU operators are only expected to take actions that are feasible in view of the operator’s nature, size and relevant factual circumstances, such as the degree of effective control or the inability to exercise control due to reasons not caused by the EU operator itself.

III. FRAMEWORK TO SANCTION THE SYSTEM FOR TRANSFER OF FINANCIAL MESSAGES OF THE CENTRAL BANK OF RUSSIA AND ITS USERS OUTSIDE OF RUSSIA

As of 25 June 2024, EU entities operating outside Russia will be prohibited from connecting directly to the System for Transfer of Financial Messages of the Central Bank of Russia (“SPFS”), as well as any equivalent services set up by the Central Bank of Russia. In addition, through the introduction of Annex XLIV in Regulation 833, the Council will list third country users of the SPFS outside Russia with any direct or indirect transaction with individuals or entities listed in this annex to be prohibited, except where explicitly exempted, for instance for  certain transactions, execution of contracts concluded before 25 June 2024, until 24 March 2024, reception of payments pursuant to contracts concluded before 24 March 2024.

1. FRAMEWORK TO SANCTION CREDIT AND FINANCIAL INSTITUTIONS AND CRYPTO ASSETS SERVICES PROVIDERS FACILITATING TRANSACTIONS THAT SUPPORT RUSSIA’S DEFENSE INDUSTRIAL BASE

The EU Council introduces Annex XLV to Regulation 833, where non-EU credit or financial institutions or crypto assets services providers involved in transaction that facilitate the export, sale, supply, transfer or transport to Russia of among others dual-use goods and technology products will be listed and any direct or indirect transactions with the listed persons or entities are prohibited, except where explicitly exempted.

1. EXTENDING EXEMPTIONS TO PROVIDE SERVICES & SOFTWARE TO EU AND PARTNER COUNTRIES SUBSIDIARIES IN RUSSIA

The exception from the prohibition of providing of certain services to the Russian government and entities established in Russia of Article 5n of Regulation 833 expiring for Russian subsidiaries of EU and partner countries entities on 20 June 2024, has been renewed until 30 September 2024.

1. FACILITATING DIVESTMENTS FROM RUSSIA

Through the new introduced derogation from the “no claims clause” of Regulation 833, national competent authorities can authorize until 31 December 2024 the fulfilment of claims pursuant to contracts or transactions affected and are strictly necessary to divest from Russia or the winding down of business activities in Russia. Furthermore, the latter can authorize transactions necessary for divesting from EU joint venture involving Russian entities and operation of gas pipeline between Russia and third countries (instead of the set timeframe of 30 June 2024) on 31 December 2024.

VII. EXTENDED LIST OF PARTNER COUNTRIES

The list of partner countries of Annex VIII of Regulation has been extended to include Liechtenstein and Iceland, in addition to the United States of America, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway and Switzerland, which benefit by the derogations and exceptions of Regulation 833.

VIII. EU NATIONALS AND ENTITIES ARE ENTITLED TO RECOVER DAMAGES LINKED TO ASSETS CONFISCATION IN RUSSIA

EU nationals and entities are entitled to pursue the recovery of damages resulting from a decision under Russian laws to place assets owned by investors associated with “unfriendly” States under temporary administration, against individuals or entities benefited from such decision, provided that such decision is illegal under international customary law or under a bilateral investment treaty entered between a Member State and Russia, and the person concerned does not have effective access to the remedies under the relevant jurisdiction. Member States shall not be liable for such judicial decisions or their enforcement and shall not comply with judgments, arbitral awards or other judicial decisions that hold them liable.

15th SANCTIONS PACKAGE

On  December 16 2024, the European Union (“EU“) adopted its 15^th sanctions package )  (the “New package”) against Russia through COUNCIL REGULATION (EU) 2024/3189 amending EU Regulation 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (“Regulation 269”) and through COUNCIL REGULATION (EU) 2024/3192 amending EU Regulation 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (“Regulation 833”) respectively (hereinafter collectively referred to as the “EU Sanctions”). The New package aims to strengthen the measures for the prevention of EU sanctions circumvention and imposes a significant number of additional asset freeze measures and other individual list-based sanctions.

The New package introduces new measures and amendments to the existing measures as follows:

• Extension of certain derogations imperative for divestments from Russia until the 31/12/2025 (the previous deadline was 31/12/2024)
• Introduction of a derogation and a “no liability” clause for Central Securities Depositaries (“CSDs”)
• Anti-circumvention designations of vessels subject to a port access ban and ban of provision of certain services
• New mechanism for tackling anti-suit injunctions in Russia
• New List-Based sanctions with additions of entities
• Travel ban and/or asset freeze to individuals and entities

The EU Council’s press release regarding the adoption of the New package can be found here: Russia’s war of aggression against Ukraine: EU adopts 15th package of restrictive measures – Consilium

When does it come into effect?

New asset freeze designations entered into force immediately upon publication on December 16 2024, while the remaining measures entered into force on December 17 2024.

1. EXTENDED DEROGATIONS-DIVESTMENT FROM RUSSIA

The introduced derogations in relation to winding down operations in Russia, permit National Competent Authorities (“NCAs”) to authorize transactions necessary for divestment from Russia until the 31/12/2025 after the extension of the previous deadline which was 31/12/2024.  These derogations include the derogations found in Article 5aa (3a) in relation to transaction ban and Article 12b in relation to certain trade control measures and professional services restriction of Regulation 833. The aim of this extension is to facilitate the orderly exit of the EU Businesses from the Russian market.

1. NEW DEROGATION FOR CSDs AND “NO LIABILITY CLAUSE” FOR CSDs

FINANCIAL SECTOR MEASURES

In order to address the increasing litigation and retaliatory measures in Russia that result in the seizing of assets of EU Central Securities Depositories (CSDs), the New Package introduces two important amendments:

• A loss recovery derogation: This will allow for the release of cash balances held by EU CSDs. This derogation will enable CSDs to request competent authorities of the Member States to unfreeze cash balances which are held in Russia and use them to meet their legal obligations with their clients.
• A no liability clause for EU CSDs: This clarifies that EU CSDs are not liable to pay interest or any other form of compensation to the Central Bank of Russia, beyond interest contractually due.

More specifically, the new paragraph 5j of Article 6b of Regulation 269, authorizes NCAs to allow the CSDs to release the frozen cash balances attributable to the NSD or to another sanctioned entity as long as:

• The CSD maintains an account or accounts with the NSD
• The NSD (or other sanctioned entity) maintains an account or accounts with the relevant CSD
• The NSD has debited an amount from the CSDs accounts pursuant to a law, decree, regulation, judicial or administrative decision or any other measure, directly or indirectly attributable to the Russian Federation without the prior consent of the CSD
• The released cash balance from the CSDs will not exceed the amount debited by NSD, will be used for meeting CSDs legal obligations with their clients and will not be made available in breach of Article 2(2) which indicates the people and entities listed in Annex I of the Regulation 269.

Furthermore, the “no liability clause” for EU CSDs has been included in paragraph 12a of Article 5a of Regulation 833 indicating that CSDs are exempted from liability in relation to their actions taken in good faith regarding the handling of immobilized assets and reserves of Central Bank of Russia, unless it is proved that the action was a result of negligence.

III. NEW LIST-BASED SANCTIONS

The New Package introduced the following additional sanctions listings:

• 32 new entities from countries including Hong Kong, India, China, United Arab Emirates, Serbia and Iran have been listed in Annex IV of Regulation 833/2014 and are now subject to enhanced export related restrictions on dual-use and advanced technology items for supporting Russia’s military and industrial complex in its war of aggression against Ukraine through the procurement of sensitive items such as Unmanned Aerial Vehicle (UAVs) i.e. Drones and missiles.
• 52 vessels from third countries have been targeted by EU and added to Annex XLII or Regulation 833 and are now subjected to prohibitions on a broad range services
• 54 individuals and 30 legal entities have been added to EU’s sanctioned list as follows:

In relation to the individuals, the EU is sanctioning the military unit alleged to be responsible or the striking of the Okhmadyt children hospital in Kyiv, senior managers in energy sector companies, individuals alleged to be responsible for children deportation, propaganda and circumvention, as well the Minister of Defence and the Deputy Chief of the General Staff of the Democratic People’s Republic of Korea.

In regard to the entities, the EU targeted primarily Russian defence companies and shipping companies transporting crude oil and oil products by the sea,  a chemical plant and  a civil Russian airline For the first time, EU imposes fully-fledged sanctions (travel ban, asset freeze, prohibition to make economic resources available) on various Chinese actors supplying drone components and microelectronic components in support of Russia’s war of aggression against Ukraine.

1. ANTI-SUIT INJUNCTIONS IN RUSSIA/PROHIBITIONS OF RECOGNIZING, GIVING EFFECT OR ENFORCING IN THE EU

The new Article 11c of Regulation 833 provides the following:

• No injunction, order, relief, judgment or other court decision pursuant to or derived from Article 248 of the Arbitration Procedure Code of the Russian Federation or equivalent Russian legislation shall be recognised, given effect or enforced in a Member State.
• No request for assistance during an investigation or other criminal proceedings, and no punishment or other sanction pursuant to the Russian Criminal Code based on an alleged violation of an injunction, order, relief, judgment or other court decision pursuant or derived from Article 248 of the Arbitration Procedure Code of the Russian Federation or equivalent Russian legislation shall be recognised, given effect or enforced in a Member State.

The rulings issued by the Russian Courts based on Article 248 of the Arbitration Procedure Code were used to prevent the opposing party from commencing or continuing legal proceedings in foreign courts outside Russia (anti suit injunctions) and have often resulted in disproportionately high financial penalties for European companies.

Finally, EU has designated for the first time 16 individuals and three entities responsible for Russia’s destabilising actions abroad as these are connected to among others collaboration with the Russian Government and hybrid activities of various kinds, including cyber-attacks, use of coordinated information manipulation and interference.

The EU Council’s relevant press release can be found here:

Russian hybrid threats: EU agrees first listings in response to destabilising activities against the EU, its member states and partners – Consilium

Next Steps

MPC Legal monitors developments within the EU closely and expects that additional rounds of sanctions may be imposed as events unfold.

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Authors

Marilou Pavlou Christodoulides | Partner

Stella Kagia | Senior Associate

[1] Definitions of “ownership” and “control”: Recitals of Regulation 833 define the concept of ownership and control, in line with previous guidance, as follows: Ownership means “being in possession of 50 % or more of the proprietary rights of the legal person, 7 8 2 entity or body, or having a majority interest therein”; Controls is to be determined based on indicia, including “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”

[2] Ibid